-----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, SZ3Yx4moFQzjAA2N5OJkozx3BcWVfZON/Zr904lDMMMo64GQBCM/nqEDfEjRsoEj Rt26KvaBfJBFYiuZjKzL6A== 0000950144-98-006951.txt : 19980529 0000950144-98-006951.hdr.sgml : 19980529 ACCESSION NUMBER: 0000950144-98-006951 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 39 FILED AS OF DATE: 19980528 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SIMCALA INC CENTRAL INDEX KEY: 0000941174 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 341780941 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: SEC FILE NUMBER: 333-53791 FILM NUMBER: 98633085 BUSINESS ADDRESS: STREET 1: OHIO FERRO ALLOYS ROAD STREET 2: P O BOX 68 CITY: MT MEIGS STATE: AL ZIP: 36057 BUSINESS PHONE: 3342157560 MAIL ADDRESS: STREET 1: OHIO FERRO ALLOYS ROAD STREET 2: P O BOX 68 CITY: MT MEIGS STATE: AL ZIP: 36057 S-1 1 SIMCALA, INC. 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 28, 1998 REGISTRATION NO. 333- . ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------------- SIMCALA, INC. (Exact name of registrant as specified in its charter) DELAWARE 33398 34-1780941 State or other jurisdiction of (Primary Standard Industrial (I.R.S. employer incorporation or organization) Classification Code Number) identification number)
OHIO FERRO ALLOYS ROAD MT. MEIGS, ALABAMA 36057 (334) 215-7560 (Address, including zip code, and telephone number, including area code, of the Company's principal executive offices) --------------------- C. EDWARD BOARDWINE PRESIDENT AND CHIEF EXECUTIVE OFFICER SIMCALA, INC. OHIO FERRO ALLOYS ROAD MT. MEIGS, ALABAMA 36057 (334) 215-7560 (Name, address, including zip code and telephone number, including area code, of agent for service) COPY TO: MICHAEL R. MCALEVEY, ESQ. ALSTON & BIRD LLP ONE ATLANTIC CENTER 1201 WEST PEACHTREE STREET ATLANTA, GEORGIA 30309-3424 (404) 881-7000 --------------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: Upon consummation of the Exchange Offer referred to herein. If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [X] --------------------- If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1993, please check the following box. [ ] --------------------- If this form is a post-effective amendment filed pursuant to Rule 462(a) under the Securities Act, please check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. [ ] --------------------- If deliver of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] --------------------- CALCULATION OF REGISTRATION FEE
===================================================================================================================== PROPOSED OFFERING PROPOSED MAXIMUM TITLE OF EACH CLASS OF AMOUNT TO BE PRICE AGGREGATE AMOUNT OF SECURITIES TO BE REGISTERED REGISTERED PER NOTE(1) OFFERING PRICE REGISTRATION FEE - --------------------------------------------------------------------------------------------------------------------- 9 5/8% Senior Notes due 2006, Series B......................... $75,000,000 100% $75,000,000 $22,125 =====================================================================================================================
(1) Estimated solely for purposes of calculating registration fee pursuant to Rule 457(f), based upon the book value (aggregate outstanding principal amount) of such securities. ================================================================================ 2 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION" OR THE "SEC"). THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED MAY 28, 1998 PROSPECTUS $75,000,000 SIMCALA, INC. [LOGO] OFFER TO EXCHANGE ITS 9 5/8% SENIOR NOTES DUE 2006, SERIES B WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 FOR ANY AND ALL OUTSTANDING 9 5/8% SENIOR NOTES DUE 2006, SERIES A THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., EASTERN TIME, ON , , 1998, UNLESS EXTENDED BY THE COMPANY IN ITS SOLE DISCRETION (THE "EXPIRATION DATE"). SIMCALA, Inc., a Delaware corporation ("SIMCALA" or the "Company") and a wholly owned subsidiary of SIMCALA Holdings, Inc., a Georgia corporation ("Holdings"), hereby offers (the "Exchange Offer"), upon the terms and subject to the conditions set forth in this Prospectus (the "Prospectus") and the accompanying Letter of Transmittal (the "Letter of Transmittal"), to exchange up to $75,000,000 aggregate principal amount of its 9 5/8% Senior Notes due 2006, Series B (the "Exchange Notes" or the "Series B Notes") for an equal principal amount of its outstanding 9 5/8% Senior Notes due 2006, Series A (the "Series A Notes", and collectively with the Exchange Notes, the "Notes"). The Exchange Notes are substantially identical (including principal amount, interest rate, maturity and redemption rights) to the Series A Notes for which they may be exchanged pursuant to this Exchange Offer, except that (i) the Exchange Notes have been registered under the Securities Act of 1933, as amended (the "Securities Act"), and (ii) holders of Exchange Notes will no longer be entitled to certain rights of registration provided to eligible holders of the Series A Notes under a Registration Rights Agreement by and between SAC Acquisition Corp. ("SAC") and NationsBanc Montgomery Securities LLC (the "Initial Purchaser") and a Registration Rights Agreement Supplement by and between the Company (as successor to SAC) and the Initial Purchaser, each dated as of March 31, 1998 (collectively, the "Registration Rights Agreement"). The Series A Notes have been, and the Exchange Notes will be, issued under an Indenture by and between SAC and IBJ Schroder Bank & Trust Company, as trustee (the "Trustee") and an Indenture Supplement by and between the Company (as successor to SAC) and the Trustee, each dated as of March 31, 1998 (collectively, the "Indenture"). The Company will not receive any proceeds from this Exchange Offer, however, pursuant to the Registration Rights Agreement, the Company will bear certain offering expenses. See "Description of the Notes." The Exchange Notes will bear interest at the same rate and on the same terms as the Series A Notes. Consequently, interest on the Exchange Notes will be payable semiannually on April 15 and October 15, commencing October 15, 1998, including interest accrued but unpaid since the Series A Notes were originally issued. The Exchange Notes will mature on April 15, 2006, unless previously redeemed. The Exchange Notes will be redeemable at the option of the Company, in whole or in part, on or after April 15, 2002, at the redemption prices set forth herein, plus accrued and unpaid interest thereon and Liquidated Damages (as defined herein), if any, to the redemption date. Notwithstanding the foregoing, at any time on or before April 15, 2001, the Company may redeem up to 30% of the original aggregate principal amount of the Notes with the net proceeds of a public offering of common stock of the Company or Holdings (to the extent the net proceeds are contributed to the Company as common equity) at the redemption prices set forth herein, plus accrued and unpaid interest thereon, if any, to the redemption date; provided, that at least 70% of the original aggregate principal amount of Notes remains outstanding immediately after the occurrence of such redemption. See "Description of the Notes." The Notes are general unsecured obligations of the Company and rank senior to all existing and future subordinated indebtedness of the Company and pari passu in right of payment with all existing and future senior indebtedness of the Company, including indebtedness under the New Credit Facility (as defined herein). The obligations of the Company under the New Credit Facility, however, are secured by substantially all of the Company's assets. Such indebtedness effectively ranks senior in right of payment to the Notes to the extent of such assets. As of March 31, 1998, on a pro forma basis after giving effect to the Transactions (as defined herein), including the offering of the Series A Notes (the "Offering"), the Equity Contribution (as defined herein) and the application of the net proceeds therefrom, the Company would have had approximately $81.1 million of indebtedness outstanding (none of which would have been secured). The terms of the Indenture permit the Company and its subsidiaries to incur additional indebtedness (including secured indebtedness), subject to certain limitations. See "Use of Proceeds," "Description of the Notes" and "Description of Other Indebtedness." The Series A Notes have not been listed on any securities exchange or automated quotation system. The Series A Notes have been designated eligible for trading in the Private Offerings, Resales and Trading through Automated Linkages ("PORTAL") market. The Company does not intend to apply for listing of the Exchange Notes on any securities exchange or for quotation through Nasdaq. Although the Initial Purchaser has informed the Company that it currently intends to make a market in the Notes, it is not obligated to do so, and any such market making may be discontinued at any time without notice. Accordingly, there can be no assurance as to the development or liquidity of any market for the Notes. SEE "RISK FACTORS" BEGINNING ON PAGE 17 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY HOLDERS WHO TENDER SERIES A NOTES IN THE EXCHANGE OFFER. The Company will accept for exchange any and all Series A Notes validly tendered by eligible holders and not withdrawn prior to 5:00 p.m. Eastern Time on , 1998, unless extended by the Company in its sole discretion (the "Expiration Date"). Tenders of Series A Notes may be withdrawn at any time prior to the Expiration Date. The Exchange Offer is subject to certain customary conditions. The Series A Notes may be tendered only in integral multiples of $1,000. See "The Exchange Offer." THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE DATE OF THIS PROSPECTUS IS , 1998. 3 EXPLANATORY NOTE This Registration Statement covers $75,000,000 aggregate principal amount of the Exchange Notes to be offered in exchange for equal principal amounts of the Series A Notes in the Exchange Offer. This Registration Statement is being filed to satisfy certain requirements of the Registration Rights Agreement. Based on interpretations by the staff of the Securities and Exchange Commission (the "SEC" or the "Commission") set forth in no-action letters issued to unrelated third parties, the Company believes that Exchange Notes issued pursuant to the Exchange Offer in exchange for Series A Notes may be offered for resale, resold and otherwise transferred by any holder thereof (other than any such holder which is a broker-dealer that holds Notes acquired for its own account as a result of market-making or other trading activities or any holder which is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such Exchange Notes are acquired in the ordinary course of such holder's business and such holder is not engaged in, and does not intend to participate, and has no arrangement or understanding with any person to participate in, a distribution of such Exchange Notes. The Company hereby notifies each holder of Series A Notes that any broker-dealer that holds Series A Notes acquired for its own account as a result of market- making activities or other trading activities and who receives Exchange Notes pursuant to the Exchange Offer may be a statutory underwriter, and must deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of the Exchange Notes. Any broker-dealer that holds Series A Notes acquired for its own account as a result of market-making or other trading activities, acknowledges and agrees as a term of the Exchange Offer, that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of Exchange Notes received pursuant to the Exchange Offer. However, by so doing, the broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. Such broker-dealer will also be deemed to represent and warrant to the Company that it is not participating in, and has no intent to participate in, any distribution of Exchange Notes, and has not entered into any arrangement or understanding with any person to distribute the Exchange Notes. In the event that any holder of Series A Notes is prohibited by law or any policy of the Commission from participating in the Exchange Offer, or any holder of Exchange Notes may not resell such Exchange Notes without delivering a prospectus and this Prospectus is inappropriate or unavailable for such resales, or if a holder is a broker-dealer and holds Notes acquired directly from the Company or one of its affiliates, and in each case such holder satisfies certain other requirements, including timely notice to the Company, the Company has agreed, pursuant to the Registration Rights Agreement, to file a shelf registration statement (the "Shelf Registration Statement") in respect of any such Notes pursuant to Rule 415 under the Securities Act. See "Prospectus Summary -- The Exchange Offer," "The Exchange Offer" and "Plan of Distribution." Any Series A Notes not tendered and accepted in the Exchange Offer will remain outstanding. To the extent Series A Notes are tendered and accepted in the Exchange Offer, a holder's ability to sell untendered and unregistered Series A Notes could be adversely affected. Following consummation of the Exchange Offer, the holders of Series A Notes will continue to be subject to the existing restrictions upon transfer thereof and the Company will have fulfilled one of its obligations under the Registration Rights Agreement. Holders of Notes who do not tender their Notes generally will not have any further registration rights under the Registration Rights Agreement or otherwise. See "The Exchange Offer -- Termination of Certain Rights" and "-- Consequences of Failure To Exchange." The Company expects that the Exchange Notes will be issued only in the form of a Global Note (as defined herein), which will be deposited with, or on behalf of, The Depository Trust Company ("DTC") and registered in its name or in the name of DTC's nominee, Cede & Co. ("Cede"). Beneficial interests in the Global Note representing the Exchange Notes will be shown on, and transfers thereof will be effected through, records maintained by DTC and its participants. After the initial issuance of the Global Note, Exchange Notes in certificated form may be issued in exchange for the Global Note on the terms and conditions set forth in the Indenture. See "Description of the Notes -- Book-Entry; Delivery and Form." The Company is not currently subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). As a result of the offering of the Exchange Notes, the Company 2 4 will become subject to the informational requirements of the Exchange Act. So long as any Notes are outstanding, or the Company is subject to the periodic reporting requirements of the Exchange Act, it is required to furnish the information required to be filed with the Commission to the Trustee and the holders of the Notes. The Company has agreed that, even if it is not required under the Exchange Act to furnish such information to the Commission, it will nonetheless continue to furnish information that would be required to be furnished by the Company pursuant to Sections 13 and 15(d) of the Exchange Act, to the Trustee and the holders of the Notes as if it were subject to such periodic reporting requirements. See "Available Information." In addition, the Company has agreed that in the event the Company is no longer subject to Sections 13 or 15(d) under the Exchange Act, and for so long as any of the Notes remain outstanding, it will make available to any prospective purchaser of the Notes or beneficial owner of the Notes in connection with any sale thereof the information required by Rule 144A(d)(4) under the Securities Act, until such time as either (i) the Company has exchanged the Series A Notes for the Exchange Notes or (ii) the holders thereof have disposed of such Notes pursuant to an effective registration statement filed by the Company. AVAILABLE INFORMATION The Company has filed with the Commission a registration statement on Form S-1 (together with all amendments and exhibits thereto, the "Registration Statement") under the Securities Act with respect to the securities offered hereby. This Prospectus does not contain all of the information set forth in the Registration Statement and the exhibits and schedules thereto, as permitted by the rules and regulations of the Commission. For further information with respect to the Company and the Exchange Notes, reference is hereby made to the Registration Statement, including the exhibits and schedules filed or incorporated as a part thereof. Statements contained herein concerning the provisions of any document are not necessarily complete and in each instance reference is made to the copy of the document filed as an exhibit or schedule to the Registration Statement. Each such statement is qualified in its entirety by reference to the copy of the applicable document filed with the Commission. In addition, after effectiveness of the Registration Statement, the Company will file periodic reports and other information with the Commission under the Exchange Act, relating to the Company's business, financial statements and other matters. The Registration Statement, including the exhibits and schedules thereto, and the periodic reports and other information filed in connection therewith, may be inspected at the public reference facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the following Regional Offices of the Commission: 7 World Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies may be obtained at the prescribed rates from the Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 or on the Internet at http://www.sec.gov. CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS CERTAIN OF THE MATTERS DISCUSSED IN THIS PROSPECTUS MAY CONSTITUTE FORWARD-LOOKING STATEMENTS FOR PURPOSES OF THE SECURITIES ACT AND THE EXCHANGE ACT. ALL STATEMENTS, OTHER THAN STATEMENTS OF HISTORICAL FACTS, INCLUDED IN THIS PROSPECTUS THAT ADDRESS ACTIVITIES, EVENTS OR DEVELOPMENTS THAT THE COMPANY EXPECTS OR ANTICIPATES WILL OR MAY OCCUR IN THE FUTURE, INCLUDING SUCH THINGS AS FUTURE CAPITAL EXPENDITURES (INCLUDING THE AMOUNT AND NATURE THEREOF), BUSINESS STRATEGY AND MEASURES TO IMPLEMENT STRATEGY, COMPETITIVE STRENGTHS, GOALS, EXPANSION AND GROWTH OF THE COMPANY'S BUSINESS AND OPERATIONS, REFERENCES TO FUTURE SUCCESS, FUTURE SUPPLY OF AND DEMAND FOR SILICON METAL, THE EFFECTS OF FOREIGN COMPETITION AND OTHER SUCH MATTERS ARE FORWARD-LOOKING STATEMENTS. SUCH FORWARD-LOOKING STATEMENTS MAY INVOLVE UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE THE ACTUAL RESULTS AND PERFORMANCE OF THE COMPANY TO BE MATERIALLY DIFFERENT FROM FUTURE RESULTS OR PERFORMANCE EXPRESSED OR IMPLIED BY SUCH STATEMENTS. CAUTIONARY STATEMENTS REGARDING THE RISKS ASSOCIATED WITH SUCH FORWARD-LOOKING STATEMENTS INCLUDE, WITHOUT LIMITATION, THOSE STATEMENTS INCLUDED UNDER "RISK FACTORS" AND ELSEWHERE HEREIN. AMONG OTHERS, FACTORS THAT COULD ADVERSELY AFFECT ACTUAL RESULTS AND PERFORMANCE INCLUDE THE LOSS OF A SIGNIFICANT CUSTOMER, A CHANGE IN CONTROL REQUIRING 3 5 A REDEMPTION OF THE NOTES, AN INTERRUPTION IN ELECTRICAL POWER TO THE FACILITY (AS DEFINED HEREIN), AN INABILITY TO OBTAIN KEY RAW MATERIALS AT FAVORABLE PRICES, THE NEED FOR SIGNIFICANT CAPITAL EXPENDITURES TO COMPLY WITH ENVIRONMENTAL REGULATIONS, THE LOSS OF KEY EMPLOYEES, A DECLINE IN THE DEMAND FOR SILICON METAL, A FAILURE OF THE DEMAND FOR SILICON METAL TO INCREASE AS CURRENTLY PROJECTED, THE REVOCATION OR INEFFECTIVENESS OF ANTI-DUMPING DUTIES ON FOREIGN COMPETITORS AND THE FAILURE OF THE COMPANY TO SUCCESSFULLY COMMISSION A FOURTH SMELTING FURNACE. ALL WRITTEN OR ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE COMPANY ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE FOREGOING CAUTIONARY STATEMENT. CERTAIN MARKET AND INDUSTRY DATA UNLESS OTHERWISE INDICATED HEREIN, INFORMATION REGARDING THE SILICON METAL INDUSTRY IS BASED ON REPORTS PREPARED IN SEPTEMBER AND NOVEMBER 1997 BY CRU INTERNATIONAL INC. ("CRU"), AN INTERNATIONALLY RECOGNIZED RESEARCH FIRM SPECIALIZING IN COLLECTING DATA ABOUT THE SILICON METAL INDUSTRY. THE INFORMATION INCLUDED IN CRU'S STUDIES REFLECTS A NUMBER OF FACTORS AND ASSUMPTIONS, SUCH AS THE EFFECTS OF GOVERNMENTAL REGULATION ON THE SILICON METAL INDUSTRY, THE GROWTH IN THE SUPPLY OF AND DEMAND FOR SILICON METAL, HISTORICAL AND FUTURE SILICON METAL PRICES AND OPERATING AND DEVELOPMENT COSTS OF COMPANIES IN THE SILICON METAL INDUSTRY. 4 6 PROSPECTUS SUMMARY The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial information, including the financial statements and the notes thereto, included elsewhere in this Prospectus. Unless the context otherwise requires, the terms "SIMCALA" and the "Company" refer to SIMCALA, Inc., the term "the Predecessor" refers to the Company prior to the Acquisition on March 31, 1998 and the term "SiMETCO" refers to a predecessor of the Company prior to the period beginning on February 10, 1995. The Company's fiscal year ends on December 31 of each calendar year. Unless otherwise specified, the pro forma financial information included herein gives effect to the Transactions, including the Offering, the Equity Contribution and the application of the net proceeds therefrom, as if the Transactions had occurred on January 1, 1997 with respect to the income statement information for the fiscal year ended December 31, 1997 and the three months ended March 31, 1998. THE EXCHANGE OFFER The Exchange Offer......... The Exchange Offer consists of this Prospectus and the related Letter of Transmittal, and is being made solely to eligible holders of Series A Notes. Upon the terms and subject to the conditions of the Exchange Offer, the Company is offering eligible holders of Series A Notes the opportunity to exchange its Series A Notes that have not been registered under the Securities Act for the Exchange Notes that have been registered under the Securities Act. Exchange Offer Expiration Date..................... The Exchange Offer expires at 5:00 p.m., Eastern Time on , , 1998 (the "Expiration Date") unless extended by the Company in its sole discretion. Exchange Notes Offered..... The Exchange Notes consist of $75,000,000 aggregate principal amount of 9 5/8% Senior Notes due 2006, Series B. Procedures for Tendering Series A Notes........... Brokers, dealers, commercial banks, trust companies and other nominees who hold Series A Notes through DTC (as defined herein) may effect tenders by book-entry transfer in accordance with DTC's Automated Tender Offer Program ("ATOP"). In order for Series A Notes to be tendered by a means other than by book-entry transfer, a Letter of Transmittal must be completed and signed in accordance with the instructions contained herein. The Letter of Transmittal and any other documents required by the Letter of Transmittal must be delivered to the Exchange Agent by mail, facsimile, hand delivery or overnight carrier, and either such Series A Notes must be delivered to the Exchange Agent or specified procedures for guaranteed delivery must be complied with. See "The Exchange Offer -- Procedures for Tendering." Letters of Transmittal and certificates representing Series A Notes should not be sent to the Company. Such documents should only be sent to the Exchange Agent. See "The Exchange Offer -- Exchange Agent." Conditions to the Exchange Offer.................... The Exchange Offer is subject to certain customary conditions, which may be waived, to the extent permitted by law, by the Company. See "The Exchange Offer-Conditions" and "-- Procedures for Tendering." 5 7 Special Procedures for Beneficial Owners........ Any beneficial owner whose Series A Notes are held in book-entry form or are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to exchange such Series A Notes for the Exchange Notes should contact such registered holder promptly and instruct such registered holder to tender the Series A Notes for exchange on such beneficial owner's behalf. See "The Exchange Offer -- Procedures for Tendering." Guaranteed Delivery Procedures............... Holders of Series A Notes who wish to tender their Series A Notes and whose Series A Notes are not immediately available or who cannot deliver their Series A Notes, the Letter of Transmittal or any other documents required by the Letter of Transmittal to the Exchange Agent (or comply with the procedures for book-entry transfer) prior to the Expiration Date must tender their Series A Notes according to the guaranteed delivery procedures set forth in "The Exchange Offer -- Guaranteed Delivery Procedures." Withdrawal Rights.......... Tenders may be withdrawn at any time prior to 5:00 P.M., Eastern Time, on the Expiration Date pursuant to the procedures described under "The Exchange Offer -- Withdrawals of Tenders." Acceptance of Notes and Delivery of Exchange Notes.................... The Company will accept for exchange any and all Series A Notes that are properly tendered in the Exchange Offer, and not withdrawn, prior to 5:00 P.M., Eastern Time, on the Expiration Date. The Exchange Notes issued pursuant to the Exchange Offer will be delivered on the earliest practicable date following the Expiration Date. See "The Exchange Offer -- Terms of the Exchange Offer." Federal Income Tax Consequences............. The issuance of the Exchange Notes to holders of the Series A Notes pursuant to the terms set forth in this Prospectus will not constitute an exchange for federal income tax purposes. Consequently, no gain or loss would be recognized by holders of the Series A Notes upon receipt of the Exchange Notes. See "The Exchange Offer -- Certain Federal Income Tax Consequences of the Exchange Offer." Effect on Holders of the Notes.................... As a result of the making of this Exchange Offer, the Company will have fulfilled certain of its obligations under the Registration Rights Agreement, and holders of Series A Notes who do not tender their Series A Notes will generally not have any further registration rights under the Registration Rights Agreement or otherwise. Such holders will continue to hold the untendered Series A Notes and will be entitled to all the rights and subject to all the limitations, including, without limitation, transfer restrictions, applicable thereto under the Indenture, except to the extent such rights or limitations, by their terms, terminate or cease to have further effectiveness as a result of the Exchange Offer. Accordingly, if any Series A Notes are tendered and accepted in the Exchange Offer, the trading market, if any, for the untendered Series A Notes could be adversely affected. Exchange Agent............. IBJ Schroder Bank & Trust Company is serving as exchange agent (the "Exchange Agent") with respect to the Series A Notes. 6 8 THE NOTES Maturity Date.............. April 15, 2006. Interest Payment Dates..... April 15 and October 15, commencing October 15, 1998. Optional Redemption........ On or after April 15, 2002, the Company may redeem the Notes, in whole or in part, at the redemption prices set forth herein, plus accrued and unpaid interest thereon and Liquidated Damages, if any, to the date of redemption. Notwithstanding the foregoing, at any time on or before April 15, 2001, the Company may redeem up to 30% of the original aggregate principal amount of the Notes with the net proceeds of a public offering of common stock of the Company or Holdings (to the extent the net proceeds therefrom are contributed to the Company as common equity) at the redemption prices set forth herein, plus accrued and unpaid interest thereon, if any, to the redemption date; provided, that at least 70% of the original aggregate principal amount of Notes remains outstanding immediately after the occurrence of such redemption (excluding Notes held by the Company or its subsidiaries); and, provided, further, that such redemption shall occur within 60 days of the date of the closing of such public offering. See "Description of the Notes -- Optional Redemption." Mandatory Redemption....... None. Ranking.................... The Notes are general unsecured obligations of the Company and rank senior to all existing and future subordinated indebtedness of the Company and pari passu in right of payment with all existing and future senior indebtedness of the Company, including indebtedness under the New Credit Facility. The obligations of the Company under the New Credit Facility, however, are secured by substantially all of the Company's assets and the real and personal property used in the Company's operations which is, as a result of the IRB Financing, owned by the Industrial Development Board of the City of Montgomery (the "Montgomery IDB") and leased to the Company. Such indebtedness effectively ranks senior in right of payment to the Notes to the extent of such assets. As of March 31, 1998, the Company had approximately $81.1 million of indebtedness outstanding (none of which was secured) and approximately $15.0 million of secured indebtedness available to be incurred under the New Credit Facility (as such availability is reduced by an approximately $6.1 million letter of credit issued thereunder). The terms of the Indenture permit the Company and its subsidiaries to incur additional indebtedness (including secured indebtedness), subject to certain limitations. See "Use of Proceeds," "Description of the Notes" and "Description of Other Indebtedness." Change of Control.......... Upon a Change of Control (as defined herein), the Company will be required to make an offer to repurchase all outstanding Notes at 101% of the principal amount thereof plus accrued and unpaid interest thereon and Liquidated Damages, if any, to the date of repurchase. See "Description of the Notes -- Repurchase at the Option of Holders -- Change of Control." Covenants.................. The Indenture restricts, among other things, the ability of the Company and its subsidiaries to incur additional indebtedness and issue pre- 7 9 ferred stock, incur liens, pay dividends or make certain other restricted payments, apply net proceeds from certain asset sales, enter into certain transactions with affiliates, merge or consolidate with any other person, and assign, transfer, lease, convey or otherwise dispose of substantially all of the assets of the Company. See "Description of the Notes -- Certain Covenants." Use of Proceeds............ The Company will not receive any proceeds from the issuance of the Exchange Notes pursuant to the Exchange Offer. The net proceeds to the Company from the sale of the Series A Notes, together with the Equity Contribution, have been used to fund the Acquisition (as defined herein), to repay certain indebtedness of the Company and to pay transaction fees and expenses and are being used for the Company's general corporate purposes. See "Use of Proceeds." Shelf Registration Statement................ If (i) the Exchange Offer is not permitted by applicable law or (ii) any holder of Transfer Restricted Notes (as defined herein) notifies the Company within 20 business days of the commencement of the Exchange Offer that (A) it is prohibited by law or Commission policy from participating in the Exchange Offer, (B) that it may not resell the Exchange Notes acquired by it in the Exchange Offer to the public without delivering a prospectus and this Prospectus is not appropriate or available for such resales or (C) that it is a broker-dealer and holds Series A Notes acquired directly from the Company or an affiliate of the Company, the Company will be required to provide the Shelf Registration Statement to cover resales of the Notes by such holders thereof. If the Company fails to satisfy these registration obligations, it will be required to pay Liquidated Damages to the holders of the Notes under certain circumstances. See "The Exchange Offer." Absence of an Established Trading Market for the Notes.................... The Series A Notes are new securities that were issued on March 31, 1998 (the "Issue Date" or "Closing Date"). There is currently no established trading market for the Series A Notes or the Exchange Notes. Although the Initial Purchaser has informed the Company that it currently intends to make a market in the Series A Notes and, upon issuance, the Exchange Notes, it is not obligated to do so and any such market making may be discontinued at any time without notice. Accordingly, there can be no assurance as to the development or liquidity of any market for the Notes. To the extent Series A Notes are exchanged in this Exchange Offer, the liquidity of the market for the remaining Series A Notes may be reduced. The Series A Notes have been designated eligible for trading in the PORTAL market. The Company does not intend to apply for listing of the Exchange Notes on any securities exchange or for quotation through Nasdaq. See "Risk Factors -- Absence of an Established Trading Market for the Notes." 8 10 THE COMPANY The Company is a leading domestic manufacturer of silicon metal which is used in the chemical and aluminum industries. Silicon metal is an essential raw material used by the chemical industry to produce silicones and polysilicon and by the aluminum industry primarily as an alloying agent. The Company produces and sells higher margin chemical grade and specialty aluminum grade silicon metal, both of which contain the highest concentrations of silicon and the lowest levels of impurities when compared to lower grades of silicon metal. In 1997, approximately 55% and 45% of the silicon metal consumed in the United States was consumed by the chemical industry and the aluminum industry, respectively. Silicones are the basic ingredient used in numerous consumer products, including lubricants, cosmetics, shampoos, gaskets, building sealants, automotive hoses, water repellent fluids and high temperature paints and varnishes. Polysilicon is an essential raw material used in the manufacture of silicon wafers for semi-conductor chips and solar cells. Aluminum containing silicon metal as an alloy can be found in a variety of automobile components, including engine pistons, housing and cast aluminum wheels. Management believes that there are no commercially feasible substitutes for silicon metal in either the chemical or aluminum industries. In addition to silicon metal, the Company produces microsilica, a co-product of the silicon metal smelting process. Microsilica is a strengthening and filler agent which has applications in the refractory, concrete, fibercement, oil exploration and minerals industries. The Company is one of the three largest manufacturers, in terms of volume, of silicon metal in the United States, and its production facility, located in Mt. Meigs, Alabama (the "Facility") is the nation's second largest in terms of capacity. The Facility is the newest greenfield silicon metal manufacturing facility in the United States and is strategically located near abundant supplies of high quality raw materials necessary for the production of high grade silicon metal. SIMCALA intends to use a portion of the net proceeds of the Offering to expand the Facility by constructing a fourth smelting furnace and the Company believes that after this expansion, the Facility will be the second largest silicon metal production facility in the world. The Company believes that the increased capacity resulting from the construction of a fourth furnace will enable it to benefit from levels of demand for silicon metal in the Western Industrialized Nations (as defined herein) which CRU estimates will exceed currently known sources of supply through 2005. Upon completion of the fourth furnace, the Company's production capacity will increase by approximately 12,000 metric tons to approximately 48,000 metric tons per year. The Company is one of the most cost efficient silicon metal manufacturers in the world, as measured by operating cost per metric ton of silicon metal sold. The Company estimates that it held a market share of approximately 13% of the total United States chemical market and approximately 13% of the total United States aluminum market in 1997, based on metric tons of silicon metal sold. In 1997, the Company had net sales and EBITDA of $62.2 million and $13.8 million, respectively. For the three months ended March 31, 1998, the Company had net sales and EBITDA of $14.8 million and $0.1 million, respectively. RECENT HISTORY AND TURNAROUND SIMCALA was incorporated in 1994 and acquired the Facility from SiMETCO, Inc. ("SiMETCO") on February 10, 1995. Under SiMETCO's management, the Facility was underutilized and inefficient and consistently incurred operating losses as a result of poor management and a focus on the lower margin, less stable secondary aluminum business. Immediately after the acquisition of the Facility, the Company hired C. Edward Boardwine, its current Chief Executive Officer. Mr. Boardwine installed a new senior management team which implemented a major turnaround program aimed at increasing the operating efficiency of the Facility and focusing on the production and effective marketing of higher margin chemical grade and specialty aluminum grade silicon metal. The Company's turnaround program included the following: - Increased Production. The Company increased production by improving the efficiency and yield of two furnaces that were operating when the acquisition of the Facility occurred and by recommissioning a third furnace that was not operational at the time of the Facility's acquisition. From 1994 to 1997, the Facility's annual production volume increased approximately 55%, from approximately 24,000 metric tons to approximately 37,100 metric tons. 9 11 - Customer Relationships. The Company established relationships with the major consumers of higher margin chemical grade and specialty aluminum grade silicon metal. As part of this effort, the Company sought and obtained key customer certifications, requiring it to demonstrate the ability to consistently meet customers' proprietary quality and sizing requirements. The Company is currently a certified supplier of chemical grade silicon metal to G.E. Silicones ("G.E. Silicones"), a division of General Electric Company, and Dow Corning Corporation ("Dow Corning"), the two largest consumers of chemical grade silicon metal in the United States, and a certified supplier of specialty aluminum grade silicon metal to Alcan Ingot & Recycling ("Alcan") and Alumax Mill Products Inc. ("Alumax"). Production of chemical grade, primary aluminum grade and secondary aluminum grade silicon metal at the Facility changed from 29.6%, 15.1% and 55.3%, respectively, of total net sales in 1994 to 55%, 28.2% and 16.8%, respectively, of total net sales in 1997. This change in product mix has significantly increased the Company's profitability. - Facility Modernization. In 1996, the Company completed a $12.0 million facility modernization program pursuant to which all the Company's production and air abatement equipment was rebuilt. This program modernized the Facility and resulted in improved operating efficiency and greater consistency in the production of chemical and specialty aluminum grade silicon metal. To further enhance operating reliability, the Company is in the process of upgrading its raw material handling equipment. - Supplier Relationships. The Company discontinued relationships with suppliers of lower grade raw materials and established relationships with suppliers of higher quality raw materials in order to secure a reliable, long-term source of the ingredients necessary to produce high quality silicon metal. By using high quality raw materials, the Company has been able to decrease the levels of impurities in the silicon metal it produces, resulting in more efficient production of a consistently high quality product. - Workforce Efficiency. The Company improved the efficiency of its workforce by creating performance based incentives and establishing technical training programs. In addition, despite recommissioning a third furnace in the third quarter of 1995, the number of employees at the Facility from 1994 to 1997 remained constant at approximately 170 (consisting of approximately 124 hourly employees and 46 salaried employees). Consequently, the amount of silicon metal produced per hourly employee at the Facility improved from approximately 210 metric tons in 1994 to approximately 299 metric tons in 1997. As a result of the foregoing measures, net sales doubled to $62.2 million in 1997 from $31.1 million in 1994. During that period, EBITDA increased to $13.8 million from a loss of $3.0 thousand. In addition, operating cost per metric ton of silicon metal produced at the Facility decreased 9.6%, to $1,279.0 in 1997 from $1,415.0 in 1994. THE SILICON METAL INDUSTRY The silicon metal industry consists of two general markets: the chemical industry market and the aluminum industry market. The chemical industry market is subdivided into the silicones market and the polysilicon market, both of which require the highest grade of silicon metal. The aluminum industry market is subdivided into the primary aluminum market (producing aluminum from ore) and the secondary aluminum market (producing aluminum from scrap). The Company defines the primary aluminum market and the higher-end of the secondary aluminum market as the "specialty aluminum" market because the aluminum produced for those markets requires higher quality silicon metal. From 1987 to 1997, demand for silicon metal in the United States increased at an average annual rate of approximately 7.7% (on a non-compounded basis). This increase was driven by an average annual rate of growth of approximately 10.1% (on a non-compounded basis) in the United States chemical market. While the aluminum market has also grown during this period, demand for chemical grade silicon metal has increased 73.8% and, in 1997, chemical grade silicon metal represented approximately 55% of the silicon metal consumed in the United States. The major factors contributing to the growth of the chemical market are 10 12 (i) the introduction of new silicon based product applications (such as emulsions, release agents and sealants) and (ii) the displacement of petrochemical based products (such as lubrication and hydraulic fluids). The growth in the aluminum market is primarily attributable to the increased use of aluminum in the transportation industry. According to CRU, demand for silicon metal in the United States is projected to increase over the next eight years at an average annual rate of approximately 5.3% (on a non-compounded basis). During that period, CRU projects that demand for chemical grade silicon metal in the United States will increase at an average annual rate of approximately 7.6% (on a non-compounded basis). COMPETITIVE STRENGTHS The Company believes that it has a strong competitive position attributable to a number of factors, including the following: - Preferred Supplier Status with Key Customers. SIMCALA has satisfied rigorous qualification requirements with its primary customers who purchase chemical grade and specialty aluminum grade silicon metal. Satisfying these requirements may take up to two years. As a result, the Company believes that these rigorous qualification requirements constitute a significant barrier to entry into the high grade silicon metal market. - Low Cost Producer. As a result of the major turnaround program executed by the current management team, the Company has been recognized by CRU as among the five most cost efficient silicon metal manufacturers in the world, as measured by cost per metric ton of silicon metal produced. - Production Facilities. The Facility has recently undergone an extensive facility modernization program which has resulted in improved operational efficiency and greater consistency in the production of chemical and specialty aluminum grade silicon metal. In addition, the Facility was originally designed to support the addition of a fourth smelting furnace, allowing the Company to increase capacity at a relatively low cost and in a relatively short time, without significantly disrupting operations. - Experienced, Highly Qualified Management Team. SIMCALA has assembled a highly qualified management team with over 75 years of combined experience in the silicon metal business. In particular, since 1969, C. Edward Boardwine, the Company's Chief Executive Officer, has worked in various capacities in the ferroalloy and silicon metal industries, most recently serving as Vice President--Silicon Metal Division of Elkem ASA, a position he held from 1990 until joining the Company in 1995. The Company believes that its management team has the operational and technical skill to continue to operate the Facility at world class levels of efficiency and to consistently produce high grade silicon metal. BUSINESS STRATEGY SIMCALA intends to capitalize on the aforementioned competitive strengths and has developed and is implementing the following business strategy aimed at increasing revenues and EBITDA: - Focus on Chemical and Specialty Aluminum Markets. The Company will remain focused on manufacturing high grade silicon metal for use by the chemical and specialty aluminum markets. Management has focused on the chemical market for four principal reasons: (i) as a result of diverse end-use applications of chemical grade silicon metal, demand has historically grown despite economic downturns, and demand and prices have historically been less volatile than the demand for, and the prices of, lower grade silicon metal; (ii) the United States market for chemical grade silicon metal is expected to grow at an average annual rate of approximately 7.6% (on a non-compounded basis) through the year 2005, according to CRU; (iii) sales of chemical grade silicon metal have historically provided higher profit margins than sales of lower grades of silicon metal because chemical grade silicon metal customers have paid higher prices for the required high quality silicon metal, resulting in 11 13 part from the limited number of manufacturers able to supply silicon metal of such quality; and (iv) the Company's management has the operational and technical expertise necessary to consistently and efficiently produce high quality silicon metal. Similarly, management has focused on the specialty aluminum market because it is less susceptible to competition from low priced secondary grade silicon metal imports, and sales of specialty aluminum grade silicon metal have historically provided higher profit margins and been subject to less price volatility than sales of secondary grade silicon metal. In addition, because the United States International Trade Commission has concluded that there are no commercially feasible substitutes for silicon metal in either the chemical or aluminum industries, management believes that higher silicon metal prices will not result in customers purchasing silicon metal substitutes. - Maintain Low Cost Operations. Management intends to maintain the Company's position as one of the five most cost-efficient manufacturers of silicon metal in the world. The Company intends to achieve this objective by continuing to increase the yield from its three existing smelting furnaces and increasing capacity by commissioning a fourth furnace. The Company believes it will effectively be able to spread fixed costs over the resulting increased production volume to further reduce costs per metric ton of silicon metal sold. - Expand Capacity to Meet Increasing Demand. CRU projects that demand for silicon metal in the Western Industrialized Nations will exceed currently known sources of supply through 2005. The Company believes that it can take advantage of this increased demand by constructing a fourth smelting furnace. The Facility's infrastructure was originally designed and built to accommodate a fourth furnace. Within approximately two years, the Company believes a fourth furnace will enable it to increase its capacity by 12,000 metric tons of silicon metal and 5,000 metric tons of microsilica per year, making the Facility the second largest silicon metal production facility in the world. The Company intends to use a portion of the net proceeds from the Offering to fund in part the construction of a fourth furnace. Management believes that completion of a fourth furnace and the sale of the resulting silicon metal produced will increase profitability. CGW AND SUMMARY OF THE TRANSACTIONS CGW. CGW Southeast Partners III, L.P. ("CGW") is the most recently formed investment fund sponsored by Cravey, Green & Wahlen, Incorporated, the principals of which are Richard L. Cravey and Edwin A. Wahlen, Jr. The general partner of CGW is CGW Southeast III, L.L.C. (the "General Partner") and Messrs. Cravey and Wahlen are the only shareholders and directors of its manager. CGW and other investment funds sponsored by Cravey, Green & Wahlen, Incorporated seek to acquire, usually with participation by operating management, middle market businesses whose profitability can be significantly enhanced through the implementation of operating efficiencies, improved financial management or new growth strategies, including follow-on acquisitions. Investment funds sponsored by Cravey, Green & Wahlen, Incorporated have historically taken an active, hands-on role in the implementation of such efficiencies, management improvements and strategies with respect to their portfolio companies. The Transactions. On March 31, 1998, SAC Acquisition Corp., a Georgia corporation ("SAC") and then wholly owned subsidiary of Holdings, acquired all of the outstanding capital stock of the Company (the "Acquisition") from its stockholders (the "Selling Stockholders") for a cash payment of approximately $66.7 million (the "Cash Consideration"). See "The Transactions -- The Acquisition." The aggregate purchase price paid by SAC for the Acquisition was financed with the net proceeds of the Offering and the initial capital contribution by CGW and C. Edward Boardwine, Dwight L. Goff and R. Myles Cowan, II (each, a "Senior Manager" and collectively, the "Senior Management") of $22.0 million to Holdings (the "Equity Contribution"), which was then contributed by Holdings to SAC. Immediately following the Acquisition, SAC merged with and into the Company, with the Company being the surviving corporation (the "Merger"). As a result of the Merger, the Company became the obligor of the Notes and a wholly owned direct subsidiary of Holdings. See "The Transactions -- Financing of the Acquisition" and "Use of Proceeds." 12 14 In connection with the Acquisition, the Company (i) repaid approximately $9.2 million of term loan indebtedness (including accrued interest thereon and fees) outstanding under its prior bank credit facility (the "Terminated Credit Facility") with a portion of the net proceeds of the Offering and (ii) replaced the Terminated Credit Facility and a related letter of credit reimbursement agreement (the "Terminated Reimbursement Agreement") with a new credit facility (the "New Credit Facility"). The New Credit Facility consists of a $15.0 million revolving credit facility which provides availability for borrowings and letters of credit. As part of the Company's industrial revenue bond financing (the "IRB Financing"), an approximately $6.1 million letter of credit was issued under the New Credit Facility to replace the letter of credit issued under the Terminated Reimbursement Agreement. The Acquisition, the Merger, the replacement of the Terminated Credit Facility and the Terminated Reimbursement Agreement with the New Credit Facility and the Equity Contribution, the Offering and the application of the net proceeds therefrom are referred to in this Prospectus as the "Transactions." See "The Transactions" and "Description of Other Indebtedness." The following table sets forth the approximate amounts of the sources and uses of funds in connection with the Transactions:
(IN THOUSANDS) SOURCES OF FUNDS: Notes sold in the Offering.................................. $75,000 Equity Contribution(1)...................................... 22,000 ------- Total Sources..................................... $97,000 ======= USES OF FUNDS: The Acquisition............................................. $66,703 Repayment of indebtedness(2)................................ 9,159 Transaction fees and expenses(3)............................ 6,000 General corporate purposes(4)............................... 15,138 ------- Total Uses........................................ $97,000 =======
- --------------- (1) Of the total Equity Contribution, CGW contributed $20.0 million and Senior Management collectively contributed $2.0 million. (2) Consists of (i) term loan indebtedness outstanding under the Terminated Credit Facility the principal amount of which was payable in quarterly installments with the last of such installments payable on March 31, 2002 and which, as of March 31, 1998, accrued interest at a rate of approximately 8% per annum, and (ii) accrued interest thereon and fees. (3) Includes transaction fees and expenses of SAC and Holdings incurred in connection with the Transactions. (4) The Company expects that a portion of the net proceeds of the Offering will be used to construct a fourth smelting furnace at the Facility and estimates that construction of the furnace will cost approximately $25.0 million. The Company anticipates that the balance of the construction costs will be funded by cash flow from the Company's operations during the construction period. RISK FACTORS See "Risk Factors" for a discussion of certain factors that should be considered by holders of both Series A Notes and Exchange Notes. 13 15 SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION The following table presents (i) summary selected historical financial information of the Predecessor as of the dates and for the periods indicated and (ii) summary pro forma financial information of the Company for the year ended December 31, 1997 and for the three months ended March 31, 1998, adjusted to reflect the effects of the Transactions. The term "the Predecessor" refers to the Company for periods prior to the Acquisition on March 31, 1998. The summary pro forma financial information and the financial position of the Company subsequent to the Acquisition on March 31, 1998 are referred to as the "Company." The historical financial information for the three months ended March 31, 1998 has been derived from the unaudited financial statements of the Predecessor and the historical financial information as of March 31, 1998 has been derived from the unaudited financial statements of the Company, each of which are included elsewhere in this Prospectus. The historical financial information for the year ended December 31, 1997 and as of such date has been derived from the financial statements of the Predecessor which have been audited by Deloitte & Touche LLP, independent auditors, and are included elsewhere in this Prospectus. The historical financial information for the year ended December 31, 1996 and as of such date has been derived from the financial statements of the Predecessor which have been audited by Crowe, Chizek and Company LLP, independent auditors, and are included elsewhere in this Prospectus. The historical financial information for the period from February 10, 1995 (date of inception) to December 31, 1995 and as of December 31, 1995 has been derived from the financial statements of the Company which have been audited by Ernst & Young LLP, independent auditors, and are included elsewhere in this Prospectus. The summary pro forma financial information is not necessarily indicative of the Company's future results of operations or financial position and does not purport to indicate the Company's results of operations for the year ended December 31, 1997 or for the three months ended March 31, 1998 had the Transactions been completed on January 1, 1997. The summary financial information is qualified in its entirety by, and should be read in conjunction with, "Unaudited Condensed Pro Forma Financial Information," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Predecessor's Financial Statements and the notes thereto appearing elsewhere herein.
PREDECESSOR COMPANY ------------------------------------------------------ --------------------------- PERIOD FROM FEBRUARY 10, PRO FORMA 1995 PRO FORMA AS ADJUSTED (DATE OF INCEPTION) YEAR ENDED THREE MONTHS AS ADJUSTED THREE MONTHS TO DECEMBER 31, ENDED YEAR ENDED ENDED DECEMBER 31, ----------------- MARCH 31, DECEMBER 31, MARCH 31, 1995(1) 1996 1997 1998 1997 1998 ------------------- ------- ------- ------------ ------------ ------------ (UNAUDITED) (DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS) INCOME STATEMENT DATA: Net sales................ $31,523 $52,407 $62,184 $14,854 $62,184 $14,854 Cost of goods sold....... 32,391 42,798 47,972 11,679 50,189 12,233 ------- ------- ------- ------- ------- ------- Gross profit (loss)...... (868) 9,609 14,212 3,175 11,995 2,621 Selling and administrative expenses............... 1,599 1,923 2,846 3,824 4,452 4,225 ------- ------- ------- ------- ------- ------- Operating income (loss)................. (2,467) 7,686 11,366 (649) 7,543 (1,604) Interest expense......... 1,111 1,511 1,710 314 8,293 2,073 Other income, net.......... 359 444 228 282 228 282 ------- ------- ------- ------- ------- ------- Earnings (loss) before provision for income taxes.................. (3,219) 6,619 9,884 (681) (522) (3,395) Provision for income taxes.................. -- 1,169 3,513 (100) 369 (1,018) ------- ------- ------- ------- ------- ------- Net income (loss)........ $(3,219) $ 5,450 $ 6,371 $ (581) $ (891) $(2,377) ======= ======= ======= ======= ======= ======= OTHER DATA (UNAUDITED): EBITDA(2)................ $(1,038) $ 9,723 $13,762 $ 104 $13,762 $ 105 EBITDA margin(3)......... (3.3)% 18.6% 22.1% 0.7% 22.1% 0.7%
14 16
PREDECESSOR COMPANY ------------------------------------------------------ --------------------------- PERIOD FROM FEBRUARY 10, PRO FORMA 1995 PRO FORMA AS ADJUSTED (DATE OF INCEPTION) YEAR ENDED THREE MONTHS AS ADJUSTED THREE MONTHS TO DECEMBER 31, ENDED YEAR ENDED ENDED DECEMBER 31, ----------------- MARCH 31, DECEMBER 31, MARCH 31, 1995(1) 1996 1997 1998 1997 1998 ------------------- ------- ------- ------------ ------------ ------------ (UNAUDITED) (DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS) Depreciation and amortization........... $ 1,070 $ 1,593 $ 2,167 $ 471 $ 5,991 $ 1,427 Capital expenditures..... 4,154 6,913 2,075 1,184 2,075 1,184 Cash interest expense.... 929 1,238 1,560 161 8,143 1,920 Ratio of EBITDA to cash interest expense(4).... -- 7.9x 8.8x -- 1.7x -- Ratio of earnings to fixed charges(5)....... -- 4.8x 5.9x -- -- -- Ratio of net debt to pro forma EBITDA(6)........ -- -- -- -- 4.75x 622.6x Cash flows from operating activities............. $(1,408) $ 9,235 $ 9,995 $ 1,168 $ 6,556 $ 327 Cash flows from investing activities............. (4,154) (6,913) (2,075) (1,184) (2,075) (1,184) Cash flows from financing activities............. 2,785 (2,144) (7,472) 39 -- -- OPERATING DATA (UNAUDITED): Silicon metal production (in metric tons)....... 25,669 33,373 37,094 9,110 37,094 9,110 Average sales price per metric ton............. $ 1,436 $ 1,641 $ 1,723 $ 1,661 $ 1,723 $ 1,661 Average cost per metric ton.................... $ 1,529 $ 1,358 $ 1,279 $ 1,279 $ 1,279 $ 1,279
PREDECESSOR COMPANY --------------------------- --------- AS OF AS OF DECEMBER 31, MARCH 31, 1995 1996 1997 1998 ------- ------- ------- --------- (IN THOUSANDS) BALANCE SHEET DATA: Cash and cash equivalents................................ $ 8 $ 186 $ 635 $ 15,796 Working capital (deficit)................................ (2,926) (3,347) 885 20,446 Total assets............................................. 24,217 30,581 33,663 122,667 Long-term debt, less current portion..................... 12,014 13,207 12,763 81,083 Mandatorily redeemable preferred stock................... 3,000 -- -- -- Stockholders' equity..................................... (718) 5,635 8,275 18,807
- --------------- (1) On February 10, 1995, the Company acquired the Facility from SiMETCO. At such time, SiMETCO was operating the Facility as a debtor-in-possession under Chapter 11 of the U.S. Bankruptcy Code of 1978, as amended (the "Bankruptcy Code"). In connection with the acquisition of the Facility, the Company (i) paid a purchase price of approximately $2.8 million to the estate of SiMETCO, (ii) assumed approximately $7.9 million of vendor indebtedness, accrued expenses and other indebtedness, (iii) incurred $6.0 million of additional indebtedness and (iv) issued $3.0 million of its mandatorily redeemable Series A Preferred Stock, par value $1.00 per share (the "Series A Preferred Stock") to the estate of SiMETCO. In June 1996, the Series A Preferred Stock was converted into a non-interest bearing note, which the Company has repaid in full. See "Certain Transactions -- Transactions with 15 17 CGW, its Affiliates and Certain Stockholders" and Notes 6 and 12 to the Predecessor's Financial Statements. (2) "EBITDA" is defined as earnings (loss) from continuing operations before interest expense, income taxes, depreciation and amortization. While EBITDA should not be construed as a substitute for operating income or as a better measure of liquidity than cash flow from operations, both of which are determined in accordance with generally accepted accounting principles, it is included herein to provide additional information relating to the Company's ability to service indebtedness. EBITDA as presented herein is not necessarily comparable to EBITDA presented by other companies because not all companies define EBITDA similarly. (3) EBITDA margin is EBITDA as a percentage of net sales. (4) There was a deficiency of EBITDA to cover cash interest expense for the period from February 10, 1995 to December 31, 1995 of $2.0 million, for the three months ended March 31, 1998 of $.06 million and for the pro forma as adjusted three months ended March 31, 1998 of $1.8 million. (5) For purposes of computing this ratio, earnings consist of earnings (loss) from continuing operations before provision for income taxes and fixed charges adjusted to exclude capitalized interest. Fixed charges consist of interest expense, whether expensed or capitalized, plus amortization of debt issuance costs and debt discount plus such portion of rental expense which is representative of the interest factor. There was a deficiency of earnings to cover fixed charges for the period from February 10, 1995 to December 31, 1995 of $3.3 million and for the three months ended March 31, 1998 of $0.7 million. On a pro forma as adjusted basis, there was a deficiency of earnings to cover fixed charges of $522,000 and $3.4 million for the year ended December 31, 1997 and for the three months ended March 31, 1998, respectively. (6) In calculating the ratio of net debt to pro forma EBITDA, net debt equals long-term debt as of March 31, 1998, including the current portion, less cash and cash equivalents as of such date. 16 18 RISK FACTORS Before tendering Series A Notes in the Exchange Offer, eligible holders of Series A Notes should consider the specific factors set forth below, as well as the other information set forth elsewhere in this Prospectus. SIGNIFICANT LEVERAGE AND DEBT SERVICE The Company has significant outstanding indebtedness and will be significantly leveraged. As of March 31, 1998, the Company had approximately $81.1 million of indebtedness outstanding (none of which is secured) and approximately $15.0 million of secured indebtedness available to be incurred under the New Credit Facility (as such availability is reduced by an approximately $6.1 million letter of credit issued thereunder). In addition, on a pro forma basis assuming the Transactions had occurred on January 1, 1997, the Company would have had a deficiency of earnings to cover fixed charges of $522,000 and $3.4 million, for the year ended December 31, 1997 and the three months ended March 31, 1998, respectively. The Company and its subsidiaries may incur additional indebtedness, including up to $15.0 million under the New Credit Facility. See "Capitalization," "Description of the Notes" and "Description of Other Indebtedness." The Company's ability to make scheduled payments of principal of, or to pay the interest or Liquidated Damages, if any, on, or to refinance, its indebtedness (including the Notes), or to fund planned capital expenditures will depend on its future performance, which, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond its control. There can be no assurance that the Company's business will generate sufficient cash flow from operations or that future borrowings will be available under the New Credit Facility in an amount sufficient to enable the Company to service its indebtedness, including the Notes, or to fund its other liquidity needs, including the construction of a fourth smelting furnace. In addition, the Company may need to refinance all or a portion of the principal of the Notes on or prior to maturity. There can be no assurance that the Company will be able to effect any such refinancing on commercially reasonable terms or at all. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." The degree to which the Company will be leveraged following the consummation of the Transactions could have important consequences to the holders of the Notes, including, but not limited to, (i) making it more difficult for the Company to satisfy its obligations to the holders of the Notes, (ii) increasing the Company's vulnerability to adverse general economic and industry conditions, (iii) limiting the Company's ability to obtain additional financing for future capital expenditures, general corporate or other purposes, (iv) requiring the dedication of a substantial portion of the Company's cash flow from operations to the payment of principal of, and interest on, indebtedness, thereby reducing the funds available for operations and future business opportunities, (v) limiting the Company's flexibility in reacting to changes in its business and the industry and (vi) placing the Company at a competitive disadvantage vis-a-vis less leveraged competitors. In addition, the Indenture and the New Credit Facility contain financial and other restrictive covenants that limit the ability of the Company to, among other things, borrow additional funds. Failure by the Company to comply with such covenants could result in an event of default which, if not cured or waived, could have a material adverse effect on the Company. In addition, the degree to which the Company is leveraged could prevent it from repurchasing all of the Notes tendered to it upon the occurrence of a Change of Control. See "Description of the Notes -- Repurchase at Option of Holders -- Change of Control" and "Description of Other Indebtedness -- Credit Facilities." RANKING OF SENIOR NOTES; ASSET ENCUMBRANCE The Notes are general unsecured obligations of the Company and rank senior to all existing and future subordinated indebtedness of the Company and pari passu in right of payment with all existing and future senior indebtedness of the Company, including indebtedness under the New Credit Facility. However, the Notes are effectively subordinated to all secured indebtedness of the Company to the extent of the value of the assets securing such indebtedness. The obligations of the Company under the New Credit Facility are secured by substantially all of the Company's assets and the real and personal property used in the Company's operations which is, as a result of the IRB Financing, owned by the Montgomery IDB and leased to the 17 19 Company. Accordingly, the Notes are effectively subordinated to the Company's obligations under the New Credit Facility to the extent of the assets securing the New Credit Facility. Upon an event of default under any such secured indebtedness, the lenders could elect to declare all amounts outstanding, together with accrued and unpaid interest thereon, to be immediately due and payable. If the Company were unable to repay such amounts, the lenders could proceed against the collateral granted to them. After any realization upon the collateral or a dissolution, reorganization or similar proceeding involving the Company, there can be no assurance that there will be sufficient available proceeds or other assets for the holders of the Notes to recover all or any portion of their claims under the Notes and the Indenture. See "Description of the Notes" and "Description of Other Indebtedness." RESTRICTIVE COVENANTS The New Credit Facility and the Indenture contain numerous restrictive covenants which limit, among other things, the ability of the Company to incur additional indebtedness, to create liens or other encumbrances, to pay dividends or make other restricted payments, to make investments, loans and guarantees and to sell or otherwise dispose of a substantial portion of its assets to, or merge or consolidate with, another entity. The New Credit Facility also contains a number of financial covenants that require the Company to meet certain financial ratios and tests and provides that a "change of control" constitutes an event of default thereunder. A failure to comply with the obligations contained in the New Credit Facility or the Indenture, if not cured or waived, could permit acceleration of the related indebtedness and the acceleration of indebtedness under other instruments of the Company that contain cross-acceleration or cross-default provisions. Upon the occurrence of an event of default under the New Credit Facility, the lenders thereunder would be entitled to exercise the remedies available to a secured creditor under applicable law. If the Company were obligated to repay all or a significant portion of its indebtedness, there can be no assurance that it would have sufficient cash to do so or that it could successfully refinance such indebtedness. In addition, other indebtedness that the Company may incur in the future may contain financial or other covenants more restrictive than those contained in the New Credit Facility or the Indenture. See "Description of the Notes -- Certain Covenants" and "Description of Other Indebtedness." IMPORTANCE OF KEY CUSTOMERS Certain of the Company's customers are material to its business and operations. In 1997 and the three months ended March 31, 1998, G.E. Silicones accounted for approximately $18.0 million and $2.1 million, or approximately 29% and 13.9%, of net sales, respectively; Dow Corning accounted for approximately $15.0 million and $6.1 million, or approximately 24.2% and 40.3%, of net sales, respectively; Wabash Alloys, L.L.C. ("Wabash Alloys") accounted for approximately $9.9 million and $2.3 million, or approximately 16.0% and 14.8%, of net sales, respectively; and Alcan accounted for approximately $4.9 million and $1.2 million, or approximately 7.9% and 8.2%, of net sales, respectively. In 1997 and the three months ended March 31, 1998, the Company's five largest customers accounted for approximately $49.3 million and $12.1 million, or approximately 79.3% and 79.8%, of net sales, respectively. Dow Corning is currently operating as a debtor-in-possession under Chapter 11 of the Bankruptcy Code. The Company's prospects depend on the success of its customers, as well as its customers' retention of the Company as a significant supplier of silicon metal. A significant part of the Company's business strategy is directed toward strengthening its relationships with its major customers that purchase chemical grade silicon metal, such as G.E. Silicones and Dow Corning. The Company does not generally have long-term contracts with its major customers and the loss of any major customer, or a significant reduction of the Company's business with any of them, would have a material adverse effect on the Company. See "-- Competition." DEPENDENCE ON SUPPLY OF ELECTRICAL POWER The production of silicon metal is heavily dependent upon a reliable supply of electrical power. The Company's electrical power is supplied by Alabama Power Company ("APCo") through a dedicated 110,000 volt line. The Facility operates twenty four hours a day, seven days per week. Any interruption in the supply of electrical power to the Facility would adversely effect production levels and a sustained interruption in the power supply would have a material adverse effect on the Company. 18 20 COMPETITION The silicon metal manufacturing industry is highly competitive. A number of the Company's competitors are significantly larger and have greater financial resources than the Company. In addition, certain of the Company's major customers have in the past manufactured silicon metal for their own use, thereby reducing their need to purchase silicon metal from suppliers such as the Company. The resumption of silicon metal manufacturing by one or more of these major customers would thus reduce the quantity of silicon metal purchased from the Company and could have a material adverse effect on the Company. There can be no assurance that the Company will be able to continue to compete successfully in silicon metal manufacturing or that the Company will maintain or increase its sales of chemical grade and specialty aluminum grade silicon metal. See "Business -- Competition." ANTI-DUMPING DUTIES ON FOREIGN COMPETITORS' PRODUCTS In 1990 and 1991, domestic producers of silicon metal successfully prosecuted anti-dumping actions against unfairly traded imports of silicon metal from the People's Republic of China (the "PRC"), Brazil and Argentina. These actions were brought under the anti-dumping provisions of the Tariff Act of 1930, as amended. Under that statute, an anti-dumping duty order may be issued if a domestic industry establishes in proceedings before the United States Department of Commerce and the United States International Trade Commission that imports from the country (or countries) covered by the action(s) are being sold at less than normal value and are causing material injury or threat of such injury to the domestic industry. An anti-dumping order requires special duties to be imposed in the amount of the margin of dumping (i.e., the percentage difference between the United States price for the goods received by the foreign producer or exporter and the normal value of the merchandise). Once an order is in place, each year foreign producers, importers, domestic producers and other interested parties may request a new investigation (or "administrative review") to determine the margin of dumping during the immediately preceding year. The rates calculated in these administrative reviews (or the existing rates if no review is requested) are used to assess anti-dumping duties on imports during the review period and to collect cash deposits on future imports. An administrative review covering five Brazilian producers and a review covering two PRC exporters are now in progress. The rates established in these reviews and in future reviews will depend upon the prices and costs during the periods covered by the reviews, the methodologies applied and other factors. Anti-dumping orders remain in effect until they are revoked. In order for an individual foreign producer or exporter to qualify for revocation of an anti-dumping order, the United States Department of Commerce must conclude that the producer or exporter has sold the merchandise at not less than normal value for a period of at least three consecutive years and is not likely to sell the merchandise at less than normal value in the future. Anti-dumping orders may also be revoked as a result of periodic "sunset reviews." No assurance can be given that one or more of such anti-dumping orders will not be revoked or that effective duty rates will continue to be imposed. Any such revocation or the imposition of ineffective duty rates could have a material adverse effect on the Company. See "Business -- Environmental and Regulatory Matters -- Anti-Dumping Duties on Foreign Competitors' Products." ENVIRONMENTAL LAWS AND REGULATIONS The Company is subject to extensive federal, state and local environmental laws and regulations governing the discharge, emission, storage, handling and disposal of a variety of substances and wastes used in or resulting from the Company's operations. There can be no assurance that environmental laws or regulations (or the interpretation of existing laws or regulations) will not become more stringent in the future, that the Company will not incur substantial costs in the future to comply with such requirements or that the Company will not discover currently unknown environmental problems or conditions. Any such event could have a material adverse effect on the Company. See "Business -- Environmental and Regulatory Matters -- Environmental." 19 21 DEPENDENCE ON KEY PERSONNEL The Company's operations are dependent, to a significant extent, on the continued employment of each Senior Manager, with whom it has entered into employment agreements containing non-compete provisions. If these employees of the Company become unable to continue in their respective roles, or if the Company is unable to attract and retain other skilled employees, the Company's results of operations and financial condition could be adversely effected. See "Management." CONTROL BY INVESTORS As a result of the Acquisition and the Merger, 100% of the outstanding shares of the Company's common stock is directly owned by Holdings. Holdings has no business other than holding the capital stock of the Company, which is the sole source of Holdings' financial resources. Holdings is controlled by CGW, which beneficially owns shares representing 79.8% of the voting power of Holdings (on a fully diluted basis) and has the power to elect all of the directors of Holdings. Accordingly, CGW, through its control of Holdings, controls the Company and has the power to elect all of its directors, appoint new management and approve any action requiring the approval of the holders of the Company's common stock, including adopting amendments to the Company's Certificate of Incorporation and approving mergers or sales of substantially all of the Company's assets. The directors elected by Holdings have the authority to make decisions affecting the capital structure of the Company, including the issuance of additional capital stock, the implementation of stock repurchase programs and the declaration of dividends. See "Management," "Certain Transactions" and "Principal Stockholder." POTENTIAL INABILITY TO FUND CHANGE OF CONTROL OFFER Upon a Change of Control (as defined in the Indenture), each holder of Notes will have the right to require the Company to repurchase all or any part of such holder's Notes at 101% of the principal amount thereof, plus accrued and unpaid interest thereon and Liquidated Damages, if any, to the date of repurchase. The source of funds for any such repurchase will be the Company's available cash or cash generated from operations or other sources, including borrowings, sales of equity or funds provided by a new controlling person. However, there can be no assurance that sufficient funds will be available at the time of any Change of Control to make any required repurchases of Notes tendered. Moreover, a Change of Control would constitute an event of default under the New Credit Facility. Notwithstanding these provisions, the Company could enter into certain transactions, including certain recapitalizations, that would not constitute a Change of Control but would increase the amount of debt outstanding at such time. See "Description of the Notes" and "Description of Other Indebtedness -- Credit Facilities." FRAUDULENT CONVEYANCE CONSIDERATIONS Under applicable provisions of federal bankruptcy law or comparable provisions of state fraudulent conveyance law, if, among other things, the Company, at the time it incurred the indebtedness evidenced by the Notes, (i)(a) was or is insolvent or rendered insolvent by reason of such occurrence or (b) was or is engaged in a business or transaction for which the assets remaining with the Company were unreasonably small or constituted unreasonably small capital or (c) intended or intends to incur, or believed, believes or should have believed that it would incur, debts beyond its ability to repay such debts as they mature and (ii) the Company received or receives less than the reasonably equivalent value or fair consideration for the incurrence of such indebtedness, the Notes could be invalidated or subordinated to all other debts of the Company. The Notes could also be invalidated or subordinated if it were found that the Company incurred indebtedness in connection with the Notes with the intent of hindering, delaying or defrauding current or future creditors of the Company. In addition, the payment of Liquidated Damages, if any, interest and principal by the Company pursuant to the Notes could be voided and required to be returned to the person making such payment, or to a fund for the benefit of the creditors of the Company. The measures of insolvency for purposes of the foregoing considerations will vary depending upon the law applied in any proceeding with respect to the foregoing. Generally, however, the Company would be 20 22 considered insolvent if (i) the sum of its debts, including contingent liabilities, were greater than the sum of all of its assets at a fair valuation or if the present fair salable value of its assets were less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature or (ii) it could not pay its debts as they become due. On the basis of its historical financial information and recent operating history, as discussed in "Prospectus Summary," "Selected Historical Financial Information," "Unaudited Condensed Pro Forma Financial Information," and "Management's Discussion and Analysis of Financial Condition and Results of Operations," the Company believes that, after giving effect to the indebtedness incurred in connection with the Transactions, it will not be insolvent, will not have unreasonably small assets or capital for the businesses in which it is engaged and will not incur debts beyond its ability to pay such debts as they mature. In addition, the Company believes that it is receiving fair consideration in return for its issuance and sale of the Notes. There can be no assurance, however, as to what standard a court would apply in making such determinations. RESTRICTIONS ON RESALE The Series A Notes have not been registered under the Securities Act or any state securities laws and, unless so registered or qualified, may not be offered or sold except pursuant to an exemption from, or in transactions not subject to, the registration requirements of the Securities Act or any applicable state securities laws. The Exchange Notes have been registered under the Securities Act and, generally, will be freely tradable. See "The Exchange Offer" and "Plan of Distribution." ABSENCE OF AN ESTABLISHED TRADING MARKET FOR THE NOTES The Series A Notes are new securities that were first issued on March 31, 1998. There is currently no established trading market for the Notes. Although the Initial Purchaser has informed the Company that it currently intends to make a market in the Series A Notes and, upon issuance, the Exchange Notes, it is not obligated to do so and any such market making may be discontinued at any time without notice. Accordingly, there can be no assurance as to the development or liquidity of any market for the Notes. To the extent Series A Notes are exchanged in this Exchange Offer, the liquidity of the market for the remaining Series A Notes may be reduced. The Series A Notes have been designated eligible for trading in the PORTAL market. The Company does not intend to apply for listing of the Exchange Notes on any securities exchange or for quotation through Nasdaq. There is no assurance that an active public or other market will develop for the Exchange Notes, and it is expected that the market, if any, that develops for the Exchange Notes will be similar to the limited market that currently exists for the Series A Notes. LIMITED REGISTRATION RIGHTS EXCEPT AS OTHERWISE PROVIDED HEREIN, FOLLOWING THE CONSUMMATION OF THE EXCHANGE OFFER, ANY HOLDERS OF SERIES A NOTES NOT TENDERED THEREIN WHO ARE NOT ENTITLED TO RESELL THE SAME PURSUANT TO A RESALE PROSPECTUS, IF ANY, REQUIRED TO BE FILED AS A POST-EFFECTIVE AMENDMENT TO THIS REGISTRATION STATEMENT OR PURSUANT TO A SHELF REGISTRATION STATEMENT, WILL HAVE NO FURTHER EXCHANGE OR REGISTRATION RIGHTS, AND SUCH NOTES WILL CONTINUE TO BE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER. THE EXCHANGE OFFER PERSONS NOT ELIGIBLE TO PARTICIPATE IN THE EXCHANGE OFFER ANY HOLDER OF SERIES A NOTES WHO IS PROHIBITED BY APPLICABLE LAW OR SEC POLICY FROM PARTICIPATING IN THE EXCHANGE OFFER, INCLUDING ANY HOLDER WHO IS AN AFFILIATE OF THE COMPANY OR A BROKER-DEALER WHO HOLDS SERIES A NOTES ACQUIRED DIRECTLY FROM THE COMPANY OR ONE OF ITS AFFILIATES, AND ANY PERSON WHO INTENDS TO, OR HAS ANY ARRANGEMENT OR UNDERSTANDING TO 21 23 PARTICIPATE IN, A DISTRIBUTION OF THE EXCHANGE NOTES, SHOULD CONTACT THE COMPANY WITHIN 20 BUSINESS DAYS OF THE CONSUMMATION OF THE EXCHANGE OFFER IN ORDER TO PRESERVE ITS REGISTRATION RIGHTS THAT ARE DISCUSSED HEREIN. REGISTRATION RIGHTS AND EFFECT OF EXCHANGE OFFER The Series A Notes were sold by the Company on the Closing Date to the Initial Purchaser pursuant to a Purchase Agreement dated March 24, 1997, by and between SAC and the Initial Purchaser and a Purchase Agreement Supplement dated as of March 31, 1998 by and between the Company (as successor to SAC) and the Initial Purchaser (collectively, the "Purchase Agreement"). Subsequently, the Initial Purchaser sold the Series A Notes to "qualified institutional buyers" ("QIBs") and to a limited number of institutional "accredited investors" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act ("Accredited Investors")) in reliance upon Rule 144A and other available exemptions under the Securities Act. As a condition to the Initial Purchaser's obligations under the Purchase Agreement, the Company entered into the Registration Rights Agreement with the Initial Purchaser, pursuant to which the Company agreed to file with the Commission a registration statement (the "Exchange Offer Registration Statement") on an appropriate form under the Securities Act with respect to an offer to the holders of Series A Notes who are able to make certain representations ("Eligible Holders"), the opportunity to exchange their Series A Notes for a like principal amount of Exchange Notes. The Exchange Offer Registration Statement covers the offer of the Exchange Notes pursuant to the Exchange Offer made hereby and resales by broker-dealers that acquired Series A Notes for their own accounts as a result of market-making and other trading activities. Such resales of Transfer Restricted Securities (as defined herein) made in reliance upon the registration thereof under the Securities Act may be made only pursuant to the "Plan of Distribution" set forth in this Prospectus or the other prospectus, if any, filed as an amendment to the Exchange Offer Registration Statement. To be eligible to effect resales of Transfer Restricted Securities pursuant to a registration of the Notes for resale by holders ineligible to participate in the Exchange Offer, holders of Transfer Restricted Securities must (i) notify the Company within 20 business days after the consummation of the Exchange Offer that it has determined that it is not permitted by law or any policy of the Commission to participate in the Exchange Offer made hereby or that such holder may not resell the Exchange Notes acquired by it in the Exchange Offer to the public without delivering a prospectus and that this Prospectus is inappropriate or unavailable for such resales by such holder or that such holder is a broker-dealer and holds Series A Notes acquired directly from the Company or one of its affiliates and (ii) provide to the Company, within 15 business days following the Company's request therefor, such information as the Company may reasonably request for use in connection with the registration statement. In the event that any holders of Transfer Restricted Securities comply with the foregoing requirements, and supply any additional information reasonably requested by the Company within 20 business days following such request, the Company will use commercially reasonable efforts to file a shelf registration statement with the Commission on the appropriate Commission form available to the Company pursuant to Rule 415 under the Securities Act, which may be an amendment to the Exchange Offer Registration Statement (in either event, the "Shelf Registration Statement") containing an appropriate resale prospectus and will use its commercially reasonable efforts to cause such Shelf Registration Statement to become effective under the Securities Act and to remain continuously effective thereunder for a period of two years following the Closing Date. Each holder of Series A Notes that wishes to exchange Series A Notes for Exchange Notes in the Exchange Offer is required to establish that it is an Eligible Holder that may participate in the Exchange Offer by making certain representations, including representations that (i) any Exchange Notes to be received by it will be acquired in the ordinary course of its business and that it did not acquire such Series A Notes directly from the Company, (ii) it has no arrangement or understanding with any person to participate in and has no intention of participating in, a distribution (within the meaning of the Securities Act) of the Exchange Notes and (iii) it is not an "affiliate," as defined in Rule 405 under the Securities Act, of the Company. 22 24 If the holder is a broker-dealer that will receive Exchange Notes for its own account in exchange for Series A Notes that were acquired as a result of market-making activities or other trading activities, it also will be required to acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes, but that by delivering such a prospectus it is not thereby deemed to admit that it is an "underwriter" within the meaning of the Securities Act. Holders of Series A Notes acquired directly from the Company, affiliates of the Company and persons participating in, or having any arrangement or understanding with any person or participate in, a distribution of the Exchange Notes will be ineligible, under the Commission policy, to participate in the Exchange Offer, and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any secondary resale transaction of the Notes. If (i) the Company is not required to file an Exchange Offer Registration Statement or to consummate the Exchange Offer because the Exchange Offer is not permitted by applicable law or Commission policy or (ii) any holder of Series A Notes notifies the Company within 20 business days after consummation of the Exchange Offer that (a) it is prohibited by applicable law or Commission policy from participating in the Exchange Offer, (b) it may not resell the Exchange Notes acquired by it in the Exchange Offer to the public without delivering a prospectus and this Prospectus is not appropriate or available for such resales by such holder or (c) it is a broker-dealer and holds Series A Notes acquired directly from the Company or an affiliate of the Company, the Company will use commercially reasonable efforts to file with the Commission a Shelf Registration Statement to cover resales of the Transfer Restricted Securities by the holders thereof. The Company has agreed to use its commercially reasonable efforts to cause such Shelf Registration Statement to be declared effective as promptly as possible by the Commission on or before the 105th day after the Shelf Filing Deadline (as defined below). For purposes of the foregoing and as used elsewhere herein, "Transfer Restricted Securities" means each Series A Note until the earliest to occur of: (i) the date on which such Series A Note is exchanged in the Exchange Offer and entitled to be resold to the public by the holder thereof without complying with the prospectus delivery requirements of the Securities Act, (ii) the date on which such Note has been effectively registered under the Securities Act and disposed of in accordance with the Shelf Registration Statement or (iii) the date on which such Note is distributed to the public pursuant to Rule 144 under the Securities Act or by a broker-dealer pursuant to the "Plan of Distribution" contemplated by the Exchange Offer Registration Statement (including delivery of this Prospectus). Under existing Commission interpretations, the Exchange Notes will, in general, be freely transferable by holders after the Exchange Offer without further registration under the Securities Act; provided that in the case of eligible broker-dealers participating in the Exchange Offer, a prospectus meeting the requirements of the Securities Act must be delivered upon resale by such broker-dealers in connection with resales of the Exchange Notes. The Company has agreed, for a period of 180 days after the consummation of the Exchange Offer, to make available a prospectus meeting the requirements of the Securities Act to any such broker-dealer for use in connection with any resale of any Exchange Notes acquired in the Exchange Offer. A broker-dealer which delivers such a prospectus to purchasers in connection with such resales may be deemed a statutory underwriter that may, as such, be subject to certain of the civil liability provisions under the Securities Act and will be bound by the provisions of the Registration Rights Agreement (including certain indemnification rights and obligations). The Company has agreed to pay all expenses incident to the Exchange Offer and to indemnify the Initial Purchaser against certain liabilities, including liabilities under the Securities Act. The Registration Rights Agreement provides that unless the Exchange Offer is not permitted by applicable law or Commission policy, the Company will: (i) use all commercially reasonable efforts to file the Exchange Offer Registration Statement with the Commission on or prior to 60 days after the Closing Date, (ii) use all commercially reasonable efforts to have the Registration Statement declared effective by the Commission on or prior to 120 days after the Closing Date and (iii) commence the Exchange Offer following the effectiveness of the Exchange Offer Registration Statement and use all commercially reasonable efforts to issue, on or prior to 30 business days after the date on which the Exchange Offer Registration Statement was 23 25 declared effective by the Commission, Exchange Notes in exchange for all Series A Notes tendered prior thereto in the Exchange Offer. In addition, the Registration Rights Agreement provides that, if obligated to file the Shelf Registration Statement, the Company will use its commercially reasonable efforts to file on or prior to the earliest to occur of (i) the 60th day after the date on which the Company determines that it is not required to file the Exchange Offer Registration Statement or (ii) the 60th day after the date on which the Company receives notice from a holder of Transfer Restricted Securities (such earliest date being the "Shelf Filing Deadline"). The Company shall use its commercially reasonable efforts to (i) cause such Shelf Registration Statement to be declared effective by the Commission on or before the 105th day after the Shelf Filing Deadline and (ii) keep such Shelf Registration Statement, if required, continuously effective, supplemented and amended for a period of two years from the Closing Date or such shorter period ending when all Transfer Restricted Securities covered by the Shelf Registration Statement have been sold in the manner set forth and as contemplated in the Shelf Registration Statement, such Notes are no longer outstanding or when the Notes become eligible for resale pursuant to Rule 144 under the Securities Act without volume restrictions. A holder of Notes that sells its Notes pursuant to the Shelf Registration Statement generally will be required to be named as a selling securityholder in the related prospectus and to deliver a prospectus to purchasers, will be subject to certain of the civil liability provisions under the Securities Act in connection with such sales and will be bound by the provisions of the Registration Rights Agreement that are applicable to such a holder (including certain indemnification and contribution obligations). In addition, each holder of the Notes will be required to timely deliver information to be used in connection with the Shelf Registration Statement within the time periods set forth in the Registration Rights Agreement in order to have their Notes included in the Shelf Registration Statement and to benefit from the provisions regarding Liquidated Damages set forth in the following paragraph. If (a) the Company fails to file any of the registration statements required by the Registration Rights Agreement on or before the date specified for such filing, (b) any of such registration statements is not declared effective by the Commission on or prior to the date specified for such effectiveness (the "Effectiveness Target Date"), or (c) the Company fails to consummate the Exchange Offer within 30 business days of the Effectiveness Target Date with respect to the Exchange Offer Registration Statement, or (d) the Shelf Registration Statement or the Exchange Offer Registration Statement is declared effective but thereafter ceases to be effective or usable in connection with resales of Transfer Restricted Securities during the periods specified in the Registration Rights Agreement (each such event referred to in clauses (a) through (d) above a "Registration Default"), then the Company will pay Liquidated Damages to each holder of Transfer Restricted Securities, with respect to the first 90-day period immediately following the occurrence of the first Registration Default in an amount equal to $.05 per week per $1,000 principal amount of Transfer Restricted Securities held by such holder. The amount of the Liquidated Damages will increase by an additional $.05 per week per $1,000 principal amount of Transfer Restricted Securities with respect to each subsequent 90-day period until all Registration Defaults have been cured, up to a maximum amount of Liquidated Damages for all Registration Defaults of $.30 per week per $1,000 principal amount of Transfer Restricted Securities. All accrued Liquidated Damages will be paid by the Company on each Damages Payment Date to the Global Note holder by wire transfer of immediately available funds or by federal funds check and to holders of Certificated Securities by wire transfer to the accounts specified by them or by mailing checks to their registered addresses if no such accounts have been specified. Following the cure of all Registration Defaults relating to any particular Transfer Restricted Securities, the accrual of Liquidated Damages with respect to such Transfer Restricted Securities will cease. However, the Registration Rights Agreement provides that pending the announcement of a material corporate event, the Company may issue a notice that the Shelf Registration Statement is unusable, so long as the number of days in any consecutive twelve-month period for which all such notices are issued does not exceed 30 days in the aggregate. In such event, the Company will not be required to pay Liquidated Damages during such 30 days. EXCEPT AS OTHERWISE PROVIDED HEREIN WITH RESPECT TO THE SHELF REGISTRATION STATEMENT, FOLLOWING THE CONSUMMATION OF THE EXCHANGE OFFER, ANY HOLDER OF SERIES A NOTES THAT HAS NOT TENDERED AND EFFECTIVELY 24 26 DELIVERED TO THE EXCHANGE AGENT IN ACCORDANCE WITH THE EXCHANGE OFFER, AND ANY HOLDER OF EXCHANGE NOTES WHO IS NOT ENTITLED TO RESELL SUCH EXCHANGE NOTES PURSUANT TO A RESALE PROSPECTUS, IF ANY, REQUIRED TO BE FILED AS AN AMENDMENT TO THE EXCHANGE OFFER REGISTRATION STATEMENT, WILL HAVE NO FURTHER EXCHANGE OR REGISTRATION RIGHTS AND SUCH SERIES A NOTES WILL CONTINUE TO BE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER. See "-- Termination of Certain Rights," "-- Consequences of Failure to Exchange," and "-- Resale of Exchange Notes." Accordingly, the ability of any such holder of Notes to resell its Notes could be adversely affected. TERMS OF THE EXCHANGE OFFER Upon the terms and subject to the conditions set forth in this Prospectus and in the Letter of Transmittal, the Company will accept any and all Series A Notes validly tendered and not withdrawn prior to 5:00 P.M. Eastern Time, on the Expiration Date. The Company will issue $1,000 principal amount of Exchange Notes in exchange for each $1,000 principal amount of outstanding Series A Notes accepted in the Exchange Offer. Holders may tender some or all of their Series A Notes pursuant to the Exchange Offer. However, Series A Notes may be tendered only in integral multiples of $1,000. The form and terms of the Exchange Notes are substantially identical to the form and terms of the Series A Notes except that (i) the Exchange Notes have been registered under the Securities Act and hence will not bear the transfer restrictions set forth on the Series A Notes and (ii) the holders of the Exchange Notes generally will not be entitled to certain rights under the Registration Rights Agreement, which rights generally will terminate upon consummation of the Exchange Offer. The Exchange Notes will evidence the same indebtedness as the Series A Notes and will be entitled to the benefits of the Indenture. Holders of the Notes do not have any appraisal or dissenters' rights under the Indenture or otherwise in connection with the Exchange Offer. The Company intends to conduct the Exchange Offer in accordance with the Indenture, the Registration Rights Agreement, and the applicable requirements of the Exchange Act and the rules and regulations of the SEC thereunder, including Rule 14e-1 thereunder. The Company shall be deemed to have accepted validly tendered Series A Notes when, as and if the Company has given telephonic, facsimile or written notice thereof to the Exchange Agent. The Exchange Agent will act as agent for the tendering holders for the purpose of receiving the Exchange Notes from the Company. If any tendered Series A Notes are not accepted for exchange because of an invalid tender, the occurrence of certain other events set forth herein or otherwise, the certificates for any such unaccepted Series A Notes will be returned, without expense, to the tendering holder thereof as promptly as practicable after the Expiration Date. Holders who tender Series A Notes in the Exchange Offer will not be required to pay brokerage commissions or fees or, subject to the instructions in the Letter of Transmittal, transfer taxes with respect to the exchange of Series A Notes pursuant to the Exchange Offer. The Company will pay all charges and expenses, other than transfer taxes in certain circumstances, in connection with the Exchange Offer. See "-- Fees and Expenses." EXPIRATION DATE; EXTENSIONS; AMENDMENTS The term "Expiration Date" shall mean 5:00 P.M., Eastern Time, on , 1998, unless the Company, in its sole discretion, extends the Exchange Offer, in which case the term "Expiration Date" shall mean the latest date and time to which the Exchange Offer is extended. To extend the Exchange Offer, the Company will notify the Exchange Agent of any extension by oral or written notice, followed by a public announcement thereof no later than 9:00 A.M., Eastern Time, on the next business day after the previously scheduled Expiration Date. 25 27 The Company reserves the right, in its reasonable judgment, (i) to delay accepting any Series A Notes, to extend the Exchange Offer or to terminate the Exchange Offer if any of the conditions set forth below under "-- Conditions" shall not have been satisfied, by giving telephonic, facsimile or written notice of such delay, extension or termination to the Exchange Agent or (ii) to amend the terms of the Exchange Offer in any manner. Any such delay in acceptance, extension or termination, and any amendment will be followed as promptly as practicable by a public announcement thereof. If the Exchange Offer is amended in a manner determined by the Company to constitute a material change, the Company will promptly disclose such amendment by means of a prospectus supplement that will be distributed to the registered holders. If the Company does not consummate the Exchange Offer, or, in lieu thereof, the Company does not file and cause to become effective a Shelf Registration Statement for the Series A Notes within the time periods set forth herein, Liquidated Damages will accrue and be payable on the Transfer Restricted Securities. See "-- Registration Rights and Effect of Exchange Offer." Without limiting the manner in which the Company may choose to make public announcement of any delay, extension, termination or amendment of the Exchange Offer, the Company shall have no obligation to publish, advertise or otherwise communicate any such public announcement, other than by making a timely release to the Dow Jones News Service. INTEREST ON THE EXCHANGE NOTES The Exchange Notes will bear interest from March 31, 1998, the date of issuance of the Series A Notes that are exchanged for the Exchange Notes (or, if later, the most recent Interest Payment Date to which interest on such Series A Notes has been paid or duly provided for). Accordingly, holders of Series A Notes that are accepted for exchange will not receive interest that is accrued but unpaid on those Notes at the time of tender, but such interest will be payable on the first Interest Payment Date following the Expiration Date. Interest on the Exchange Notes will be payable semiannually on each April 15 and October 15, commencing on October 15, 1998. PROCEDURES FOR TENDERING Only an eligible holder of Series A Notes may tender such Notes in the Exchange Offer. To tender in the Exchange Offer, a holder of Series A Notes must complete, sign and date the Letter of Transmittal, or a facsimile thereof, have the signatures thereon guaranteed if required by the Letter of Transmittal and mail or otherwise deliver the Letter of Transmittal or such facsimile, together with the Series A Notes and any other required documents, to the Exchange Agent so as to be received by the Exchange Agent at the address set forth below prior to 5:00 P.M., Eastern Time, on the Expiration Date. Delivery of the Series A Notes may be made by book-entry transfer in accordance with the procedures described below. Confirmation of such book-entry transfer must be received by the Exchange Agent prior to the Expiration Date. In addition, either (i) certificates for such Series A Notes must be received by the Exchange Agent along with the Letter of Transmittal, or (ii) a timely confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such Series A Notes, if such procedure is available, into the Exchange Agent's account at DTC (the "Book-Entry Transfer Facility") pursuant to the procedure for book-entry transfer described below, must be received by the Exchange Agent prior to the Expiration Date, or (iii) the holder must comply with the guaranteed delivery procedures described below. To be tendered effectively, the Letter of Transmittal or, in the case of a book-entry transfer, an Agent's Message in lieu of a Letter of Transmittal, and all other required documents must be received by the Exchange Agent at the address set forth below under "-- Exchange Agent" prior to the Expiration Date. The term "Agent's Message" means a message transmitted by DTC to, and received by, the Exchange Agent and forming a part of a Book-Entry Confirmation, which states that DTC has received express acknowledgment from the tendering DTC participant indicating that such participant has received, and agrees to be bound by, the Letter of Transmittal and that the Company may enforce such Letter of Transmittal against such participant. 26 28 The tender by a holder and the acceptance thereof by the Company will constitute an agreement between such holder of Series A Notes and the Company upon the terms and subject to the conditions set forth herein and in the Letter of Transmittal. THE METHOD OF DELIVERY OF THE SERIES A NOTES AND THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE SOLE ELECTION AND RISK OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR SERIES A NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS. Any beneficial owner whose Series A Notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee, including Series A Notes held in book-entry form and who wishes to tender should contact the registered holder of Series A Notes promptly, or in the case of book-entry Series A Notes, the DTC participant who holds such Series A Notes at DTC on behalf of the beneficial owner, and instruct such registered holder to tender on such beneficial owner's behalf. See "The Exchange Offer." Signatures on the Letter of Transmittal or a notice of withdrawal, as the case may be, must be guaranteed by an Eligible Institution (as defined below) unless the Series A Notes tendered pursuant thereto are tendered (i) by a registered holder who has not completed the box entitled "Special Registration Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or (ii) for the account of an Eligible Institution. In the event that signatures on the Letter of Transmittal or a notice of withdrawal, as the case may be, are required to be guaranteed, such guarantee must be by a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., a commercial bank or trust company having an office or correspondent in the United States or an "eligible guarantor institution" within the meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible Institution"). If the Letter of Transmittal is signed by a person other than the registered holder of any Series A Notes listed therein, such Series A Notes must be endorsed or accompanied by a properly completed bond power, signed by such registered holder as such registered holder's name appears on such Series A Notes with the signature thereon guaranteed by an Eligible Institution. If the Letter of Transmittal or any Series A Notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and unless waived by the Company, evidence satisfactory to the Company of their authority to so act must be submitted with the Letter of Transmittal. All questions as to the validity, form, eligibility (including time of receipt), acceptance of tendered Series A Notes and withdrawal of tendered Series A Notes will be determined by the Company in its sole discretion, which determination will be final and binding. The Company reserves the absolute right to reject any and all Series A Notes not properly tendered or any Series A Notes the Company's acceptance of which would, in the opinion of counsel for the Company, be unlawful. The Company also reserves the right to waive, to the extent permitted by applicable law, any defects, irregularities or conditions of tender as to particular Series A Notes. The Company's interpretation of the terms and conditions of the Exchange Offer (including the instructions in the Letter of Transmittal) will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Series A Notes must be cured within such time as the Company shall determine. Although the Company intends to notify holders of Series A Notes of defects or irregularities with respect to tenders of Series A Notes, none of the Company, the Exchange Agent nor any other person shall incur any liability for failure to give such notification. Tenders of Series A Notes will not be deemed to have been made until such defects or irregularities have been cured or waived. Any Series A Notes received by the Exchange Agent that are not properly tendered and as to which the defects or irregularities 27 29 have not been cured or waived will be returned by the Exchange Agent to the tendering holders as soon as practicable following the Expiration Date. BOOK-ENTRY TRANSFER The Exchange Agent will make a request promptly after the date of this Prospectus to establish accounts with respect to the Series A Notes at DTC for the purpose of facilitating the Exchange Offer, and subject to the establishment thereof, any financial institution that is a DTC Participant may make book-entry delivery of the Series A Notes by causing DTC to transfer such Series A Notes into the relevant Exchange Agent's account with respect to the Series A Notes in accordance with DTC's ATOP procedures for such transfer. Although delivery of the Series A Notes may be effected through book-entry transfer into the Exchange Agent's account at DTC, an Agent's Message or an appropriate Letter of Transmittal properly completed and duly executed with any required signature guarantee and all other required documents must in each case be transmitted to and received or confirmed by the Exchange Agent at its address set forth below on or prior to the Expiration Date, or, if the guaranteed delivery procedures described below are complied with, within the time period provided under such procedures. Delivery of documents to DTC does not constitute delivery to the Exchange Agent. GUARANTEED DELIVERY PROCEDURES Holders who wish to tender their Series A Notes and (i) whose Series A Notes are not immediately available, (ii) who cannot deliver their Series A Notes, the Letter of Transmittal or any other required documents to the Exchange Agent or (iii) who cannot complete the procedures for book-entry transfer, in each case prior to the Expiration Date, may effect a tender if: (a) the tender is made through an Eligible Institution; (b) prior to the Expiration Date, the Exchange Agent receives from such Eligible Institution a properly completed and duly executed Notice of Guaranteed Delivery (by facsimile transmission, mail or hand delivery) setting forth the name and address of the holder of Series A Notes, the certificate number(s) of such holder's Series A Notes and the principal amount of Series A Notes tendered, stating that the tender is being made thereby and guaranteeing that, within three New York Stock Exchange trading days after the Expiration Date, the Letter of Transmittal (or facsimile thereof), together with the certificates(s) representing the tendered Series A Notes (or a confirmation of book-entry transfer of such Series A Notes into the Exchange Agent's account at DTC) and any other documents required by the Letter of Transmittal, will be deposited by the Eligible Institution with the Exchange Agent; and (c) such properly completed and executed Letter of Transmittal (or facsimile thereof), as well as the certificate(s) representing all tendered Series A Notes in proper form for transfer (or a confirmation of book-entry transfer of such Series A Notes into the Exchange Agent's account at DTC) and all other documents required by the Letter of Transmittal, are received by the relevant Exchange Agent within three New York Stock Exchange trading days after the Expiration Date. Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be sent to holders who wish to tender their Series A Notes according to the guaranteed delivery procedures set forth above. WITHDRAWALS OF TENDERS Except as otherwise provided herein, tenders of Series A Notes may be withdrawn at any time prior to 5:00 P.M., Eastern Time, on the Expiration Date. To withdraw a tender of Series A Notes in the Exchange Offer, a written or facsimile transmission notice of withdrawal must be received by the relevant Exchange Agent at its address set forth herein prior to 5:00 P.M., Eastern Time, on the Expiration Date. Any such notice of withdrawal must (i) specify the name of the person having deposited the Series A Notes to be withdrawn (the "Depositor"), (ii) identify the Series A Notes to be withdrawn (including the certificate number(s) and principal amount of such Series A Notes, or, in the case of Series A Notes transferred by book-entry transfer, the name and number of the account at DTC 28 30 to be credited and the DTC participant through which such Series A Notes are held), (iii) be signed by the holder of such Series A Notes in the same manner as the original signature on the Letter of Transmittal by which such Series A Notes were tendered (including any required signature guarantees) or be accompanied by documents of transfer sufficient to have the transfer agent and registrar with respect to the Series A Notes register the transfer of such Series A Notes into the name of the person withdrawing the tender, and (iv) specify the name in which any such Series A Notes are to be registered, if different from that of the Depositor. All questions as to the validity, form and eligibility (including time of receipt) of such notices will be determined by the Company, whose determination shall be final and binding on all parties. Any Series A Notes so withdrawn will be deemed not to have been validly tendered for purposes of the Exchange Offer and no Exchange Notes will be issued with respect thereto unless the Series A Notes so withdrawn are validly and timely re-tendered. Any Series A Notes which have been tendered but which are not accepted for exchange will be returned to the holder thereof without cost to such holder, as soon as practicable after withdrawal, rejection of tender or termination of the Exchange Offer. Properly withdrawn Series A Notes may be retendered by following one of the procedures described above under "-- Procedures for Tendering" at any time prior to the Expiration Date. CONDITIONS Notwithstanding any other term of the Exchange Offer including, without limitation, the terms and conditions contained herein and in the Letter of Transmittal, the Company shall not be required to accept for exchange, or to exchange Exchange Notes for, any Series A Notes, and may terminate or amend the Exchange Offer as provided herein before the acceptance of such Series A Notes, if: (a) any law, statute, rule, regulation or interpretation by the Commission is proposed, adopted or enacted, which, in the reasonable judgment of the Company, might materially impair the ability of the Company to proceed with the Exchange Offer or materially impair the contemplated benefits of the Exchange Offer to the Company; or (b) any governmental approval has not been obtained, which approval the Company shall, in its reasonable judgment, deem necessary for the consummation of the Exchange Offer as contemplated hereby. If the Company determines in its reasonable judgment that any of the conditions are not satisfied, the Company may, in its sole discretion (i) refuse to accept any Series A Notes and return all tendered Notes to the tendering holders, (ii) extend the Exchange Offer and retain all Series A Notes tendered prior to the expiration of the Exchange Offer, subject, however, to the rights of holders to withdraw such Series A Notes (see "-- Withdrawals of Tenders") or (iii) waive such unsatisfied conditions with respect to the Exchange Offer and accept all properly tendered Series A Notes which have not been withdrawn. If such waiver constitutes a material change to the Exchange Offer, the Company will promptly disclose such waiver by means of a prospectus supplement that will be distributed to the registered holders of Series A Notes. TERMINATION OF CERTAIN RIGHTS Holders of the Series A Notes to whom this Exchange Offer is made have special rights under the Registration Rights Agreement, certain of which will terminate upon the consummation of the Exchange Offer. Such special rights which will terminate include (a) the right to require the Company to comply with the following: (x) to use all commercially reasonable efforts to cause to be filed with the Commission an Exchange Offer Registration Statement no later than 60 days following the Closing Date, (y) to use all commercially reasonable efforts to cause such Exchange Offer Registration Statement to be declared effective by the Commission no later than 120 days after the Closing Date, and (z) unless the Exchange Offer would not be permitted by applicable law or Commission policy, to commence the Exchange Offer and use all commercially reasonable efforts to issue, on or prior to 30 business days after the date on which the Exchange Offer Registration Statement was declared effective by the Commission, Exchange Notes in exchange for all Series A Notes tendered prior thereto in the Exchange Offer, and (b) the right to receive Liquidated Damages in the event of a breach by the Company of any of its obligations set forth in the foregoing clauses 29 31 (x), (y) or (z), in an amount, during the first 90-day period immediately following the occurrence of the first Registration Default, equal to $.05 per week per $1,000 principal amount of Series A Notes held by such holder, such amount to increase by an additional $.05 per week per $1,000 principal amount of Series A Notes with respect to each subsequent 90-day period until all Registration Defaults have been cured, up to a maximum amount of $.30 per week per $1,000 principal amount of Series A Notes. See "-- Registration Rights and Effect of Exchange Offer." The Registration Rights Agreement also requires the registering for resale, pursuant to Rule 415 under the Securities Act, the Transfer Restricted Securities under certain circumstances. Such resale of Transfer Restricted Securities made in reliance upon the registration thereof under the Securities Act may be made only pursuant to the "Plan of Distribution" set forth in this Prospectus or a separate resale prospectus, if any, filed as an amendment to the Exchange Offer Registration Statement. To be eligible to effect resales of Transfer Restricted Securities pursuant to the Shelf Registration Statement, a holder of Transfer Restricted Securities must (i) notify the Company within 20 business days after the consummation of the Exchange Offer that (a) it is not permitted by law or any policy of the Commission to participate in the Exchange Offer, (b) it may not resell the Exchange Notes acquired by it in the Exchange Offer to the public without delivering a prospectus and this Prospectus is not appropriate or available for such resales by such holder or (c) it is a broker-dealer and holds Series A Notes acquired directly from the Company or an affiliate of the Company and (ii) furnish to the Company in writing, within 15 business days after receipt of a request therefor, such information as the Company may reasonably request for use in connection with the Shelf Registration Statement. In the event that any holders of Transfer Restricted Securities comply with the foregoing requirements, and supply any additional information reasonably requested by the Company within 15 business days following such request, the Company will file a Shelf Registration Statement containing an appropriate resale prospectus and will use commercially reasonable efforts to cause such Shelf Registration Statement to become effective under the Securities Act and to remain continuously effective thereunder for a period of at least two years following the Closing Date. In the event that the Company fails to comply with its obligations in connection with resales of Transfer Restricted Securities under the Shelf Registration Statement it may be required to pay Liquidated Damages. See "-- Registration Rights and Effect of Exchange Offer." EXCHANGE AGENT The Trustee will act as Exchange Agent for the Exchange Offer with respect to the Notes (the "Exchange Agent"). Questions and requests for assistance, requests for additional copies of this Prospectus or of the Letter of Transmittal for the Series A Notes and requests for copies of Notice of Guaranteed Delivery should be directed to the Exchange Agent, addressed as follows: By Registered or Certified Mail: IBJ Schroder Bank & Trust Company P.O. Box 84 Bowling Green Station New York, New York 10274-0084 Attn: Reorganization Operations Department By Overnight Mail or Courier Service or in Person by Hand: IBJ Schroder Bank & Trust Company One State Street New York, New York 10004 Attn: Securities Processing Window, Subcellar One (SC-1) By Facsimile: (212) 858-2611 30 32 FEES AND EXPENSES The expenses of soliciting tenders will be borne by the Company. The principal solicitation is being made by mail; however, additional solicitation may be made by telegraph, telephone, facsimile or in person by officers and regular employees of the Company and its affiliates, who may be reimbursed their reasonable expenses incurred in connection with such solicitation, but who will not otherwise receive special compensation for such efforts. The Company has not retained any dealer-manager in connection with the Exchange Offer and will not make any payments to brokers, dealers or other persons soliciting acceptance of the Exchange Offer. The Company, however, will pay the Exchange Agent reasonable and customary fees for its services and will reimburse it for its reasonable out-of-pocket expenses in connection therewith and pay other registration expenses, including reasonable fees and expenses of the Trustee, filing fees, blue sky fees and printing and distribution expenses. The Company will pay all transfer taxes, if any, applicable to the exchange of the Notes pursuant to the Exchange Offer. If, however, certificates representing the Exchange Notes or the Series A Notes for principal amounts not tendered or accepted for exchange are to be delivered to, or are to be issued in the name of, any person other than the registered holder of the Series A Notes tendered, or if tendered Series A Notes are registered in the name of any person other than the person signing the Letter of Transmittal, or if a transfer tax is imposed for any reason other than the exchange of the Notes pursuant to the Exchange Offer, then the amount of any such transfer taxes (whether imposed on the registered holder or any other person) will be payable by the tendering holder of Series A Notes. ACCOUNTING TREATMENT The Exchange Notes will be recorded by the Company at the same carrying value as the Series A Notes, which is the aggregate principal amount in the case of the Series A Notes. Accordingly, no gain or loss for accounting purposes will be recognized in connection with the Exchange Offer. The expenses of the Exchange Offer will be amortized over the term of the Exchange Notes. RESALE OF EXCHANGE NOTES Based on an interpretation by the staff of the SEC set forth in no-action letters issued to unrelated third parties, the Company believes that Exchange Notes issued pursuant to the Exchange Offer in exchange for Series A Notes may be offered for resale, resold and otherwise transferred by any holder thereof (other than any such holder which is a broker-dealer that holds Series A Notes acquired for its own account as a result of market-making or other trading activities or any such holder which is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such Exchange Notes are acquired in the ordinary course of such holder's business and such holder does not intend to participate, and has no arrangement or understanding with any person to participate, in the distribution of such Exchange Notes. Any holder who tenders in the Exchange Offer with the intention to participate, or for the purpose of participating, in a distribution of the Exchange Notes may not rely on the position of the staff of the SEC enunciated in Exxon Capital Holdings Corporation (available May 13, 1988) and Morgan Stanley & Co., Incorporated (available June 5, 1991), or similar no-action letters, but rather must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction. In addition, any such resale transaction should be covered by an effective registration statement containing the selling security holder information required by Item 507 or 508, as applicable, of Regulation S-K of the Securities Act. Each broker-dealer that receives Exchange Notes for its own account in exchange for Series A Notes, where such Series A Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, may be a statutory underwriter and must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. By tendering Series A Notes in the Exchange Offer, each holder tendering such Series A Notes will represent to the Company that, among other things, (i) the holder is not an affiliate of the Company, (ii) the 31 33 holder is not engaged in, and does not intend to engage in, and has no arrangement or understanding with any person to participate in, a distribution of the Exchange Notes to be issued in the Exchange Offer and (iii) the holder is acquiring the Exchange Notes in its ordinary course of business, and (iv) the holder acknowledges that if it or any broker-dealer uses the Exchange offer to participate in a distribution of the Exchange Notes they must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale of the Exchange Notes and cannot rely on the no-action letters referenced above. Affiliates of the Company are not entitled to rely on the foregoing interpretations of the staff of the SEC with respect to resales of the Exchange Notes without compliance with the registration and prospectus delivery requirements of the Securities Act. The Company has agreed to bear all registration expenses incurred under the Registration Rights Agreement, including printing and distribution expenses, reasonable fees of counsel, blue sky fees and expenses, reasonable fees of independent accountants in connection with the preparation of comfort letters (to the extent required), and SEC and the NASD filing fees and expenses. CONSEQUENCES OF FAILURE TO EXCHANGE As a result of the making of this Exchange Offer, the Company will have fulfilled one of its obligations under the Registration Rights Agreement, and holders of Series A Notes who do not tender their Series A Notes generally will not have any further registration rights under the Registration Rights Agreement or otherwise. Accordingly, any holder of Series A Notes that does not exchange that holder's Series A Notes for Exchange Notes will continue to hold unregistered Series A Notes and will be entitled to all the rights and limitations applicable thereto under the Indenture, except to the extent that such rights or limitations, by their terms, terminate or cease to have further effectiveness as a result of the Exchange Offer. The Series A Notes that are not exchanged for Exchange Notes pursuant to the Exchange Offer will remain restricted securities. Accordingly, such Series A Notes may be resold only (i) to the Company (upon redemption thereof or otherwise), (ii) pursuant to an effective registration statement under the Securities Act, (iii) so long as the Series A Notes are eligible for resale pursuant to Rule 144A, to a qualified institutional buyer within the meaning of Rule 144A under the Securities Act in a transaction meeting the requirements of Rule 144A, (iv) outside the United States to a foreign person pursuant to the exemption from the registration requirements of the Securities Act provided by Regulation S thereunder, (v) pursuant to an exemption from registration under the Securities Act provided by Rule 144 thereunder (if available) or (vi) to an institutional accredited investor in a transaction exempt from the registration requirements of the Securities Act, in each case in accordance with any applicable securities laws of any state of the United States. See "Risk Factors -- Restrictions on Resale." NO RECOMMENDATION Participation in the Exchange Offer is voluntary and holders of Series A Notes should carefully consider whether to accept. Holders of Series A Notes are urged to consult their own financial and tax advisors in making their own decision on what action to take. The Board of Directors of the Company makes no recommendation as to whether or not holders should tender Series A Notes pursuant to the Exchange Offer. OTHER The Company may in the future seek to acquire unregistered Series A Notes that are not tendered in the Exchange Offer in open market, privately negotiated or other transactions, through subsequent exchange offers or otherwise. The Company has no present plans to acquire any Series A Notes that are not tendered in the Exchange Offer or, except as required by the Registration Rights Agreement, to file a registration statement to permit resales of any untendered Series A Notes. 32 34 PLAN OF DISTRIBUTION Each broker-dealer that receives Exchange Notes for its own account pursuant to the Exchange Offer must acknowledge (i) that by receiving Exchange Notes for its own account in exchange for Series A Notes, where such Series A Notes were acquired as a result of market-making activities or other trading activities (other than Transfer Restricted Securities acquired directly from the Company), such broker-dealer may be a statutory underwriter, and (ii) that it will deliver a prospectus in connection with any resale of such Exchange Notes. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with the resales of Exchange Notes received in exchange for the Series A Notes where such Series A Notes were acquired as a result of market-making activities or other trading activities. The Company has agreed that for a period of 180 days after the date on which the Exchange Offer Registration Statement is declared effective, it will make this Prospectus, as amended or supplemented, available to any broker-dealer upon reasonable request for use in connection with any such resale. The Company will not receive any proceeds from any sale of Exchange Notes by broker-dealers or any other persons. Exchange Notes received by broker-dealers for their own account pursuant to the Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the Exchange Notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer and/or the purchasers of any such Exchange Notes. Any broker-dealer that resells Exchange Notes that were received by it for its own account pursuant to the Exchange Offer and any broker or dealer that participates in a distribution of such Exchange Notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of Exchange Notes and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. The Company has agreed to pay all expenses incident to the Company's performance of, or compliance with, the Registration Rights Agreement and will indemnify the holders (including any broker-dealers) and certain parties related to the holders against certain liabilities, including liabilities under the Securities Act. THE TRANSACTIONS THE ACQUISITION General. Pursuant to the Stock Purchase Agreement, SAC purchased all of the outstanding capital stock of the Company in the Acquisition. The aggregate purchase price paid by SAC for the Acquisition was equal to the approximately $66.7 million Cash Consideration. The Cash Consideration is subject to adjustment (the "Post-closing Adjustment") if the value of the net assets of the Company as of the date of the closing of the Acquisition (the "Acquisition Closing") differs from the value of the net assets of the Company as of December 31, 1997. Indemnification. The Selling Stockholders are required to indemnify, defend and hold harmless SAC, the Company and certain affiliated persons, against and for all Losses (as defined in the Stock Purchase Agreement) resulting from, based upon or arising out of, among other things, breaches of representations, warranties or covenants of the Company or the Selling Stockholders contained in or made pursuant to the Stock Purchase Agreement. The Selling Stockholders are obligated to provide such indemnity generally for a period of 18 months following the Acquisition Closing, although indemnification for tax related matters continues until September 15, 2002, and indemnification for Losses related to title to the shares of the Company's capital stock acquired (or the options exercised) is not limited by any time period. The Selling Stockholders are not obligated to provide such indemnity until the total of all Losses with respect thereto exceeds $500,000, and the Selling Stockholders will only be liable for the amount by which such Losses exceed $250,000. The maximum aggregate liability of the Selling Stockholders may not exceed $8.2 million, 33 35 except with respect to Losses related to title to the Company's assets and title to the shares of the Company's capital stock sold to SAC. Pursuant to the Stock Purchase Agreement, $4.0 million of the Cash Consideration is being held in escrow for a limited period of time to secure a portion of the indemnification obligations of the Selling Stockholders under the Stock Purchase Agreement. FINANCING OF THE ACQUISITION The aggregate purchase price paid by SAC for the Acquisition, which was comprised of the Cash Consideration (subject to the Post-closing Adjustment), together with $6.0 million of related fees and expenses, was financed with the net proceeds of the Offering and the $22.0 million Equity Contribution by CGW and the Senior Management to Holdings, which was then contributed by Holdings to SAC. Immediately following the Acquisition, the Merger occurred in which SAC merged with and into the Company, with the Company being the surviving corporation. As a result of the Merger, the Company became the obligor of the Notes and a wholly owned subsidiary of Holdings. In return for funding the Equity Contribution, CGW received 20,000 shares of Holdings' no par value common stock (the "Holdings Stock"), or 79.8% of the economic and voting power of Holdings (on a fully diluted basis), and the Senior Management collectively received 2,000 shares of Holdings Stock, or 8.0% of the economic and voting power of Holdings (on a fully diluted basis). After taking into consideration shares of Holdings Stock for which options held by Senior Management will be exercisable, 20.2% of the economic and voting power of Holdings (on a fully diluted basis) is held by Senior Management. See "Use of Proceeds," "Principal Stockholder" and "Certain Transactions." CREDIT FACILITIES AND IRB FINANCING In connection with the Acquisition, the Company (i) repaid approximately $9.2 million of term loan indebtedness (including accrued interest thereon and fees) outstanding under the Terminated Credit Facility with a portion of the net proceeds of the Offering and (ii) replaced the Terminated Credit Facility and the Terminated Reimbursement Agreement with the New Credit Facility. The New Credit Facility consists of a $15.0 million revolving credit facility which provides availability for borrowings and letters of credit. As part of the IRB Financing, the letter of credit issuing bank under the Terminated Reimbursement Agreement issued an approximately $6.1 million letter of credit (the "Terminated Bond Letter of Credit") for the account of the Company to Regions Bank, as trustee (the "Bond Trustee") for the holders of the industrial revenue bonds (the "IRBs") issued under the Trust Indenture dated as of January 1, 1995 (the "Bond Indenture") between the Bond Trustee and the State Industrial Development Authority, a public corporation organized under the laws of the State of Alabama (the "SIDA"). As a result of the termination of the Terminated Reimbursement Agreement, the Terminated Bond Letter of Credit was replaced by a new approximately $6.1 million letter of credit (the "New Bond Letter of Credit") issued under the New Credit Facility. In addition, as a consequence of the IRB Financing, substantially all of the real and personal property used in SIMCALA's operations (including the Facility) is owned by the Montgomery IDB and leased to SIMCALA. See "Description of Other Indebtedness." 34 36 USE OF PROCEEDS The Company will not receive any proceeds from the issuance of the Exchange Notes pursuant to the Exchange Offer. The net proceeds to SAC from the sale of the Series A Notes were approximately $70.3 million after deducting underwriting discounts and offering expenses. The net proceeds from the sale of the Series A Notes, together with the Equity Contribution, have been used to fund the purchase price for the Acquisition, to repay certain indebtedness of the Company and to pay transaction fees and expenses and are being used for the Company's general corporate purposes. The following table sets forth the approximate amounts of the sources and uses of funds in connection with the Transactions, including the Offering:
(DOLLARS IN THOUSANDS) SOURCES OF FUNDS: Notes sold in the Offering.................................. $75,000 Equity Contribution(1)...................................... 22,000 ------- Total Sources..................................... $97,000 ======= USES OF FUNDS: The Acquisition............................................. $66,703 Repayment of indebtedness(2)................................ 9,159 Transaction fees and expenses(3)............................ 6,000 General corporate purposes(4)............................... 15,138 ------- Total Uses........................................ $97,000 =======
- --------------- (1) Of the total Equity Contribution, CGW contributed $20.0 million and Senior Management collectively contributed $2.0 million. (2) Consists of (i) term loan indebtedness outstanding under the Terminated Credit Facility the principal amount of which was payable in quarterly installments with the last of such installments payable on March 31, 2002 and which, as of March 31, 1998, accrued interest at the rate of approximately 8% per annum, and (ii) accrued interest thereon and fees. This term loan indebtedness was used to refinance certain indebtedness of the Company. (3) Includes transaction fees and expenses of SAC and Holdings incurred in connection with the Transactions. (4) The Company expects that a portion of the net proceeds of the Offering will be used to construct a fourth smelting furnace at the Facility and estimates that construction of the furnace will cost approximately $25.0 million. The Company anticipates that the balance of the construction costs will be funded by cash flow from the Company's operations during the construction period. 35 37 CAPITALIZATION The following table sets forth, as of March 31, 1998, the capitalization of the Company after giving effect to the Transactions. This table should be read in conjunction with "The Transactions," "Description of the Notes," "Description of Other Indebtedness," "Unaudited Condensed Pro Forma Financial Information" and the Company's Financial Statements and the notes thereto appearing elsewhere herein.
AS OF MARCH 31, 1998 --------------------- (DOLLARS IN THOUSANDS) Cash and cash equivalents................................... $15,796 ======= Current maturities of long-term obligations................. $ 90 ======= Long-term obligations (net of current maturities): Industrial revenue bonds.................................. $ 6,000 New Credit Facility....................................... -- Capital lease obligations................................. 83 Notes 9 5/8% due 2006..................................... 75,000 ------- Total long-term obligations....................... 81,083 Stockholders' equity: Common stock, par value $.01 per share; 20,000 shares authorized; 10,889 shares issued and outstanding....... -- Additional paid-in capital................................ 18,807 Retained earnings......................................... -- ------- Total stockholders' equity........................ 18,807 Total capitalization.............................. $99,890 =======
36 38 UNAUDITED CONDENSED PRO FORMA FINANCIAL INFORMATION The following Unaudited Condensed Pro Forma Financial Information of the Company is based on the historical financial statements of the Predecessor appearing elsewhere in this Prospectus, as adjusted to reflect the effects of the Transactions. The Unaudited Condensed Pro Forma Financial Information has been prepared to give effect to the Transactions, including the Acquisition, the Offering and the application of the net proceeds therefrom. The unaudited condensed pro forma statements of income for the year ended December 31, 1997 and the three months ended March 31, 1998 assume the Transactions occurred on January 1, 1997. The Unaudited Condensed Pro Forma Financial Information is not necessarily indicative of the Company's future results of operations or financial position and does not purport to indicate the Company's results of operations for the year ended December 31, 1997 and the three months ended March 31, 1998 had the Transactions been completed on January 1, 1997. In connection with the Acquisition, the purchase method of accounting was used to establish and record a new cost basis for the assets acquired and liabilities assumed. The allocation of the purchase price and acquisition costs to the assets acquired and liabilities assumed is preliminary at March 31, 1998 and is subject to change pending the finalization of appraisals and other studies of fair value and finalization of management's plans which may result in the recording of additional liabilities. The excess of the purchase price over preliminary fair market value of assets acquired and liabilities assumed was recorded as goodwill. The Unaudited Condensed Pro Forma Financial Information and the accompanying notes should be read in conjunction with the historical financial information pertaining to the Predecessor included in this Prospectus, including the Financial Statements of the Predecessor and the notes thereto. See "The Transactions," "Capitalization" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." UNAUDITED CONDENSED PRO FORMA INCOME STATEMENTS
THREE MONTHS ENDED MARCH 31, 1998 ---------------------------------------- PRO FORMA HISTORICAL ADJUSTMENTS AS ADJUSTED ---------- ----------- ----------- (DOLLARS IN THOUSANDS) INCOME STATEMENT DATA: Net sales................................................. $14,854 $ -- $14,854 Cost of goods sold........................................ 11,679 554(1) 12,233 ------- -------- ------- Gross profit (loss)....................................... 3,175 (554)(1) 2,621 Selling and administrative expenses....................... 3,824 401(2) 4,225 ------- -------- ------- Operating loss............................................ (649) (955) (1,604) Interest expense.......................................... 314 1,759(3) 2,073 Other income, net......................................... 282 -- 282 ------- -------- ------- Loss before provision for income taxes.................... (681) (2,714) (3,395) Provision for income taxes................................ (100) (918)(4) (1,018) ------- -------- ------- Net loss.................................................. $ (581) $ (1,796) $(2,377) ======= ======== ======= OTHER DATA: EBITDA(5)............................................................................... $ 105 EBITDA margin(6)........................................................................ 0.7% Depreciation and amortization........................................................... $ 1,427 Capital expenditures.................................................................... $ 1,184 Cash interest expense................................................................... $ 1,920 Ratio of EBITDA to cash interest expense(7)............................................. -- Ratio of earnings to fixed charges(8)................................................... -- Ratio of net debt to pro forma EBITDA(9)................................................ 622.6x
37 39 Cash flows from operating activities........................ $ 327 Cash flows from investing activities........................ $(1,184) Cash flows from financing activities........................ --
YEAR ENDED DECEMBER 31, 1997 ---------------------------------------- PRO FORMA HISTORICAL ADJUSTMENTS AS ADJUSTED ---------- ----------- ----------- (DOLLARS IN THOUSANDS) INCOME STATEMENT DATA: Net sales................................................. $62,184 $ -- $62,184 Cost of goods sold........................................ 47,972 2,217(1) 50,189 ------- -------- ------- Gross profit (loss)....................................... 14,212 (2,217)(1) 11,995 Selling and administrative expenses....................... 2,846 1,606(2) 4,452 ------- -------- ------- Operating income (loss)................................... 11,366 (3,823) 7,543 Interest expense.......................................... 1,710 6,583(3) 8,293 Other income, net......................................... 228 -- 228 ------- -------- ------- Earnings (loss) before provision for income taxes......... 9,884 (10,406) (522) ------- -------- ------- Provision for income taxes................................ 3,513 (3,144)(4) 369 ------- -------- ------- Net income (loss)......................................... $ 6,371 $ (7,262) $ (891) ======= ======== ======= OTHER DATA: EBITDA(5)............................................................................ $13,762 EBITDA margin(6)..................................................................... 22.1% Depreciation and amortization........................................................ $ 5,991 Capital expenditures................................................................. $ 2,075 Cash interest expense................................................................ $ 8,143 Ratio of EBITDA to cash interest expense(7).......................................... 1.7x Ratio of earnings to fixed charges(8)................................................ -- Ratio of net debt to pro forma EBITDA(9)............................................. 4.75x Cash flows from operating activities................................................. $ 6,556 Cash flows from investing activities................................................. $(2,075) Cash flows from financing activities................................................. --
- --------------- (1) Reflects the increase in annual depreciation expense resulting from purchase accounting adjustments which increase the depreciable basis of the property, plant and equipment acquired in the Acquisition. (2) Reflects the increase in amortization expense resulting from the excess of the Cash Consideration over the estimated fair market value of the net assets acquired in the Acquisition as follows: Total estimated Cash Consideration.......................... $ 66,703,000 Less: Carryover basis allocated to goodwill..................... (1,373,410) Property, plant and equipment............................. (55,000,000) Other assets acquired..................................... (7,702,000) Plus: Liabilities assumed....................................... 25,962,000 Estimated fees and expenses related to the Acquisition.... 1,250,000 Net deferred tax liability associated with the change in basis of assets........................................ 10,302,711 ------------ Excess of Cash Consideration over estimated fair market value of the net assets acquired....................... $ 40,142,301 ============
Pro forma amortization expense has been calculated based on the excess of the Cash Consideration over estimated fair market value of the net assets acquired amortized over a 25 year period using the straight-line method. 38 40 (3) Reflects interest expense on a going forward basis for (i) interest costs associated with the Notes; (ii) amortization of debt issuance costs related to the Offering; and (iii) interest costs associated with the existing indebtedness of the Company that will not be paid off in conjunction with the Transactions. Interest expense on the Notes............................... $7,218,750 Amortization of debt issuance costs......................... 593,750 ---------- Total interest expense related to new indebtedness..................................... 7,812,500 Interest expense associated with existing indebtedness...... $ 480,000 ========== Pro forma interest expense.................................. $8,292,500 ==========
Interest on Notes is based on the rate of 9.625% per annum. The debt issuance costs are amortized over the eight year term of the Notes. Interest on the existing $6,000,000 indebtedness is based on the rate of 8% per annum. (4) Reflects the tax effect of pro forma adjustments to earnings before provision for income taxes adjusted for non-deductible amortization of goodwill multiplied by the statutory income tax rate of 34%. (5) "EBITDA" is defined as earnings (loss) from continuing operations before interest expense, income taxes, depreciation and amortization. While EBITDA should not be construed as a substitute for operating income or as a better measure of liquidity than cash flow from operations, both of which are determined in accordance with generally accepted accounting principles, it is included herein to provide additional information relating to the Company's ability to service indebtedness. EBITDA as presented herein is not necessarily comparable to EBITDA presented by other companies because not all companies define EBITDA similarly. (6) EBITDA margin is EBITDA as a percentage of net sales. (7) There was a deficiency of EBITDA to cover cash interest expense for the pro forma as adjusted three months ending March 31, 1998 of $1.8 million. (8) For purposes of computing this ratio, earnings consist of earnings (loss) from continuing operations before provision for income taxes and fixed charges adjusted to exclude capitalized interest. Fixed charges consist of interest expense, whether expensed or capitalized, plus amortization of debt issuance costs and debt discount plus such portion of rental expense which is representative of the interest factor. The pro forma ratio of earnings to fixed charges was a deficiency of earnings to cover fixed charges of $522,000 and $3.4 million, for the year ended December 31, 1997 and the three months ended March 31, 1998, respectively. (9) In calculating the ratio of net debt to pro forma EBITDA, net debt equals long-term debt as of March 31, 1998, including the current portion, less cash and cash equivalents as of such date. 39 41 SELECTED HISTORICAL FINANCIAL INFORMATION The selected financial information for the three months ended March 31, 1997 and March 31, 1998 has been derived from the unaudited financial statements of the Predecessor and are included elsewhere in this Prospectus. The selected financial information as of March 31, 1998 has been derived from the unaudited financial statements of the Company which are included elsewhere in this Prospectus. The selected financial information for the year ended December 31, 1997 and as of such date has been derived from the financial statements of the Predecessor which have been audited by Deloitte & Touche LLP, independent auditors, and are included elsewhere in this Prospectus. The selected financial information for the year ended December 31, 1996 and as of such date has been derived from the financial statements of the Predecessor which have been audited by Crowe, Chizek and Company LLP, independent auditors, and are included elsewhere in this Prospectus. The selected financial information for the period from February 10, 1995 (date of inception) to December 31, 1995 and as of December 31, 1995 has been derived from the financial statements of the Predecessor which have been audited by Ernst & Young LLP, independent auditors, and are included elsewhere in this Prospectus. The selected financial information for the period from January 1, 1995 to February 10, 1995 and the year ending December 31, 1994 has been derived from the unaudited financial statements of SiMETCO, a predecessor. The selected financial information for the year ended December 31, 1993 and as of such date has been derived from the audited financial statements of SiMETCO, a predecessor. In the opinion of management, the unaudited condensed statements of operations and cash flows included herein reflect all normal recurring accruals necessary for a fair statement of the results of the interim periods reflected. The selected financial information below is qualified in its entirety by, and should be read in conjunction with, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Predecessor's Financial Statements and the notes thereto appearing elsewhere herein.
SIMETCO, INC.(1) PREDECESSOR ------------------------------------ --------------------------------------------------- PERIOD FROM FEB. 10, PERIOD FROM 1995 (DATE THREE MONTHS YEAR ENDED JAN. 1, OF YEAR ENDED ENDED DECEMBER 31, 1995 TO INCEPTION) DECEMBER 31, MARCH 31, ---------------------- FEB. 10, TO DEC. 31, ----------------- ----------------- 1993 1994 1995 1995(1) 1996 1997 1997 1998 -------- ----------- ----------- ----------- ------- ------- ------- ------- (UNAUDITED) (UNAUDITED) (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT OPERATING DATA) INCOME STATEMENT DATA: Net sales............ $ 31,014 $31,127 $3,742 $31,523 $52,407 $62,184 $15,655 $14,854 Cost of goods sold... 29,864 30,310 3,314 32,391 42,798 47,972 12,225 11,679 -------- ------- ------ ------- ------- ------- ------- ------- Gross profit (loss).. 1,150 817 428 (868) 9,609 14,212 3,430 3,175 Selling and administrative expenses........... 2,241 1,749 66 1,599 1,923 2,846 682 3,824 -------- ------- ------ ------- ------- ------- ------- ------- Operating income (loss)............. (1,091) (932) 362 (2,467) 7,686 11,366 2,748 (649) Interest expense..... 776 800 72 1,111 1,511 1,710 415 314 Other (expense) income, net........ (861) (211) -- 359 444 228 30 282 -------- ------- ------ ------- ------- ------- ------- ------- Earnings (loss) before provision for income taxes... (2,728) (1,943) 290 (3,219) 6,619 9,884 2,363 (681) Provision for income taxes.............. -- -- -- -- 1,169 3,513 793 (100) -------- ------- ------ ------- ------- ------- ------- ------- Earnings (loss) from continuing operations before cumulative effect of a change in accounting principle.......... (2,728) (1,943) 290 (3,219) 5,450 6,371 1,570 (581)
40 42
SIMETCO, INC.(1) PREDECESSOR ------------------------------------ --------------------------------------------------- PERIOD FROM FEB. 10, PERIOD FROM 1995 (DATE THREE MONTHS YEAR ENDED JAN. 1, OF YEAR ENDED ENDED DECEMBER 31, 1995 TO INCEPTION) DECEMBER 31, MARCH 31, ---------------------- FEB. 10, TO DEC. 31, ----------------- ----------------- 1993 1994 1995 1995(1) 1996 1997 1997 1998 -------- ----------- ----------- ----------- ------- ------- ------- ------- (UNAUDITED) (UNAUDITED) (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT OPERATING DATA) Loss on disposal of discontinued operations......... (182) -- -- -- -- -- -- -- -------- ------- ------ ------- ------- ------- ------- ------- Earnings (loss) before cumulative effect of change in accounting principle.......... (2,910) (1,943) 290 (3,219) 5,450 6,371 1,570 (581) -------- ------- ------ ------- ------- ------- ------- ------- Cumulative effect on prior years of a change in accounting for post-retirement benefits other than pensions........... (9,292) -- -- -- -- -- -- -- -------- ------- ------ ------- ------- ------- ------- ------- Net income (loss).... $(12,202) $(1,943) $ 290 $(3,219) $ 5,450 $ 6,371 $ 1,570 $ (581) ======== ======= ====== ======= ======= ======= ======= ======= OTHER DATA: (UNAUDITED) EBITDA(2)............ $(1,038) $ 9,723 $13,762 $ 3,202 $ 104 EBITDA margin(3)..... (3.3)% 18.6% 22.1% 20.5% 0.7% Depreciation and amortization....... $ 1,070 $ 1,593 $ 2,167 $ 424 $ 471 Capital expenditures....... $ 4,154 $ 6,913 $ 2,075 $ 438 $ 1,184 Cash interest expense............ $ 929 $ 1,238 $ 1,560 $ 421 $ 1,920 Ratio of EBITDA to cash interest expense(4)......... -- 7.9x 8.8x 7.6x -- Ratio of earnings to fixed charges(5)... -- 4.8x 5.9x 6.5x -- Cash flows from operating activities......... $(1,408) $ 9,235 $ 9,995 $ 992 $ 1,168 Cash flows from investing activities......... $(4,154) $(6,913) $(2,075) $ (438) $(1,184) Cash flows from financing activities......... $ 2,785 $(2,144) $(7,472) $ (119) $ 39 OPERATING DATA: (UNAUDITED) Silicon metal production (in metric tons)....... 23,435 23,987 2,395 25,669 33,373 37,094 9,076 9,110 Average sales price per metric ton..... $ 1,388 $ 1,366 $1,410 $ 1,436 $ 1,641 $ 1,723 $ 1,743 $ 1,661 Average cost per metric ton......... $ 1,419 $ 1,415 $1,481 $ 1,529 $ 1,358 $ 1,279 $ 1,320 $ 1,279
41 43
SIMETCO, INC.(1) PREDECESSOR COMPANY ----------------- --------------------------- --------------- AS OF DECEMBER 31, AS OF DECEMBER 31, ----------------- --------------------------- AS OF MARCH 31, 1993 1994 1995 1996 1997 1998 ------- ------- ------- ------- ------- --------------- (IN THOUSANDS) BALANCE SHEET DATA: Working capital (deficit).................... $ 483 $(4,069) $(2,926) $(3,347) $ 885 $ 20,446 Total assets................................. 13,356 12,342 24,217 30,581 33,663 122,667 Long-term debt, less current portion......... -- 2,219 12,014 13,207 12,763 81,083 Mandatorily redeemable preferred stock....... -- -- 3,000 -- -- --
- --------------- (1) On February 10, 1995, the Company acquired the Facility from SiMETCO. At such time, SiMETCO was operating the Facility as a debtor-in-possession under Chapter 11 of the Bankruptcy Code. In connection with the acquisition of the Facility, the Company (i) paid a purchase price of approximately $2.8 million to the estate of SiMETCO, (ii) assumed approximately $7.9 million of vendor indebtedness, accrued expenses and other indebtedness, (iii) incurred $6.0 million of additional indebtedness and (iv) issued $3.0 million of its Series A Preferred Stock to the estate of SiMETCO. In June 1996, the Series A Preferred Stock was converted into a non-interest bearing note, which the Company has repaid in full. See "Certain Transactions -- Transactions with CGW, its Affiliates and Certain Stockholders" and Notes 6 and 12 to the Predecessor's Financial Statements. (2) "EBITDA" is defined as earnings (loss) from continuing operations before interest expense, income taxes, depreciation and amortization. While EBITDA should not be construed as a substitute for operating income or as a better measure of liquidity than cash flow from operations, both of which are determined in accordance with generally accepted accounting principles, it is included herein to provide additional information relating to the Company's ability to service indebtedness. EBITDA as presented herein is not necessarily comparable to EBITDA presented by other companies because not all companies define EBITDA similarly. (3) EBITDA margin is EBITDA as a percentage of net sales. (4) There was a deficiency of EBITDA to cover cash interest expense for the three months ended March 31, 1998 of $0.06 million. (5) For purposes of computing this ratio, earnings consist of earnings (loss) from continuing operations before provision for income taxes and fixed charges adjusted to exclude capitalized interest. Fixed charges consist of interest expense, whether expensed or capitalized, plus amortization of debt issuance costs and debt discount plus such portion of rental expense which is representative of the interest factor. There was a deficiency of earnings to cover fixed charges of $2.7 million, $1.9 million, $3.3 million and $0.7 million in the year ended December 31, 1993, the year ended December 31, 1994, the period from February 10, 1995 to December 31, 1995 and the three months ended March 31, 1998, respectively. 42 44 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The following discussion and analysis of the results of operations and financial condition of the Company covers periods prior to consummation of the Acquisition on March 31, 1998. Accordingly, the discussion and analysis of such periods does not reflect the significant impact that the Transactions has had and will have on the Company. See the discussion below under "Liquidity and Capital Resources" for further discussion of certain effects that the Transactions may have on the Company. SIMCALA was incorporated in 1994 and acquired the Facility from SiMETCO on February 10, 1995. At the time of the acquisition, SiMETCO was operating the Facility as a debtor-in-possession under Chapter 11 of the Bankruptcy Code. Under SiMETCO's ownership, the Facility's operating potential was limited due to high operating costs, low capacity utilization and an ineffective marketing strategy. Through SIMCALA's management, operating costs have declined, capacity utilization has increased and a more focused marketing strategy has been implemented. Under SiMETCO's ownership, the Facility produced primarily low grade silicon metal for the secondary aluminum market. The new management team has successfully repositioned the Company as a manufacturer of high grade silicon metal for the chemical and specialty aluminum markets. Historically, higher grade silicon metal has yielded higher profit margins and been subject to less demand and price volatility than lower grade silicon metal. At the time that SIMCALA acquired the Facility, only two of the three silicon metal smelting furnaces were operating. Management immediately began to rebuild the non-operating furnace and, in the third quarter of 1995, this furnace was successfully recommissioned and began operating. In addition, a refurbishment of the other two furnaces was completed by the fourth quarter of 1996. The recommissioning of the third furnace and the refurbishment of the remaining two, resulted in a 55% increase in production from 1994 to 1997. Despite the addition of a third operating furnace, employee headcount remained constant at approximately 170. The principal cost components in the production of silicon metal are electricity, carbon electrodes, quartz, coal, charcoal and woodchips. Electricity is the largest cost component, comprising 25.5% and 24.4% of cost of goods sold in 1997 and the three months ended March 31, 1998, respectively. The balance of raw materials, consisting of electrodes, quartz, coal/charcoal and woodchips, represented 14.4% and 14.3%, 3.6% and 3.7%, 12.6% and 12.2%, and 8.1% and 8.2% of cost of goods sold, respectively, in 1997 and the three months ended March 31, 1998, respectively. In addition, labor comprised 13.3% and 13.7% of cost of goods sold in 1997 and the three months ended March 31, 1998, respectively. The Company has a five-year contract with APCo through the year 2000 for the provision of electrical power. Power rates have remained steady for the last three years and are not expected to increase for the remaining life of the contract. When the Facility was constructed in 1976, it was designed to support a fourth smelting furnace. For example, the main electrical power supply, as well as the non-contact cooling water system, can accommodate a fourth furnace. This potential expansion is believed by the Company to be the most cost competitive "brownfield" expansion opportunity in the United States. Because the Facility is designed to accommodate a fourth smelting furnace, construction of the furnace can be accomplished for $7.0 million to $10.0 million less than, and approximately one year of construction time less than the construction cost and time that would have been required if the Facility were not designed to support a fourth furnace. The expansion will increase the Company's production capacity from 36,000 metric tons to 48,000 metric tons per year. After the expansion, management believes that the Facility will be the second largest silicon metal production facility in the world. From 1987 to 1997, demand for silicon metal in the United States increased at an average annual rate of approximately 7.7% (on a non-compounded basis). This increase was driven by an average annual rate of growth of approximately 10.1% (on a non-compounded basis) in the United States chemical market. While 43 45 the aluminum market has also grown during this period, demand for chemical grade silicon metal has increased 73.8% and, in 1997, chemical grade silicon metal represented approximately 55.0% of the silicon metal consumed in the United States. The major factors contributing to the growth of the chemical market are (i) the introduction of new silicones based product applications (such as emulsions, release agents and sealants) and (ii) the displacement of petrochemical based products (such as lubrication and hydraulic fluids). The growth in the aluminum market is primarily attributable to the increased use of aluminum in the transportation industry. CRU projects that the historical growth trends in both the chemical and aluminum markets will continue. CRU expects that the most rapid growth in demand will occur in the consumption of electronic grade silicon metal, with this growth in demand primarily driven by the semi-conductor industry. The following table sets forth certain information regarding the Company's production levels and product mix for the period from February 10, 1995 to December 31, 1995, the years ended December 31, 1996 and 1997 and the three months ended March 31, 1998:
PERIOD FROM FEBRUARY 10, 1995 (DATE OF THREE INCEPTION) YEAR ENDED MONTHS TO DECEMBER 31, ENDED DECEMBER 31, --------------- MARCH 31, 1995 1996 1997 1998 ----------------- ------ ------ ---------------- (IN METRIC TONS) Silicon metal production................ 25,669 33,373 37,094 9,110 Chemical grade silicon metal production............................ 11,603 14,275 20,257 6,728 Specialty aluminum grade silicon metal production...................... 6,350 9,979 10,304 1,397
RESULTS OF OPERATIONS The following table sets forth certain of the Company's statement of operations information as a percentage of net sales during the period from February 10, 1995 to December 31, 1995, the years ended December 31, 1996 and 1997 and the three months ended March 31, 1997 and 1998:
PERIOD FROM FEBRUARY 10, 1995 (DATE OF INCEPTION) YEAR ENDED THREE MONTHS TO DECEMBER 31, ENDED MARCH 31, DECEMBER 31, -------------- ---------------- 1995 1996 1997 1997 1998 ------------------- ----- ----- ------ ------ Net sales.......................... 100.0% 100.0% 100.0% 100.0% 100.0% Cost of goods sold................. 102.8 81.7 77.1 78.1 78.6 ----- ----- ----- ----- ----- Gross profit (loss)................ (2.8) 18.3 22.9 21.9 21.4 Selling and administrative expenses......................... 5.1 3.7 4.6 4.4 25.7 ----- ----- ----- ----- ----- Operating income (loss)............ (7.9) 14.6 18.3 17.5 (4.3) Interest expense................... 3.5 2.9 2.7 2.7 2.1 Other income, net.................. 1.1 0.9 0.4 0.2 1.9 ----- ----- ----- ----- ----- Earnings (loss) before provision for income taxes................. (10.3) 12.6 16.0 15.0 (4.5) Provision for income taxes......... -- 2.2 5.7 5.1 (0.7) ----- ----- ----- ----- ----- Net income (loss).................. (10.3)% 10.4% 10.3% 9.9% (3.8)% ===== ===== ===== ===== =====
44 46 Three Months Ended March 31, 1998 Compared to Three Months Ended March 31, 1997 Net Sales. Net sales decreased 5.1%, to $14.9 million in the first quarter of 1998 from $15.7 million in the first quarter of 1997 due principally to decreased selling prices in domestic silicon metal markets. Production increased 0.4% to 9,110 metric tons in the first quarter of 1998 from 9,076 metric tons in the first quarter of 1997 due to improved efficiency and scrap recovery in the silicon smelting process. Gross Profit. Gross profit decreased 7.4%, to $3.2 million in the first quarter of 1998 from $3.4 million in the first quarter of 1997. Gross profit margin decreased to 21.4% in the first quarter of 1998 from 21.9% in the first quarter of 1997. These decreases were principally due to decreased selling prices in domestic silicon metal markets offset slightly by decreased production costs and improved operating efficiencies realized in the silicon metal production process. Selling and Administrative Expenses. Selling and administrative expenses increased 460.7% to $3.8 million in the first quarter of 1998 from $0.7 million in the first quarter of 1997, primarily due to a bonus paid to management related to the exercise of options of $1.5 million and the recognition of compensation expenses of $0.9 million related to certain stock options. In addition, the Company incurred increases in health insurance costs and franchise taxes. Operating Income. Operating income decreased 123.6% to a $0.7 million loss in the first quarter of 1998 from $2.7 million in the first quarter of 1997, while the operating margin decreased to a loss of 4.4% from 17.6% for the same periods. Excluding the bonus costs discussed above recorded in the first quarter of 1998, operating income decreased 62.6% to $0.8 million in the first quarter of 1998 from $2.7 million in the first quarter of 1997, while the operating margin decreased to 5.4% from 17.6% for the same periods. Interest Expense. Interest expense decreased 24.3% to $0.3 million in the first quarter of 1998 from $0.4 million in the first quarter of 1997 principally due to lower average outstanding borrowing under the Company's credit facilities. As a result of the substantial indebtedness incurred in connection with the Acquisition, in the future the Company's interest expense will have a greater proportionate impact on net income in comparison to pre-acquisition periods. Other Income, Net. Other income, net increased 840.0% to $0.3 million in the first quarter of 1998 from $0.03 million in the first quarter of 1997 primarily due to increased benefits associated with the State of Alabama's Mercedes Act which allows the Company to retain and recognize the state taxes withheld from employees as income. Provision for Income Taxes. Provision for income taxes decreased to a benefit of $0.1 million in the first quarter of 1998 from a provision of $0.8 million in the first quarter of 1997. This decrease was primarily due to the decrease in taxable income from $2.4 million in 1997 to a loss of $.7 million in 1998. Net Income. As a result of the above factors, net income decreased to a loss of $0.6 million in the first quarter of 1998 from $1.6 million in the first quarter of 1997. Year Ended December 31, 1997 Compared to Year Ended December 31, 1996 Net Sales. Net sales increased 18.7%, to $62.2 million in 1997 from $52.4 million in 1996. The increase was principally due to increased production from furnaces #1 and #3 which were refurbished in the third and fourth quarters of 1996 and, as a result, operated at or near full capacity during 1997. Production increased 11.1%, to 37,094 metric tons in 1997 from 33,373 metric tons in 1996. Increased sales of higher priced chemical grade silicon metal, as well as increased sales of microsilica, also contributed to this increase. Gross Profit. Gross profit increased 47.9%, to $14.2 million in 1997 from $9.6 million in 1996. Gross margin increased to 22.9% in 1997 from 18.3% in 1996 primarily as a result of increased sales of higher margin chemical grade silicon metal and the continuation of improved operating efficiencies. In this regard, the fixed components of cost of goods sold remained relatively unchanged from 1996 to 1997. However, variable components did increase as a result of higher production volumes. 45 47 Selling and Administrative Expenses. Selling and administrative expenses increased 47.4%, to $2.8 million in 1997 from $1.9 million in 1996. This increase was principally due to professional fees incurred in 1997 in connection with the Company's consideration of various strategic business alternatives, offset in part by a decrease in bad debt expense. The Company maintains credit insurance which reduces the risk of loss related to bad debts. In addition, selling and administrative expenses increased in 1997 primarily due to compensation expense recorded in connection with the Company's variable stock option plan. Operating Income. As a result of the above factors, operating income increased $3.7 million, to $11.4 million in 1997 from $7.7 million in 1996. As a percentage of net sales, operating income increased to 18.3% in 1997 from 14.6% in 1996. Interest Expense. Interest expense increased 13.3%, to $1.7 million in 1997 from $1.5 in 1996. This increase was primarily the result of interest costs associated with the repayment of certain non-interest bearing indebtedness of the Company in 1997, offset by decreased average levels of indebtedness used to fund the Company's operations. See Notes 5 and 6 to the Company's Financial Statements. Other Income, Net. Other income, net decreased 48.6%, to $228,000 in 1997 from $444,000 in 1996 primarily as a result of the Company's receipt of approximately $200,000 of insurance proceeds for losses resulting from hurricane damage in 1996. Provision for Income Taxes. Provision for income taxes increased to $3.5 million in 1997 from $1.2 million in 1996. The Company's effective tax rate was 35.5% in 1997 compared to 17.7% in 1996. This increase in the effective tax rate resulted primarily from the Company's reduction of its deferred tax valuation allowance by approximately $1.1 million in 1996. Net Income. As a result of the above factors, net income increased $1.0 million, to $6.4 million in 1997 from $5.4 million in 1996. As a percentage of net sales, net income remained unchanged. Year Ended December 31, 1996 Compared to the Period from February 10, 1995 to December 31, 1995 Net Sales. Net sales increased 66.3%, to $52.4 million in 1996 from $31.5 million in 1995. The increase was due primarily to the effects of the recommissioning of furnace #2 in the third quarter of 1995, which operated during all of 1996, the completion of the refurbishment of furnaces #1 and #3 in the third and fourth quarters of 1996, and the resulting increase in production. Sales at newly established price levels to major customers and a shift to higher priced grades of silicon metal also contributed to the increase. Gross Profit. Gross profit increased to $9.6 million in 1996 from a loss of $868,000 in 1995. Gross margin increased to 18.3% in 1996 from a loss of 2.8% in 1995. The increase was attributable to increased net sales, particularly with respect to higher margin products, and significantly improved operating efficiencies. The greater operating efficiencies were achieved primarily as a result of the refurbishment of two furnaces and the solution of production problems resulting from the inaccuracy of the Company's raw material mix system and higher than normal electrode consumption. Selling and Administrative Expenses. Total selling and administrative expenses increased 18.8%, to $1.9 million in 1996 from $1.6 million in 1995. The increase was principally attributable to increased selling expenses resulting from the hiring of a salesperson. As a percentage of net sales, selling and administrative expenses decreased to 3.7% in 1996 from 5.1% in 1995. Operating Income. As a result of the above factors, operating income increased $10.2 million, to $7.7 million in 1996 from a loss of $2.5 million in 1995. Interest Expense. Interest expense increased 36.4%, to $1.5 million in 1996 from $1.1 million in 1995. This increase was primarily the result of increased levels of indebtedness used to fund the Company's operations. Other Income, Net. Other income, net increased 23.7%, to $444,000 in 1996 from $359,000 in 1995. The principal reason for this increase was the Company's receipt of approximately $200,000 of insurance proceeds for losses resulting from hurricane damage in 1996. 46 48 Provision for Income Taxes. Provision for income taxes increased to $1.2 million in 1996 from no provision in 1995, as a result of the Company's profitability in 1996 as compared with a loss in 1995 and recording a valuation allowance in 1995. This valuation allowance was reversed in 1996. The Company's effective tax rate was 17.7% in 1996. Net Income. As a result of the above factors, net income increased $8.6 million, to $5.4 million in 1996 from a net loss of $3.2 million in 1995. LIQUIDITY AND CAPITAL RESOURCES The Company's primary sources of liquidity are cash flow from operations, borrowings under the New Credit Facility and a portion of the net proceeds from the Offering. The Company's principal uses of liquidity are to fund operations, meet debt service requirements and finance the Company's planned capital expenditures, including the construction of a fourth smelting furnace. The Company's cash flows from its operations are influenced by selling prices of its products and raw materials costs, and are subject to moderate fluctuation due to market supply factors driven by imports. The Company's silicon metal business experiences price fluctuations principally due to the competitive nature of one of its market, the secondary aluminum market. Historically, the Company's microsilica business has been affected by the developing nature of the markets for this product. Average transaction selling prices for the Company's microsilica in the first quarter of 1998 were very near the average transaction selling prices at the end of the first quarter of 1997. Depreciation and amortization is expected to increase significantly in the future as a result of the Acquisition, which was accounted for under the purchase method of accounting. For the three months ended March 31, 1997 and March 31, 1998, net cash provided by operating activities was $992,000 and $1.2 million, respectively. Net cash used in investing activities increased to $1.2 million for the three months ended March 31, 1998 from $438,000 for the three months ended March 31, 1997. This increase was primarily a result of the Company purchasing additional production equipment. For the three months ended March 31, 1998, financing activities provided net cash of $39,000 compared to $119,000 of net cash used in financing activities for the three months ended March 31, 1997. This decrease in net cash used in financing activities was principally the result of larger debt payments made during 1997. In 1996 and 1997, net cash provided by operating activities was $9.2 million and $10.0 million, respectively. Net cash used in investing activities decreased to $2.1 million in 1997 from $6.9 million in 1996. This decrease was primarily a result of a decrease in the level of investment by the Company in property, plant and equipment. Net cash used in financing activities increased to $7.5 million in 1997 from $2.1 million in 1996. This increase was principally a result of (i) the net repayment of $3.2 million of indebtedness outstanding under the Company's revolving line of credit, (ii) the repayment of $12.8 million of other indebtedness, (iii) the redemption of the Company's Series B Preferred Stock, par value $1.00 per share, for $1.5 million, (iv) a payment to stockholders of $2.3 million and (v) the payment of a $270,000 preferred stock dividend, all of which was offset by the Company's borrowing of $13.0 million of term loan indebtedness under the Existing Credit Facility. In April 1997, the Company entered into the Existing Credit Facility, which provided for (i) a $5.0 million revolving line of credit, including a $1.5 million letter of credit subfacility, which terminates on June 30, 1998, and (ii) a $13.0 million term loan which requires repayment of principal in quarterly installments with the last of such installments payable on March 31, 2002. As of December 31, 1997, $9.0 million principal amount of such term loan indebtedness was outstanding, and it accrued interest at a LIBOR-based, variable interest rate equal to approximately 8.4% per annum. Borrowings under the revolving line of credit are limited to 85% of eligible accounts receivable and 60% of eligible inventory, each as defined in the Existing Credit Agreement. As of December 31, 1997, no amounts were outstanding under the revolving line of credit and the Company had availability thereunder equal to approximately $5.0 million. Pursuant to the Bond Loan Agreement (as defined herein) the Company has agreed to pay the principal of, premium, if any, and interest on, the IRBs, which mature on December 1, 2019. Interest on the IRBs, 47 49 which is payable monthly, currently accrues at a rate which is reset every seven days as determined by Merchant Capital, L.L.C., the remarketing agent for the IRB Financing (the "Remarketing Agent"), based on its evaluation of certain factors including, among others, market interest rates for comparable securities, other financial market rates and indices, general financial market conditions, the credit standing of SIMCALA and the bank issuing the letter of credit which provides credit support for the IRBs, and other relevant facts regarding the Facility ("Rate Determination Factors"). However, interest borne by the IRBs cannot exceed the lower of 15% per annum and the maximum rate per annum specified in any letter of credit which provides credit support for the IRBs. As of March 31, 1998, interest on the IRBs accrued at a rate equal to approximately 5.8% per annum. As part of the IRB Financing, the Company is required to provide the $6.1 million Existing Bond Letter of Credit to the Bond Trustee as credit support for the IRBs. As of March 31, 1998, no drawings were outstanding under the Existing Bond Letter of Credit. In the ordinary course of its business, the Company expects to make annual capital expenditures aggregating approximately $3.0 million to $4.0 million. The Company anticipates that these capital expenditures will be made for routine maintenance of the smelting furnaces, air abatement equipment and other equipment used in its operations. In addition, the Company expects that approximately $16.3 million of the net proceeds of the Offering will be used to construct a fourth smelting furnace at the Facility and estimates that construction of the furnace will cost a total of approximately $25.0 million. The Company anticipates that the balance of the construction costs will be funded by cash flow from the Company's operations during the construction period. As of March 31, 1998, the Company had entered into contracts totaling approximately $1.0 million for the construction of certain production equipment and had a commitment to purchase lumber totaling approximately $145,000. The Company is involved in litigation arising in the normal course of business. Management believes that the ultimate resolution of such litigation will not have a material adverse effect on the financial statements. In connection with the Acquisition, the Company replaced the Existing Credit Facility and the Reimbursement Agreement with the New Credit Facility. The New Credit Facility consists of a $15.0 million revolving credit facility which provides availability for borrowings and letters of credit. Revolving loans will bear interest at a variable rate equal, at the option of the Company, to (i) a LIBOR-based rate plus a margin of up to 2.25% per annum or (ii) the base rate (defined to mean the higher of (a) the publicly announced "prime rate" of the agent thereunder and (b) a rate tied to the rates on overnight Federal funds transactions with members of the Federal Reserve System) plus a margin of up to 1.25% per annum. In addition, the Existing Bond Letter of Credit, which was issued for the account of the Company to the Bond Trustee as credit support for the IRBs, was replaced by the $6.1 million New Bond Letter of Credit issued under the New Credit Facility. Drawings under letters of credit (including the New Bond Letter of Credit) which are not promptly reimbursed by the Company will accrue interest at a variable rate equal to the base rate plus a margin of up to 3.25% per annum. As of March 31, 1998, the Company had $81.1 million of long term indebtedness, $15.0 million of availability under the New Credit Facility (as such availability is reduced by the issuance of the $6.1 million New Bond Letter of Credit thereunder) and $15.8 million in cash. The Company's ability to make scheduled payments of principal of, or to pay the interest or Liquidated Damages, if any, on, or to refinance, its indebtedness (including the Notes), or to fund planned capital expenditures will depend on its future performance, which, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond its control. Based upon the current level of operations, management believes that cash flow from operations and available cash, together with availability under the New Credit Facility, will be adequate to meet the Company's future liquidity needs for at least the next two years. There can be no assurance that the Company's business will generate sufficient cash flow from operations or that future borrowings will be available under the New Credit Facility in an amount sufficient to enable the Company to service its indebtedness, including the Notes, or to fund its other liquidity needs, including the construction of a fourth smelting furnace. In addition, the Company may need to refinance all or a portion of the principal of the Notes on or prior to maturity. There can be no assurance that 48 50 the Company will be able to effect any such refinancing on commercially reasonable terms or at all. See "Risk Factors -- Significant Leverage and Debt Service." Moreover the New Credit Agreement imposes restrictions on the Company's ability to make capital expenditures and both the Credit Agreement and the Indenture limit the Company's ability to incur additional indebtedness. Such restrictions, together with the highly leveraged nature of the Company, could limit the Company's ability to respond to market conditions, to make capital expenditures, to provide for unanticipated capital investments or to take advantage of business opportunities. The covenants contained in the New Credit Agreement also, among other things, restrict the ability of the Company and its subsidiaries to dispose of assets, incur guarantee obligations, repay the Notes, pay dividends, create liens on assets, enter into sale and leaseback transactions, make investments, loans or advances, make acquisitions, engage in acquisitions or consolidations, make capital expenditures or engage in certain transactions with affiliates, and otherwise restrict corporate activities. The covenants contained in the indenture also impose restrictions on the operation of the Company's business. NEW ACCOUNTING STANDARDS In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS 130) and Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" (SFAS 131). SFAS 130 establishes standards for the reporting and displaying of comprehensive income and its components (revenues, expenses, gains and losses) in a full set of general-purpose financial statements. SFAS 131 establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in financial reports issued to stockholders. The Company adopted SFAS 130 effective January 1, 1998. The adoption of this standard did not have an effect on its financial statements. Comprehensive income equaled net income for the three months ending March 31, 1998. SFAS 131 will be adopted by the Company in its annual financial statements for 1998. The adoption of this standard is not expected to significantly impact the Company's financial statements. YEAR 2000 The Company uses several application programs written over many years using two-digit year fields to define the applicable year, rather than four-digit year fields. Programs that are time-sensitive may recognize a date using "00" as the year 1900 rather than the year 2000. This misinterpretation of the year could result in an incorrect computation or a computer shutdown. The Company has identified the systems that could be affected by the year 2000 issue and is developing a plan to resolve the issue. The plan contemplates, among other things, the replacement or modification of existing data processing systems as necessary. Management has estimated the costs associated with the implementation of the plan to be approximately $50,000. 49 51 BUSINESS THE COMPANY The Company is a leading domestic manufacturer of silicon metal which is used in the chemical and aluminum industries. Silicon metal is an essential raw material used by the chemical industry to produce silicones and polysilicon and by the aluminum industry primarily as an alloying agent. The Company produces and sells higher margin chemical grade and specialty aluminum grade silicon metal, both of which contain the highest concentrations of silicon and the lowest levels of impurities when compared to lower grades of silicon metal. In 1997, approximately 55% and 45% of the silicon metal consumed in the United States was consumed by the chemical industry and the aluminum industry, respectively. Silicones are the basic ingredient used in numerous consumer products, including lubricants, cosmetics, shampoos, gaskets, building sealants, automotive hoses, water repellent fluids and high temperature paints and varnishes. Polysilicon is an essential raw material used in the manufacture of silicon wafers for semi-conductor chips and solar cells. Aluminum containing silicon metal as an alloy can be found in a variety of automobile components, including engine pistons, housing and cast aluminum wheels. Management believes that there are no commercially feasible substitutes for silicon metal in either the chemical or aluminum industries. In addition to silicon metal, the Company produces microsilica, a co-product of the silicon metal smelting process. Microsilica is a strengthening and filler agent which has applications in the refractory, concrete, fibercement, oil exploration and minerals industries. The Company is one of the three largest manufacturers, in terms of volume, of silicon metal in the United States, and its Facility, located in Mt. Meigs, Alabama is the nation's second largest in terms of capacity. The Facility is the newest greenfield silicon metal manufacturing facility in the United States and is strategically located near abundant supplies of high quality raw materials necessary for the production of high grade silicon metal. SIMCALA intends to use a portion of the net proceeds of the Offering to expand the Facility by constructing a fourth smelting furnace and the Company believes that after this expansion, the Facility will be the second largest silicon metal production facility in the world. The Company believes that the increased capacity resulting from the construction of a fourth furnace will enable it to benefit from levels of demand for silicon metal in the Western Industrialized Nations which CRU estimates will exceed currently known sources of supply through 2005. Upon completion of the fourth furnace, the Company's production capacity will increase by approximately 12,000 metric tons to approximately 48,000 metric tons per year. The Company is one of the most cost efficient silicon metal manufacturers in the world, as measured by operating cost per metric ton of silicon metal sold. The Company estimates that it held a market share of approximately 13% of the total United States chemical market and approximately 13% of the total United States aluminum market in 1997, based on metric tons of silicon metal sold. In 1997, the Company had net sales and EBITDA of $62.2 million and $13.8 million, respectively. For the three months ended March 31, 1998, the Company had net sales and EBITDA of $14.8 million and $0.1 million, respectively. RECENT HISTORY AND TURNAROUND SIMCALA was incorporated in 1994 and acquired the Facility from SiMETCO on February 10, 1995. At the time of the acquisition, SiMETCO was operating the Facility as a debtor-in-possession under Chapter 11 of the Bankruptcy Code. Under SiMETCO's management, the Facility was underutilized and inefficient and consistently incurred operating losses as a result of poor management and a focus on the lower margin, less stable secondary aluminum business. Immediately after the acquisition of the Facility, the Company hired C. Edward Boardwine, its current Chief Executive Officer. Mr. Boardwine installed a new senior management team which implemented a major turnaround program aimed at increasing the operating efficiency of the Facility and focusing on the production and effective marketing of higher margin chemical grade and specialty aluminum grade silicon metal. The Company's turnaround program included the following: - Increased Production. The Company increased production by improving the efficiency and yield of two furnaces that were operating when the acquisition of the Facility occurred and by recommissioning 50 52 a third furnace that was not operational at the time of the Facility's acquisition. From 1994 to 1997, the Facility's annual production volume increased approximately 55%, from approximately 24,000 metric tons to approximately 37,100 metric tons. - Customer Relationships. The Company established relationships with the major consumers of higher margin chemical grade and specialty aluminum grade silicon metal. As part of this effort, the Company sought and obtained key customer certifications, requiring it to demonstrate the ability to consistently meet customers' proprietary quality and sizing requirements. The Company is currently a certified supplier of chemical grade silicon metal to G.E. Silicones and Dow Corning, the two largest consumers of chemical grade silicon metal in the United States, and a certified supplier of specialty aluminum grade silicon metal to Alcan and Alumax. Production of chemical grade, primary aluminum grade and secondary aluminum grade silicon metal at the Facility changed from 29.6%, 15.1% and 55.3%, respectively, of total net sales in 1994 to 55%, 28.2% and 16.8%, respectively, of total net sales in 1997. This change in product mix has significantly increased the Company's profitability. - Facility Modernization. In 1996, the Company completed a $12.0 million facility modernization program pursuant to which all the Company's production and air abatement equipment was rebuilt. This program modernized the Facility and resulted in improved operating efficiency and greater consistency in the production of chemical and specialty aluminum grade silicon metal. To further enhance operating reliability, the Company is in the process of upgrading its raw material handling equipment. - Supplier Relationships. The Company discontinued relationships with suppliers of lower grade raw materials and established relationships with suppliers of higher quality raw materials in order to secure a reliable, long-term source of the ingredients necessary to produce high quality silicon metal. By using high quality raw materials, the Company has been able to decrease the levels of impurities in the silicon metal it produces, resulting in more efficient production of a consistently high quality product. - Workforce Efficiency. The Company improved the efficiency of its workforce by creating performance based incentives and establishing technical training programs. In addition, despite recommissioning a third furnace in the third quarter of 1995, the number of employees at the Facility from 1994 to 1997 remained constant at approximately 170 (consisting of approximately 124 hourly employees and 46 salaried employees). Consequently, the amount of silicon metal produced per hourly employee at the Facility improved from approximately 210 metric tons in 1994 to approximately 299 metric tons in 1997. As a result of the foregoing measures, net sales doubled to $62.2 million in 1997 from $31.1 million in 1994. During that period, EBITDA increased to $13.8 million from a loss of $3.0 thousand. In addition, operating cost per metric ton of silicon metal produced at the Facility decreased 9.6%, to $1,279.0 in 1997 from $1,415.0 in 1994. COMPETITIVE STRENGTHS The Company believes that it has a strong competitive position attributable to a number of factors, including the following: - Preferred Supplier Status with Key Customers. SIMCALA has satisfied rigorous qualification requirements with its primary customers who purchase chemical grade and specialty aluminum grade silicon metal. Satisfying these requirements may take up to two years. As a result, the Company believes that these rigorous qualification requirements constitute a significant barrier to entry into the high grade silicon metal market. - Low Cost Producer. As a result of the major turnaround program executed by the current management team, the Company has been recognized by CRU as among the five most cost efficient silicon metal manufacturers in the world, as measured by cost per metric ton of silicon metal produced. 51 53 - Production Facilities. The Facility has recently undergone an extensive facility modernization program which has resulted in improved operational efficiency and greater consistency in the production of chemical and specialty aluminum grade silicon metal. In addition, the Facility was originally designed to support the addition of a fourth smelting furnace, allowing the Company to increase capacity at a relatively low cost and in a relatively short time, without significantly disrupting operations. - Experienced, Highly Qualified Management Team. SIMCALA has assembled a highly qualified management team with over 75 years of combined experience in the silicon metal business. In particular, since 1969, C. Edward Boardwine, the Company's Chief Executive Officer, has worked in various capacities in the ferroalloy and silicon metal industries, most recently serving as Vice President--Silicon Metal Division of Elkem ASA, a position he held from 1990 until joining the Company in 1995. The Company believes that its management team has the operational and technical skill to continue to operate the Facility at world class levels of efficiency and to consistently produce high grade silicon metal. BUSINESS STRATEGY SIMCALA intends to capitalize on the aforementioned competitive strengths and has developed and is implementing the following business strategy aimed at increasing revenues and EBITDA: - Focus on Chemical and Specialty Aluminum Markets. The Company will remain focused on manufacturing high grade silicon metal for use by the chemical and specialty aluminum markets. Management has focused on the chemical market for four principal reasons: (i) as a result of diverse end-use applications of chemical grade silicon metal, demand has historically grown despite economic downturns, and demand and prices have historically been less volatile than the demand for, and the prices of, lower grade silicon metal; (ii) the United States market for chemical grade silicon metal is expected to grow at an average annual rate of approximately 7.6% (on a non-compounded basis) through the year 2005, according to CRU; (iii) sales of chemical grade silicon metal have historically provided higher profit margins than sales of lower grades of silicon metal because chemical grade silicon metal customers have paid higher prices for the required high quality silicon metal, resulting in part from the limited number of manufacturers able to supply silicon metal of such quality; and (iv) the Company's management has the operational and technical expertise necessary to consistently and efficiently produce high quality silicon metal. Similarly, management has focused on the specialty aluminum market because it is less susceptible to competition from low priced secondary grade silicon metal imports, and sales of specialty aluminum grade silicon metal have historically provided higher profit margins and been subject to less price volatility than sales of secondary grade silicon metal. In addition, because the United States International Trade Commission has concluded that there are no commercially feasible substitutes for silicon metal in either the chemical or aluminum industries, management believes that higher silicon metal prices will not result in customers purchasing silicon metal substitutes. - Maintain Low Cost Operations. Management intends to maintain the Company's position as one of the five most cost-efficient manufacturers of silicon metal in the world. The Company intends to achieve this objective by continuing to increase the yield from its three existing smelting furnaces and increasing capacity by commissioning a fourth furnace. The Company believes it will effectively be able to spread fixed costs over the resulting increased production volume to further reduce costs per metric ton of silicon metal sold. - Expand Capacity to Meet Increasing Demand. CRU projects that demand for silicon metal in the Western Industrialized Nations will exceed currently known sources of supply through 2005. The Company believes that it can take advantage of this increased demand by constructing a fourth smelting furnace. The Facility's infrastructure was originally designed and built to accommodate a fourth furnace. Within approximately two years, the Company believes a fourth furnace will enable it to increase its capacity by 12,000 metric tons of silicon metal and 5,000 metric tons of microsilica per year, making the Facility the second largest silicon metal production facility in the world. The Company intends to use a portion of the net proceeds from the Offering to fund in part the construction 52 54 of a fourth furnace. Management believes that completion of a fourth furnace and the sale of the resulting silicon metal produced will increase profitability. INDUSTRY Industry Markets The silicon metal industry consists of two general markets: the chemical industry market and the aluminum industry market. The chemical industry market is subdivided into the silicones market and the polysilicon market, both of which require the highest grade of silicon metal. The aluminum industry market is subdivided into the primary aluminum market (producing aluminum from ore) and the secondary aluminum market (producing aluminum from scrap). The Company defines the primary aluminum market and the higher-end of the secondary aluminum market as the "specialty aluminum" market because the aluminum produced for those markets requires higher quality silicon metal. In 1997, approximately 55% and 45% of the silicon metal consumed in the United States was consumed by the chemical industry and the aluminum industry, respectively. Of the 45% of silicon metal produced in the United States that was consumed by the aluminum industry, management believes that approximately 12% was used in primary aluminum production and approximately 33% was used in secondary aluminum production. The production of silicones and polysilicon requires the highest quality silicon metal or "chemical grade" silicon metal. Specialty aluminum production requires higher grade silicon metal or "specialty aluminum grade." Supply From 1993 to 1997, the production capacity of silicon metal in major industrialized nations other than the PRC, the Confederation of Independent States and certain other Eastern European nations (collectively, the "Western Industrialized Nations") increased approximately 14.9%, from 716,000 metric tons in 1993 to an estimated 823,000 metric tons in 1997. Production capacity in the United States increased approximately 10.5% from 190,000 metric tons in 1993 to an estimated 210,000 metric tons in 1997. During this period, production of silicon metal in the Western Industrialized Nations increased approximately 26.8% from 542,000 metric tons in 1993 to an estimated 687,000 metric tons in 1997, while United States production increased approximately 14.5% from 159,000 metric tons in 1993 to an estimated 182,000 metric tons in 1997. As a result of the greater increase in the rate of production as compared to capacity, capacity utilization in the Western Industrialized Nations increased from 85.7% in 1993 to an estimated 89.7% in 1997, and capacity utilization in the United States increased from 89.8% to an estimated 90.1% over the same period. In the United States, most of the demand for chemical grade and specialty aluminum grade silicon metal is satisfied by domestic production. However, the demand for lower quality secondary aluminum grade silicon metal is satisfied by both domestic and foreign suppliers. Demand From 1993 to 1997, demand for silicon metal in the Western Industrialized Nations increased approximately 26.5% from 706,000 metric tons in 1993 to an estimated 893,000 metric tons in 1997, representing an average annual rate of increase of approximately 6.6% (on a non-compounded basis). Demand in the United States increased approximately 23.8% from 227,000 metric tons in 1993 to an estimated 281,000 metric tons in 1997, representing an average annual rate of increase of approximately 6% (on a non-compounded basis). Demand in the United States for chemical grade silicon metal increased approximately 36% from 114,000 metric tons in 1993 to an estimated 155,000 metric tons in 1997, representing an average annual rate of increase of approximately 9% (on a non-compounded basis). The United States constitutes the largest individual market for chemical grade silicon metal in the world, followed by Germany, Japan, the United Kingdom and France. The customer base for chemical grade silicon metal is highly concentrated. In 1997, 53 55 G.E. Silicones and Dow Corning collectively consumed almost all of the chemical grade silicon metal that was consumed in the United States. Demand in the United States for aluminum grade silicon metal increased approximately 11.5% from 113,000 metric tons in 1993 to an estimated 126,000 metric tons in 1997, representing an average annual rate of increase of approximately 2.9% (on a non-compounded basis). In the United States the primary aluminum market, which is dominated by Alcan, Alumax, Aluminum Company of America ("Alcoa") and Reynolds Metals Company, is characterized by fairly concentrated demand and less volatile prices. In contrast, the market for secondary aluminum is characterized by widely diffused demand, more volatile prices and by many small plants supplying specific customers in the transportation industry. Trends According to CRU, demand for silicon metal in the Western Industrialized Nations and in the United States will increase over the next eight years at an average annual rate of approximately 5.1% and 5.3% (on a non-compounded basis), respectively. During the same period, CRU projects that demand for chemical grade silicon metal in the United States will increase at an average annual rate of approximately 7.6% (on a non-compounded basis). Demand in the United States for aluminum grade silicon metal is also projected by CRU to increase over the next eight years at an average annual rate of approximately 2.4% (on a non-compounded basis). Against this backdrop of steadily increasing demand, capacity utilization in the Western Industrialized Nations and the United States is at or near maximum historic levels. Management believes this supply/ demand imbalance will cause silicon metal prices to continue to rise until new or "greenfield" capacity becomes available. The following graph demonstrates that within three to four years, demand in the Western Industrialized Nations will need to be satisfied by greenfield facilities because demand is expected to exceed the amount of supply that reasonably can be generated by production facilities already operating and by confirmed and probable additions to existing facilities (primarily through the conversion of existing facilities to silicon metal manufacturing and the rehabilitation of older facilities). (Supply and Demand Comparison Chart) 54 56 Management does not believe that foreign imports will substantially affect domestic demand, especially for chemical grade and specialty aluminum grade silicon metal, because management believes that foreign manufacturers are not reliable alternative sources of high-grade silicon metal, primarily due to quality issues and high freight costs. In addition, because the United States International Trade Commission has concluded that there are no commercially feasible substitutes for silicon metal in either the chemical or aluminum industries, management believes that higher silicon metal prices will not result in customers purchasing silicon metal substitutes. Management believes its fourth smelting furnace will become operational at or about the time prices rise to a level sufficient to warrant construction of greenfield facilities. PRODUCTS AND MARKETS Silicon Metal The chemical industry uses silicon metal as a raw material in the manufacture of silicones and polysilicon. Silicones are the basic ingredient used in numerous consumer products, including lubricants, cosmetics, shampoos, gaskets, building sealants, automotive hoses, water repellent fluids and high temperature paints and varnishes. Silicones are readily adaptable to a variety of uses because they possess several desirable qualities, including electrical resistance, resistance to extreme temperatures, resistance to deterioration from aging, water repellency, lubricating characteristics, relative chemical and physiological inertness and resistance to ultraviolet radiation. Polysilicon is the essential raw material used by the chemical industry in the manufacture of silicon wafers for semi-conductor chips and solar cells. The aluminum industry uses silicon metal in the production of aluminum alloys, both in primary and secondary aluminum production. Aluminum containing silicon metal as an alloy can be found in a variety of automobile components including engine pistons, housing and cast aluminum wheels. The addition of silicon metal to aluminum in the casting process improves castability and minimizes shrinkage and cracking. In the finished aluminum product, silicon metal increases corrosion resistance, hardness, tensile strength and wear resistance. In 1997 the Company produced approximately 20,257 metric tons of chemical grade silicon metal and approximately 10,304 metric tons of specialty aluminum grade silicon metal, representing approximately 55% and approximately 28% of its total silicon metal output, respectively. Microsilica (Silica Fume) During the silicon metal production process the offtake gases are drawn from the smelting furnaces by large fans and are collected in baghouses. As the material cools it oxidizes to amorphous silicon dioxide (SiO(2)) and condenses in the form of spheres consisting of non-crystalline silicon dioxide. These extremely fine particles (less than one micron in size) are referred to as microsilica (silica fume). Microsilica is widely used in the refractory, concrete, fibercement, oil exploration and minerals industry. Because there are more than 50,000 particles of microsilica for each grain of cement, microsilica is used in cement-based products to fill the microscopic voids between cement particles. In concrete applications microsilica increases the strength, durability and reduces permeability in applications such as parking garages, bridge decks and marine structures. SIMCALA collects approximately 16,000 metric tons of microsilica annually. In 1997, the Company sold approximately 11,700 metric tons of microsilica. MANUFACTURING OPERATIONS Overview Silicon metal is produced by smelting quartz (SiO(2)) with carbon substances (typically low ash coal and/or charcoal) and wood chips. Wood chips provide porosity to the raw material mix. At the Facility, an automated weighing system accurately measures the mixture of quartz, coal, charcoal and wood chips. The mixture is fed into the top of a submerged-arc electric furnace by automatic conveyors. SIMCALA's furnaces measure 28 feet in diameter and nine feet in depth. Electric power is delivered to the furnaces by pre-baked amorphous carbon electrodes. The electrodes act as conductors of electricity in each furnace, generating heat 55 57 in excess of 3,000(degree) C. At this temperature, the mix of raw materials reaches a molten state. The carbon, acting as a reducing agent, combines with the oxygen in the silicate to form the silicon metal. The molten silicon metal is intermittently tapped out of the furnaces into ladles, where it is refined by injecting oxygen to meet specific customer requirements. After the refining process, the silicon metal is cast into iron chills (molds) for cooling. When the casts have cooled, they are weighed and crushed to the desired size. The finished silicon metal is then shipped to the customer in bulk, pallet boxes or bags by railcars or trucks. The emissions from the electric arc furnaces are collected by dust collecting hoods and passed through a dust collection and bagging system. The resulting co-product is microsilica. Technology The carbothermic smelting process used in the production of silicon metal is well established. Since acquiring the Facility, the Company has made significant technological advances in key areas. The batch weighing system for raw materials is computer controlled to adjust weights for incoming batches based on feedback from prior batches. Computers monitor key operational variables in the smelting process for increased production controls. The Company employs the most advanced furnace electrodes produced by UCAR International Inc., the world leader in electrode technology. The Company has also installed an advanced oxygen-air system that enables refining of the molten silicon metal in order to consistently meet the quality requirements for chemical grade and specialty aluminum grade silicon metal. Product Quality SIMCALA is committed to being a leading manufacturer of high grade silicon metal. To achieve this goal, SIMCALA is dedicated to a total quality assurance program which is tied to complying with ISO 9000 standards, including the use of statistical techniques to improve process capability, audits by trained and qualified personnel and a documented system for disposing of nonconforming materials. The Company warrants to its customers that its products will meet their specifications and provides a Certificate of Analysis with each shipment. Customers are permitted to return products that do not meet their specifications. The certified analysis is based on samples taken during the process at key control points with real time analysis provided by the Company's in-house X-ray fluorescent analytical instruments. Employee Training The Company believes that it has one of the most experienced and efficient management teams in the silicon metal business. This management team is supported by a productive and experienced workforce equipped with skills in metallurgical operations, maintenance, quality control and marketing. Employees participate in SIMCALA's training program which has been jointly developed by the Alabama State Department of Education and the John M. Patterson State Technical College. The program is designed to provide each employee with the skills required to evaluate, control and continuously improve production and support service processes. Since the Facility was acquired from SiMETCO, employee productivity has improved from approximately 210 metric tons of silicon metal per hourly employee in 1994 to approximately 299 metric tons per hourly employee in 1997. RAW MATERIALS The Facility is located in close proximity to abundant sources of high-quality and competitively priced raw materials and electricity. Where strategically important, the Company may enter into long-term contracts to secure a stable supply of raw materials at favorable prices, although it currently has only a long-term contract for the supply of electricity. The Company believes that the quality of its raw materials is among the highest available and that supplies are adequate to satisfy its long-term requirements. Because the Company believes there are sufficient alternative sources of quality raw materials available to it, it is not expected that the loss of any one of its suppliers would have a material adverse effect on the Company. 56 58 The principal cost components in the production of silicon metal are electricity, carbon electrodes, quartz, coal, charcoal and wood chips. Electricity is the largest cost component, comprising 25.5% and 24.4% of cost of goods sold in 1997 and the three months ended March 31, 1998, respectively. The balance of raw materials, consisting of electrodes, quartz, coal/charcoal and wood chips, represented 14.4% and 14.3%, 3.6% and 3.7%, 12.6% and 12.2%, and 8.1% and 8.2% of cost of goods sold, respectively, in 1997 and the three months ended March 31, 1998, respectively. In addition, labor comprised 13.3% and 13.7% of cost of goods sold in 1997 and the three months ended March 31, 1998, respectively. Electrical power used in the smelting process is supplied by APCo through a dedicated 110,000 volt line into SIMCALA's high voltage main substation. The Company has a five-year contract with APCo through February 2000. The Company does not expect any rate increases through the contract period. If, however, electric rates did increase significantly, such increases would have an adverse effect on the Company's operating performance and the Company may not be able to pass the additional cost on to its customers. See "Risk Factors -- Dependence on Supply of Electrical Power." The Company purchases two sizes of quartz from a local supplier. The low level of iron and titanium impurities found in local Alabama quartz is ideally suited to produce chemical grade silicon metal. High grade metallurgical coal is supplied by one supplier located in Alabama and two in Kentucky. Metallurgical grade charcoal is purchased from one supplier in Kentucky and one in Missouri. Hardwood logs are purchased and processed into metallurgical wood chips on-site by an independent contractor. The logs are harvested in close proximity to the Facility. CUSTOMERS The Company is a supplier to two of the largest producers of silicones in the United States, G.E. Silicones and Dow Corning. G.E. Silicones' production facility, which is located in Waterford, New York, consumes over 50,000 metric tons of silicon metal per year. The facility produces feedstock for silicones, electronic and fumed silica applications. In 1996 and 1997, G.E. Silicones accounted for approximately 27.2% and 29%, respectively, of the Company's net sales. In the three months ended March 31, 1998, G.E. Silicones accounted for approximately 13.9% of the Company's net sales. Dow Corning's production facilities are located in Carrollton, Kentucky and Midland, Michigan. Dow Corning consumes over 100,000 metric tons of silicon metal per year with the Carrollton facility being the dominant consumer. The Midland facility primarily produces feedstock for polysilicon applications in electronics while Carrollton produces siloxane for silicones applications. In 1996 and 1997, Dow Corning accounted for approximately 12.4% and 24.2%, respectively, of the Company's net sales. In the three months ended March 31, 1998, Dow Corning accounted for approximately 40.3% of the Company's net sales. SIMCALA also supplies many of the leading companies in the specialty aluminum industry. The Company's three largest customers in the specialty aluminum industry are Wabash Alloys, Alcan and Alumax, which in 1996 and 1997 collectively accounted for approximately 32.9% and 26.1%, respectively, of the Company's net sales. In the three months ended March 31, 1998, Wabash Alloys, Alcan and Alumax collectively accounted for approximately 24.1% of the Company's net sales. In 1997 and the three months ended March 31, 1998, the Company's five largest customers accounted for approximately 79.3% and 79.8% of net sales, respectively. The Company does not generally have long-term contracts with its major customers and the loss of any major customer, or a significant reduction of the Company's business with any of them, would have a material adverse effect on the Company. See "Risk Factors -- Importance of Key Customers." Most of the Company's customers require their suppliers to pass a rigorous qualification process. Although each customer has established its own testing requirements, qualification processes are generally designed to test for (i) low variability of critical chemical elements and (ii) reliable and predictable chemical reactivity. The process can take anywhere from two to three years depending upon the customer's testing requirements and the manufacturer's ability to comply with such requirements. The Company views the qualification process as a competitive barrier to entry in its business. 57 59 COMPETITION The Company competes in the silicon metal market primarily on the basis of product quality (particularly in the production of chemical grade silicon metal), service and price. In the chemical and specialty aluminum markets, the Company considers itself in competition only with other domestic producers. Management believes that foreign manufacturers are not reliable alternative sources of high-grade silicon metal, primarily due to quality issues and high freight costs. The Company, however, does compete with a number of domestic companies, including Globe Metallurgical Inc. ("Globe Metallurgical") and Elkem Metals Company ("Elkem Metals"). According to CRU, in 1997, Globe Metallurgical and Elkem Metals had estimated production capacity in the United States of 92,000 metric tons and 57,000 metric tons, respectively. SIMCALA is strongly positioned in the chemical and specialty aluminum markets. In 1997, the Company estimates that it held a market share of approximately 13% of the total United States chemical market and approximately 13% of the United States aluminum market, based on metric tons of silicon metal sold. With respect to microsilica sales, the Company estimates that in 1997 it held a 19% share of the domestic market. EMPLOYEES As of March 31, 1998, the Company employed 169 people, of which 126 people were paid on an hourly basis. Approximately 76% of the employees paid on an hourly basis are represented by the United Steelworkers of America, Local 8538 (the "Union"). On August 8, 1995, the Company and the Union entered into a five-year collective bargaining contract. Although wages remain fixed over the life of the Union contract, the Company has agreed in the contract to discuss wages with the Union beginning in February 1998. In mid-February 1998, management held meetings with Union and non-Union employees to discuss various matters, including wage levels. There has been no increase in wages as a result of such meetings. The Company does not believe that this provision in the Union contract requires the renegotiation of wage levels. The Company believes that its relations with all its employees are good. THE FACILITY The Facility consists of a silicon metal production plant and administrative offices, which are located on 129 acres in Mt. Meigs, Alabama, approximately 15 miles from Montgomery. The Facility contains three identical 20 megawatt submerged-arc electric furnaces with an annual capacity of 36,000 metric tons of silicon metal and 16,000 metric tons of microsilica. As a consequence of the IRB Financing, substantially all of the real and personal property used in SIMCALA's operations (including the Facility) is owned by the Montgomery IDB and leased to SIMCALA. The lease expires on June 1, 2010. See "Description of Other Indebtedness--Industrial Revenue Bond Financing." ENVIRONMENTAL AND REGULATORY MATTERS Environmental The Company is subject to extensive federal, state and local environmental laws and regulations governing the discharge, emission, storage, handling and disposal of a variety of substances and wastes used in or resulting from the Company's operations. Although the Company believes that it is currently in material compliance with those laws and regulations, it has historically, and expects to continue to, incur costs related to environmental remediation. However, the Company is not aware of any material remediation contingencies associated with any of its real estate or facilities. The Company estimates that approximately $1.0 million of budgeted capital expenditures in each of 1998 and 1999 will relate to air abatement equipment. Taxes As an economic incentive to facilitate the rehabilitation of the Facility, the SIDA granted SIMCALA significant tax credits against corporate income tax and the collection of state income tax withholding from employees under Alabama Act No. 93-851, also known as the "Mercedes Act." Subject to certain 58 60 requirements, these benefits allow the Company to (i) apply state employee withholding tax, otherwise payable to the Alabama Department of Revenue, toward the payment of the Company's debt obligation under the Bond Loan Agreement and (ii) take a corporate income tax credit equal to the amount paid pursuant to the Bond Loan Agreement. The Mercedes Act has been repealed in favor of a new incentives package for projects subsequent to January 1995. In addition, because legal title to substantially all of the real and personal property used in the Company's operations is held by the Montgomery IDB, the Company receives, and expects to continue to receive, an exemption from property tax through May 30, 2010. However, it is not expected that the property tax exemptions will apply to the fourth smelting furnace the Company intends to construct. See "Description of Other Indebtedness -- Industrial Revenue Bond Financing." Anti-Dumping Duties on Foreign Competitors' Products In 1990 and 1991, domestic producers of silicon metal successfully prosecuted anti-dumping actions against unfairly traded imports of silicon metal from the PRC, Brazil and Argentina. These actions were brought under the antidumping provisions of the Tariff Act of 1930, as amended. Under that statute, an anti-dumping duty order may be issued if a domestic industry establishes in proceedings before the United States Department of Commerce and the United States International Trade Commission that imports from the country (or countries) covered by the action(s) are being sold at less than normal value and are causing material injury or threat of such injury to the domestic industry. An anti-dumping order requires special duties to be imposed in the amount of the margin of dumping (i.e., the percentage difference between the United States price for the goods received by the foreign producer or exporter and the normal value of the merchandise). Once an order is in place, each year foreign producers, importers, domestic producers and other interested parties may request a new investigation (or "administrative review") to determine the margin of dumping during the immediately preceding year. The rates calculated in these administrative reviews (or the existing rates if no review is requested) are used to assess anti-dumping duties on imports during the review period and to collect cash deposits on future imports. An administrative review covering five Brazilian producers and a review covering two PRC exporters are now in progress. The rates established in these reviews and in future reviews will depend upon the prices and costs during the periods covered by the reviews, the methodologies applied and other factors. Anti-dumping orders remain in effect until they are revoked. In order for an individual producer or exporter to qualify for revocation of an anti-dumping order, the United States Department of Commerce must conclude that the producer or exporter has sold the merchandise at not less than normal value for a period of at least three consecutive years and is not likely to sell the merchandise at less than normal value in the future. Anti-dumping orders may also be revoked as a result of periodic "sunset reviews." The domestic silicon metal industry has aggressively sought to maintain effective relief under the antidumping orders by actively participating in administrative reviews, appeals and circumvention proceedings. Although these efforts have been successful in protecting the industry from dumped imports from the countries covered by the orders, no assurance can be given that one or more of such anti-dumping orders will not be revoked or that effective duty rates will continue to be imposed. LEGAL PROCEEDINGS The Company is involved in routine litigation from time to time in the regular course of its business. There are no material legal proceedings pending or known to be contemplated to which the Company is a party or to which any of its property is subject. 59 61 MANAGEMENT DIRECTORS AND OFFICERS OF THE COMPANY Set forth below are the names and positions of the directors, officers and significant employees of the Company.
NAME AGE POSITION - ---- --- -------- C. Edward Boardwine......................... 51 President, Chief Executive Officer and Director Dwight L. Goff.............................. 43 Vice President R. Myles Cowan, II.......................... 46 Vice President of Finance Donald J. Williams.......................... 47 Director of Human Resources Howard L. McHenry........................... 54 Senior Metallurgist Roger Hall.................................. 57 Superintendent of Engineering and Maintenance Edwin A. Wahlen, Jr......................... 50 Director William A. Davies........................... 52 Director James A. O'Donnell.......................... 45 Director
C. EDWARD BOARDWINE has been the President and Chief Executive Officer of the Company since February 1995. Prior to joining the Company, he was Vice President -- Silicon Metal Division of Elkem ASA ("Elkem ASA"), a ferroalloy and silicon metal manufacturer based in Oslo, Norway, since July 1990. Mr. Boardwine became a director of the Company on the date of the Acquisition Closing. DWIGHT L. GOFF has been the Vice President of the Company since February 1995. Prior to joining the Company, he was President of Elkem Materials, Inc., a microsilica marketing company, since November 1989. In addition, from June 1989 until February 1995, Mr. Goff was the Division Controller for the Silicon Metal Division of Elkem Metals, a ferroalloy manufacturer. R. MYLES COWAN, II has been the Vice President -- Finance of the Company since October 1995. Prior to joining the Company, he was employed by the Thermal Components Group, a division of Insilco Corporation, a diversified manufacturing company, since October 1990, where he had most recently been Director of Business Planning. Mr. Cowan filed a voluntary petition under Chapter 7 of the Bankruptcy Code in December 1995, and the case resulting therefrom was discharged in April 1996. DONALD J. WILLIAMS has been the Director of Human Resources of the Company since February 1995. Prior thereto, he was employed in a similar capacity by SiMETCO at the Facility since October 1988. HOWARD L. MCHENRY has been the Senior Metallurgist of the Company since July 1995. Prior thereto, he was employed by Elkem Metals since July 1981, where he had most recently been the Senior Metallurgist. ROGER HALL has been the Superintendent of Engineering and Maintenance of the Company since February 1995. Prior thereto, he was employed in a similar capacity by SiMETCO at the Facility since May 1988. EDWIN A. WAHLEN, JR. is a member of the General Partner and is jointly responsible for all major decisions of the General Partner. Mr. Wahlen is also a member of CGW Southeast Management III, L.L.C. (the "Management Company"), an affiliate of CGW. Mr. Wahlen has been a member of the General Partner, the Management Company or affiliated entities for more than five years. He is a director of AMRESCO, Inc., Cameron Ashley Building Products, Inc. and several private companies. Mr. Wahlen became a director of the Company on the date of the Acquisition Closing. WILLIAM A. DAVIES is a member of the General Partner, and is responsible for sourcing, structuring and negotiating transactions, participating in strategic planning with members of management of various CGW portfolio companies to increase value and manage exit strategies. Mr. Davies has been a member of the General Partner or an employee of affiliates of the General Partner for more than five years. He is a director of 60 62 Gorges/Quik-to-Fix Foods, Inc. and several private companies. Mr. Davies became a director of the Company on the date of the Acquisition Closing. JAMES A. O'DONNELL has been a member of the General Partner since 1995, and is responsible for sourcing, structuring and negotiating transactions, participating in strategic planning with members of management of various CGW portfolio companies to increase value and manage exit strategies. Mr. O'Donnell has been a general partner of Sherry Lane Partners, a private equity investment firm based in Dallas, Texas since 1992. Also, Mr. O'Donnell has been a general partner of O'Donnell & Masur, a private equity investment firm based in Dallas, Texas, since 1989. He is a director of Bestway Rental, Inc., Gorges/Quik-to-Fix Foods, Inc. and several private companies. Mr. O'Donnell became a director of the Company on the date of the Acquisition Closing. MANAGEMENT COMPENSATION Summary Compensation Table The following table sets forth the compensation earned during the year ended December 31, 1997 by the Chief Executive Officer of the Company and each other executive officer of the Company who served as such at December 31, 1997 and whose total salary and bonus exceeded $100,000 (collectively, the "Named Executive Officers"). The Company did not grant any options or stock appreciation rights or make any long-term incentive plan payouts during the year ended December 31, 1997. SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION -------------------- ALL OTHER NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) - --------------------------- ---- --------- -------- --------------- C. Edward Boardwine,................................. 1997 $189,545 $99,000 $11,185(1) President and Chief Executive Officer Dwight L. Goff,...................................... 1997 95,206 54,000 -- Vice President R. Myles Cowan, II,.................................. 1997 83,000 49,800 -- Vice President -- Finance
- --------------- (1) Includes $8,567 for premiums paid by the Company with respect to a split dollar life insurance policy for Mr. Boardwine and $2,618 for payments made by the Company to Mr. Boardwine with respect to a mortgage interest differential. 61 63 OPTION EXERCISES AND YEAR-END VALUES The following table sets forth information regarding the number of unexercised options held by the Named Executive Officers at December 31, 1997 and the aggregate dollar value of unexercised options held at December 31, 1997. No options were exercised during the year ended December 31, 1997. AGGREGATED FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS DECEMBER 31, 1997(#) AT DECEMBER 31, 1997($)(2) ------------------------------ ------------------------------ NAME EXERCISABLE UNEXERCISABLE(1) EXERCISABLE UNEXERCISABLE(1) - ---- ----------- ---------------- ----------- ---------------- C. Edward Boardwine........................ 346 216 $2,084,903 $1,301,558 Dwight L. Goff............................. 42 67 253,081 403,724 Myles Cowan, II............................ 27 82 162,695 494,110
- --------------- (1) All options became immediately exercisable at the Acquisition Closing. (2) Value is based on the difference between the option exercise price of $100.00 and the fair market value of $6,125.73 per share at December 31, 1997 multiplied by the number of shares underlying the option. The fair market value per share is based on the price per share paid by SAC in connection with the Acquisition, based on a total purchase price of $66.7 million. EMPLOYMENT AGREEMENTS SIMCALA has an employment agreement with each Senior Manager (collectively, the "Employment Agreements") for a term expiring on the fifth anniversary of the Acquisition Closing. The Company will have the right to terminate the Employment Agreements at any time prior to their scheduled expiration upon thirty (30) days written notice. However, if a Senior Manager is terminated other than for cause, whether pursuant to such Senior Manager's Employment Agreement or following the termination or expiration of the term of such Employment Agreement, such Senior Manager will receive, in addition to earned salary and bonus, a severance payment equal to 12 months' base salary. If a Senior Manager is terminated for cause, death or disability, or upon the voluntary termination by such Senior Manager of his employment under such Senior Manager's Employment Agreement, such Senior Manager will receive only earned salary and, in the case of termination due to death or disability, bonus due as of the date of termination. The Employment Agreements also contain non-competition, non-solicitation and confidentiality provisions. Mr. Boardwine's Employment Agreement provides for a base salary of $205,000, Mr. Goff's Employment Agreement provides for a base salary of $100,000, and Mr. Cowan's Employment Agreement provides for a base salary of $90,000. Mr. Boardwine will be eligible to receive a bonus of up to 75% of his base salary, while Messrs. Goff and Cowan will be eligible to receive a bonus of up to 65% of their respective base salaries. Half of the bonus available to the Senior Managers will be awarded based upon earnings of the Company (subject to certain adjustments) if certain performance targets of the Company are reached. The other half of the bonus will be awarded to each Senior Manager and paid at the discretion of the Company's Board of Directors. STOCK INCENTIVE PLAN Holdings has adopted a Stock Incentive Plan (the "Plan") pursuant to which options to purchase up to 8,000 shares of Holdings Stock (the "Options") may be granted to the Senior Management or other employees (each an "Optionee") selected for participation in the Plan by the Compensation Committee of the Company's Board of Directors. At the time of the Acquisition Closing, Senior Management collectively was issued Options to acquire 3,070 shares of Holdings Stock. The Options are subject to a five-year vesting period and the Options issued on the date of the Acquisition Closing are exercisable at an initial price per share of $1,000. The Options will immediately and fully vest in the event of a merger or consolidation of Holdings with, or the sale of substantially all of the assets or stock of Holdings to, any person other than CGW 62 64 or a CGW affiliate. The Plan also provides for other equity-based forms of incentive compensation in addition to the Options. See "Certain Transactions." CERTAIN TRANSACTIONS SHAREHOLDERS AGREEMENT At the Acquisition Closing, CGW and the Senior Management, as the shareholders of Holdings, entered into a Shareholders Agreement (the "Shareholders Agreement"). All future purchasers of Holdings capital stock will be required to enter into the Shareholders Agreement. The Shareholders Agreement contains restrictions on the transferability of the capital stock of Holdings and other rights and obligations of Holdings, CGW and the Senior Management with respect to the capital stock of Holdings. In addition, the Shareholders Agreement grants to the Senior Managers pre-emptive rights, exercisable pro rata in accordance with their respective ownership of capital stock of Holdings, to purchase shares or equity securities of Holdings (other than shares of capital stock issued upon exercise of options, rights, awards or grants pursuant to the Plan). The Shareholders Agreement also provides for certain co-sale rights of the Senior Managers in the event CGW elects to sell all or a portion of its shares of Holdings' capital stock and co-sale obligations of the Senior Managers in the event of a sale of Holdings or its subsidiaries (including SIMCALA). Holdings has a right of first refusal in connection with any proposed sale by any Senior Manager of his investment in Holdings. The Shareholders Agreement further provides that if a Senior Manager's employment is terminated for any reason other than for cause, such Senior Manager will have the right to sell to Holdings any shares of Holdings' capital stock owned by such Senior Manager at the greater of cost or fair value. Such right is exercisable within one month (six months in the event of the death or disability of the Senior Manager) following such termination of employment of the Senior Manager. If a Senior Manager's employment is terminated for cause, Holdings will have the right, exercisable within 120 days following such termination, to repurchase any shares of Holdings' capital stock owned by such Senior Manager at the lesser of cost or fair value. Fair value of the repurchased shares will be determined by agreement between Holdings and the Senior Manager whose shares are being repurchased or, failing such agreement, by an independent appraiser. If Holdings is unable to, or elects not to, exercise any right to purchase such shares of capital stock from a Senior Manager or his transferee, Holdings may assign such right to CGW, which may then exercise such right with respect to the purchase of such shares of capital stock as to which such right is assigned. TRANSACTIONS WITH CGW, ITS AFFILIATES AND CERTAIN STOCKHOLDERS At the Acquisition Closing, the General Partner entered into a consulting agreement (the "Consulting Agreement") with the Company whereby the Company will pay the General Partner a monthly retainer fee of $15,000 for financial and management consulting services. The General Partner may also receive additional compensation if approved by the Board of Directors of the Company at the end of each fiscal year of the Company, based upon the overall performance of the Company. The Consulting Agreement expires five years from the Acquisition Closing. At the Acquisition Closing, the General Partner delegated its rights and obligations under the Consulting Agreement to the Management Company, an affiliate of CGW. At the Acquisition Closing, the Company also paid to the Management Company an investment banking fee of $1.35 million for its services in assisting the Company in structuring and negotiating the Transactions. In June 1997, Mr. Cowan received a loan of $75,000 from a third-party lender, which was guaranteed by the Company. This guarantee was terminated on the date of the Acquisition Closing. In connection with the exercise of certain stock options by members of Senior Management immediately prior to the Acquisition Closing, the Company is responsible to certain tax authorities for payment of $1,799,863 of withholding taxes (the "Tax Obligation") by June 15, 1998. Upon the payment by the Company of the Tax Obligation, each of the members of Senior Management has agreed to reimburse the 63 65 Company for his pro rata portion of the Tax Obligation. C. Edward Boardwine, Dwight L. Goff and R. Myles Cowan, II have agreed to reimburse the Company $1,358,501, $220,681 and $220,681, respectively. During October 1996, a limited partnership formed by the former stockholders of the Company, including the members of Senior Management, purchased from the estate of SiMETCO $7.7 million aggregate principal amount of the Company's non-interest bearing notes payable for an aggregate purchase price of $3.1 million (the "SiMETCO Notes"). On the date of the purchase, the Company was in default under the SiMETCO Notes. During April 1997, the Company paid $7.7 million to the limited partnership, prepayment in full of the SiMETCO Notes, together with $464,000 of prepayment penalties and fees. See Note 7 to the Company's Financial Statements. INDEMNIFICATION OF OFFICERS AND DIRECTORS The Certificate of Incorporation of the Company contains a provision eliminating, to the full extent permitted by Delaware law or any other applicable law, the personal liability of directors to the Company or its stockholders with respect to any acts or omissions in the performance of a director's duties as a director of the Company. The Certificate of Incorporation of the Company also provides that directors and officers of the Company will be indemnified by the Company to the full extent permitted by Delaware law or any other applicable law, but the Company may enter into agreements providing for greater or different indemnification. The Articles of Incorporation of SAC contains a provision eliminating the personal liability of directors to SAC or its shareholders for monetary damages for breaches of their duty of care or other duty as a director, except in certain prescribed circumstances. The Bylaws of SAC provide that directors and officers of SAC will be indemnified by SAC to the extent allowed by Georgia law, against all expenses, judgments, fines and amounts paid in settlement that are actually and reasonably incurred in connection with service for or on behalf of SAC. The Bylaws of SAC further provide that SAC may purchase and maintain insurance on behalf of its directors and officers whether or not SAC would have the power to indemnify such directors and officers against any liability under Georgia law. The Articles of Incorporation of Holdings contains a provision eliminating the personal liability of directors to Holdings or its shareholders for monetary damages for breaches of their duty of care or other duty as a director, except in certain prescribed circumstances. The Bylaws of Holdings provide that directors and officers of Holdings will be indemnified by Holdings to the extent allowed by Georgia law, against all expenses, judgments, fines and amounts paid in settlement that are actually and reasonably incurred in connection with service for or on behalf of Holdings. The Bylaws of Holdings further provide that Holdings may purchase and maintain insurance on behalf of its directors and officers whether or not Holdings would have the power to indemnify such directors and officers against any liability under Georgia law. PRINCIPAL STOCKHOLDER Holdings owns 100% of the issued and outstanding capital stock of the Company. On the date of the Acquisition Closing, the Senior Managers purchased an aggregate of 8% of the Holdings Stock (the "Management Stock"), on a fully diluted basis. After taking into consideration shares of Holdings Stock which may be acquired upon the exercise of Options granted to Senior Management on such date, Holdings is owned 79.8% by CGW and 20.2% by the Senior Management. Affiliated entities of each of Edwin A. Wahlen, Jr., William A. Davies and James A. O'Donnell are limited partners of CGW. See "The Transactions," "Management" and "Certain Transactions." 64 66 DESCRIPTION OF THE NOTES GENERAL The Exchange Notes are substantially identical (including principal amount, interest rate, maturity and redemption rights) to the Series A Notes for which they may be exchanged pursuant to this offer, except that (i) the offering and sale of the Exchange Notes will have been registered under the Securities Act, and (ii) holders of Exchange Notes will not be entitled to certain rights of holders of the Series A Notes under the Registration Rights Agreement. The Exchange Notes will be issued, and the Series A Notes were issued, pursuant to the Indenture between the Company and the Trustee. The terms of the Exchange Notes and the Series A Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (the "Trust Indenture Act"). The Exchange Notes will be, and the Series A Notes are, subject to all such terms, and holders of Notes are referred to the Indenture and the Trust Indenture Act for a statement thereof. The following summary of the material provisions of the Indenture and the Registration Rights Agreement does not purport to be complete and is qualified in its entirety by reference to the Indenture and the Registration Rights Agreement, including the definitions therein of certain terms used below. The definitions of certain terms used in the following summary are set forth below under "-- Certain Definitions." The Exchange Notes will be, and the Series A Notes are, general unsecured obligations of the Company ranking senior in right of payment to all existing and future subordinated Indebtedness of the Company and pari passu in right of payment with all existing and future senior Indebtedness of the Company, including Indebtedness under the New Credit Facility. The obligations of the Company under the New Credit Facility, however, are secured by substantially all of the Company's assets and the real and personal property used in the Company's operations which are, as a result of the IRB Financing, owned by the Montgomery IRB and leased to the Company. Accordingly, the New Credit Facility effectively ranks senior in right of payment to the Notes to the extent of the assets subject to such security interest. As of March 31, 1998, the Company had approximately $81.1 million of indebtedness outstanding (none of which was secured) and approximately $15.0 million of secured Indebtedness available to be incurred under the New Credit Facility (as such availability is reduced by a $6.1 million letter of credit issued thereunder). The terms of the Indenture permit the Company and its subsidiaries to incur additional Indebtedness (including secured Indebtedness), subject to certain limitations. See "Use of Proceeds" and "Description of Other Indebtedness." PRINCIPAL, MATURITY AND INTEREST The Notes are limited in aggregate principal amount to $75.0 million and will mature on April 15, 2006. Interest on the Notes will accrue at the rate of 9 5/8% per annum and will be payable semi-annually in arrears on April 15 and October 15, commencing on October 15, 1998, to holders of record on the immediately preceding April 1 and October 1. Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of original issuance. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. Principal, premium, if any, and interest and Liquidated Damages on the Notes will be payable at the office or agency of the Company maintained for such purpose within the City and State of New York or, at the option of the Company, payment of interest and Liquidated Damages may be made by check mailed to the holders of the Notes at their respective addresses set forth in the register of holders of Notes; provided that all payments of principal, premium, interest and Liquidated Damages with respect to Notes the holders of which have given wire transfer instructions to the Company will be required to be made by wire transfer of immediately available funds to the accounts specified by the holders thereof. Until otherwise designated by the Company, the Company's office or agency in New York will be the office of the Trustee maintained for such purpose. The Exchange Notes will be, and the Series A Notes have been, issued in denominations of $1,000 and integral multiples thereof. SUBSIDIARY GUARANTEES The Company does not currently have any Subsidiaries. The Indenture provides that the Company's payment obligations under the Notes will be jointly and severally guaranteed (the "Subsidiary Guarantees") 65 67 by each of the future Domestic Subsidiaries of the Company that, directly or indirectly, guarantee or pledge any assets to secure the payment of any other Indebtedness of the Company (the "Guarantors"). The obligations of each Guarantor under its Subsidiary Guarantee will be limited so as not to constitute a fraudulent conveyance under applicable law. See "Risk Factors -- Fraudulent Conveyance Considerations." The Indenture provides that no Guarantor may consolidate with or merge with or into (whether or not such Guarantor is the surviving Person), another corporation, Person or entity whether or not affiliated with such Guarantor unless (i) subject to the provisions of the following paragraph, the Person formed by or surviving any such consolidation or merger (if other than such Guarantor) assumes all the obligations of such Guarantor pursuant to a supplemental indenture in form and substance reasonably satisfactory to the Trustee, under the Notes, the Indenture and the Registration Rights Agreement; (ii) immediately after giving effect to such transaction, no Default or Event of Default exists; (iii) such Guarantor, or any Person formed by or surviving any such consolidation or merger, would have Consolidated Net Worth (immediately after giving effect to such transaction), equal to or greater than the Consolidated Net Worth of such Guarantor immediately preceding the transaction; and (iv) the Company would be permitted by virtue of the Company's pro forma Fixed Charge Coverage Ratio, immediately after giving effect to such transaction, to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the covenant described below under "-- Certain Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock." Notwithstanding the foregoing, a Guarantor may consolidate with or merge with or into the Company or another Guarantor. The Indenture provides that in the event of a sale or other disposition of all of the assets of any Guarantor by way of merger, consolidation or otherwise, or a sale or other disposition of all of the capital stock of any Guarantor, then such Guarantor (in the event of a sale or other disposition, by way of such a merger, consolidation or otherwise, of all of the capital stock of such Guarantor) or the corporation acquiring the property (in the event of a sale or other disposition of all of the assets of such Guarantor) will be released and relieved of any obligations under its Subsidiary Guarantee; provided that the Net Proceeds of such sale or other disposition are applied in accordance with the applicable provisions of the Indenture (other than in the case of a sale from a Guarantor to the Company or a Subsidiary of the Company). See "-- Repurchase at the Option of Holders -- Asset Sales." OPTIONAL REDEMPTION The Notes will not be redeemable at the Company's option prior to April 15, 2002. Thereafter, the Notes will be subject to redemption at any time at the option of the Company, in whole or in part, upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest and Liquidated Damages thereon to the applicable redemption date, if redeemed during the twelve-month period beginning on April 15 of the years indicated below:
YEAR PERCENTAGE - ---- ---------- 2002........................................................ 104.8125% 2003........................................................ 103.2083 2004........................................................ 101.6042 2005 and thereafter......................................... 100.0000%
Notwithstanding the foregoing, at any time on or before, April 15, 2001, the Company may redeem up to 30% of the aggregate principal amount of Notes originally issued under the Indenture at a redemption price of 109.625% of the principal amount thereof, plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the redemption date, with the net cash proceeds of a public offering of common stock of the Company; provided that at least 70% of the original aggregate principal amount of Notes remain outstanding immediately after the occurrence of such redemption (excluding Notes held by the Company and its Subsidiaries); and provided, further, that such redemption shall occur within 60 days of the date of the closing of such public offering. 66 68 SELECTION AND NOTICE If less than all of the Notes are to be redeemed at any time, selection of Notes for redemption will be made by the Trustee in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed, or, if the Notes are not so listed, on a pro rata basis, by lot or by such method as the Trustee shall deem fair and appropriate; provided that no Notes of $1,000 or less shall be redeemed in part. Notices of redemption shall be mailed by first class mail at least 30 but not more than 60 days before the redemption date to each holder of Notes to be redeemed at its registered address. Notices of redemption may not be conditional. If any Note is to be redeemed in part only, the notice of redemption that relates to such Note shall state the portion of the principal amount thereof to be redeemed. A new Note in principal amount equal to the unredeemed portion thereof will be issued in the name of the holder thereof upon cancellation of the original Note. Notes called for redemption become due on the date fixed for redemption. On and after the redemption date, interest ceases to accrue on Notes or portions of them called for redemption. MANDATORY REDEMPTION The Company is not required to make mandatory redemption or sinking fund payments with respect to the Notes. REPURCHASE AT THE OPTION OF HOLDERS Change of Control Upon the occurrence of a Change of Control, each holder of Notes will have the right to require the Company to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of such holder's Notes pursuant to the offer described below (the "Change of Control Offer") at an offer price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the date of purchase (the "Change of Control Payment"). Within ten days following any Change of Control, the Company will mail a notice to each holder describing the transaction or transactions that constitute the Change of Control and offering to repurchase Notes on the date specified in such notice, which date shall be no earlier than 30 days and no later than 60 days from the date such notice is mailed (the "Change of Control Payment Date"), pursuant to the procedures required by the Indenture and described in such notice. The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of the Notes as a result of a Change of Control. On the Change of Control Payment Date, the Company will, to the extent lawful, (i) accept for payment all Notes or portions thereof properly tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent an amount equal to the Change of Control Payment in respect of all Notes or portions thereof so tendered and (iii) deliver or cause to be delivered to the Trustee the Notes so accepted together with an Officers' Certificate stating the aggregate principal amount of Notes or portions thereof being purchased by the Company. The Paying Agent will promptly mail to each holder of Notes so tendered the Change of Control Payment for such Notes, and the Trustee will promptly authenticate and mail (or cause to be transferred by book entry) to each holder a new Note equal in principal amount to any unpurchased portion of the Notes surrendered, if any; provided that each such Note will be in a principal amount of $1,000 or an integral multiple thereof. The Company will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. The Change of Control provisions described above will be applicable whether or not any other provisions of the Indenture are applicable. Except as described above with respect to a Change of Control, the Indenture does not contain provisions that permit the holders of the Notes to require that the Company repurchase or redeem the Notes in the event of a takeover, recapitalization or similar transaction. The Company's other senior indebtedness contains prohibitions of certain events that would constitute a Change of Control. In addition, the exercise by the holders of Notes of their right to require the Company to repurchase the Notes could cause a default under such other senior indebtedness, even if the Change of 67 69 Control itself does not, due to the financial effect of such repurchases on the Company. Finally, the Company's ability to pay cash to the holders of Notes upon a repurchase may be limited by the Company's then existing financial resources. See "Risk Factors -- Potential Inability to Fund Change of Control Offer." The New Credit Facility also provides that certain change of control events with respect to the Company would constitute a default thereunder. Any future credit agreements or other agreements relating to Senior Debt to which the Company becomes a party may contain similar restrictions and provisions. In the event a Change of Control occurs at a time when the Company is prohibited from purchasing Notes, the Company could seek the consent of its lenders to the purchase of Notes or could attempt to refinance the borrowings that contain such prohibition. If the Company does not obtain such a consent or repay such borrowings, the Company will remain prohibited from purchasing Notes. In such case, the Company's failure to purchase tendered Notes would constitute an Event of Default under the Indenture which would, in turn, constitute a default under the New Credit Facility. The Company will not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the Indenture applicable to a Change of Control Offer made by the Company and purchases all Notes validly tendered and not withdrawn under such Change of Control Offer. The definition of Change of Control includes a phrase relating to the sale, lease, transfer, conveyance or other disposition of "all or substantially all" of the assets of the Company and its Subsidiaries taken as a whole. Although there is a developing body of case law interpreting the phrase "substantially all," there is no precise established definition of the phrase under applicable law. Accordingly, the ability of a holder of Notes to require the Company to repurchase such Notes as a result of a sale, lease, transfer, conveyance or other disposition of less than all of the assets of the Company taken as a whole to another Person or group may be uncertain. Asset Sales The Indenture provides that the Company will not, and will not permit any of its Subsidiaries to, consummate an Asset Sale unless (i) the Company (or the Subsidiary, as the case may be) receives consideration at the time of such Asset Sale at least equal to the fair market value (evidenced by a resolution of the Board of Directors (whose determination, if made in good faith, shall be conclusive) set forth in an Officers' Certificate delivered to the Trustee) of the assets or Equity Interests issued or sold or otherwise disposed of and (ii) at least 75% of the consideration therefor received by the Company or such Subsidiary is in the form of cash; provided that the amount of (x) any liabilities (as shown on the Company's or such Subsidiary's most recent balance sheet) of the Company or any Subsidiary (other than contingent liabilities and liabilities that are by their terms subordinated to the Notes) that are assumed by the transferee of any such assets pursuant to a customary novation agreement that releases the Company or such Subsidiary from further liability and (y) any securities, notes or other obligations received by the Company or any such Subsidiary from such transferee that are contemporaneously (subject to ordinary settlement periods) converted by the Company or such Subsidiary into cash (to the extent of the cash received), shall be deemed to be cash for purposes of this provision. Within 270 days after the receipt of any Net Proceeds from an Asset Sale, the Company may apply such Net Proceeds at its option, (a) to permanently reduce, repurchase, repay or redeem any Indebtedness (and other amounts) under the New Credit Facility or any one or more successor or additional Credit Facilities, or (b) to the acquisition of a majority of the assets of, or a majority of the Voting Stock of, another Permitted Business, the making of a capital expenditure or the acquisition of other long-term assets that are used or useful in a Permitted Business. Pending the final application of any such Net Proceeds, the Company may temporarily reduce revolving credit borrowings or otherwise invest such Net Proceeds in any manner that is not prohibited by the Indenture. Any Net Proceeds from Asset Sales that are not applied or invested as provided in the first sentence of this paragraph will be deemed to constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $5.0 million, the Company will be required to make an offer to all holders of Notes and all holders of other Indebtedness containing provisions similar to those set forth in the 68 70 Indenture with respect to offers to purchase or redeem with the proceeds of sales of assets (an "Asset Sale Offer") to purchase the maximum principal amount of Notes and such other Indebtedness that may be purchased out of the Excess Proceeds, at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the date of purchase, in accordance with the procedures set forth in the Indenture and such other Indebtedness. To the extent that any Excess Proceeds remain after consummation of an Asset Sale Offer, the Company may use such Excess Proceeds for any purpose not otherwise prohibited by the Indenture. If the aggregate principal amount of Notes and such other Indebtedness tendered into such Asset Sale Offer surrendered by holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select the Notes and such other Indebtedness to be purchased on a pro rata basis. Upon completion of such offer to purchase, the amount of Excess Proceeds shall be reset at zero. CERTAIN COVENANTS Restricted Payments The Indenture provides that the Company will not, and will not permit any of its Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make any other payment or distribution on account of the Company's or any of its Subsidiaries' Equity Interests (including, without limitation, any payment in connection with any merger or consolidation involving the Company or any of its Subsidiaries) or to the direct or indirect holders of the Company's or any of its Subsidiaries' Equity Interests in their capacity as such (other than dividends or distributions payable in Equity Interests (other than Disqualified Stock) of the Company or to the Company or a Subsidiary of the Company); (ii) purchase, redeem or otherwise acquire or retire for value (including, without limitation, in connection with any merger or consolidation involving the Company) any Equity Interests of the Company or any direct or indirect parent of the Company or other Affiliate of the Company (other than any such Equity Interests owned by the Company or any Wholly Owned Subsidiary of the Company); (iii) make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness that is pari passu with or subordinated to the Notes (other than Notes), except a payment of interest or principal at Stated Maturity; or (iv) make any Restricted Investment (all such payments and other actions set forth in clauses (i) through (iv) above being collectively referred to as "Restricted Payments," unless, at the time of and after giving effect to such Restricted Payment: (a) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; and (b) the Company would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described below under caption "-- Incurrence of Indebtedness and Issuance of Preferred Stock"; and (c) such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by the Company and its Subsidiaries after the date of the Indenture (excluding Restricted Payments permitted by clauses (ii), (iii) and (iv) of the next succeeding paragraph), is less than the sum, without duplication, of (i) 50% of the Consolidated Net Income of the Company for the period (taken as one accounting period) from the beginning of the first fiscal quarter commencing after the date of the Indenture to the end of the Company's most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, less 100% of such deficit), plus (ii) 100% of the aggregate net cash proceeds received by the Company since the date of the Indenture as a contribution to its common equity capital or from the issue or sale of Equity Interests of the Company (other than Disqualified Stock) or from the issue or sale of Disqualified Stock or debt securities of the Company that have been converted into such Equity Interests (other than Equity Interests (or Disqualified Stock or convertible debt securities) sold to a Subsidiary of the Company), plus (iii) to the extent that any Restricted Investment that was made after the date of the Indenture is sold for cash or otherwise liquidated or repaid for cash, 69 71 the lesser of (A) the cash return of capital with respect to such Restricted Investment (less the cost of disposition, if any) and (B) the initial amount of such Restricted Investment, plus (iv) $5.0 million. The foregoing provisions will not prohibit (i) the payment of any dividend within 60 days after the date of declaration thereof, if at said date of declaration such payment would have complied with the provisions of the Indenture; (ii) the redemption, repurchase, retirement, defeasance or other acquisition of any pari passu or subordinated Indebtedness or Equity Interests of the Company in exchange for, or out of the net cash proceeds of the substantially concurrent sale (other than to a Subsidiary of the Company) of, other Equity Interests of the Company (other than any Disqualified Stock); provided that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement, defeasance or other acquisition shall be excluded from clause (c) (ii) of the immediately preceding paragraph; (iii) the defeasance, redemption, repurchase or other acquisition of pari passu or subordinated Indebtedness with the net cash proceeds from an incurrence of Permitted Refinancing Indebtedness; (iv) the payment of any dividend by a Subsidiary of the Company to the holders of its common Equity Interests on a pro rata basis; and (v) the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of the Company or any Subsidiary of the Company held by any member of the Company's (or any of its Subsidiaries') management pursuant to any management equity subscription agreement or stock option agreement in effect as of the date of the Indenture or entered into after the Closing Date with members of the management of any Person acquired after the Closing Date in connection with the acquisition of such Person or the repurchase of Equity Interests of the Company or any Subsidiary of the Company held by employees, former employees, directors or former directors pursuant to the terms of agreements (including employment agreements) approved by the Board of Directors; provided that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests shall not exceed $500,000 in any twelve-month period and no Default or Event of Default shall have occurred and be continuing immediately after any such transaction; (vi) payments to Holdings in an amount not to exceed the amount of the Company's federal and state income tax liability that the Company would owe if it were filing a separate income tax return as a stand alone company (or, if there are any subsidiaries of the Company, the amount of the federal and state income tax liability for which the Company and such subsidiaries would be liable if the Company and such subsidiaries were filing a separate consolidated (or combined) income tax return) plus $100,000; provided, that any such payment shall not exceed the tax liability of Holdings that is actually then due and payable; (vii) loans, advances, dividends or distributions by the Company or any of its Subsidiaries to Holdings to pay for corporate, administrative and operating expenses in the ordinary course of business, including payment of directors' and officers liability insurance premiums, directors' fees, and fees, expenses and indemnities in connection with the Transactions, in an aggregate amount not to exceed $250,000 in any fiscal year; and (viii) (A) loans, advances, dividends or distributions by the Company or any of its Subsidiaries to Holdings not to exceed an amount necessary to permit Holdings to pay (1) its costs (including all professional fees and expenses) incurred to comply with its reporting obligations under federal or state laws or in connection with reporting or other obligations under the New Credit Facility or any related collateral documents or guarantees, (2) its expenses incurred in connection with any public offering of equity securities which has been terminated by the board of directors of Holdings, the net proceeds of which were specifically intended to be received by or contributed or loaned to the Company as evidenced by a resolution of the Board of Directors of Holdings and (B) loans or advances by the Company or any of its Subsidiaries to Holdings not to exceed an amount necessary to permit Holdings to pay its interim expenses incurred in connection with any public offering of equity securities the net proceeds of which are specifically intended to be received by or contributed or loaned to the Company, which, unless such offering shall have been terminated by the board of directors of Holdings shall be repaid to the Company promptly out of the proceeds of such offering; provided, that no Default or Event of Default shall have occurred and be continuing immediately after any of the foregoing payments. The amount of all Restricted Payments (other than cash) shall be the fair market value on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued by the Company or such Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair market value of any non-cash Restricted Payment shall be determined by the Board of Directors whose resolution with respect thereto shall be delivered to the Trustee, such determination to be based upon an opinion or appraisal issued by an accounting, appraisal or investment banking firm of national standing if such fair market value exceeds $1.0 70 72 million. Not later than the date of making any Restricted Payment, the Company shall deliver to the Trustee an Officers' Certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the calculations required by the covenant "Restricted Payments" were computed, together with a copy of any fairness opinion or appraisal required by the Indenture. Incurrence of Indebtedness and Issuance of Preferred Stock The Indenture provides that the Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "incur") any Indebtedness (including Acquired Debt) and that the Company will not issue any Disqualified Stock and will not permit any of its Subsidiaries to issue any shares of preferred stock; provided that the Company may incur Indebtedness (including Acquired Debt) or issue shares of Disqualified Stock if the Fixed Charge Coverage Ratio for the Company's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred or such Disqualified Stock is issued would have been (A) on or prior to April 15, 2000, at least 2.0 to 1 and (B) after April 15, 2000, 2.25 to 1; determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness had been incurred, or the Disqualified Stock had been issued, as the case may be, at the beginning of such four-quarter period; The Indenture also provides that the Company will not incur any Indebtedness that is contractually subordinated in right of payment to any other Indebtedness of the Company unless such Indebtedness is also contractually subordinated in right of payment to the Notes on substantially identical terms; provided that no Indebtedness of the Company shall be deemed to be contractually subordinated in right of payment to any other Indebtedness of the Company solely by virtue of being unsecured. The provisions of the first paragraph of this covenant will not apply to the incurrence of any of the following items of Indebtedness (collectively, "Permitted Debt"): (i) the incurrence by the Company of Indebtedness and letters of credit pursuant to Credit Facilities; provided that the aggregate principal amount of all Indebtedness and letters of credit (with letters of credit being deemed to have a principal amount equal to the maximum potential liability of the Company and its Subsidiaries thereunder) outstanding under all Credit Facilities after giving effect to such incurrence does not exceed an amount equal to $20.0 million less the aggregate amount of all Net Proceeds of Asset Sales applied to repay Indebtedness under a Credit Facility or a credit agreement pursuant to the covenant described above under "-- Repurchase at the Option of Holders -- Asset Sales"; (ii) the incurrence by the Company of the Existing Indebtedness; (iii) the incurrence by the Company of Indebtedness represented by the Notes; (iv) the incurrence by the Company or any of its Subsidiaries of Indebtedness represented by Capital Lease Obligations, mortgage financings or purchase money obligations, in each case incurred for the purpose of financing all or any part of the purchase price or cost of construction or improvement of property, plant or equipment used in the business of the Company or such Subsidiary, in an aggregate principal amount not to exceed 5% of total assets; (v) the incurrence by the Company or any of its Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to refund, refinance or replace Indebtedness (other than intercompany Indebtedness) that was permitted by the Indenture to be incurred under the first paragraph hereof or clauses (ii), (iii), (iv) or (x) of this paragraph; (vi) the incurrence by the Company or any of its Subsidiaries of intercompany Indebtedness between or among the Company and any of its Wholly Owned Subsidiaries; provided that (i) if the Company is the obligor on such Indebtedness, such Indebtedness is expressly subordinated to the prior payment in full in cash of all Obligations with respect to the Notes and (ii)(A) any subsequent issuance 71 73 or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than the Company or a Subsidiary thereof and (B) any sale or other transfer of any such Indebtedness to a Person that is not either the Company or a Wholly Owned Subsidiary thereof shall be deemed, in each case, to constitute an incurrence of such Indebtedness by the Company or such Subsidiary, as the case may be, that was not permitted by this clause (vi); (vii) the incurrence by the Company or any of its Subsidiaries of Hedging Obligations that are incurred for the purpose of fixing or hedging interest rate risk with respect to any floating rate Indebtedness that is permitted by the terms of the Indenture to be outstanding; (viii) the guarantee by the Company of Indebtedness of the Company or a Subsidiary of the Company that was permitted to be incurred by another provision of this covenant; (ix) Indebtedness of the Company or any of its Subsidiaries represented by letters of credit or guarantees by or for the account of the Company or such Subsidiary as the case may be, in each case, in order to provide security for workers' compensation claims, payment obligations in connection with self-insurance or similar requirements in the ordinary course of business; (x) Acquired Debt of a Subsidiary, which Subsidiary was acquired after the Closing Date and which Acquired Debt was in existence at the time of acquisition of such Subsidiary, and not incurred in contemplation of such acquisition, if such Acquired Indebtedness is Non-Recourse Debt (except with respect to such Subsidiary and its Subsidiaries) and such Acquired Debt does not exceed $5.0 million in the aggregate outstanding at any time; (xi) Indebtedness in the form of holdback notes or deferred purchase price in connection with an acquisition in an amount not to exceed the lesser of $5.0 million or 20% of the purchase price at any time outstanding; (xii) Indebtedness arising from agreements of the Company or a Subsidiary of the Company providing for indemnification, adjustment of purchase price or similar obligations, in each case, incurred in connection with the disposition of any business, assets or subsidiary, other than guarantees of Indebtedness incurred by any Person acquiring all or any portion of such business, assets or subsidiary for the purpose of financing such acquisition; provided that the maximum aggregate liability in respect of all such Indebtedness shall at no time exceed the gross proceeds actually received by the Company in connection with such disposition; (xiii) Obligations in respect of performance bonds and completion guarantees provided by the Company or any Subsidiary of the Company in the ordinary course of business; (xiv) the guarantee by the Company or any of the Guarantors of Indebtedness of the Company or a Subsidiary of the Company that was permitted to be incurred by another provision of this covenant; and (xv) the incurrence by the Company or any of its Subsidiaries of additional Indebtedness in an aggregate principal amount (or accreted value, as applicable) at any time outstanding, including all Permitted Refinancing Indebtedness incurred to refund, refinance or replace any Indebtedness incurred pursuant to this clause (xv), not to exceed $5.0 million. For purposes of determining compliance with this covenant, in the event that an item of Indebtedness meets the criteria of more than one of the categories of Permitted Debt described in clauses (i) through (xv) above or is entitled to be incurred pursuant to the first paragraph of this covenant, the Company shall, in its sole discretion, classify such item of Indebtedness in any manner that complies with this covenant. Accrual of interest, accretion or amortization of original issue discount, the payment of interest on any Indebtedness in the form of additional Indebtedness with the same terms, and the payment of dividends on Disqualified Stock in the form of additional shares of the same class of Disqualified Stock will not be deemed to be an incurrence of Indebtedness or an issuance of Disqualified Stock for purposes of this covenant; provided, in each such case, that the amount thereof is included in Fixed Charges of the Company as accrued. 72 74 Liens The Indenture provides that the Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or suffer to exist any Lien securing Indebtedness and trade payables on any asset now owned or hereafter acquired, or any income or profits therefrom or assign or convey any right to receive income therefrom, except Permitted Liens. Dividend and Other Payment Restrictions Affecting Subsidiaries The Indenture provides that the Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Subsidiary to (i)(a) pay dividends or make any other distributions to the Company or any of its Subsidiaries (1) on its Capital Stock or (2) with respect to any other interest or participation in, or measured by, its profits, or (b) pay any indebtedness owed to the Company or any of its Subsidiaries, (ii) make loans or advances to the Company or any of its Subsidiaries or (iii) transfer any of its properties or assets to the Company or any of its Subsidiaries. However, the foregoing restrictions will not apply to encumbrances or restrictions existing under or by reason of (a) Existing Indebtedness as in effect on the date of the Indenture, (b) the New Credit Facility as in effect as of the date of the Indenture, and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings thereof, provided that such amendments, modifications, restatements, renewals, increases, supplements, refundings, replacement or refinancings are no more restrictive, taken as a whole, with respect to such dividend and other payment restrictions than those contained in the New Credit Facility as in effect on the date of the Indenture, (c) the Indenture and the Notes, (d) applicable law, (e) any instrument governing Indebtedness or Capital Stock of a Person acquired by the Company or any of its Subsidiaries as in effect at the time of such acquisition (except to the extent such Indebtedness was incurred in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired, provided that, in the case of Indebtedness, such Indebtedness was permitted by the terms of the Indenture to be incurred, (f) customary non-assignment provisions in leases entered into in the ordinary course of business and consistent with past practices, (g) purchase money obligations for property acquired in the ordinary course of business that impose restrictions of the nature described in clause (iii) above on the property so acquired, (h) any agreement for the sale of a Subsidiary that restricts distributions by that Subsidiary pending its sale, (i) Permitted Refinancing Indebtedness, provided that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are no more restrictive, taken as a whole, than those contained in the agreements governing the Indebtedness being refinanced, (j) Liens securing Indebtedness otherwise permitted to be incurred pursuant to the provisions of the covenant described above under the caption "-- Liens" that limits the right of the debtor to dispose of the assets securing such Indebtedness, (k) provisions with respect to the disposition or distribution of assets or property in joint venture agreements and other similar agreements entered into in the ordinary course of business and (l) restrictions on cash or other deposits or net worth imposed by customers under contracts entered into in the ordinary course of business. Merger, Consolidation, or Sale of Assets The Indenture provides that the Company may not consolidate or merge with or into (whether or not the Company is the surviving corporation), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets in one or more related transactions, to another corporation, Person or entity unless (i) the Company is the surviving corporation or the entity or the Person formed by or surviving any such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made is a corporation organized or existing under the laws of the United States, any state thereof or the District of Columbia; (ii) the entity or Person formed by or surviving any such consolidation or merger (if other than the Company) or the entity or Person to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made assumes all the obligations of the Company under the Registration Rights Agreement, the Notes and the Indenture pursuant to a supplemental indenture in a form reasonably satisfactory to the Trustee; (iii) immediately after such 73 75 transaction no Default or Event of Default exists; and (iv) except in the case of a merger of the Company with or into a Wholly Owned Subsidiary of the Company, the Company or the entity or Person formed by or surviving any such consolidation or merger (if other than the Company), or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made (A) will have Consolidated Net Worth immediately after the transaction equal to or greater than the Consolidated Net Worth of the Company immediately preceding the transaction and (B) will, at the time of such transaction and after giving pro forma effect thereto as if such transaction had occurred at the beginning of the applicable four-quarter period, be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described above under "-- Incurrence of Indebtedness and Issuance of Preferred Stock." The Indenture will provide that the foregoing covenant shall not apply to the Merger. Transactions with Affiliates The Indenture provides that the Company will not, and will not permit any of its Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"), unless (i) such Affiliate Transaction is on terms that are no less favorable to the Company or the relevant Subsidiary than those that would have been obtained in a comparable transaction by the Company or such Subsidiary with an unrelated Person and (ii) the Company delivers to the Trustee (a) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $1.0 million, a resolution of the Board of Directors set forth in an Officers' Certificate certifying that such Affiliate Transaction complies with clause (i) above and that such Affiliate Transaction has been approved by a majority of the disinterested members of the Board of Directors and (b) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $5.0 million, an opinion as to the fairness to the holders of such Affiliate Transaction from a financial point of view issued by an accounting, appraisal or investment banking firm of national standing. Notwithstanding the foregoing, the following items shall not be deemed to be Affiliate Transactions: (i) any employment agreement entered into by the Company or any of its Subsidiaries in the ordinary course of business and consistent with the past practice of the Company or such Subsidiary, (ii) transactions between or among the Company and/or its Subsidiaries, (iii) payment of reasonable directors fees to Persons who are not otherwise Affiliates of the Company, (iv) Restricted Payments that are permitted by the provisions of the Indenture described above under the caption "--Restricted Payments", (v) the payment to CGW Southeast Management III, L.L.C. or its designees of the Investment Banking Fee, and (vi) the payment to CGW Southeast III, L.L.C. or its designees of the Management Fee. Limitation on Issuances and Sales of Equity Interests in Wholly Owned Subsidiaries The Indenture provides that the Company (i) will not, and will not permit any Wholly Owned Subsidiary of the Company to, transfer, convey, sell, lease or otherwise dispose of any Equity Interests in any Wholly Owned Subsidiary of the Company to any Person (other than the Company or a Wholly Owned Subsidiary of the Company), unless (a) such transfer, conveyance, sale, lease or other disposition is of all the Equity Interests in such Wholly Owned Subsidiary and (b) the cash Net Proceeds from such transfer, conveyance, sale, lease or other disposition are applied in accordance with the covenant described above under the caption "-- Asset Sales," and (ii) will not permit any Wholly Owned Subsidiary of the Company to issue any of its Equity Interests (other than, if necessary, shares of its Capital Stock constituting directors' qualifying shares) to any Person other than to the Company or a Wholly Owned Subsidiary of the Company. Business Activities The Company will not, and will not permit any Subsidiary to, engage in any business other than Permitted Businesses, except to such extent as would not be material to the Company and its Subsidiaries taken as a whole. 74 76 Payments for Consent The Indenture provides that neither the Company nor any of its Subsidiaries will, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any holder of any Notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of the Indenture or the Notes unless such consideration is offered to be paid or is paid to all holders of the Notes that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement. Reports The Indenture provides that, whether or not required by the rules and regulations of the Commission, so long as any Notes are outstanding, the Company will furnish to the holders of Notes (i) all quarterly and annual financial information that would be required to be contained in a filing with the Commission on Forms 10-Q and 10-K if the Company were required to file such Forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" and, with respect to the annual information only, a report thereon by the Company's certified independent accountants and (ii) all current reports that would be required to be filed with the Commission on Form 8-K if the Company were required to file such reports, in each case within the time periods specified in the Commission's rules and regulations. In addition, following the consummation of this Exchange Offer, whether or not required by the rules and regulations of the Commission, the Company will file a copy of all such information and reports with the Commission for public availability within the time periods specified in the Commission's rules and regulations (unless the Commission will not accept such a filing) and make such information available to securities analysts and prospective investors upon request. In addition, the Company has agreed that, for so long as any Notes remain outstanding, it will furnish to the holders and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act. SUBSIDIARY GUARANTEES The Indenture provides that the Company will not permit any Subsidiary, directly or indirectly, to Guarantee or pledge any assets to secure the payment of any other Indebtedness of the Company unless such Subsidiary simultaneously executes and delivers a supplemental indenture to the Indenture providing for the Guarantee of the payment of the Notes by such Subsidiary, which Guarantee shall be senior to or pari passu with such Subsidiary's Guarantee of or pledge to secure such other Indebtedness. EVENTS OF DEFAULT AND REMEDIES The Indenture provides that each of the following constitutes an Event of Default: (i) default for 30 days in the payment when due of interest on, or Liquidated Damages with respect to, the Notes; (ii) default in payment when due of the principal of or premium, if any, on the Notes; (iii) failure by the Company or any of its Subsidiaries to comply with the provisions described under the captions "-- Change of Control," "-- Asset Sales," "-- Restricted Payments" or "-- Incurrence of Indebtedness and Issuance of Preferred Stock"; (iv) failure by the Company or any of its Subsidiaries for 60 days after notice to comply with any of its other agreements in the Indenture or the Notes; (v) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Subsidiaries (or the payment of which is guaranteed by the Company or any of its Subsidiaries) whether such Indebtedness or guarantee now exists, or is created after the date of the Indenture, which default (a) is caused by a failure to pay principal of or premium, if any, or interest on such Indebtedness prior to the expiration of the grace period provided in such Indebtedness on the date of such default (a "Payment Default") or (b) results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $5.0 million or more; (vi) failure by the Company or any of its Subsidiaries to pay final judgments not covered by insurance aggregating in excess of $5.0 million, which judgments are not paid, discharged, bonded or stayed for a period of 60 days; (vii) except as permitted by the Indenture, any 75 77 Subsidiary Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor, or any Person acting on behalf of any Guarantor, shall deny or disaffirm its obligations under its Subsidiary Guarantee; and (viii) certain events of bankruptcy or insolvency with respect to the Company or any of its Significant Subsidiaries. If any Event of Default occurs and is continuing, the Trustee or the holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, with respect to the Company, any Significant Subsidiary or any group of Subsidiaries that, taken together, would constitute a Significant Subsidiary, all outstanding Notes will become due and payable without further action or notice. Holders of the Notes may not enforce the Indenture or the Notes except as provided in the Indenture. Subject to certain limitations, holders of a majority in principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from holders of the Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest. In the case of any Event of Default occurring by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding payment of the premium that the Company would have had to pay if the Company then had elected to redeem the Notes pursuant to the optional redemption provisions of the Indenture, an equivalent premium shall also become and be immediately due and payable to the extent permitted by law upon the acceleration of the Notes. If an Event of Default occurs prior to April 15, 2002 by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding the prohibition on redemption of the Notes prior to April 15, 2002 then the premium specified in the Indenture shall also become immediately due and payable to the extent permitted by law upon the acceleration of the Notes. The holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the holders of all of the Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest on, or the principal of, the Notes. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS No director, officer, employee, incorporator or stockholder of the Company, as such, shall have any liability for any obligations of the Company under the Notes, the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each holder of Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the Commission that such a waiver is against public policy. LEGAL DEFEASANCE AND COVENANT DEFEASANCE The Company may, at its option and at any time, elect to have all of its obligations discharged with respect to the outstanding Notes ("Legal Defeasance") except for (i) the rights of holders of outstanding Notes to receive payments in respect of the principal of, premium, if any, and interest and Liquidated Damages on such Notes when such payments are due from the trust referred to below, (ii) the Company's obligations with respect to the Notes concerning issuing temporary Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes and the maintenance of an office or agency for payment and money for security payments held in trust, (iii) the rights, powers, trusts, duties and immunities of the Trustee, and the Company's obligations in connection therewith and (iv) the Legal Defeasance provisions of the Indenture. In addition, the Company may, at its option and at any time, elect to have the obligations of the Company 76 78 released with respect to certain covenants that are described in the Indenture ("Covenant Defeasance") and thereafter any omission to comply with such obligations shall not constitute a Default or Event of Default with respect to the Notes. In the event Covenant Defeasance occurs, certain events (not including non-payment, bankruptcy, receivership, rehabilitation and insolvency events) described under "Events of Default" will no longer constitute an Event of Default with respect to the Notes. In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the holders of the Notes, cash in U.S. dollars, non-callable Government Securities, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and interest and Liquidated Damages on the outstanding Notes on the stated maturity or on the applicable redemption date, as the case may be, and the Company must specify whether the Notes are being defeased to maturity or to a particular redemption date; (ii) in the case of Legal Defeasance, the Company shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to the Trustee confirming that (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the date of the Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such opinion of counsel shall confirm that, the holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (iii) in the case of Covenant Defeasance, the Company shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to the Trustee confirming that the holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (iv) no Default or Event of Default shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit) or insofar as Events of Default from bankruptcy or insolvency events are concerned, at any time in the period ending on the 91st day after the date of deposit; (v) such Legal Defeasance or Covenant Defeasance will not result in a breach or violation of, or constitute a default under any material agreement or instrument (other than the Indenture) to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; (vi) the Company must have delivered to the Trustee an opinion of counsel to the effect that after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; (vii) the Company must deliver to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the holders of Notes over the other creditors of the Company with the intent of defeating, hindering, delaying or defrauding creditors of the Company or others; and (viii) the Company must deliver to the Trustee an Officers' Certificate and an opinion of counsel, each stating that all conditions precedent provided for relating to the Legal Defeasance or the Covenant Defeasance have been complied with. TRANSFER AND EXCHANGE A holder may transfer or exchange Notes in accordance with the Indenture. The Registrar and the Trustee may require a holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a holder to pay any taxes and fees required by law or permitted by the Indenture. The Company is not required to transfer or exchange any Note selected for redemption. Also, the Company is not required to transfer or exchange any Note for a period of 15 days before a selection of Notes to be redeemed. The registered holder of a Note will be treated as the owner of it for all purposes. AMENDMENT, SUPPLEMENT AND WAIVER Except as provided in the next two succeeding paragraphs, the Indenture or the Notes may be amended or supplemented with the consent of the holders of at least a majority in principal amount of the Notes then 77 79 outstanding (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, Notes), and any existing default or compliance with any provision of the Indenture or the Notes may be waived with the consent of the holders of a majority in principal amount of the then outstanding Notes (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, Notes). Without the consent of each holder affected, an amendment or waiver may not (with respect to any Notes held by a non-consenting holder): (i) reduce the principal amount of Notes whose holders must consent to an amendment, supplement or waiver, (ii) reduce the principal of or change the fixed maturity of any Note or alter the provisions with respect to the redemption of the Notes (other than provisions relating to the covenants described above under the caption "-- Repurchase at the Option of Holders"), (iii) reduce the rate of or change the time for payment of interest on any Note, (iv) waive a Default or Event of Default in the payment of principal of or premium, if any, or interest on the Notes (except a rescission of acceleration of the Notes by the holders of at least a majority in aggregate principal amount of the Notes and a waiver of the payment default that resulted from such acceleration), (v) make any Note payable in money other than that stated in the Notes, (vi) make any change in the provisions of the Indenture relating to waivers of past Defaults or the rights of holders of Notes to receive payments of principal of or premium, if any, or interest on the Notes, (vii) waive a redemption payment with respect to any Note (other than a payment required by one of the covenants described above under the caption "-- Repurchase at the Option of Holders") or (viii) make any change in the foregoing amendment and waiver provisions. Notwithstanding the foregoing, without the consent of any holder of Notes, the Company and the Trustee may amend or supplement the Indenture or the Notes to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes, to provide for the assumption of the Company's obligations to holders of Notes in the case of a merger or consolidation or sale of all or substantially all of the Company's assets, to make any change that would provide any additional rights or benefits to the holders of Notes or that does not adversely affect the legal rights under the Indenture of any such holder, or to comply with requirements of the Commission in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act. CONCERNING THE TRUSTEE The Indenture contains certain limitations on the rights of the Trustee, should it become a creditor of the Company, to obtain payment of claims in certain cases, or to realize on certain property received in respect of any such claim as security or otherwise. The Trustee will be permitted to engage in other transactions; however, if it acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the Commission for permission to continue or resign. The holders of a majority in principal amount of the then outstanding Notes will have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee, subject to certain exceptions. The Indenture provides that in case an Event of Default shall occur (which shall not be cured), the Trustee will be required, in the exercise of its power, to use the degree of care of a prudent man in the conduct of his own affairs. Subject to such provisions, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request of any holder of Notes, unless such holder shall have offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense. ADDITIONAL INFORMATION Anyone who receives this Prospectus may obtain a copy of the Indenture and Registration Rights Agreement without charge by writing to SIMCALA, Inc., P.O. Box 68, Mt. Meigs, Alabama 36057; Attention: Chief Financial Officer. 78 80 BOOK-ENTRY, DELIVERY AND FORM Series A Global Notes The Series A Notes were offered and sold (i) to qualified institutional buyers in reliance on Rule 144A under the Securities Act ("Rule 144A Notes") and (ii) to institutional "accredited investors" as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act ("Accredited Investor Notes") and in each case are represented by a separate note in registered, global form (collectively, the "Series A Global Notes"). Series B Global Note The Series B Notes will initially be issued in the form of one global certificate (the "Series B Global Note" and collectively with the Series A Global Notes, the "Global Notes"). The Series B Global Note will be deposited on the date of the consummation of the Exchange Offer with or on behalf of DTC and registered in the name of DTC or its nominee. DTC has advised the Company that DTC is a limited purpose trust company organized under the laws of the State of New York, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Exchange Act. DTC was created to hold securities for its participants and facilitate the clearance and settlement of securities transactions between participants through electronic book-entry changes in accounts of its participants, thereby eliminating the need for physical movement of certificates. Participants include securities brokers and dealers, banks, trust companies, and clearing corporations and may include certain other organizations. Indirect access to the DTC system is available to others such as banks, brokers, dealers, and trust companies that clear through or maintain a custodial relationship with a participant, either directly or indirectly ("indirect participants"). So long as DTC, or its nominee, is the registered owner or holder of the Series B Global Note, DTC or such nominee, as the case may be, will be considered the sole owner or holder of the Notes represented by such Series B Global Note for all purposes under the Indenture. The Company understands that pursuant to procedures established by DTC (i) upon deposit of the Series B Global Note, DTC or its custodian will credit, on its book entry registration and transfer system, the respective principal amount of Series B Notes of the individual beneficial interests represented by such Series B Global Note to the accounts of Persons who have accounts with such depositary and (ii) ownership of the Series B Notes evidenced by the Series B Global Note will be shown on, and the transfer of ownership thereof will be effected only through, records maintained by DTC or its nominee (with respect to the interests of DTC's participants), DTC's participants and DTC's indirect participants. No beneficial owner of an interest in the Series B Global Note will be able to transfer that interest except in accordance with DTC's applicable procedures, in addition to those provided for under the Indenture. Payments made with respect to the Series B Global Note will be made to DTC or its nominee, as the case may be, as the registered owner thereof. The Company will have no responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in the Series B Global Note or for maintaining, supervising, or reviewing any records relating to such beneficial ownership interests. The Company expects that DTC or its nominee, upon receipt of any payments made with respect to the Series B Global Note, will credit participants' accounts with payments in amounts proportionate to their respective beneficial interests in the principal amount of such Series B Global Note as shown on the records of DTC or its nominee. The Company also expects that payments by participants to owners of beneficial interests in such Series B Global Note held through such participants will be governed by standing instructions and customary practices, as is now the case with securities held for the accounts of customers registered in the names of nominees for such customers. Such payments will be the responsibility of such participants. Transfers between participants in DTC will be effected in accordance with DTC rules and will be settled in same-day funds. 79 81 Although DTC is expected to follow the foregoing procedures in order to facilitate transfers of interests in the Series B Global Note among participants of DTC, it is under no obligation to perform or continue to perform such procedures, and such procedures may be discontinued at any time. Neither the Company nor the Trustee nor any of their respective agents will have any responsibility for the performance by DTC or its respective participants or indirect participants of their respective obligations under the rules and procedures governing their operations. Certificated Notes Subject to certain conditions contained in the Indenture, any person having a beneficial interest in the Global Notes may, upon request to the Trustee, exchange such beneficial interest for Notes in registered certificated form ("Certificated Notes"). Upon any such issuance, the Trustee is required to register such Certificated Notes in the name of, and cause the same to be delivered to, such person or persons (or the nominee of any thereof). In addition, if (i) the Company notifies the Trustee in writing that DTC is no longer willing or able to act as a depository and the Company is unable to locate a qualified successor within 90 days or (ii) the Company, at its option, notifies the Trustee in writing that it elects to cause the issuance of Notes in the form of Certificated Notes under the Indenture, then, upon surrender by the Global Note holder of the Global Notes, Notes in such form will be issued to each person that the Global Note holder and the DTC identify as being the beneficial owner of the related Notes. Neither the Company nor the Trustee will be liable for any delay by the Global Note holder or the DTC in identifying the beneficial owners of the Notes and the Company and the Trustee may conclusively rely on, and will be protected in relying on, instructions from the Global Note holder or the DTC for all purposes. Same Day Settlement and Payment The Indenture requires that payments in respect of the Notes represented by the Global Notes (including principal, premium, if any, interest and Liquidated Damages, if any) be made by wire transfer of immediately available funds to the accounts specified by the Global Note holder. With respect to Notes in certificated form, the Company will make all payments of principal, premium, if any, interest and Liquidated Damages, if any, by wire transfer of immediately available funds to the accounts specified by the holders thereof or, if no such account is specified, by mailing a check to each such holder's registered address. The Notes represented by the Global Notes are expected to trade in the DTC's Same-Day Funds Settlement System, and any permitted secondary market trading activity in such Notes will, therefore, be required by the DTC to be settled in immediately available funds. The Company expects that secondary trading in any certificated Notes will also be settled in immediately available funds. Because of time zone differences, the securities account of a Euroclear System ("Euroclear") or Cedel Bank societe anonyme ("Cedel") participant purchasing an interest in a Global Note from a participant in DTC will be credited, and any such crediting will be reported to the relevant Euroclear or Cedel participant, during the securities settlement processing day (which must be a business day for Euroclear and Cedel) immediately following the settlement date of DTC. DTC has advised the Company that cash received in Euroclear or Cedel as a result of sales of interests in a Global Note by or through a Euroclear or Cedel participant to a participant in DTC will be received with value on the settlement date of DTC but will be available in the relevant Euroclear or Cedel cash account only as of the business day for Euroclear or Cedel following DTC's settlement date. CERTAIN DEFINITIONS Set forth below are certain defined terms used in the Indenture. Reference is made to the Indenture for a full disclosure of all such terms, as well as any other capitalized terms used herein for which no definition is provided. "Acquired Debt" means, with respect to any specified Person, (i) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person, including, without limitation, Indebtedness incurred in connection with, or in contemplation of, such other 80 82 Person merging with or into or becoming a Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial ownership of 10% or more of the Voting Stock of a Person shall be deemed to be control. "Asset Sale" means (i) the sale, lease, conveyance or other disposition of any assets or rights (including, without limitation, by way of a sale and leaseback) other than sales of inventory or obsolete or excess equipment or equipment that is not longer useable, in each case, in the ordinary course of business (provided that the sale, lease, conveyance or other disposition of all or substantially all of the assets of the Company and its Subsidiaries taken as a whole will be governed by the provisions of the Indenture described above under the caption "-- Change of Control" and/or the provisions described above under the caption "--Merger, Consolidation or Sale of Assets" and not by the provisions of the Asset Sale covenant), and (ii) the issue or sale by the Company or any of its Subsidiaries of Equity Interests of any of the Company's Subsidiaries, in the case of either clause (i) or (ii), whether in a single transaction or a series of related transactions (a) that have a fair market value in excess of $1.0 million or (b) for net proceeds in excess of $1.0 million. Notwithstanding the foregoing, the following items shall not be deemed to be Asset Sales: (i) a transfer of assets by the Company to a Wholly Owned Subsidiary or by a Wholly Owned Subsidiary to the Company or to another Wholly Owned Subsidiary, (ii) an issuance of Equity Interests by a Wholly Owned Subsidiary to the Company or to another Wholly Owned Subsidiary, and (iii) a Restricted Payment that is permitted by the covenant described above under "-- Certain Covenants -- Restricted Payments." "Capital Lease Obligation" means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be required to be capitalized on a balance sheet in accordance with GAAP. "Capital Stock" means (i) in the case of a corporation, corporate stock, (ii) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, (iii) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited) and (iv) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. "Cash Equivalents" means (i) United States dollars, (ii) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof (provided that the full faith and credit of the United States is pledged in support thereof) having maturities of not more than six months from the date of acquisition, (iii) certificates of deposit and eurodollar time deposits with maturities of six months or less from the date of acquisition, bankers' acceptances with maturities not exceeding six months and overnight bank deposits, in each case with any lender party to the New Credit Facility or with any domestic commercial bank having capital and surplus in excess of $500 million and a Thompson Bank Watch Rating of "B" or better, (iv) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (ii) and (iii) above entered into with any financial institution meeting the qualifications specified in clause (iii) above, (v) commercial paper having the highest rating obtainable from Moody's Investors Service, Inc. or Standard & Poor's Corporation and in each case maturing within six months after the date of acquisition and (vi) money market funds at least 95% of the assets of which constitute Cash Equivalents of the kinds described in clauses (i)-(v) of this definition. "Change of Control" means the occurrence of any of the following: (i) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of the Company and its Subsidiaries taken as a whole to any "person" (as such term is used in Section 13(d)(3) of the Exchange Act); (ii) the adoption of a plan relating to the liquidation or dissolution of the Company; (iii) the consummation of any transaction (including, 81 83 without limitation, any merger or consolidation) the result of which is that any "person" (as defined above) becomes the "beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that a person shall be deemed to have "beneficial ownership" of all securities that such person has the right to acquire, whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition), directly or indirectly, of more than 50% of the Voting Stock of the Company (measured by voting power rather than number of shares); (iv) the first day on which a majority of the members of the Board of Directors of the Company are not Continuing Directors or; (iv) the Company consolidates with, or merges with or into, any Person, or any Person consolidates with, or merges with or into, the Company, in any such event pursuant to a transaction in which any of the outstanding Voting Stock of the Company is converted into or exchanged for cash, securities or other property, other than any such transaction where the Voting Stock of the Company outstanding immediately prior to such transaction is converted into or exchanged for Voting Stock (other than Disqualified Stock) of the surviving or transferee Person constituting a majority of the outstanding shares of such Voting Stock of such surviving or transferee Person (immediately after giving effect to such issuance). "Consolidated Cash Flow" means, with respect to any Person for any period, the Consolidated Net Income of such Person for such period plus (i) an amount equal to any extraordinary loss plus any net loss realized in connection with an Asset Sale (to the extent such losses were deducted in computing such Consolidated Net Income), plus (ii) provision for taxes based on income or profits of such Person and its Subsidiaries for such period, to the extent that such provision for taxes was included in computing such Consolidated Net Income, plus (iii) consolidated interest expense of such Person and its Subsidiaries for such period, whether paid or accrued and whether or not capitalized (including, without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net payments (if any) pursuant to Hedging Obligations), to the extent that any such expense was deducted in computing such Consolidated Net Income, plus (iv) depreciation, amortization (including amortization of transaction fees, goodwill and other intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) and other non-cash expenses (excluding any such non-cash expense to the extent that it represents an accrual of or reserve for cash expenses in any future period or amortization of a prepaid cash expense that was paid in a prior period) of such Person and its Subsidiaries for such period to the extent that such depreciation, amortization and other non-cash expenses were deducted in computing such Consolidated Net Income, minus (v) non-cash items increasing such Consolidated Net Income for such period, in each case, on a consolidated basis and determined in accordance with GAAP. Notwithstanding the foregoing, the provision for taxes on the income or profits of, and the depreciation and amortization and other non-cash expenses of, a Subsidiary of the referent Person shall be added to Consolidated Net Income to compute Consolidated Cash Flow only to the extent that a corresponding amount would be permitted at the date of determination to be dividended to the Company by such Subsidiary without prior governmental approval (that has not been obtained), and without direct or indirect restriction pursuant to the terms of its charter and all agreements, instruments, judgments, decrees, orders, statutes, rules and governmental regulations applicable to that Subsidiary or its stockholders. "Consolidated Net Income" means, with respect to any Person for any period, the aggregate of the Net Income of such Person and its Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that (i) the Net Income (but not loss) of any Person that is not a Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid in cash to the referent Person or a Wholly Owned Subsidiary thereof that is a guarantor, (ii) the Net Income of any Subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary or its stockholders, (iii) the Net Income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded and (iv) the cumulative effect of a change in accounting principles shall be excluded. 82 84 "Consolidated Net Worth" means, with respect to any Person as of any date, the sum of (i) the consolidated equity of the common stockholders of such Person and its consolidated Subsidiaries as of such date plus (ii) the respective amounts reported on such Person's balance sheet as of such date with respect to any series of preferred stock (other than Disqualified Stock) that by its terms is not entitled to the payment of dividends unless such dividends may be declared and paid only out of net earnings in respect of the year of such declaration and payment, but only to the extent of any cash received by such Person upon issuance of such preferred stock, less (x) all write-ups (other than write-ups resulting from foreign currency translations and write-ups of tangible assets of a going concern business made within 12 months after the acquisition of such business) subsequent to the date of the Indenture in the book value of any asset owned by such Person or a consolidated Subsidiary of such Person, (y) all investments as of such date in unconsolidated Subsidiaries and in Persons that are not Subsidiaries (except, in each case, Permitted Investments), and (z) all unamortized debt discount and expense and unamortized deferred charges as of such date, all of the foregoing determined in accordance with GAAP. "Continuing Directors" means, as of any date of determination, any member of the Board of Directors of the Company who (i) was a member of such Board of Directors on the date of the Indenture or (ii) was nominated for election or elected to such Board of Directors with the approval of a majority of the Continuing Directors who were members of such Board at the time of such nomination or election. "Credit Facilities" means, with respect to the Company, one or more debt facilities (including, without limitation, the New Credit Facility) or commercial paper facilities with banks or other institutional lenders providing for revolving credit loans, term loans, receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables) or letters of credit, in each case, as amended, restated, modified, renewed, refunded, replaced or refinanced in whole or in part from time to time. Indebtedness under Credit Facilities outstanding on the date on which Notes are first issued and authenticated under the Indenture shall be deemed to have been incurred on such date in reliance on the exception provided by clause (i) or (ii) of the definition of Permitted Debt. "Default" means any event that is or with the passage of time or the giving of notice or both would be an Event of Default. "Disqualified Stock" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible, or for which it is exchangeable, at the option of the holder thereof), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder thereof, in whole or in part, on or prior to the date that is 91 days after the date on which the Notes mature; provided, however, that any Capital Stock that would constitute Disqualified Stock solely because the holders thereof have the right to require the Company to repurchase such Capital Stock upon the occurrence of a Change of Control or an Asset Sale shall not constitute Disqualified Stock if the terms of such Capital Stock provide that the Company may not repurchase or redeem any such Capital Stock pursuant to such provisions unless such repurchase or redemption complies with the covenant described above under "-- Certain Covenants -- Restricted Payments." "Domestic Subsidiary" means any Subsidiary of the Company that either (a) is organized within any state of the United States of America, or (b) has guaranteed any Indebtedness of the Company or any other Domestic Subsidiary. "Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "Existing Indebtedness" means up to $6.1 million in aggregate principal amount of Indebtedness of the Company and its Subsidiaries (other than Indebtedness under the New Credit Facility) in existence on the date of the Indenture, until such amounts are repaid. "Fixed Charges" means, with respect to any Person for any period, the sum, without duplication, of (i) the consolidated interest expense of such Person and its Subsidiaries for such period, whether paid or accrued (including, without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of 83 85 all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net payments (if any) pursuant to Hedging Obligations) and (ii) the consolidated interest of such Person and its Subsidiaries that was capitalized during such period, and (iii) any interest expense on Indebtedness of another Person that is Guaranteed by such Person or one of its Subsidiaries or secured by a Lien on assets of such Person or one of its Subsidiaries (whether or not such Guarantee or Lien is called upon) and (iv) the product of (a) all dividend payments, whether or not in cash, on any series of preferred stock of such Person or any of its Subsidiaries, other than dividend payments on Equity Interests payable solely in Equity Interests of the Company (other than Disqualified Stock) or to the Company or a Subsidiary of the Company, times (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory tax rate of such Person, expressed as a decimal, in each case, on a consolidated basis and in accordance with GAAP. "Fixed Charge Coverage Ratio" means with respect to any Person for any period, the ratio of the Consolidated Cash Flow of such Person for such period to the Fixed Charges of such Person for such period. In the event that the referent Person or any of its Subsidiaries incurs, assumes, Guarantees or redeems any Indebtedness (other than revolving credit borrowings) or issues or redeems preferred stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated but prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to such incurrence, assumption, Guarantee or redemption of Indebtedness, or such issuance or redemption of preferred stock, as if the same had occurred at the beginning of the applicable four-quarter reference period. In addition, for purposes of making the computation referred to above, (i) acquisitions that have been made by the Company or any of its Subsidiaries, including through mergers or consolidations and including any related financing transactions, during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date shall be deemed to have occurred on the first day of the four-quarter reference period and Consolidated Cash Flow for such reference period shall be calculated without giving effect to clause (iii) of the proviso set forth in the definition of Consolidated Net Income, and (iii) the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded, and (iv) the Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded, but only to the extent that the obligations giving rise to such Fixed Charges will not be obligations of the referent Person or any of its Subsidiaries following the Calculation Date. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect on the date of the Indenture. "Guarantee" means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including, without limitation, by way of a pledge of assets or through letters of credit or reimbursement agreements in respect thereof), of all or any part of any Indebtedness. "Guarantors" means any Subsidiary that executes a Subsidiary Guarantee in accordance with the provisions of the Indenture, and their respective successors and assigns. "Hedging Obligations" means, with respect to any Person, the obligations of such Person under (i) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements and (ii) other agreements or arrangements designed to protect such Person against fluctuations in interest rates. "Indebtedness" means, with respect to any Person, any indebtedness of such Person, whether or not contingent, in respect of borrowed money or evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof) or banker's acceptances or representing 84 86 Capital Lease Obligations or the balance deferred and unpaid of the purchase price of any property or representing any Hedging Obligations, except any such balance that constitutes an accrued expense or trade payable, if and to the extent any of the foregoing (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP, as well as all Indebtedness of others secured by a Lien on any asset of such Person (whether or not such Indebtedness is assumed by such Person) and, to the extent not otherwise included, the Guarantee by such Person of any indebtedness of any other Person. The amount of any Indebtedness outstanding as of any date shall be (i) the accreted value thereof, in the case of any Indebtedness issued with original issue discount, and (ii) the principal amount thereof, together with any interest thereon that is more than 30 days past due, in the case of any other Indebtedness. "Investment Banking Fee" means $1.35 million paid by the Company to CGW Southeast Management III, L.L.C. or its designees on the Closing Date. "Investments" means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the forms of direct or indirect loans (including guarantees of Indebtedness or other obligations), advances or capital contributions (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. If the Company or any Subsidiary of the Company sells or otherwise disposes of any Equity Interests of any direct or indirect Subsidiary of the Company such that, after giving effect to any such sale or disposition, such Person is no longer a Subsidiary of the Company, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Equity Interests of such Subsidiary not sold or disposed of in an amount determined as provided in the final paragraph of the covenant described above under "-- Certain Covenants -- Restricted Payments." "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction). "Management Fee" means management and consulting service fees in an amount not to exceed $680,000 annually payable by the Company to CGW Southeast III, L.L.C. or its designees. "Net Income" means, with respect to any Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however, (i) any gain (but not loss), together with any related provision for taxes on such gain (but not loss), realized in connection with (a) any Asset Sale (including, without limitation, dispositions pursuant to sale and leaseback transactions) or (b) the disposition of any securities by such Person or any of its Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Subsidiaries and (ii) any extraordinary gain (but not loss), together with any related provision for taxes on such extraordinary gain (but not loss). "Net Proceeds" means the aggregate cash proceeds received by the Company or any of its Subsidiaries in respect of any Asset Sale (including, without limitation, any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale), net of the direct costs relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees, and sales commissions) and any relocation expenses incurred as a result thereof, taxes paid or payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements), amounts required to be applied to the repayment of Indebtedness secured by a Lien on the asset or assets that were the subject of such Asset Sale and any reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP. 85 87 "New Credit Facility" means that certain Credit Agreement, by and among the Company, the lenders named therein and NationsBank, N.A., as Agent, providing for up to $15.0 million of revolving credit borrowings and letter of credit issuances, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, and in each case as amended, modified, renewed, refunded, replaced or refinanced, in whole or in part, from time to time. "Non-Recourse Debt" means Indebtedness (i) as to which neither the Company nor any of its Subsidiaries (a) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness), (b) is directly or indirectly liable (as a guarantor or otherwise), or (c) constitutes the lender; and (ii) no default with respect to which (including any rights that the holders thereof may have to take enforcement action against a Subsidiary) would permit (upon notice, lapse of time or both) any holder of any other Indebtedness of the Company or any of its Subsidiaries to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity; and (iii) as to which the lenders have been notified in writing that they will not have any recourse to the stock or assets of the Company or any of its Subsidiaries. "Obligations" means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "Permitted Business" means any business that manufactures and/or sells silicon metal or microsilica, or any business that is reasonably similar thereto or a reasonable extension, development or expansion thereof or ancillary thereto. "Permitted Investments" means (a) any Investment in the Company or in a Subsidiary of the Company that is a guarantor (or, if such Subsidiary is a foreign Subsidiary, 65% of the capital stock of which has been pledged to the Trustee pursuant to a pledge agreement, in form and substance reasonably satisfactory to the Trustee, securing the payment in full of all Obligations with respect to the Notes); (b) any Investment in Cash Equivalents; (c) any Investment by the Company or any Subsidiary of the Company in a Person, if as a result of such Investment (i) such Person becomes a Subsidiary of the Company and a guarantor or (ii) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or a Subsidiary of the Company that is a guarantor; (d) any Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with the covenant described above under "-- Repurchase at the Option of Holders -- Asset Sales"; (e) any acquisition of assets solely in exchange for the issuance of Equity Interests (other than Disqualified Stock) of the Company; and (f) other Investments in any Person having an aggregate fair market value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (f) that are at the time outstanding, not to exceed $5.0 million. "Permitted Liens" means (i) Liens on assets of the Company or any of its Subsidiaries securing obligations under any Credit Facility that were permitted by the terms of the Indenture to be incurred; (ii) Liens in favor of the Company; (iii) Liens on property of a Person existing at the time such Person is merged into or consolidated with the Company or any Subsidiary of the Company; provided that such Liens were in existence prior to the contemplation of such merger or consolidation and do not extend to any assets other than those of the Person merged into or consolidated with the Company; (iv) Liens on property existing at the time of acquisition thereof by the Company or any Subsidiary of the Company, provided that such Liens were in existence prior to the contemplation of such acquisition; (v) Liens to secure the performance of statutory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business; (v) Liens to secure Indebtedness (including Capital Lease Obligations) permitted by clause (iv) of the second paragraph of the covenant entitled "Incurrence of Indebtedness and Issuance of Preferred Stock" covering only the assets acquired with such Indebtedness; (vi) Liens existing on the date of the Indenture and replacement, refinancing or renewals thereof, in whole or in part; (vii) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded, provided that any reserve or other appropriate provision as shall be required in conformity with GAAP shall have been made therefor; 86 88 (viii) Liens to secure Indebtedness permitted by clause (v) or (vii) of the second paragraph of the covenant entitled "Incurrence of Indebtedness and Issuance of Preferred Stock;" and (ix) other Liens with respect to obligations that do not exceed $5.0 million at any one time outstanding. "Permitted Refinancing Indebtedness" means any Indebtedness of the Company or any of its Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other Indebtedness of the Company or any of its Subsidiaries (other than intercompany Indebtedness); provided that: (i) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount of (or accreted value, if applicable), plus accrued interest on, the Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded (plus the amount of reasonable expenses incurred in connection therewith); (ii) such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the Notes, such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and is subordinated in right of payment to, the Notes on terms at least as favorable to the holders of Notes as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; and (iv) such Indebtedness is incurred either by the Company or by the Subsidiary who is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded. "Restricted Investment" means an Investment other than a Permitted Investment. "Significant Subsidiary" means any Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Act, as such Regulation is in effect on the date hereof. "Stated Maturity" means, with respect to any installment of interest or principal on any series of Indebtedness, the date on which such payment of interest or principal was scheduled to be paid in the original documentation governing such Indebtedness, and shall not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof. "Subsidiary" means, with respect to any Person, (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person (or a combination thereof) and (ii) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are such Person or of one or more Subsidiaries of such Person (or any combination thereof). "Trading Day," with respect to a securities exchange or automated quotation system, means a day on which such exchange or system is open for a full day of trading. "Voting Stock" of any Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (i) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by (ii) the then outstanding principal amount of such Indebtedness. "Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time 87 89 be owned by such Person or by one or more Wholly Owned Subsidiaries of such Person and one or more Wholly Owned Subsidiaries of such Person. DESCRIPTION OF OTHER INDEBTEDNESS CREDIT FACILITIES In connection with the Acquisition, the Company replaced the Terminated Credit Facility and the Terminated Reimbursement Agreement with the New Credit Facility. The closing of the New Credit Facility was completed simultaneously with the Acquisition Closing. The New Credit Facility is being provided by NationsBank, N.A., and provides availability for revolving borrowings and letters of credit in an aggregate principal amount of up to $15.0 million (the "Commitment"). The total amount of (i) revolving borrowings, (ii) undrawn amounts of letters of credit and (iii) reimbursement obligations in respect of letters of credit, may not exceed the Commitment. The Commitment will expire in March 2003. In addition, the New Credit Facility requires that outstanding revolving loans be repaid, and the Commitment be permanently reduced, upon certain non-ordinary course asset sales by Holdings, the Company or any future subsidiary of the Company. Revolving loans bear interest at a variable rate equal, at the option of the Company, to (i) LIBOR (having interest periods of 1, 2, 3 or 6 months, at the Company's option) plus a margin of up to 2.25% per annum or (ii) the base rate (defined to mean the higher of (a) NationsBank's publicly announced "prime rate" and (b) a rate tied to the rates on overnight Federal funds transactions with members of the Federal Reserve System) plus a margin of up to 1.25% per annum. Drawings under letters of credit which are not promptly reimbursed by the Company accrue interest at a variable rate equal to the base rate plus a margin of up to 3.25% per annum. Beginning one year after the closing of the New Credit Facility, these margins may be reduced based on the financial performance of the Company. The New Credit Facility contains a number of covenants, including, among others, covenants restricting the Company and its subsidiaries with respect to the incurrence of indebtedness (including contingent obligations); the creation of liens; substantially changing the nature of its business; the consummation of certain transactions such as dispositions of substantial assets, mergers or consolidations; the making of certain investments and loans; the making of dividends and other distributions; the prepayment of indebtedness; transactions with affiliates; agreeing to certain restrictions on its actions (including agreeing not to grant liens); and limitations on sale leaseback transactions. In addition, the New Credit Facility contains affirmative covenants including, among others, requirements regarding compliance with laws; preservation of corporate existence; maintenance of insurance; payment of taxes and other obligations; maintenance of properties; environmental compliance; the keeping of books and records; the maintenance of intellectual property; and the delivery of financial and other information to the agent and the lenders under the New Credit Facility. The Company is also required to comply with certain financial tests and maintain certain financial ratios. Certain of these financial tests and ratios include: (i) maintaining a minimum net worth; (ii) maintaining a maximum ratio of indebtedness (less cash and cash equivalents) to EBITDA; and (iii) maintaining a minimum ratio of EBITDA to interest expense. The New Credit Facility contains customary events of default. An event of default under the New Credit Facility would allow the lenders thereunder to accelerate or, in certain cases, would automatically cause the acceleration of, the maturity of the indebtedness under the New Credit Facility and would restrict the ability of the Company to meet its obligations to the holders of the Notes. Credit extended under the New Credit Facility is secured by substantially all of the Company's assets and the real and personal property used in the Company's operations which is, as a result of the IRB Financing, owned by the Montgomery IDB and leased to the Company. In addition, the payment of principal of, and interest on, indebtedness under the New Credit Facility is guaranteed on a senior basis by Holdings and each of the Company's future subsidiaries. In connection with its guarantee, Holdings has agreed that it will not, among other things, engage in any business, activity or operation other than owning the capital stock of 88 90 SIMCALA, and that it will not merge or consolidate with any other person or entity. In addition, Holdings' guarantee is secured by substantially all of Holdings' assets, including all of the capital stock of SIMCALA. INDUSTRIAL REVENUE BOND FINANCING General In connection with the Company's acquisition of the Facility, the SIDA issued $6.0 million aggregate principal amount of the IRBs under the Bond Indenture. Simultaneously with the issuance of the IRBs, the SIDA entered into a Loan Agreement dated as of January 1, 1995 (the "Bond Loan Agreement") with the Montgomery IDB and SIMCALA, pursuant to which the SIDA loaned the proceeds from the sale of the IRBs to SIMCALA and the Montgomery IDB (the "Bond Loan") and SIMCALA and the Montgomery IDB agreed to pay the principal of, and interest on, the Bond Loan in an amount sufficient for the SIDA to pay the principal of, premium, if any, and interest on the IRBs when the same become due and payable, together with all amounts necessary to pay the holders of the IRBs upon an Optional or Mandatory Tender (as defined herein). The right of the SIDA to receive such payments from SIMCALA and the Montgomery IDB in amounts sufficient to satisfy such obligations of the SIDA has been assigned to the Bond Trustee. The proceeds of the Bond Loan were used by SIMCALA and the Montgomery IDB to finance or refinance (i) the acquisition of the Facility, the improvements thereon and certain equipment used in SIMCALA's operations and (ii) the acquisition and construction of improvements thereof, including renovating, expanding and refurbishing the Facility, such improvements and such equipment (collectively, the "Project"). As required by the Bond Loan Agreement, SIMCALA caused the Terminated Bond Letter of Credit to be issued pursuant to the Terminated Reimbursement Agreement to the Bond Trustee to provide credit support for the obligations of the SIDA under the Bond Indenture to the holders of the IRBs. As part of the Transactions, SIMCALA replaced the Terminated Bond Letter of Credit with the New Bond Letter of Credit issued under the New Credit Facility. In addition, as a consequence of the IRB Financing, substantially all of the real and personal property used in SIMCALA's operations (including the Facility) is owned by the Montgomery IDB and leased to SIMCALA under the Consolidated, Amended and Restated Lease dated as of January 1, 1995 between the Montgomery IDB, as lessor, and SIMCALA, as lessee (the "Lease Agreement"). IRBs, Bond Indenture and Bond Loan Agreement The IRBs, which mature on December 1, 2019, currently accrue interest at a rate which is reset every seven days (a "Seven-Day Rate") as determined by the Remarketing Agent based on its evaluation of applicable Rate Determination Factors. Interest on the IRBs is payable monthly. Under certain circumstances and subject to certain restrictions, SIMCALA may elect to have the IRBs accrue interest (i) at a fixed rate for a one year period or (ii) at a permanent fixed rate until the IRBs mature, in both cases determined by the Remarketing Agent based on the Remarketing Agent's evaluation of the applicable Rate Determination Factors. However, interest borne by the IRBs cannot exceed the lower of 15% per annum and the maximum rate per annum specified in any letter of credit which provides credit support for the IRBs. As of March 31, 1998, interest on the IRBs accrued at a Seven-Day Rate equal to approximately 5.8% per annum. Whenever the IRBs accrue interest at a Seven-Day Rate, they are redeemable at par at the option of the Company at any time upon 30 days' notice. Upon seven days' notice, each holder of IRBs may, whenever the IRBs accrue interest at a Seven-Day Rate, tender all or part of the IRBs held by such holder for purchase at a purchase price equal to 100% of the principal amount thereof, together with accrued interest thereon to the purchase date (an "Optional Tender"). In addition, under certain circumstances, each holder of IRBs will be required to tender such holder's IRBs for a purchase price equal to 100% of the principal amount thereof, together with accrued interest thereon to the purchase date (a "Mandatory Tender"). Upon any Optional or Mandatory Tender of the IRBs, the Remarketing Agent will use its best efforts to remarket the IRBs tendered for purchase, unless an event of default exists under the Bond Indenture. If the Remarketing Agent is unable to remarket any of the IRBs so tendered, the Bond Trustee is required under the Indenture to draw sufficient funds under the letter of credit 89 91 then providing credit support for the IRBs to pay the purchase price of the IRBs tendered. If the bank issuing such letter of credit fails to pay any such draw, SIMCALA would be obligated to directly pay such purchase price. The Company's failure to make such payment would constitute an event of default under the Bond Loan Agreement and the Bond Indenture. The Bond Indenture and the Bond Loan Agreement contain customary covenants and events of default. Upon the occurrence of an event of default under the Bond Indenture, the Bond Trustee (i) may, and under certain circumstances is required to, (a) declare the principal of, premium, if any, and interest on, all IRBs to be immediately due and payable and (b) make a drawing under the letter of credit which then supports the IRBs to pay such amounts, and (ii) may exercise the other remedies available to it under the Bond Indenture. Similarly, upon the occurrence of an event of default under the Bond Loan Agreement, the Bond Trustee, as assignee of the SIDA's right to receive payments thereunder, may declare the principal of, premium, if any, and interest on, the Bond Loan to be immediately due and payable and may exercise the other remedies available to it under the Bond Indenture. In addition, the New Credit Facility, the Bond Indenture and the Bond Loan Agreement are cross-defaulted to each other. Accordingly, an event of default under the Bond Indenture, the Bond Loan Agreement or the New Credit Facility could result in a drawing on the New Bond Letter of Credit, thus resulting in a reimbursement obligation of SIMCALA under the New Credit Facility. Such an obligation would be a secured obligation of SIMCALA to the extent of the collateral securing the New Credit Facility. Also, an event of default under either the Bond Indenture or the Bond Loan Agreement would cause an event of default under the New Credit Facility, thus allowing the lenders thereunder to accelerate the maturity of the indebtedness thereunder (including the reimbursement obligation resulting from the drawing under the New Bond Letter of Credit) and restricting the ability of the Company to meet its obligations to the holders of the Notes. Lease Agreement The Lease Agreement expires on June 1, 2010, unless terminated earlier pursuant to its terms, and requires rental payments equal to the sum of (i) amounts necessary to service indebtedness incurred to pay or reimburse costs related to the Project (including indebtedness incurred under the Bond Loan Agreement) and (ii) $2,000 per year, together with all costs and expenses of the Montgomery IDB incurred in connection with the Lease Agreement. The former amounts are payable directly to the party to whom such amounts are due when they become due, but nevertheless constitute rental payments to the Montgomery IDB, while the latter amounts are payable to the Montgomery IDB annually in advance on June 1 of each year. The Lease Agreement further provides that SIMCALA must, at its expense, (i) keep the Project in as reasonably safe a condition as its operations permit; (ii) maintain the Project in good condition, repair and working order; (iii) make or cause to be made all needful and proper repairs, renewals and replacements to the Project; (iv) pay all utility and other charges for the operation, use and upkeep of the Project; and (v) pay all taxes and governmental charges lawfully assessed or levied against the Project. In addition, SIMCALA is required to keep the Project insured in an amount equal to the full replacement cost thereof against customary casualties, is required to maintain public liability insurance in the minimum amount of $2.0 million combined single limit coverage and is required to maintain public liability insurance in such amount with respect to each vehicle used in connection with the Project. At all times, SIMCALA has the right to terminate the Lease Agreement and purchase the Project from the Montgomery IDB upon 30 days' notice for a purchase price of $2,000 plus the amount necessary to pay in full the principal of, premium, if any, and interest on, the IRBs. If this purchase option has not been exercised by the last day of the lease term, it is automatically deemed exercised. CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS The following is a summary of certain United States federal income tax considerations relating to the purchase, ownership and disposition of the Exchange Notes, but does not purport to be a complete analysis of all the potential tax considerations relating thereto. This summary is based on the Internal Revenue Code of 1986, as amended (the "Code"), existing, temporary, and proposed Treasury Regulations, and laws, rulings 90 92 and decisions now in effect, all of which are subject to change. This summary deals only with holders that will hold Exchange Notes as "capital assets" (within the meaning of Section 1221 of the Code). This summary does not address tax considerations applicable to investors that may be subject to special tax rules, such as banks, tax-exempt organizations, insurance companies, dealers in securities or currencies, or persons that will hold Exchange Notes as a position in a hedging transaction, "straddle" or "conversion transaction" for tax purposes. For the purposes of this discussion, a "U.S. Holder" means any holder of an Exchange Note that is (a) a citizen or resident of the United States, (b) a corporation, partnership or other entity created or organized in or under the laws of the United States or any state thereof (except, in the case of a partnership, to the extent future Treasury Regulations provide otherwise), (c) an estate the income of which is subject to United States federal income taxation regardless of its source, or (d) a trust other than a "foreign trust," as such term is defined in Section 7701(a)(31) of the Code. A "U.S. Alien Holder" means any holder of an Exchange Note that is not a U.S. Holder. THE FOLLOWING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY, INVESTORS CONSIDERING THE PURCHASE OF EXCHANGE NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE UNITED STATES FEDERAL INCOME AND ESTATE TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY. UNITED STATES FEDERAL INCOME TAXATION OF U.S. HOLDERS Payment of Interest Interest on an Exchange Note generally will be includable in the income of the U.S. Holder of such Exchange Note as ordinary income at the time such interest is received or accrued, in accordance with such holder's method of accounting for United States federal income tax purposes. Market Discount on Resale of Exchange Notes A U.S. Holder of an Exchange Note should be aware that the purchase or resale of an Exchange Note may be affected by the "market discount" provisions of the Code. The market discount rules generally provide that if a U.S. Holder of an Exchange Note purchases the Exchange Note at a market discount (i.e., a discount other than at original issue), any gain recognized upon the disposition of the Exchange Note by the U.S. Holder will be taxable as ordinary interest income, rather than as capital gain, to the extent such gain does not exceed the accrued market discount on such Exchange Note at the time of such disposition. "Market discount" generally means the excess, if any, of an Exchange Note's stated redemption price at maturity over the price paid by the holder therefor, subject to a de minimis exception. A U.S. Holder who acquires an Exchange Note at a market discount also may be required to defer the deduction of a portion of the amount of interest that the holder paid or accrued during the taxable year on indebtedness incurred or maintained to purchase or carry such Exchange Note, if any. Any principal payment on an Exchange Note acquired by a U.S. Holder at a market discount will be included in gross income as ordinary income (generally, as interest income) to the extent that it does not exceed the accrued market discount at the time of such payment. The amount of the accrued market discount for purposes of determining the tax treatment of subsequent payments on, or dispositions of, an Exchange Note is to be reduced by the amounts so treated as ordinary income. A U.S. Holder of an Exchange Note acquired at a market discount may elect to include market discount in gross income, for federal income tax purposes, as such market discount accrues, either on a straight-line basis or on a constant interest rate basis. This current inclusion election, once made, applies to all market discount obligations acquired on or after the first day of the first taxable year to which the election applies, and 91 93 may not be revoked without the consent of the IRS. If a U.S. Holder of an Exchange Note makes such an election, the foregoing rules regarding the recognition of ordinary interest income on sales and other dispositions and the receipt of principal payments with respect to such Exchange Note, and regarding the deferral of interest deductions on indebtedness incurred or maintained to purchase or carry such Exchange Note, will not apply. Exchange Notes Purchased at a Premium In general, if a U.S. Holder purchases an Exchange Note for an amount in excess of its stated redemption price at maturity, then such holder may elect to treat such excess as "amortizable bond premium," in which case the amount required to be included in such holder's income each year with respect to interest on the Exchange Note will be reduced by the amount of amortizable bond premium allocable to such year. Any such election would apply to all bonds (other than bonds the interest on which is excludable from gross income) held by the holder at the beginning of the first taxable year to which the election applies or which thereafter are acquired by the holder, and such election is irrevocable without the consent of the IRS. On December 30, 1997, final Treasury Regulations were published, effective generally for debt instruments acquired on or after March 2, 1998, relating to the amortization of bond premium. All U.S. Holders who purchase Exchange Notes at a premium should consult their tax advisors regarding the election to amortize premium and the method of amortization to be employed. Sale, Exchange or Retirement of the Exchange Notes Upon the sale, exchange or redemption of an Exchange Note, a U.S. Holder generally will recognize capital gain or loss equal to the difference between (i) the amount of cash proceeds and the fair market value of any property received on the sale, exchange or redemption (except to the extent such amount is attributable to either Liquidated Damages, discussed below, or accrued interest income not previously included in income which is taxable as ordinary income) and (ii) such holder's adjusted tax basis in the Exchange Note. A holder's adjusted tax basis in an Exchange Note generally will equal the cost of the Exchange Note to such holder. Such capital gain or loss will be long-term capital gain or loss if the holder's holding period in the Exchange Note is more than one year at the time of sale, exchange or redemption. Under recently enacted legislation, the net capital gain of an individual derived in respect of the Exchange Notes generally will be taxed at a maximum rate of 28% if the holding period for the Exchange Notes was greater than one year but not more than 18 months, or 20% if the holding period was greater than 18 months. Exchange of Notes for Exchange Notes The exchange of Notes for Exchange Notes pursuant to the Exchange Offer should not be considered a taxable exchange for federal income tax purposes because the Exchange Notes should not constitute a material modification of the terms of the Notes. Accordingly, such exchange should have no federal income tax consequences to U.S. Holders of Notes, and the basis of such a holder in an Exchange Note will be the same as such holder's adjusted tax basis in the Note exchanged therefor. Information Reporting and Backup Withholding In general, information reporting requirements will apply to payments of principal, premium, if any, and interest on an Exchange Note and payments of the proceeds of the sale of an Exchange Note to certain noncorporate holders, and a 31% backup withholding tax may apply to such payments if the U.S. Holder (a) fails to furnish or certify his correct taxpayer identification number to the payer in the manner required, (b) is notified by the IRS that he has failed to report payments of interest and dividends properly or (c) under certain circumstances, fails to certify that he has not been notified by the IRS that he is subject to backup withholding for failure to report interest and dividend payments. Any amounts withheld under the backup withholding rules from a payment to a U.S. Holder will be allowed as a credit against such holder's United States federal income tax and may entitle the holder to a refund, provided that the required minimum information is furnished to the IRS. 92 94 Liquidated Damages The Company believes that Liquidated Damages, if any, described above under "Description of Senior Notes -- Registration Rights; Liquidated Damages" will be taxable to the U.S. Holder as ordinary income in accordance with the holder's method of accounting for federal income tax purposes. The IRS may take a different position, however, which could affect the timing of a holder's income with respect to Liquidated Damages, if any. UNITED STATES FEDERAL INCOME TAXATION OF U.S. ALIEN HOLDERS Payment of Interest The payment of interest on an Exchange Note generally will not be subject to United States federal income tax withholding, if (1) the interest is not effectively connected with the conduct of a trade or business within the United States, (2) the U.S. Alien Holder does not actually or constructively own 10% or more of the total combined voting power of all classes of stock of the Company entitled to vote, (3) the U.S. Alien Holder is not a controlled foreign corporation that is related to the Company actually or constructively through stock ownership and (4) either (i) the beneficial owner of the Exchange Note certifies to the Company or its agent, under penalties of perjury, that it is not a U.S. Holder and provides its name and address on United States Treasury Form W-8 (or on a suitable substitute form) or (ii) a securities clearing organization, bank or other financial institution that holds customers' securities in the ordinary course of its trade or business (a "financial institution") and holds the Exchange Note certifies under penalties of perjury that such a Form W-8 (or suitable substitute form) has been received from the beneficial owner by it or by a financial institution between it and the beneficial owner and furnishes the payer with a copy thereof. Payments to a U.S. Alien Holder not described in clauses (2) through (4) above will be subject to withholding at a rate of 30% on the gross amount of such payment, unless the rate of withholding is reduced or eliminated by an applicable income tax treaty and the U.S. Alien Holder provides the Company with a properly completed Form 1001 certifying to its exemption from withholding under such treaty. For a U.S. Alien Holder for which payments on the Exchange Notes constitute income effectively connected with a United States trade or business of such holder, such holder may provide a properly executed Form 4224 (or such successor forms as the IRS designates) in order to avoid imposition of withholding tax at a rate of 30%. Unless an applicable treaty provides otherwise, U.S. Alien Holders providing such certification will be subject to United States net income taxation at regular graduated rates on such effectively connected income (and, in the case of corporate holders, may in addition be subject to the branch profits tax). Recently issued Treasury Regulations (the "Final Withholding Regulations") modify the currently effective information reporting and backup withholding procedures and requirements. The Final Withholding Regulations were originally scheduled to be effective for payments made after December 31, 1998, subject to certain transition rules. The IRS recently issued a notice, however, announcing the intent of the Treasury Department and the IRS to amend the Final Withholding Regulations so that they generally will not apply to payments made before January 1, 2000. All U.S. Alien Holders should consult their tax advisors regarding the application of the Final Withholding Regulations. Sale, Exchange or Retirement of Exchange Notes A U.S. Alien Holder generally will not be subject to United States federal income tax on any capital gain realized in connection with the sale, exchange, retirement, or other disposition of an Exchange Note, provided (i) such gain is not effectively connected with the conduct by such holder of a trade or business in the United States, and (ii) in the case of a U.S. Alien Holder that is an individual, such holder is not present in the United States for 183 days or more in the taxable year of the disposition. Information Reporting and Backup Withholding Payments on the Exchange Notes to U.S. Alien Holders generally should not be subject to information reporting and backup withholding at the rate of 31% if the certification described under "--Payment of Interest" above is received and the payer does not have actual knowledge that the holder is a U.S. Holder. 93 95 Payment outside the United States of the proceeds of the sale of an Exchange Note to or through a foreign office of a "broker" (as defined in applicable United States Treasury Regulations) should not be subject to information reporting or backup withholding, except that if the broker is a United States person, a controlled foreign corporation for United States federal income tax purposes or a foreign person 50% or more of whose gross income is from a United States trade or business, information reporting should apply to such payment unless the broker has documentary evidence in its records that the beneficial owner is not a U.S. Holder and certain other conditions are met, or the beneficial owner otherwise establishes an exemption. Payment of proceeds from a sale of an Exchange Note to or through the United States office of a broker is subject to information reporting and backup withholding unless the U.S. Alien Holder certifies as to its U.S. Alien Holder status or otherwise establishes an exemption from information reporting and backup withholding. All U.S. Alien Holders are urged to consult their own tax advisors regarding the possible application of information reporting and backup withholding in light of their particular circumstances under the Final Withholding Regulations. LEGAL MATTERS Certain legal matters in connection with the issuance of the Exchange Notes have been passed upon for the Company by Alston & Bird LLP, Atlanta, Georgia. EXPERTS The financial statements for SIMCALA, Inc. as of December 31, 1997 and for the year then ended included in this Prospectus and the related financial statement schedule included elsewhere in this Registration Statement have been audited by Deloitte & Touche LLP, independent auditors, as stated in their reports appearing herein and elsewhere in the Registration Statement, and have been so included in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing. The financial statements for SIMCALA, Inc. as of December 31, 1996, and for the year then ended included in this Prospectus and the related financial statement schedule included elsewhere in this Registration Statement have been audited by Crowe, Chizek and Company LLP, independent auditors, as stated in their reports appearing herein and elsewhere in the Registration Statement, and have been so included in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing. The financial statements of SIMCALA, Inc. appearing in this Prospectus and Registration Statement have been audited by Ernst & Young LLP, independent auditors, to the extent indicated in their report thereon dated March 8, 1996 also appearing elsewhere herein and in the Registration Statement. Such financial statements have been included herein in reliance upon such reports given upon the authority of such firm as experts in accounting and auditing. 94 96 INDEX TO FINANCIAL STATEMENTS
PAGE ---- SIMCALA, Inc. (The Company): Unaudited Interim Balance Sheet Balance Sheet as of March 31, 1998........................ F-2 Notes to Balance Sheet.................................... F-3 SIMCALA, Inc. (The Predecessor): Audited Financial Statements Independent Auditors' Report.............................. F-8 Independent Auditors' Report.............................. F-9 Independent Auditors' Report.............................. F-10 Balance Sheets as of December 31, 1997 and December 31, 1996................................................... F-11 Statements of Operations for the years ended December 31, 1997 and December 31, 1996 and for the period from February 10, 1995 (date of inception) to December 31, 1995 and the three-months ended March 31, 1998 and 1997 (unaudited)............................................ F-12 Statements of Changes in Stockholders' Equity for the years ended December 31, 1997 and December 31, 1996 and for the period from February 10, 1995 (date of inception) through December 31, 1995................... F-13 Statements of Cash Flows for the years ended December 31, 1997 and December 31, 1996 and for the period from February 10, 1995 (date of inception) to December 31, 1995 and the three-months ended March 31, 1998 and 1997 (unaudited)............................................ F-14 Notes to Financial Statements............................... F-15
F-1 97 SIMCALA, INC. BALANCE SHEET AS OF MARCH 31, 1998 (UNAUDITED) ASSETS Current assets: Cash and cash equivalents................................. $ 15,796,000 Accounts receivable....................................... 5,809,000 Receivables from employees................................ 1,800,000 Taxes receivable.......................................... 1,007,000 Inventories............................................... 2,871,000 Deferred income taxes..................................... 2,246,000 Other current assets...................................... 355,000 ------------ Total current assets.............................. 29,884,000 Property, plant and equipment............................... 53,075,000 Intangible assets........................................... 39,708,000 ------------ Total assets...................................... $122,667,000 ============ LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Accounts payable and accrued expenses....................... $ 9,348,000 Current maturities of long-term debt........................ 90,000 ------------ Total current liabilities......................... 9,438,000 Long-term debt, net of current portion...................... 81,083,000 Deferred income taxes....................................... 13,339,000 ------------ Total liabilities................................. 103,860,000 ------------ Commitments and Contingencies (Note 6) Stockholder's equity: Common stock, par value $.01 per share; 20,000 shares authorized; 10,889 shares issued and outstanding............................................... 109 Additional paid-in capital.................................. 18,806,891 Retained earnings........................................... -- ------------ Total stockholder's equity........................ 18,807,000 ------------ Total liabilities and stockholder's equity........ $122,667,000 ============
F-2 98 SIMCALA, INC. (THE COMPANY) NOTES TO BALANCE SHEET 1. ORGANIZATION AND OPERATIONS On March 31, 1998, SAC Acquisition Corp. ("SAC"), a subsidiary of Simcala Holdings, Inc. ("Holdings") purchased all of the outstanding common stock of SIMCALA, Inc. ("SIMCALA" or the "Company") (the "Acquisition"). On such date, SAC was merged into SIMCALA. Holdings and SAC conducted no significant business other than in connection with the Acquisition. The Company is a producer of silicon metal for sale to the aluminum and silicone industries. The Company sells to customers in the metal industry who are located primarily throughout the United States. Credit is extended based on an evaluation of the customer's financial condition. At March 31, 1998, three customers accounted for 40.7%, 17.3%, and 9.5% of the outstanding receivables. The Company maintains credit insurance for all customer accounts receivable. The Acquisition of the Predecessor for approximately $66.7 million in cash, including approximately $6 million for fees and other costs directly associated with the Acquisition, has been accounted for as a purchase. Accordingly, the purchase price has been allocated to the identifiable assets and liabilities based on fair values at the acquisition date. The excess of the purchase price over the fair value of the identifiable net assets in the amount of $35.0 million has been classified as goodwill. Additionally, the effect of the carryover basis of senior management of $3.2 million has been considered in the allocation of the purchase price. The Acquisition was financed through the issuance of senior notes in the amount of $75,000,000 (see Note 4) and equity contributed of $22,000,000. In connection with the Acquisition, the purchase method of accounting was used to establish and record a new cost basis for the assets acquired and liabilities assumed. The allocation of the purchase price and acquisition costs to the assets acquired and liabilities assumed is preliminary at March 31, 1998, and is subject to change pending the finalization of appraisals and other studies of fair value and finalization of management's plans which may result in the recording of additional liabilities as part of the allocation of the purchase price. The excess of the purchase price over the preliminary fair market value of assets acquired and liabilities assumed was recorded as goodwill. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Unaudited Balance Sheet. In the opinion of management, the unaudited balance sheet included herein reflects all normal recurring accruals necessary for a fair statement of the financial position of the interim period reflected. Certain information and footnote disclosure normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted from this balance sheet pursuant to applicable rules and regulations of the Securities and Exchange Commission. 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 as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash Equivalents. The Company considers all highly liquid debt instruments with a maturity of three months or less when purchased to be cash equivalents. Inventories. Inventories are stated using the average cost method which approximates the first-in, first-out (FIFO) inventory cost method. Property, Plant, and Equipment. It is the policy of the Company to capitalize expenditures for major renewals and betterments and to charge to operating expenses the cost of current maintenance and repairs. F-3 99 SIMCALA, INC. (THE COMPANY) NOTES TO BALANCE SHEET -- (CONTINUED) Interest costs associated with major property additions are capitalized while the projects are in the process of acquisition and construction. The Company evaluates the estimated useful lives and the carrying value of assets on a periodic basis to determine whether events or circumstances warrant revised estimated useful lives or whether any impairment exists. Management believes no material impairment existed at March 31, 1998. The Company provides for depreciation over the estimated useful lives of plant and equipment by the straight-line method using the following useful lives (in years):
USEFUL ASSET CATEGORY LIFE - -------------- ------ Land Improvements........................................... 20 Buildings................................................... 40 Machinery and equipment..................................... 14 Mobile equipment and vehicles............................... 6 Furniture and fixtures...................................... 10 Computer equipment.......................................... 7 Computer software........................................... 5
The cost and accumulated depreciation and amortization relating to assets retired or otherwise disposed of is eliminated from the respective accounts at the time of disposition. Gains or losses from disposition are included in current operating results. Intangible Assets. Intangible assets include the excess of the cash consideration over the estimated fair market value of the net assets acquired in the Acquisition of $35.0 million which are amortized over twenty-five years. In addition, debt issuance costs of $4.8 million have been recorded which are amortized over 8 years. The Company evaluates the amortization period and the carrying value of intangible assets on a periodic basis to determine whether events or circumstances warrant revised estimates of useful lives or whether impairment exists. New Accounting Pronouncements. In June 1997, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS 130), and Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" (SFAS 131). SFAS 130 establishes standards for reporting and displaying of comprehensive income and its components (revenues, expenses, gains, and losses) in a full set of general-purpose financial statements. SFAS 131 establishes standards for the way public business enterprises report information about operating segments. The Company adopted SFAS 130 at inception. The adoption of this standard did not have an effect on its financial statements. The Company will adopt SFAS 131 in its annual financial statements for 1998. Management does not anticipate that the adoption of this standard will have a significant effect on the financial statements. Stock-Based Compensation. Stock-based compensation is accounted for in accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. The Company has adopted the disclosure-only provisions of SFAS 123, "Accounting for Stock-Based Compensation." 3. INVENTORIES Inventories consist of the following as of March 31, 1998: Raw Materials............................................... $1,283,000 Finished Goods.............................................. 1,292,000 Supplies.................................................... 296,000 ---------- $2,871,000 ==========
F-4 100 SIMCALA, INC. (THE COMPANY) NOTES TO BALANCE SHEET -- (CONTINUED) 4. LONG-TERM DEBT As of March 31, 1998, long-term debt consists of the following: Senior Notes which bear interest at 9 5/8% and are due April 2006............................................ $75,000,000 Industrial development bonds which bear interest at a variable rate. At March 31, 1998, the interest rate was 5.75%. The bonds mature on December 1, 2019. Bonds and applicable interest are secured by a letter of credit................................................ 6,000,000 Various capital leases payable at interest rate of 9.91% to 10.0% expiring at various dates through 1999. Aggregate monthly payments approximate $6000.......... 173,000 ----------- 81,173,000 Less current portion................................... (90,000) ----------- Long-term debt......................................... $81,083,000 ===========
The Senior Notes (the "Notes") mature on April 15, 2006, unless previously redeemed. Interest on the Notes is payable semiannually on April 15 and October 15, commencing October 15, 1998. The Notes are redeemable at the option of the Company, in whole or in part, on or after April 15, 2002, at the redemption price, plus accrued interest and liquidated damages, as defined, if any. At any time on or before April 15, 2001, the Company may redeem up to 30% of the original aggregate principal amount of the Notes with the net proceeds of a public offering of common stock of the Company or Holdings, provided that at least 70% of the original aggregate principal amount of Notes remains outstanding immediately after the occurrence of such redemption. The Notes are generally unsecured obligations of the Company and rank senior to all existing and future subordinated indebtedness of the Company. In connection with the Acquisition, the Company entered into a credit facility which provides availability for revolving borrowings and letters of credit in an aggregate amount of up to $15,000,000 (the "Commitment"). The credit facility expires in March 2003. At March 31, 1998, $6.1 million related to letters of credit was outstanding under the credit facility. The credit facility requires that the Commitment be permanently reduced, upon certain non-ordinary course asset sales by Holdings, the Company or any future subsidiary of the Company. Revolving loans will bear interest at a variable rate equal, at the option of the Company, to (i) LIBOR (having interest periods of 1, 2, 3, or 6 months, at the Company's option) plus a margin of up to 2.25% per annum or (ii) the base rate (defined to mean the higher of (i) publicly announced "prime rate" and (ii) a rate tied to overnight Federal funds transactions with members of the Federal Reserve System) plus a margin of up to 1.25% per annum. Drawings under letters of credit which are not promptly reimbursed by the Company are expected to accrue interest at a variable rate equal to the base rate plus a margin up to 3.25% per annum. Beginning 36 months after the closing of the credit facility, these margins may be reduced based on the financial performance of the Company. The Notes and the credit facility contain a number of covenants, including, among others, covenants restricting the Company and its subsidiaries with respect to the incurrence of indebtedness (including contingent obligations); the creation of liens; substantially changing the nature of its business; the consummation of certain transactions such as dispositions of substantial assets, mergers or consolidations; the making of certain investments and loans; the making of dividends and other distributions; the prepayment of indebtedness; transactions with affiliates; agreeing to certain restrictions on its actions (including agreeing not to grant liens); and limitations on sale leaseback transactions. In addition, the credit facility contains affirmative covenants including, among others, requirements regarding compliance with laws; preservation of corporate existence; F-5 101 SIMCALA, INC. (THE COMPANY) NOTES TO BALANCE SHEET -- (CONTINUED) maintenance of insurance; payment of taxes and other obligations; maintenance of properties; environmental compliance; the keeping of the books and records; the maintenance of intellectual property; and the delivery of financial and other information to the agent and the lenders under the credit facility. The Company is required to comply with certain financial tests and maintain certain financial ratios. Certain of these test and ratios include: (i) maintaining a minimum net worth; (ii) maintaining a maximum ratio of indebtedness to EBITDA; and (iii) maintaining a minimum ratio of EBITDA to interest expense. Credit extended under the credit facility is secured by substantially all of the Company's assets and the real and personal property used in the Company's operations. The Company is a party to a capital lease for land and buildings at its manufacturing facility in Mt. Meigs, Alabama (the "Lease"). The Lease is with the Industrial Development Board ("IBD") for the city of Montgomery. Rental payments of $2,000 a year are required and the term of the Lease expires June 1, 2010. The Lease contains a bargain purchase option whereby the property can be purchased from the IDB for $1. 5. INCOME TAXES The significant component of the Company's deferred tax assets and liabilities are as follows: Deferred tax liabilities Accelerated tax depreciation.............................. $13,238,000 Other liabilities......................................... 101,000 ----------- 13,339,000 Deferred tax assets ATM credit carryforward................................... 1,090,000 Net operating loss carryforwards.......................... 861,000 Other assets.............................................. 295,000 ----------- 2,246,000 ----------- Net deferred tax liability........................ $11,093,000 ===========
The Company has recorded a tax receivable of $1,007,000 at March 31, 1998 related to net operating loss and AMT carrybacks. Such amounts are payable to the selling shareholders and as a result a corresponding payable has been recorded at March 31, 1998. 6. COMMITMENTS AND CONTINGENCIES As of March 31, 1998, the Company had entered into contracts totaling approximately $1 million for the construction of certain production equipment and had a commitment to purchase lumber totaling approximately $145,000. The Company is involved in litigation arising in the normal course of business. Management believes that the ultimate resolution of such litigation will not have a material adverse effect on the financial statements. 7. STOCK INCENTIVE PLAN OF HOLDINGS Holdings has adopted a Stock Incentive Plan (the "Plan") pursuant to which options to purchase up to 8,000 shares of Holdings Stock (the "Option") may be granted to the Senior Management or other employees (each an "Optionee") selected for participation in the Plan by the Compensation Committee of the Company's Board of Directors. At the time of the Acquisition, senior management collectively was issued Options to acquire 3,070 shares of Holdings stock. The Options are subject to a five-year vesting period and F-6 102 SIMCALA, INC. (THE COMPANY) NOTES TO BALANCE SHEET -- (CONTINUED) the Options issued on the date of the Acquisition are exercisable at an initial price per share of $1,000. The period in which the options may be exercised terminates ten years subsequent to the grant date, if not earlier terminated due to termination of employment. The Options will immediately and fully vest in the event of a merger or consolidation of Holdings with, or the sale of substantially all of the assets or stock of Holdings to, any person other than Cravey, Green & Wahlen, Inc. ("CGW") or a CGW affiliate. The Plan also provides for other equity-based forms of incentive compensation in addition to the Options. 8. RELATED PARTY TRANSACTIONS At March 31, 1998, the Company entered into a consulting agreement with CGW Southeast Management III, L.L.C. ("CGW Management") whereby the Company will pay a monthly retainer fee of $15,000 for financial and management consulting services. The consulting agreement expires in 2003. At the Acquisition closing, the Company paid to CGW Management an investment banking fee of $1.35 million for its services in assisting the Company in structuring and negotiating the Acquisition. In connection with the exercise of stock options by certain members of management, the Company is owed $1,800,000 by management. Such amount has been recorded as a receivable as of March 31, 1998 and is expected to be repaid within one year. F-7 103 INDEPENDENT AUDITORS' REPORT Board of Directors SIMCALA, Inc. We have audited the accompanying balance sheet of SIMCALA, Inc. (the "Company") as of December 31, 1997 and the related statements of operations, changes in stockholders' equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit 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 audit provides a reasonable basis for our opinion. In our opinion, the 1997 financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 1997, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ DELOITTE & TOUCHE LLP February 27, 1998 Atlanta, Georgia F-8 104 INDEPENDENT AUDITORS' REPORT Board of Directors SIMCALA, Inc. We have audited the accompanying balance sheet of SIMCALA, Inc. (the "Company") as of December 31, 1996 and the related statements of operations, changes in stockholders' equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit 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 audit provides a reasonable basis for our opinion. In our opinion, the 1996 financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 1996, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ CROWE, CHIZEK AND COMPANY LLP Oak Brook, Illinois January 17, 1997, except for Note 4 as to which the date is January 22, 1997. F-9 105 REPORT OF INDEPENDENT AUDITORS Board of Directors SIMCALA, Inc. We have audited the accompanying statements of operations, changes in stockholders' equity and cash flows for the period from February 10, 1995 (date of inception) through December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the balance sheet is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the balance sheet. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall balance sheet 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 results of SIMCALA, Inc.'s operations and cash flows for the period from February 10, 1995 through December 31, 1995, in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG LLP Cleveland, Ohio March 8, 1996 F-10 106 SIMCALA, INC. BALANCE SHEETS DECEMBER 31, 1997 AND 1996
1997 1996 ----------- ----------- ASSETS CURRENT ASSETS: Cash and cash equivalents................................. $ 634,877 $ 186,291 Accounts receivable (less allowance for doubtful accounts of $77,436 and $107,000 in 1997 and 1996, respectively).......................................... 5,830,386 5,045,578 Inventories............................................... 2,663,941 1,961,351 Prepaid income taxes...................................... 110,000 Deferred income taxes..................................... 1,288,000 280,000 Other current assets...................................... 127,628 118,435 ----------- ----------- Total current assets.............................. 10,544,832 7,701,655 PROPERTY, PLANT, AND EQUIPMENT: Land, building, and improvements.......................... 1,294,032 899,731 Machinery and equipment, furniture and fixtures........... 24,917,520 23,109,362 Construction in-progress.................................. 281,876 373,131 ----------- ----------- 26,493,428 24,382,224 Accumulated depreciation.................................. (4,045,499) (2,242,439) ----------- ----------- Property, plant, and equipment, net............... 22,447,929 22,139,785 INTANGIBLE ASSETS (net of accumulated amortization of $540,297 and $293,853 in 1997 and 1996, respectively)..... 669,778 739,281 ----------- ----------- $33,662,539 $30,580,721 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and accrued expenses..................... $ 6,124,945 $ 6,178,977 Revolving line of credit.................................. 3,243,692 Current maturities of interest-bearing long-term debt..... 2,340,752 577,853 Current maturities of noninterest-bearing debt due to related party.......................................... 1,048,500 Income taxes payable...................................... 1,194,000 ----------- ----------- Total current liabilities......................... 9,659,697 11,049,022 INTEREST-BEARING, LONG-TERM DEBT -- Net of current portion................................................... 12,763,170 8,748,009 NONINTEREST-BEARING DEBT DUE TO RELATED PARTY -- Net of current portion........................................... 4,459,348 DEFERRED INCOME TAXES....................................... 2,964,000 689,000 ----------- ----------- Total liabilities................................. 25,386,867 24,945,379 COMMITMENTS AND CONTINGENCIES (Notes 4 and 13) STOCKHOLDERS' EQUITY: Preferred stock (Series B preferred stock, 3,000 shares authorized -- 1,500 shares issued and outstanding at December 31, 1996, par value $1.00 per share).......... 1,500,000 Common stock, 20,000 shares authorized -- 10,000 shares issued and 10,000 outstanding, respectively, par value $.01 per share)........................................ 100 100 Additional paid-in capital................................ 2,250,189 1,903,466 Retained earnings......................................... 6,025,383 2,231,776 ----------- ----------- Total stockholders' equity........................ 8,275,672 5,635,342 ----------- ----------- $33,662,539 $30,580,721 =========== ===========
See notes to financial statements. F-11 107 SIMCALA, INC. STATEMENTS OF OPERATIONS
PERIOD FROM YEAR ENDED FEBRUARY 10, THREE MONTHS ENDED --------------------------- 1995 MARCH 31, (DATE OF ------------------------- DECEMBER 31, DECEMBER 31, INCEPTION) TO 1998 1997 1997 1996 1995 ----------- ----------- ------------ ------------ ------------- (UNAUDITED) Net sales....................... $14,854,000 $15,655,000 $62,184,345 $52,407,269 $31,523,036 Cost of goods sold.............. 11,679,000 12,225,000 47,972,065 42,797,540 32,391,263 ----------- ----------- ----------- ----------- ----------- Gross profit.......... 3,175,000 3,430,000 14,212,280 9,609,729 (868,227) Selling and administrative expense....................... 3,824,000 682,000 2,845,842 1,923,466 1,598,577 ----------- ----------- ----------- ----------- ----------- Operating income (loss)......... (649,000) 2,748,000 11,366,438 7,686,263 (2,466,804) Interest expense................ 314,000 415,000 1,709,586 1,511,596 1,110,592 Other income, net............... 282,000 30,000 228,461 444,451 359,054 ----------- ----------- ----------- ----------- ----------- Income (loss) before income taxes......................... (681,000) 2,363,000 9,885,313 6,619,118 (3,218,342) Income tax provision (benefit)..................... (100,000) 793,000 3,514,000 1,169,000 ----------- ----------- ----------- ----------- ----------- Net income (loss)............... $ (581,000) $ 1,570,000 $ 6,371,313 $ 5,450,118 $(3,218,342) =========== =========== =========== =========== ===========
See notes to financial statements. F-12 108 SIMCALA, INC. STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 AND FOR THE PERIOD FEBRUARY 10, 1995 (DATE OF INCEPTION) THROUGH DECEMBER 31, 1995
SERIES B ADDITIONAL RETAINED PREFERRED COMMON PAID-IN EARNINGS STOCK STOCK CAPITAL (DEFICIT) TOTAL ----------- ------ ---------- ----------- ----------- BALANCE -- February 10, 1995......... $ 1,500,000 $100 $ 999,900 $ $ 2,500,000 Net loss................... $(3,218,342) (3,218,342) ----------- ---- ---------- ----------- ----------- BALANCE -- January 1, 1996........... 1,500,000 100 999,900 (3,218,342) (718,342) Conversion of preferred stock...... 903,566 903,566 Net income................. 5,450,118 5,450,118 ----------- ---- ---------- ----------- ----------- BALANCE -- December 31, 1996......... 1,500,000 100 1,903,466 2,231,776 5,635,342 Redemption of preferred stock...... (1,500,000) (1,500,000) Preferred stock dividend........... (270,000) (270,000) Payment to stockholders in conjunction with extinguishment of debt (Note 7)........................ (2,307,706) (2,307,706) Compensation expense stock options......................... 346,723 346,723 Net income................. 6,371,313 6,371,313 ----------- ---- ---------- ----------- ----------- BALANCE -- December 31, 1997......... $ -- $100 $2,250,189 $ 6,025,383 $ 8,275,672 =========== ==== ========== =========== ===========
See notes to financial statements. F-13 109 SIMCALA, INC. STATEMENTS OF CASH FLOWS
PERIOD FROM FEBRUARY 10, THREE MONTHS ENDED 1995 MARCH 31, YEAR ENDED DECEMBER 31, (DATE OF ------------------------- --------------------------- INCEPTION) TO 1998 1997 1997 1996 1995 ----------- ----------- ------------ ------------ ------------- (UNAUDITED) OPERATING ACTIVITIES: Net income (loss)............................... $ (581,000) $ 1,570,000 $ 6,371,313 $ 5,450,118 $(3,218,342) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation.................................. 448,000 360,000 1,766,377 1,350,782 1,069,857 Amortization of intangible assets............. 9,000 9,000 401,200 242,519 -- Debt discount................................. 14,000 55,000 89,349 332,396 206,876 Provision for doubtful accounts............... -- -- -- 91,644 1,644 Deferred income taxes......................... 800,000 702,000 1,267,000 409,000 -- Noncash stock option compensation............. 904,000 87,000 346,723 -- -- Change in assets and liabilities: Increase (decrease) in accounts receivable................................ 21,000 (990,000) (784,808) (758,012) (1,028,259) Increase in taxes receivable................ (1,007,000) -- -- -- -- Increase in receivables from employees...... (1,800,000) -- -- -- -- Decrease (increase) in inventory............ (207,000) 134,000 (702,590) 524,124 (1,402,245) Decrease (increase) in prepaid income taxes..................................... -- 110,000 110,000 (110,000) -- Decrease (increase) in other assets......... 202,000 (191,000) (9,193) (183,550) 521,465 Increase in accounts payable and other accrued expenses.......................... 2,365,000 (854,000) 1,139,968 1,885,802 2,440,736 ----------- ----------- ----------- ----------- ----------- Net cash provided by (used in) operating activities.............................. 1,168,000 992,000 9,995,339 9,234,823 (1,408,268) INVESTING ACTIVITIES -- Purchase of property, plant, and equipment...... (1,184,000) (438,000) (2,074,521) (6,913,146) (4,153,831) FINANCING ACTIVITIES: Payments on non-interest-bearing debt........... -- (3,276,000) (5,597,197) -- -- Borrowings (repayments) under line of credit, net........................................... -- 62,000 (3,243,692) (1,816,196) 2,579,856 Repayments of long-term debt.................... 39,000 3,095,000 (7,221,940) (341,941) -- Additional long-term borrowings................. -- -- 13,000,000 14,392 485,609 Redemption of preferred stock................... -- -- (1,500,000) -- -- Preferred stock dividend........................ -- -- (270,000) -- -- Payment to stockholders......................... -- -- (2,307,706) -- -- Debt issuance cost.............................. -- -- (331,697) -- (280,000) ----------- ----------- ----------- ----------- ----------- Net cash provided by (used in) financing activities.............................. 39,000 (119,000) (7,472,232) (2,143,745) 2,785,465 ----------- ----------- ----------- ----------- ----------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS..................................... 23,000 435,000 448,586 177,932 (2,776,634) CASH AND CASH EQUIVALENTS: Beginning of period............................. 635,000 186,000 186,291 8,359 2,784,993 ----------- ----------- ----------- ----------- ----------- End of period................................... $ 658,000 $ 621,000 $ 634,877 $ 186,291 $ 8,359 =========== =========== =========== =========== =========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for: Interest...................................... $ 161,000 $ 421,000 $ 1,559,742 $ 1,237,845 $ 928,553 =========== =========== =========== =========== =========== Income taxes.................................. 112,000 $ -- $ 770,000 $ 870,000 $ -- =========== =========== =========== =========== =========== Noncash transactions: Conversion of preferred stock into debt....... $ -- $ -- $ -- $ 3,000,000 $ -- =========== =========== =========== =========== =========== Equipment acquired under capital lease........ $ -- $ -- $ 70,000 $ 150,250 $ -- =========== =========== =========== =========== ===========
See notes to financial statements. F-14 110 SIMCALA, INC. NOTES TO FINANCIAL STATEMENTS 1. ORGANIZATION AND OPERATIONS Organization. SIMCALA, Inc. (the "Company") commenced operations on February 10, 1995 and purchased certain net assets from SiMETCO, Inc. (the "Seller"), which had been operating under Chapter 11 of the Federal Bankruptcy Code since September 1993. The purchase price for this transaction was approximately $20 million and included the assumption of approximately $2.9 million of debt from the estate of the trustee (the "Estate"); the assumption of approximately $3.0 million of third-party debt; the issuance of $6.0 million of third-party debt; the issuance of $3.0 million of preferred stock to the Estate; the cash payment of approximately $2.75 million to the Estate; and the assumption of approximately $2.0 million of vendor debt and accrued expenses. The acquisition was accounted for as a purchase, and accordingly, the purchase price was allocated to assets acquired and liabilities assumed in accordance with Accounting Principles Board ("APB") Opinion 16, "Business Combinations." As a result, as of February 10, 1995, inventories were stated at fair value and property, plant, and equipment were stated at allocated acquisition cost. Nature of Operations and Customer Concentration. The Company is a producer of silicon metal for sale to the aluminum and silicone industries. The Company sells to customers in the metals industry who are located primarily throughout the United States. Credit is extended based on an evaluation of the customer's financial condition. During 1997, three customers accounted for 29%, 24%, and 16% of net sales. During 1996, three customers accounted for 27%, 24%, and 12% of net sales. During the period ended December 31, 1995, two customers accounted for 42% and 19% of net sales, respectively. At December 31, 1997, three customers accounted for 31%, 26%, and 12% of outstanding receivables. At December 31, 1996, three customers accounted for 20%, 15%, and 14% of outstanding receivables. The Company maintains credit insurance for all customer accounts receivable. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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 as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Interim Financial Statements. In the opinion of management, the unaudited condensed statements of operations and cash flows included herein reflect all normal recurring accruals necessary for a fair statement of the results of the interim periods reflected. Certain information and footnote disclosure normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted from the condensed financial statements pursuant to applicable rules and regulations of the Securities and Exchange Commission. Cash Equivalents. The Company considers all highly liquid debt instruments with a maturity of three months or less when purchased to be cash equivalents. Inventories. Inventories are stated using the average cost method which approximates the first-in, first-out (FIFO) inventory cost method. Property, Plant, and Equipment. It is the policy of the Company to capitalize expenditures for major renewals and betterments and to charge to operating expenses the cost of current maintenance and repairs. Interest costs associated with major property additions are capitalized while the projects are in the process of acquisition and construction. The Company evaluates the estimated useful lives and the carrying value of assets on a periodic basis to determine whether events or circumstances warrant revised estimated useful lives F-15 111 SIMCALA, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) or whether any impairment exists. Management believes no material impairment existed at December 31, 1997. The Company provides for depreciation over the estimated useful lives of plant and equipment by the straight-line method using the following useful lives (in years):
USEFUL ASSET CATEGORY LIFE - -------------- ------ Land improvements........................................... 20 Buildings................................................... 40 Machinery and equipment..................................... 14 Mobile equipment and vehicles............................... 6 Furniture and fixtures...................................... 10 Computer equipment.......................................... 7 Computer software........................................... 5
The cost and the accumulated depreciation and amortization relating to assets retired or otherwise disposed of is eliminated from the respective accounts at the time of disposition. Gains or losses from disposition are included in current operating results. Intangible Assets. Intangible assets represent the costs of organizing and forming the Company and the costs of issuing and assuming various debt instruments. These costs are amortized over five years. The Company evaluates the amortization period and the carrying value of intangible assets on a periodic basis to determine whether events or circumstances warrant revised estimates of useful lives or whether impairment exists. Management believes that no material impairment of intangible assets existed at December 31, 1997. New Accounting Standards. In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") 130, "Reporting Comprehensive Income," and SFAS 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS 130 establishes standards for the reporting and displaying of comprehensive income and its components (revenues, expenses, gains and losses) in a full set of general-purpose financial statements. SFAS 131 establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in financial reports issued to stockholders. The Company will adopt SFAS 130 and SFAS 131 in 1998. Management does not expect these new pronouncements to significantly impact the presentation of the Company's financial statements and notes thereto. Stock-Based Compensation. Stock-based compensation is accounted for in accordance with APB 25, "Accounting for Stock Issued to Employees," and related interpretations. Effective January 1, 1996, the Company adopted the disclosure-only provisions of SFAS 123, "Accounting for Stock-Based Compensation." See Note 9 to the financial statements. 3. INVENTORIES Inventories at December 31, 1997 and 1996 consisted of the following:
1997 1996 ---------- ---------- Raw materials............................................... $ 948,627 $ 630,262 Finished goods.............................................. 1,419,668 981,508 Supplies.................................................... 295,646 349,581 ---------- ---------- $2,663,941 $1,961,351 ========== ==========
F-16 112 SIMCALA, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 4. REVOLVING LINE OF CREDIT AND CREDIT AGREEMENT On April 10,1997, the Company entered into a new credit agreement that includes a $5,000,000 revolving line of credit (the "Revolving Line") through June 1998, a $13,000,000 term loan payable through 2002, and a letter of credit supporting the industrial development bonds. The borrowings under the Revolving Line are limited to 85% of eligible accounts receivable and up to 60% of eligible inventory, as defined. At December 31, 1997, the interest rate was determined as the lower of prime (8.50% at December 31, 1997) plus .50% or the advance rate on Eurodollars (5.90% at December 31, 1997) plus 2.50%. At December 31, 1997, the Company has not utilized any portion of the revolving line. To maintain the Revolving Line, the Company must pay a fee of 1/2 of 1% of the unused balance of the Revolving Line and to maintain the letter of credit the Company must pay a fee of 2.50% of the letter of credit balance. The credit agreement contains certain financial covenants requiring limitations on capital expenditures, maintenance of the required fixed charge coverage ratio, cash flow coverage ratio, and net worth requirements, as defined. In addition, the Company is obligated to pay additional principal equal to 50% of excess cash flows, as defined, at the end of the year. Due to a prepayment of principal in December 1997, the Company was not obligated to pay this amount. The Company was not in compliance with the debt agreement due to a capital expenditure covenant violation at December 31, 1997; however, as of January 9, 1998, the Company had obtained the appropriate waivers. The Company was also not in compliance with the debt agreement at December 31, 1996, however, as of January 22, 1997 the Company had obtained the appropriate waivers. 5. INTEREST-BEARING, LONG-TERM DEBT The following is a summary of interest-bearing, long-term debt:
1997 1996 ----------- ---------- Industrial development bonds which bear interest at a variable rate. At December 31, 1997 and 1996, the interest rate was 5.90%. The bonds mature on December 1, 2019. Bonds and applicable interest secured by a letter of credit.................................................... $ 6,000,000 $6,000,000 Note payable to the state of Alabama which bears interest at 8% and is secured by certain machinery and equipment. Interest only payments of $3,333 payable monthly through September 1997. Paid in full during 1997.................. 500,000 Various notes payable to former creditors of the Seller, with interest rates ranging from prime plus 2% to prime plus 3%, with a maximum of 14% on approximately $2,100,000 of this debt. Paid in full during 1997.................... 2,698,487 Term loan with a bank which bears interest at the current Eurodollar advance rate plus a variable rate dictated by the Company's cash flow leverage ratio (2.50% at December 31, 1997). Principal payments are due quarterly in varying amounts through March 31, 2002. (See Note 4).............. 9,000,000 Various capital leases payable with interest rates of 9.91% to 10.00% expiring at various dates through 1999. Aggregate monthly payments approximate $6,000............. 103,922 127,375 ----------- ---------- 15,103,922 9,325,862 Less current portion........................................ 2,340,752 577,853 ----------- ---------- Long-term debt.................................... $12,763,170 $8,748,009 =========== ==========
F-17 113 SIMCALA, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) The future maturities of interest-bearing, long-term debt are as follows:
YEAR ENDING DECEMBER 31, - ------------------------ 1998........................................................ $ 2,340,752 1999........................................................ 2,794,420 2000........................................................ 2,875,000 2001........................................................ 1,093,750 2002........................................................ Thereafter.................................................. 6,000,000 ----------- $15,103,922 ===========
The Company established an irrevocable letter of credit for $6,148,000 expiring on the earliest of December 31, 1999 or the cancellation date. This letter of credit fully supports the industrial development bonds plus applicable interest. The Company is a party to a capital lease for land and buildings at its manufacturing facility in Mt. Meigs, Alabama (the "Lease"). The Lease is with the Industrial Development Board ("IDB") for the city of Montgomery. Rental payments of $2,000 a year are required and the term of the Lease expires June 1, 2010. The Lease contains a bargain purchase option whereby the property can be purchased from the IDB for $1. The Company capitalized $66,000 and $102,000 of interest expense in 1996 and 1995, respectively. 6. NONINTEREST BEARING DEBT DUE TO RELATED PARTY The following is a summary of noninterest-bearing, long-term debt due to related party as of December 31, 1996: Series A noninterest-bearing note payable with face value of $3,210,000. Face value discounted at approximately 8% to reflect the net present value of future payments at the market rate of interest at the date of acquisition........ $2,215,272 Series B noninterest-bearing note payable with face value of $1,465,000. Face value discounted at approximately 8% to reflect the net present value of future payments at the market rate of interest at the date of acquisition........ 1,104,376 Noninterest-bearing subordinated note payable with face value of $3,000,000. Face value discounted at approximately 8% to reflect the net present value of future payments at the market rate of interest at the date of conversion............................................. 2,188,200 ---------- 5,507,848 Less current portion........................................ 1,048,500 ---------- $4,459,348 ==========
See Note 7 to the financial statements regarding repayment of these notes. 7. RELATED PARTY TRANSACTIONS During October 1996, a partnership formed primarily by the stockholders of the Company purchased from the Estate the Series A and Series B notes payable and the noninterest-bearing subordinated note with face amounts aggregating $7,675,000 for $3,130,000, respectively. With the proceeds from the refinancing discussed in Note 4, the Company paid the face amount of the obligations due under these note arrangements. Prepayment penalties and other fees of $464,000 were also paid to the partnership in 1997. The stockholders' portion of the payment amount greater than the recorded carrying value of the notes of $2,307,706 has been recorded as a reduction of stockholders' equity. In connection with the commencement of operations, the Company entered into a Management Agreement (the "Agreement") with its majority stockholder to provide management services to the F-18 114 SIMCALA, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Company. The Agreement is for five years expiring in 2000, with one-year renewal options thereafter. The Company incurred stockholder management fees of $250,000, $250,000 and $50,000 during the years ended December 31, 1997 and 1996 and the period ended December 31, 1995, respectively. At December 31, 1997 and 1996, the Company has a liability of $31,250 and $93,750, respectively, payable to this stockholder for these management services. 8. FAIR VALUE OF FINANCIAL INSTRUMENTS The Company has estimated the fair value of its financial instruments, the carrying value of which differed from fair value, using available market information and appropriate valuation methodologies. Considerable judgment is required in developing the estimates of fair value presented herein and, therefore, the values are not necessarily indicative of the amounts that could be realized in a current market exchange. The carrying amount and the estimated fair value of such financial instruments as of December 31, 1997 and 1996 is as follows:
CARRYING ESTIMATED AMOUNT FAIR VALUE ----------- ----------- December 31, 1997: Long-term debt, including current portion................. $15,103,922 $15,097,497 =========== =========== December 31, 1996: Long-term debt, including current portion................. $14,833,710 $14,017,686 =========== ===========
The estimated fair value of the long-term debt is based upon interest rates that currently are available for issuance of debt with similar terms and remaining maturities. 9. STOCKHOLDERS' EQUITY AND STOCK OPTIONS In 1995, the Company established the Simcala, Inc. 1995 Stock Option Plan (the "Plan") under which stock options for 889 shares of common stock could be granted. In connection with this Plan, the Company granted options to purchase 671 shares at an exercise price of $100 per share. In 1996, the Company granted additional options to acquire 109 shares at $100 per share. Of the total options, 211 options vest based on performance criteria. Compensation expense of $346,723 associated with such options was recognized in 1997. As of December 31, 1997 and 1996, 415 and 296 options, respectively, are exercisable; however, none have been exercised. The remaining options vest over the next four years. Unless exercised, all options expire in 2001. The Company applies APB 25 in accounting for its stock-based compensation plans. Effective January 1, 1996, the Company adopted the disclosure-only provisions of SFAS 123. Had compensation costs for the Company's stock-based compensation plans been determined based on the fair value at the grant date consistent with the method set forth in SFAS 123, the Company's net income (loss) for the years ended December 31, 1997 and 1996 and the period ended December 31, 1995 would have been $6,366,324, $5,445,220, and $(3,224,097), respectively. The fair value of the options granted under the Plan during 1995 was estimated at $19,957 using the Black-Scholes Option Pricing Model and the following weighted average assumptions: risk-free interest rate of 7.1%; dividend yield, expected volatility, and assumed forfeiture rate of 0%; and an expected life of five years. The fair value of options granted under the Plan during 1996 was estimated at $3,064 using the Black-Scholes Option Pricing Model and the following weighted average assumptions: risk-free interest rate of 6.6%; dividend yield, expected volatility, and assumed forfeiture rate of 0%; and an expected life of five years. F-19 115 SIMCALA, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 10. RETIREMENT PLAN The Company sponsors a qualified 401(k) savings plan covering all employees who have completed six months of employment. If a participating employee decides to contribute, a portion of the contribution is matched by the Company. Total retirement plan expense for the years ended December 31, 1997 and 1996 and the period ended December 31, 1995 was $97,217, $81,846 and $38,836, respectively. 11. INCOME TAXES The provision for income taxes for the years ended December 31, 1997 and 1996 and the period ended December 31, 1995 consisted of the following:
1997 1996 1995 ---------- ----------- ----------- Current.......................................... $2,247,000 $ 760,000 Deferred......................................... 1,267,000 1,490,753 $(1,081,753) Change in valuation allowance.................... (1,081,753) 1,081,753 ---------- ----------- ----------- Provision for income taxes............. $3,514,000 $ 1,169,000 $ -- ========== =========== ===========
The difference between the effective tax rate and the statutory rate is reconciled below (amounts in thousands):
1997 1996 1995 -------------------- -------------------- -------------------- DOLLARS PERCENTAGE DOLLARS PERCENTAGE DOLLARS PERCENTAGE ------- ---------- ------- ---------- ------- ---------- Statutory rate............. $3,361 34.0% $ 2,250 34.0% $(1,094) (34.0)% Permanent items............ 153 1.5 1 12 0.4 Valuation allowance........ (1,082) (16.3) 1,082 33.6 ------ ----- ------- ------ ------- ------ Recorded tax expense........ $3,514 35.5% $ 1,169 17.7% $ -- --% ====== ===== ======= ====== ======= ======
The Company paid no Alabama state income taxes the years ended December 31, 1997 and 1996 and the period ended December 31, 1995 due to benefits granted by the State of Alabama under the Mercedes Act. Significant components of the Company's deferred tax assets and liabilities at December 31, 1997 and 1996 are as follows:
1997 1996 ----------- ---------- Deferred tax liabilities: Accelerated tax depreciation.............................. $ 2,918,000 $1,443,000 Other liabilities......................................... 8,000 37,000 ----------- ---------- 2,926,000 1,480,000 Deferred tax assets: AMT credit carryforwards.................................. 1,090,000 760,000 Net operating loss carryforwards.......................... 118,000 Other assets.............................................. 160,000 193,000 ----------- ---------- 1,250,000 1,071,000 ----------- ---------- Net deferred tax liability........................ $(1,676,000) $ (409,000) =========== ==========
12. MANDATORILY REDEEMABLE PREFERRED STOCK In connection with the acquisition of the Company from the Estate, the Company issued 1,500 shares of mandatory redeemable Series A preferred stock with a par value of $2,000 per share to the Estate. The stock, F-20 116 SIMCALA, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) which has no dividend requirement and a liquidation preference of $2,000 per share, was redeemable at a redemption price of $2,000 per share at various dates through 2005. During June 1996, the preferred stock was converted to a noninterest bearing note, payable in nine installments beginning February 1997. The note was recorded at the net present value of the future payments assuming interest at the Company's market rate of 8.0%. The difference between the discounted and face amount upon conversion was considered an addition to paid-in capital of the Company. 13. COMMITMENTS AND CONTINGENCIES At December 31, 1997, the Company had approximately 170 employees, approximately 100 of which are covered by provisions of a collective bargaining agreement. The collective bargaining agreement expires in 2000. Total rental expense for property and equipment was $219,087 and, $229,273 for the years ended December 31, 1997 and 1996 respectively and $110,104 for the period from February 10, 1995 to December 31, 1995. Minimum annual rentals under noncancelable operating leases are $93,000 and $22,000 for the years ended 1998 and 1999, respectively. As of December 31, 1997, the Company has entered into contracts totaling approximately $2 million for the construction of certain production equipment. The Company is involved in litigation arising in the normal course of business. Management believes that the ultimate resolution of such litigation will not have a material adverse effect on the financial statements. 14. SUBSEQUENT EVENT On February 10, 1998, the Company's stockholders entered into an agreement to sell the outstanding capital stock of the Company (the "Acquisition"). The purchase price of the Acquisition is $82 million less indebtedness at the acquisition closing date, less certain legal and investment banking fees incurred by the stockholders and less an approximate $1 million price adjustment. It is expected that the Acquisition will close on or about March 31, 1998. A majority of the Company's long-term debt is expected to be refinanced in connection with the Acquisition. The Company granted an additional 109 shares of options on March 31, 1998. All options were exercised in conjunction with the Acquisition and the Company recognized $904,000 of compensation expense in the three months ended March 31, 1998. 15. UNAUDITED PRO FORMA FINANCIAL INFORMATION In connection with the Acquisition, the purchase method of accounting was used to establish and record a new cost basis for the assets acquired and liabilities assumed. The allocation of the purchase price and acquisition costs to the assets acquired and liabilities assumed is preliminary at March 31, 1998, and is subject to change pending the finalization of appraisals and other studies of fair value and finalization of management's plans which may result in the recording of additional liabilities. The excess of the purchase price over the preliminary fair market value of assets acquired and liabilities assumed was recorded as goodwill. F-21 117 SIMCALA, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) The following unaudited pro forma financial data for the three months ended March 31, 1997 and 1998 and twelve months ended December 31, 1997 has been prepared assuming that the Acquisition was consummated on January 1, 1997 and pro forma financial data for the twelve months ended December 31, 1996 has been prepared assuming that the Acquisition was consummated on January 1, 1996. This pro forma financial data is presented for informational purposes and is not necessarily indicative of the operating results that would have occurred had the Acquisition been consummated on January 1, 1997 or 1996, nor is it necessarily indicative of future operations.
THREE MONTHS ENDED TWELVE MONTHS ENDED ------------------------- --------------------------- MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31, 1998 1997 1997 1996 ----------- ----------- ------------ ------------ Net Sales................................... $14,854,000 $15,655,000 $62,184,000 $52,407,000 Net Loss.................................... $(2,378,000) $ (302,000) $ (890,000) $(3,176,000)
F-22 118 ------------------------------------------------------ - ------------------------------------------------------ NO DEALER, SALESPERSON, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE INITIAL PURCHASER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. --------------------- TABLE OF CONTENTS
PAGE ---- Explanatory Note...................... 2 Available Information................. 3 Cautionary Notice Regarding Forward- Looking Statements.................. 3 Certain Market and Industry Data...... 4 Prospectus Summary.................... 5 Risk Factors.......................... 17 The Exchange Offer.................... 21 Plan of Distribution.................. 33 The Transactions...................... 33 Use of Proceeds....................... 35 Capitalization........................ 36 Unaudited Condensed Pro Forma Financial Information............... 37 Selected Historical Financial Information......................... 40 Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 43 Business.............................. 50 Management............................ 60 Certain Transactions.................. 63 Principal Stockholder................. 64 Description of the Notes.............. 65 Description of Other Indebtedness..... 88 Certain United States Federal Income Tax Considerations.................. 90 Legal Matters......................... 94 Experts............................... 95 Index to Financial Statements......... F-1
UNTIL , 1998 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS) ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS OR AS REQUIRED BY THE TERMS OF THE EXCHANGE OFFER. ====================================================== ------------------------------------------------------ - ------------------------------------------------------ SIMCALA [LOGO] OFFER TO EXCHANGE $75,000,000 IN AGGREGATE PRINCIPAL AMOUNT OF 9 5/8% SENIOR NOTES DUE 2006, SERIES B FOR ALL $75,000,000 IN AGGREGATE OUTSTANDING PRINCIPAL AMOUNT OF 9 5/8% SENIOR NOTES DUE 2006, SERIES A -------------------- PROSPECTUS -------------------- , 1998 ====================================================== 119 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. All amounts are estimates except the SEC registration fee.* SEC Registration Fee........................................ $ 22,125 Accounting fees and expenses................................ 300,000 Legal fees and expenses..................................... 300,000 Printing and engraving expenses............................. 110,000 Blue Sky fees and expenses.................................. 5,000 Trustee, Exchange Agent, Transfer Agent and Registrar fees and expenses.............................................. 10,000 Miscellaneous............................................... 100,000 -------- Total............................................. $847,125 ========
- --------------- * Includes amounts incurred in connection with the original issuance of the Notes. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Section 102 of the Delaware General Corporation Law ("DGCL") allows a corporation to eliminate or limit the personal liability of directors of a corporation to the corporation or to its stockholders for monetary damages for a breach of fiduciary duty as a director, except (i) for breach of the director's duty of loyalty, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) for certain unlawful dividends and stock repurchases or (iv) for any transaction from which the director derived an improper personal benefit. Article Sixth of the Certificate of Incorporation of the Company provides that, to the full extent permitted by the DGCL or any other applicable law, no director of the Company shall be personally liable to the Company or its stockholders for or with respect to any acts or omissions in the performance of his duties as a director of the Company. Section 145 of the DGCL provides that in the case of any action other than one by or in the right of the corporation, a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation in such capacity on behalf of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. Section 145 of the DGCL provides that in the case of an action by or in the right of a corporation to procure a judgment in its favor, a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by reason of the fact that such person is or was a director, officer, employee or agent of the corporation, or is or was surviving at the request of the corporation in such capacity on behalf of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted under standards similar to those set forth in the preceding paragraph, except that no indemnification may be made in respect of any action or claim as to which such person shall have been adjudged to be liable to the corporation unless a court determines that such person is fairly and reasonably entitled to indemnification. Article Seventh of the Certificate of Incorporation of the Company provides that each person who is or was or had agreed to become a director or officer of the Company, or each such person who is or was serving or who had agreed to serve at the request of the Board of Directors or an officer of the Company as an employee II-1 120 or agent of the Company or as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise (including the heirs, executors, administrators or estate of such person), shall be indemnified by the Company to the full extent permitted by the DGCL or other applicable law. The Company may enter into one or more agreements with any person which provide for indemnification greater or different than that provided in Article Seventh of the Company's Certificate of Incorporation. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. On March 31, 1998, the Company issued and sold to the Initial Purchaser $75.0 million aggregate principal amount of 9 5/8% Senior Notes due 2006, Series A. These sales were exempt from registration under Section 4(2) of the Securities Act. The Initial Purchaser offered those securities for resale in transactions not requiring registration under the Securities Act to persons they reasonably believed to be "Qualified Institutional Buyers" as defined in Rule 144A under the Securities Act or institutional "Accredited Investors" as defined in subparagraph (a)(1), (2), (3) or (7) of Commission Rule 501 under the Securities Act. The aggregate price to investors for those securities was $75.0 million and the Initial Purchaser received $2.25 million in discounts and commissions. On March 31, 1998, the Company also issued and sold pursuant to the exercise of stock options, an aggregate of 889 shares of common stock to C. Edward Boardwine, its President and Chief Executive Officer, Dwight L. Goff, its Vice President, and R. Myles Cowan, II, its Vice President -- Finance. The exercise price for each share subject to an option was $100. The Company relied upon Section 4(2) and Regulation D to issue the securities. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) The following exhibits are filed as a part of this Registration Statement:
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 2.1 -- Stock Purchase Agreement dated as of February 10, 1998, as amended by the amendment thereto dated as of March 4, 1998, among SIMCALA, Inc., SAC Acquisition Corp. and the selling stockholders party thereto. 2.2 -- Purchase Agreement dated March 24, 1998 between SAC Acquisition Corp. and NationsBanc Montgomery Securities LLC. 2.3 -- Purchase Agreement Supplement dated as of March 31, 1998 between SIMCALA, Inc. and NationsBanc Montgomery Securities LLC. 2.4 -- Agreement and Plan of Merger dated as of March 31, 1998 between SAC Acquisition Corp. and SIMCALA, Inc. 3.1 -- Certificate of Incorporation of the Company, as amended. 3.2 -- Bylaws of the Company. 4.1 -- Indenture dated as of March 31, 1998 between SAC Acquisition Corp. and IBJ Schroder Bank & Trust Company, as trustee. 4.2 -- Supplemental Indenture dated as of March 31, 1998 between SIMCALA, Inc. and IBJ Schroder Bank & Trust Company, as trustee. 4.3 -- Registration Rights Agreement dated as of March 31, 1998 between SAC Acquisition Corp. and NationsBanc Montgomery Securities LLC. 4.4 -- Registration Rights Agreement Supplement dated as of March 31, 1998 between SIMCALA, Inc. and NationsBanc Montgomery Securities LLC. 4.5 -- Form of 9 5/8% Senior Notes due 2006, Series A (included in Exhibit 4.1 as exhibit A-1 thereto). 5.1 -- Opinion and Consent of Alston & Bird LLP.* 10.1 -- Agreement for Investment Banking Services dated March 31, 1998 between SIMCALA, Inc. and CGW Southeast Management III, L.L.C.
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EXHIBIT NUMBER DESCRIPTION - ------- ----------- 10.2 -- Agreement for Consulting Services dated March 31, 1998 between SIMCALA, Inc. and CGW Southeast III, L.L.C. 10.3 -- Credit Agreement dated as of March 31, 1998 among SIMCALA, Inc., as borrower, SIMCALA Holdings, Inc., as guarantor, the lenders party thereto, and NationsBank, N.A., as agent. 10.4 -- Pledge Agreement dated as of March 31, 1998 among SIMCALA Holdings, Inc., SIMCALA, Inc. and NationsBank, N.A., as agent. 10.5 -- Security Agreement dated as of March 31, 1998 among SIMCALA Holdings, Inc., SIMCALA, Inc. and NationsBank, N.A., as agent. 10.6 -- Mortgage, Security Agreement, Assignment of Leases and Rents and Fixture Financing Statement given as of March 31, 1998 by SIMCALA, Inc. and The Industrial Development Board of the City of Montgomery in favor of NationsBank, N.A. 10.7 -- Consolidated, Amended, and Restated Lease Agreement dated as of January 1, 1995 between the Industrial Development Board of the City of Montgomery, as lessor, and SIMCALA, Inc., as lessee. 10.8 -- Loan Agreement dated as of January 1, 1995 between the State Industrial Development Authority, as lender, and SIMCALA, Inc. and the Industrial Development Board of the City of Montgomery, as borrowers. 10.9 -- Contract for Electric Power dated February 8, 1995 between Alabama Power Company and SIMCALA, Inc., as amended by the amendment thereto dated July 8, 1997.** 10.10 -- Supply Agreement dated August 3, 1997 between Alcan Ingot & Recycling and SIMCALA, Inc.** 10.11 -- Supply Agreement dated December 10, 1996 between Wabash Alloys, L.L.C. and SIMCALA, Inc.** 10.12 -- Supply Agreement dated December 10, 1996 between Wabash Alloys, L.L.C. and SIMCALA, Inc.** 10.13 -- Employment and Confidentiality Agreement dated February 10, 1998 between SAC Acquisition Corp. and Dwight L. Goff. 10.14 -- Employment and Confidentiality Agreement dated February 10, 1998 between SAC Acquisition Corp. and R. Myles Cowan. 10.15 -- Employment and Confidentiality Agreement dated February 10, 1998 between SAC Acquisition Corp. and C. Edward Boardwine. 10.16 -- 1995-2000 Basic Labor Agreement and Seniority Rules and Regulations dated August 8, 1995 between United Steelworkers of America (AFL-CIO) and SIMCALA, Inc. 10.17 -- Escrow Agreement dated as of March 31, 1998 between (i) the selling stockholders party to the Stock Purchase Agreement dated as of February 10, 1998 among SIMCALA, Inc., SAC Acquisition Corp. and such selling stockholders and (ii) SIMCALA, Inc. 10.18 -- Shareholders Agreement dated as of March 31, 1998 among SIMCALA Holdings, Inc., CGW Southeast Partners III, L.P., Carl Edward Boardwine, Dwight L. Goff and R. Myles Cowan. 12.1 -- Computation of Ratios. 23.1 -- Consent of Alston & Bird LLP (included in Exhibit 5.1).* 23.2 -- Consent of Deloitte & Touche LLP. 23.3 -- Consent of Crowe, Chizek and Company LLP. 23.4 -- Consent of Ernst & Young LLP. 24.1 -- Power of Attorney (included in Part II of the Registration Statement).
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EXHIBIT NUMBER DESCRIPTION - ------- ----------- 25.1 -- Forms T-1 -- Statement of Eligibility of Trustee. 27.1 -- Financial Data Schedule (for SEC use only). 27.2 -- Financial Data Schedule (for SEC use only) 99.1 -- Form of Non-Qualified Stock Option Agreement of SIMCALA Holdings, Inc. 99.2 -- SIMCALA Holdings, Inc. 1998 Stock Incentive Plan. 99.3 -- Form of Letter of Transmittal.
- --------------- * To be filed by amendment ** Certain portions of this Exhibit have been deleted and confidentially filed with the Commission pursuant to a confidential treatment request under Rule 406 under the Securities Act. (b) The following financial statement schedules are filed as a part of this Registration Statement: Schedule II -- Valuation and Qualifying Account of SIMCALA, Inc. for the years ended December 31, 1995, 1996 and 1997. ITEM 17. UNDERTAKINGS. The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (4) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-4 123 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Atlanta, State of Georgia, on May 21, 1998. SIMCALA, INC. By: /s/ WILLIAM A. DAVIES ------------------------------------ William A. Davies Chairman of the Board POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints William A. Davies his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments (including post-effective amendments) to this Registration Statement, and to file the same, with all exhibits thereto and other documents in connection therewith, including any Registration Statement filed pursuant to Rule 462(b) of the Securities Act of 1933, as amended, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact, agent or his substitutes may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ WILLIAM A. DAVIES Chairman of the Board May 21, 1998 - ----------------------------------------------------- William A. Davies /s/ C. EDWARD BOARDWINE President, Chief Executive May 18, 1998 - ----------------------------------------------------- Officer and Director C. Edward Boardwine /s/ DWIGHT L. GOFF Vice President May 19, 1998 - ----------------------------------------------------- Dwight L. Goff /s/ R. MYLES COWAN, II Vice President of Finance May 18, 1998 - ----------------------------------------------------- R. Myles Cowan, II /s/ EDWIN A. WAHLEN, JR. Director May 21, 1998 - ----------------------------------------------------- Edwin A. Wahlen, Jr. /s/ JAMES A. O'DONNELL Director May 21, 1998 - ----------------------------------------------------- James A. O'Donnell
II-5 124 SCHEDULE II SIMCALA, INC. VALUATION AND QUALIFYING ACCOUNT ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS FOR THE PERIOD FROM FEBRUARY 10, 1995 TO DECEMBER 31, 1995 AND THE YEARS ENDED, 1996, AND 1997
- ------------------------------------------------------------------------------------------------------------------------ Column A Column B Column C Column D Column E - ------------------------------------------------------------------------------------------------------------------------ Description Balance at Additions Deductions - Balance at Beginning Amounts end of Period Written Off of period ------------------------------ as Uncollectible (1) (2) Charged to Recovery costs and of amounts expenses from insurance policy - ------------------------------------------------------------------------------------------------------------------------ Period Ended December 31, 1995 $100,000 $ 1,644 $ - $ - $ 101,644 Year Ended December 31, 1996 $101,644 90,000 - 84,372 $ 107,272 Year Ended December 31, 1997 $107,272 - 8,846 38,682 $ 77,436
EX-2.1 2 STOCK PURCHASE AGREE - SIMCALA & SAC ACQUISITION 1 EXHIBIT 2.1 ================================================================================ STOCK PURCHASE AGREEMENT AMONG SIMCALA, INC., THE SELLERS NAMED HEREIN AND SAC ACQUISITION CORP. DATED AS OF: FEBRUARY 10, 1998 ================================================================================ 2 TABLE OF CONTENTS ARTICLE 1 DEFINITIONS......................................................................1 1.1. Definitions.....................................................................1 ARTICLE 2 PURCHASE AND SALE OF SHARES AND OPTIONS..........................................7 2.1. Deemed Exercise of Options......................................................7 2.2. Purchase and Sale of Shares.....................................................7 2.3. Purchase Price..................................................................8 2.4. Payment of Purchase Price.......................................................8 2.5. Adjustment Amount...............................................................8 2.6. Adjustment Procedure............................................................8 2.7. Closing........................................................................10 2.8. Closing Deliveries by the Sellers..............................................10 2.9. Closing Deliveries by the Company..............................................10 2.10. Closing Deliveries by Buyer....................................................11 ARTICLE 3 PRE-CLOSING ESCROW..............................................................12 3.1 Pre-Closing Escrow.............................................................12 ARTICLE 4 ESCROW..........................................................................12 4.1. Deposit Into Escrow Account....................................................12 4.2. Disputes Regarding Adjustment Amounts..........................................12 4.3. Payments Relating to Adjustment Amount.........................................13 ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF THE COMPANY...................................13 5.1. Incorporation; Qualification and Corporate Authority...........................13 5.2. Subsidiaries; Joint Ventures...................................................14 5.3. Financial Statements...........................................................14 5.4. Absence of Certain Changes or Events...........................................14 5.5. Capitalization.................................................................17 5.6. Options and Other Rights.......................................................17 5.7. Binding Obligation.............................................................17 5.8. No Defaults or Conflicts.......................................................18 5.9. No Governmental Authorization or Consents Required.............................18 5.10. Permits........................................................................18 5.11. No Actions, Suits or Proceedings...............................................18 5.12. Contracts......................................................................19 5.13. Title to Leased Real Property & Liens..........................................20 5.14. Intellectual Property..........................................................22 5.15. Employment Matters.............................................................22
-i- 3 5.16. Environmental and OSHA Compliance...............................................23 5.17. Taxes...........................................................................25 5.18. Employee Benefits...............................................................26 5.19. No Other Broker.................................................................29 5.20. Inventories.....................................................................29 5.21. Accounts Receivable.............................................................29 5.22. Personal Property...............................................................30 5.23. Insurance.......................................................................30 5.24. Compliance with Laws............................................................31 5.25. Product Warranty................................................................31 5.26. Product Liability...............................................................31 5.27. Compliance with the Immigration Reform and Control..............................31 5.28. Transactions with Related Parties...............................................31 5.29. Corporate Records...............................................................32 5.30. Undisclosed Liabilities.........................................................32 5.31. Indebtedness....................................................................32 5.32. Correctness of Representations..................................................32 5.33. Definition of "Knowledge".......................................................33 5.34. Unclaimed Property..............................................................33 ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF SELLER.........................................33 6.1. Authority.......................................................................33 6.2. Title...........................................................................33 6.3. Broker or Finders...............................................................34 6.4. No Violation....................................................................34 6.5. Third Party Approvals...........................................................34 6.6. Sale of Shares..................................................................34 6.7. Foreign Status..................................................................34 ARTICLE 7 REPRESENTATIONS AND WARRANTIES OF BUYER..........................................35 7.1. Incorporation and Corporate Authority...........................................35 7.2. Binding Obligation..............................................................35 7.3. No Defaults or Conflicts........................................................35 7.4. No Governmental Authorization or Consents Required..............................35 7.5. No Actions, Suits or Proceedings................................................36 7.6. Investment Purpose..............................................................36 7.7. Sufficient Funds................................................................36 7.8. Solvency........................................................................36 7.9. No Broker.......................................................................36 ARTICLE 8 COVENANTS........................................................................36 8.1. Conduct of Business.............................................................36 8.2. Access to Information; Confidentiality..........................................37
-ii- 4 8.3. Further Assurances..............................................................38 8.4. Notice of Events................................................................38 8.5. Indemnification.................................................................39 8.6. Filings and Authorizations......................................................39 8.7. Tax Matters.....................................................................39 8.8. Severance.......................................................................42 8.9. Sales and Transfer Taxes........................................................42 8.10. Public Announcements............................................................42 8.11. Records.........................................................................43 8.12. No Section 338 Election; Certain Transactions Prohibited........................43 8.13. WARN Act Notice.................................................................43 8.14. Other Transactions..............................................................43 8.15. Supplemental Disclosure.........................................................43 8.16. Contracts and Capital Expenditures..............................................44 8.17. Discharge of Liens and Encumbrances.............................................44 8.18. Environmental Fines.............................................................44 8.19. Payment of Bonus................................................................44 8.20. Financing Cooperation...........................................................44 8.21. Asset Appraisal.................................................................45 ARTICLE 9 CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER.....................................45 9.1. Representations and Warranties..................................................45 9.2. Performance.....................................................................45 9.3. Opinion of Counsel..............................................................45 9.4. HSR Act; Authorizations; Consents; Legal Prohibition............................45 9.5. Incumbency......................................................................46 9.6. Certified Resolutions...........................................................46 9.7. Basic Corporate Documents.......................................................46 9.8. No Adverse Change...............................................................46 9.9. Acquisition Documents...........................................................47 9.10. Releases........................................................................47 9.11. Termination of Agreements.......................................................47 9.12. Substitute Letter of Credit.....................................................47 9.13. FIRPTA Certificates.............................................................47 9.14. Comfort Letter..................................................................47 ARTICLE 10 CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY AND THE SELLER................47 10.1. Representations and Warranties Accurate.........................................48 10.2. Performance by Others...........................................................48 10.3. Opinion of Counsel for Buyer....................................................48 10.4. HSR Act; Authorization; Consents; Legal Prohibition.............................48 10.5. Acquisition Documents...........................................................49
-iii- 5 ARTICLE 11 TERMINATION OF AGREEMENT.........................................................49 11.1. Termination.....................................................................49 11.2. Survival After Termination......................................................49 ARTICLE 12 INDEMNIFICATION..................................................................50 12.1. Definitions.....................................................................50 12.2. Agreement of the Indemnitors to Indemnify.......................................51 12.3. Procedures for Indemnification..................................................51 12.4. Third Party Claims..............................................................52 12.5. Other Rights and Remedies.......................................................54 12.6. Duration........................................................................54 12.7. Limitations.....................................................................54 12.8. Subrogation.....................................................................55 12.9. Cooperation.....................................................................55 ARTICLE 13 MISCELLANEOUS....................................................................55 13.1. Expenses........................................................................55 13.2. Investigation...................................................................55 13.3. Governing Law...................................................................56 13.4. Binding Effect; Persons Benefiting; No Assignment...............................56 13.5. Amendments......................................................................57 13.6. Interpretation..................................................................57 13.7. Counterparts....................................................................57 13.8. Entire Agreement................................................................57 13.9. Severability....................................................................57 13.10. Waiver..........................................................................57 13.11. Notices.........................................................................57
-iv- 6 EXHIBITS Exhibit A Agreement for Release of Claims Exhibit B Escrow Agreement
-v- 7 SCHEDULES Schedule 1 Management Employees Schedule 1.1A Modifications to Commitment Schedule 1.1B Assumed Indebtedness Schedule 2.2 Equity Ownership Schedule 5.1A Jurisdictions Where Qualified As a Foreign Corporation Schedule 5.1B Locations of the Company's Assets and Trade Names Schedule 5.3A Financial Statements Schedule 5.3B Accounting Deviations Schedule 5.5 Capitalization Schedule 5.8 Defaults or Conflicts Schedule 5.9 Governmental Authorization; Consents Schedule 5.10 Permits Schedule 5.11 Actions, Suits or Proceedings Schedule 5.12A Contracts Schedule 5.12B Commitments Schedule 5.12C Breaches, Terminations Schedule 5.12D Customers Schedule 5.13A Other Property Leases Schedule 5.13B Title Policy Schedule 5.14 Intellectual Property Schedule 5.15A Employment Matters Schedule 5.15B Severance Payments Schedule 5.16A Environmental Assessments Schedule 5.16B Environmental Matters Schedule 5.16C Releases Schedule 5.16D Tanks Schedule 5.17 Taxes Schedule 5.18 Employee Benefit Plans Schedule 5.20 Liens on Inventory Schedule 5.22A Personal Property Schedule 5.22B Liens on Personal Property Schedule 5.22C Personal Property Leases Schedule 5.23A Insurance Policies Schedule 5.23B Insurance Claims Schedule 5.23C Self-Insurance Arrangements Schedule 5.24 Compliance with Laws Schedule 5.28 Transactions with Related Parties Schedule 5.29 Corporate Records Schedule 5.31 Indebtedness Schedule 6.5 Third Party Approvals
-vi- 8 STOCK PURCHASE AGREEMENT STOCK PURCHASE AGREEMENT, dated as of February 10, 1998 (this "Agreement"), by and among SIMCALA, INC., a Delaware corporation (the "Company"), each of the individuals and entities listed under the heading "Sellers" on the signature pages hereto (each being a "Seller", and all of them together being the "Sellers"), and SAC ACQUISITION CORP., a Georgia corporation (the "Buyer"). RECITALS: The holders of (i) the Shares representing in the aggregate 100% of the issued and outstanding capital stock of the Company and (ii) the outstanding Options (which are deemed exercised and converted to Option Shares as described in Section 2.1), have executed this Agreement agreeing to the purchase of their Shares for the Purchase Price and on the terms and conditions set forth in this Agreement. Concurrently herewith, the employees of the Company identified on SCHEDULE 1 are entering into employment agreements with the Buyer which will be effective upon and subject to the Closing, as defined herein. NOW, THEREFORE, in consideration of and premised upon the various representations, warranties, covenants and other agreements and undertakings of Buyer, the Sellers and the Company contained in this Agreement, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Buyer, the Sellers and the Company agree as follows: ARTICLE 1 DEFINITIONS 1.1. Definitions (a) The following terms, whenever used herein, shall have the following meanings for all purposes of this Agreement (such definitions to be equally applicable to both the singular and plural forms of the terms herein defined): "Accounts Receivable" means all accounts, notes and other receivables of the Company. "Affiliate" means as applied to any person, any other person directly or indirectly controlling, controlled by, or under common control with, that person; for purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as applied to any person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that person, whether through the ownership of voting securities, by contract or otherwise. 9 "Antitrust Laws" means any federal or state law of the United States governing competition, monopolies or restrictive trade practices, including without limitation the Sherman Antitrust Act (15 U.S.C. ss.1-7), the Clayton Act (15 U.S.C. ss.ss.12-27), the Federal Trade Commission Act (15 U.S.C. ss.41-58) and the HSR Act, in each case including any rules and regulations thereunder. "Business Day" means any day that is not a Saturday, Sunday or other day on which banking institutions in New York, New York are authorized or required by law or executive order to close. "Closing" means the completion of the purchase of the Shares by Buyer. "Closing Date" means the date the Closing takes place in accordance with Section 2.7. "Code" means the Internal Revenue Code of 1986, as amended. "Commitment" means the Commitment for Title Insurance of Lawyers Title Insurance Corporation, dated December 15, 1997, case no. 28885. "Common Stock" means the common stock, par value $.01 per share, of the Company. "Contract" or "Contracts" means, to the extent permitted by applicable law, all of the contracts, leases, collective bargaining agreements, warranties, commitments, agreements, credit guaranties and purchase and sales orders, whether oral or written, pursuant to which the Company enjoys any right or benefit. "Environmental Law" means any United States (or other applicable jurisdiction's) federal, state, local or municipal statute, law, rule, regulation, ordinance, code or rule of common law and any judicial interpretation thereof including any judicial or administrative order or judgment relating to the environment, health or safety, including, without limitation, the following: (i) the Environmental Response, Compensation, and Liability Act (42 U.S.C. ss.ss. 9601 et seq.); (ii) the Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act (42 U.S.C. ss.ss. 6901 et seq.); (iii) the Emergency Planning and Community Right to Know Act (42 U.S.C. ss.ss. 11001 et seq.); (iv) the Clean Air Act (42 U.S.C. ss.ss. 7401 et seq.); (v) the Clean Water Act (33 U.S.C. I 1251 et seq.); (vi) the Toxic Substances Control Act (15 U.S.C. I 2601 et seq.); (vii) the Hazardous Materials Transportation Act (49 U.S.C. ss.ss. 1801 et seq.); (viii) the Safe Drinking Water Act (41 U.S.C. I 300f et seq.); (ix) any state, county, municipal or local statutes, laws or ordinances similar or analogous to the federal statutes listed in parts (i) - (viii) of this subparagraph; (x) any amendments to the statutes, laws or ordinances in effect at the time of the Closing Date listed in parts -2- 10 (i) - (ix) of this subparagraph, regardless of whether in existence on the date hereof; and (xi) any rules, regulations, guidelines, directives, orders or the like adopted pursuant to or implementing the statutes, laws, ordinances and amendments listed in parts (i) - (x) of this subparagraph. "Equipment" means all machinery, equipment, tools, computers, terminals, computer equipment, office equipment, business machines, telephones and telephone systems, parts, accessories, and the like, wherever located, and any and all warranties of third parties with respect thereto owned by the Company or in which the Company has an ownership or leasehold interest. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "Financial Statements" means the audited balance sheets of the Company as at December 31, 1997, 1996 and 1995, and the related statements of operations, cash flows and changes in shareholders' equity for the years ended December 31, 1997 and 1996, certified by Crowe, Chizek and Company LLP, and the period from February 10, 1995 through December 31, 1995, certified by Ernst & Young LLP, in each case, independent certified public accountants, whose opinion thereon is included therewith, together with the notes and schedules thereto. "First Bank Credit Facility" means the Credit Agreement by and between the Company and First Bank National Association, dated April 10, 1997. "Furniture and Fixtures" means all furniture, fixtures, and leasehold improvements wherever located, and any and all assignable warranties covering such furniture, fixtures, and leasehold improvements owned by the Company or in which the Company has an interest. "Governmental Authority" means any nation or government, any state or other political subdivision thereof, any entity exercising executive, legislative, judicial, regulatory or administration functions of or pertaining to government, including any government authority, agency, department, board, commission or instrumentality of the United States, any foreign government, any State of the United States or any political subdivision thereof, and any court, tribunal or arbitrator(s) of competent jurisdiction. "Hazardous Materials" shall mean any chemical, substance, waste or material defined as or deemed hazardous, toxic, a pollutant, a contaminant under any Environmental Law, including, but not limited to, petroleum and petroleum products, waste oil, halogenated and non-halogenated solvents, PCBs, and exposed and friable asbestos containing material. -3- 11 "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder. "Indebtedness" means all outstanding bank indebtedness, capital leases, bond indebtedness related to the Leased Real Property and all other funded indebtedness, including interest payable thereon, of the Company for borrowed money as listed on SCHEDULE 5.31 attached hereto, including fees and costs, if any, payable in connection with prepayment of the First Bank Credit Facility. "Intellectual Property" means all patents, art work, labels, designs, specifications, designs-in-progress, formulations, know-how, prototypes, inventions, trademarks, trade names, trade styles, service marks, and copyrights; all registrations and applications therefor, both registered and unregistered, foreign and domestic; all trade secrets, technology or processes; all computer software (including documentation and related object and, if applicable, source codes); and all confidential or proprietary information that are either (i) owned by or negotiated in the name of the Company or (ii) as to which the Company has rights as licensee, constituting all of the intellectual property of the Company. "Inventory" means all raw materials, work-in-progress, finished goods, goods held for resale, spare parts, waste materials, scrap, samples, promotional literature, and supplies wherever located. "IRS" means the United States Internal Revenue Service. "Leased Real Property" means all of the Company's rights in, to and under the real estate leases (including, without limitation, any assignment of a real estate lease or sublease) to which the Company is a party, which are listed on SCHEDULE 5.13A, together with all of the Company's right, title, and interest in the buildings, fixtures and improvements, including construction-in-progress, and appurtenances thereto, located on the real property subject to such real estate leases, and any and all warranties of third parties with respect thereto. "Legal Requirement" means any federal, state, local, municipal, foreign, international, multinational, or other administrative order, constitution, law, ordinance, principle of common law, rule, regulation, statute, or treaty. "Material Adverse Effect" means a material adverse effect upon the business, operations, properties, assets or condition (financial or otherwise) or prospects of the Company, without regard to changes in conditions generally applicable to the industries in which the Company is involved or general economic conditions. "Options" means the options to purchase shares of Common Stock outstanding on the Closing Date, which options are deemed exercised as described in Section 2.1 prior to the Closing. -4- 12 "Permits" means, to the extent permitted under applicable law or regulation, all licenses, franchises, permits, certificates, consents, and other governmental or quasi-governmental authorizations of the Company. "Permitted Encumbrances" means (i) exceptions set forth in the Commitment (subject to the modifications set forth in SCHEDULE 1.1A); (ii) liens of current Taxes not yet due and payable or the liens of Taxes the validity of which is being contested in good faith by appropriate proceedings and which are set forth on SCHEDULE 5.17 hereto; (iii) liens related to Indebtedness outlined on SCHEDULE 1.1B attached hereto; and (iv) such minor imperfections of title (excluding monetary liens) which do not materially and adversely interfere with the present use of the Leased Real Property. "Professional Fees" means the fees and disbursements of Schulte Roth & Zabel LLP, BT Wolfensohn and Crowe Chizek in connection with the transactions contemplated by this Agreement, to the extent not paid prior to the Closing. "Purchase Price Per Share" means the amount determined by dividing (a) the sum of (i) the Purchase Price plus (ii) the aggregate exercise price of all Options outstanding as of the Closing Date plus (iii) the aggregate exercise price received by the Company of all Options exercised from the date hereof to the Closing Date by (b) the sum of (i) the number of shares of Common Stock outstanding and (ii) the number of shares of Common Stock subject to Options as of the Closing Date. "Release" shall have the meaning found in 42 U.S.C.ss. 9601 (22) and shall include migration. "Securities Act" means the Securities Act of 1933 or any successor law, and regulations and rules issued pursuant to that Act or any successor law. "Shares" means the Common Stock representing 100% of the issued and outstanding capital stock of the Company, including, without limitation, those shares of Common Stock issued upon the deemed exercise of the Options as described in Section 2.1. "Tax Returns" means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof. "Taxes" means all taxes, however denominated, including, without limitation, any federal, state, local or foreign income, gross receipts, payroll, employment, excise, stamp, franchise, profits, business license, occupation, environmental, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, -5- 13 customs duties, alternative or add-on minimum or estimated tax, and other obligations of the same or of a similar nature to any of the foregoing, including any interest, penalty, or addition thereto, whether disputed or not. "Vehicles" means all motor vehicles, trucks, forklifts, and other rolling stock, and all warranties of third parties related thereto. (b) The following terms shall have the meaning specified in the indicated section of this Agreement.
Term Section ---- ------- Accountants...........................................Section 4.2(b) Acquisition Documents.................................Section 5.7 Acquisition Proposal..................................Section 8.14 Adjustment Amount.....................................Section 2.5 Agreement.............................................Preamble Benefit Plans.........................................Section 5.18(a) Bonus.................................................Section 2.6(c) Buyer.................................................Preamble Buyer Indemnitees.....................................Section 12.1(e) Buyer Opinion.........................................Section 2.10(a)(iv) CERCLA................................................Section 5.16(b)(i) Closing Balance Sheet.................................Section 2.6 Closing Payment.......................................Section 2.4 Company...............................................Preamble Company Opinion.......................................Section 2.9(c) Confidentiality Agreement.............................Section 8.2(b) Crowe Chizek..........................................Section 4.2 D&T...................................................Section 2.6 Disputing Sellers.....................................Section 4.2(b) Employees.............................................Section 5.18(a) Environmental Audit Report............................Section 9.19 Environmental Fines...................................Section 8.18 Environmental Permits.................................Section 5.16(b)(v) ERISA Affiliate.......................................Section 5.18(b)(vi) Escrow Account........................................Section 2.4 Escrow Agent..........................................Section 2.10(b) Escrow Agreement......................................Section 2.8(e) Escrowed Funds........................................Section 2.4 Estimated Indebtedness................................Section 2.4 GAAP..................................................Section 2.5 IDB...................................................Section 5.13 Immigration Laws......................................Section 5.27 Indemnification Claim.................................Section 12.1(a) Indemnitee............................................Section 12.1(b)
-6- 14 Indemnitor............................................Section 12.1(c) Information...........................................Section 8.2(b) Knowledge.............................................Section 5.33 Lease.................................................Section 5.13(a) Liens.................................................Section 5.8 Loan Agreement........................................Section 9.12 Losses................................................Section 12.1(d) Maximum Amount........................................Section 12.7(a) Negotiation Period....................................Section 12.3(c) Net Assets............................................Section 2.5 New Options...........................................Section 5.4 Option Shares.........................................Section 2.1 Permits...............................................Section 5.10 Person................................................Section 13.6 Plant.................................................Section 5.13 Policy................................................Section 5.13(a) Pre-Closing Escrow Agreement..........................Section 3.1 Proceeding............................................Section 5.11 Purchase Price........................................Section 2.3 Qualified Plan........................................Section 5.18(b)(ii) Related Party(ies)....................................Section 5.28(a) Releases..............................................Section 2.8(b) Seller(s).............................................Preamble Threshold Amount......................................Section 12.7(a) Third Party Claim.....................................Section 12.1(f)
(c) All references herein to dollars or "$" shall be to United States dollars. ARTICLE 2 PURCHASE AND SALE OF SHARES AND OPTIONS 2.1. Deemed Exercise of Options. On the Closing Date, each Option shall, effective immediately prior to the Closing, without any action on the part of the holder thereof but upon notice by the Company, be deemed exercised pursuant to the terms thereof and such that the holders of Options shall become owners of the Shares issuable upon exercise of such Options ("Option Shares"), no exercise price shall be payable to the Company in respect thereof. 2.2. Purchase and Sale of Shares. Upon the terms and subject to the conditions contained herein, at the Closing each Seller shall sell, assign, transfer, convey and deliver to Buyer, and Buyer shall purchase and accept from each Seller, such Seller's Shares (including the Option Shares) each in an amount set forth next to such Seller's name on SCHEDULE 2.2 hereto. -7- 15 2.3. Purchase Price. The purchase price (the "Purchase Price") for the Shares will be Eighty Two Million Dollars ($82,000,000), (a) less an amount equal to the Indebtedness outstanding as of the Closing Date, (b) less the outstanding amount of Professional Fees, and (c) less $1,009,423 and (i) if the Adjustment Amount (as defined below) is a positive number, plus the Adjustment Amount, and (ii) if the Adjustment Amount is a negative number, minus the Adjustment Amount. 2.4. Payment of Purchase Price. At the Closing: (i) the funds necessary to pay off all Indebtedness owed with respect to the First Bank Credit Facility shall be paid by the Buyer; (ii) the funds necessary to pay the Professional Fees shall be paid by the Buyer; (iii) an aggregate amount equal to the Purchase Price (calculated (A) as if the Adjustment Amount is zero, (B) based upon the Company's good faith estimate of the outstanding Indebtedness as of the Closing Date (which good faith estimate shall include "payoff information" related to the First Bank Credit Facility and shall have been delivered to Buyer no less than four (4) Business Days prior to the Closing) (the "Estimated Indebtedness"), and (C) by reducing the Purchase Price by $4,000,000 (the "Escrowed Funds")), shall be paid at the Closing by Buyer by wire transfer of immediately available funds to an account or accounts which are designated in writing by each Seller at least two (2) Business Days prior to the Closing Date (the "Closing Payment") as follows: (X) in respect of each Share that is not an Option Share, at the Purchase Price Per Share (assuming the foregoing calculations) and (Y) in respect of each Option Share, the excess of such Purchase Price Per Share over the exercise price per Share of the Option related to such Option Share; and (iv) the Escrowed Funds shall be paid by Buyer into an escrow account ("Escrow Account") as provided for in Section 4.1. The Adjustment Amount, which shall be deemed additional Purchase Price or a reduction of the Purchase Price, shall be paid by Buyer to Sellers or refunded to Buyer by the Escrow Agent as provided in Section 4.3. 2.5. Adjustment Amount. The "Adjustment Amount" (which may be a positive or negative number) will be equal to (a) the audited Net Assets (as adjusted as described herein) as of the Closing Date determined as provided in Section 2.6 below, minus (b) (i) the Net Assets as shown on the audited December 31, 1997 balance sheet of the Company attached to SCHEDULE 5.3A plus (ii) $1,009,423.00. "Net Assets" means (y) the value of all of the total assets of the Company minus (z) the total liabilities of the Company other than Indebtedness, all as determined in accordance with generally accepted accounting principles applied on a consistent basis ("GAAP"), as adjusted (in the case of the Closing Date) for the specific policies in Section 2.6. In computing the Adjustment Amount, the amount, if any, by which (i) Estimated Indebtedness exceeds Indebtedness reflected on the Closing Balance Sheet shall be added to Net Assets as of the Closing Date or (ii) Indebtedness reflected on the Closing Balance Sheet exceeds Estimated Indebtedness shall be subtracted from Net Assets as of the Closing Date. 2.6. Adjustment Procedure. (a) The Company will prepare and will cause Deloitte & Touche LLP ("D&T"), Buyer's certified public accountants, to audit the balance sheet of -8- 16 the Company as of the Closing Date (the "Closing Balance Sheet"), including a computation of Net Assets as of the Closing Date. The Closing Balance Sheet shall be prepared in accordance with GAAP consistently applied on the same basis as the Company's financial statements for the year ended December 31, 1997. The following specific policies will be followed in preparing the computation of Net Assets as of the Closing Date: (i) The fair market value of the Common Stock as of the date of the grant for all of the Options granted to the various employees during 1995 and 1996 shall be deemed to be equal to the original capital contributed by the stockholders of the Company on the day the Company began operations (i.e., $100 per share); (ii) Accrued vacation pay for salaried employees will not be accrued; (iii) The purchase accounting allocations in the February 10, 1995 opening balance sheet including costs allocated to intangible assets and property plant and equipment will not be adjusted; (iv) Stores and supplies inventory will not be capitalized; and (v) The ratable portion of the 1999 Alabama franchise taxes shall be accrued; (vi) All unpaid costs and expenses associated with this transaction that the Company will pay on behalf of the Sellers (including all legal, accounting, broker, finder and investment banker fees) shall be accrued other than Professional Fees paid at Closing; (vii) The approximate $160,000 liability related to remaining tax liabilities assumed with respect to Simetco as set forth on SCHEDULE 5.17 shall be accrued; (viii) To the extent deferred tax assets as of the Closing Date exceed such assets as of December 31, 1997, the excess, if any, will not be recorded; and (ix) An amount equal to the tax refund receivable as a result of the carryback of tax losses will be reflected as a liability payable to the Sellers and the corresponding refund will be reflected as an asset. (b) The Closing Balance Sheet will further include all accruals and pre-paid expenses that would normally be included pursuant to year-end closing procedures calculated on a pro rata basis from January 1, 1998 through the Closing Date. -9- 17 (c) The Closing Balance Sheet will include an accrual for compensation to employees for the special one time bonus (the "Bonus") equal to $1,486,000 or such other amount as may be agreed upon by the Buyer and the Sellers prior to Closing. (d) The Adjustment Amount will be finalized, and the Purchase Price will be adjusted as provided for in Sections 2.3, 4.3 and 4.4. 2.7. Closing. The Closing shall take place at the offices of Alston & Bird, One Atlantic Center, 1201 West Peachtree Street, Atlanta, Georgia 30309 at 10:00 a.m., local time, on March 31, 1998, or, at such other place, time and date as the parties hereto may agree in writing. 2.8. Closing Deliveries by the Sellers. At the Closing, each of the Sellers shall deliver, or cause to be delivered, to Buyer: (a) one or more stock certificates representing those Shares owned by such Seller duly endorsed in blank or accompanied by stock powers duly executed in blank, in proper form for transfer; (b) an executed agreement for the mutual release of claims in substantially the form of EXHIBIT A hereto (the "Releases"); (c) the opinions, certificates and other documents required to be delivered by or on behalf of such Seller pursuant to Article 9; (d) copies of the consents, waivers and approvals described in Section 6.5 hereof; (e) the executed escrow agreement in substantially the form of EXHIBIT B hereto (the "Escrow Agreement"); and (f) any other items specifically identified in this Agreement. The documents and certificates to be delivered hereunder or on behalf of the Sellers on the Closing Date, shall be in form and substance reasonably satisfactory to Buyer and its counsel. 2.9. Closing Deliveries by the Company. The Company shall deliver to Buyer the following: (a) the written resignation of each of the directors and officers of the Company; (b) the opinions, certificates and other documents required to be delivered by or on behalf of the Company pursuant to Article 9; -10- 18 (c) the opinions of Schulte Roth & Zabel LLP and Roy S. Goldfinger, P.C., counsel to the Company, in customary form for transactions of this nature (collectively, the "Company Opinion"); (d) copies of the consents, waivers and approvals described in Section 5.9 hereof; (e) satisfactory evidence of the discharge of Liens described in Section 8.17 hereof; (f) certified copy of the Company's Certificate of Incorporation and certificates of existence or certificates of good standing of the Company, as of a date within twenty (20) days prior to the Closing Date, from the State of Delaware and each jurisdiction listed in SCHEDULE 5.1A hereto; (g) the executed Escrow Agreement; (h) the executed Releases; and (i) any other items specifically identified in this Agreement. The documents and certificates to be delivered hereunder by or on behalf of the Company on the Closing Date shall be in form and substance reasonably satisfactory to Buyer and its counsel. 2.10. Closing Deliveries by Buyer. (a) At the Closing, Buyer shall deliver to, or to the order of, each of the Sellers or the Company, as applicable: (i) an amount equal to such Seller's portion of the Closing Payment as calculated pursuant to Section 2.4; (ii) the opinions, certificates and other documents required to be delivered by or on behalf of Buyer pursuant to Article 10; (iii) the executed Escrow Agreement; (iv) the opinion of Alston & Bird LLP, counsel to Buyer, in customary form for transactions of this nature (the "Buyer Opinion"); (v) the executed Releases; and (vi) any other items specifically identified in this Agreement. -11- 19 (b) At the Closing, Buyer shall deliver to SunTrust Bank, Atlanta (the "Escrow Agent"), in accordance with the Escrow Agreement, the Escrowed Funds by wire transfer in immediately available funds to the account designated by the Escrow Agent. The documents and certificates to be delivered hereunder by or on behalf of Buyer on the Closing Date shall be in form and substance reasonably satisfactory to the Company, the Sellers and their counsel. ARTICLE 3 PRE-CLOSING ESCROW 3.1. Pre-Closing Escrow. On the date of this Agreement, Buyer has deposited Five Hundred Thousand Dollars ($500,000) into an escrow account, which shall be governed by the terms of the escrow agreement dated the date hereof by and among Buyer, the Company and the Escrow Agent (the "Pre-Closing Escrow Agreement"). ARTICLE 4 ESCROW 4.1. Deposit Into Escrow Account. At the Closing, Buyer shall deposit the principal amount of the Escrowed Funds into the Escrow Account, which shall be governed by the terms of the Escrow Agreement. 4.2. Disputes Regarding Adjustment Amounts. (a) Within thirty (30) days after the Closing Date, Buyer will deliver a final draft of the Closing Balance Sheet, calculation of Net Assets and Adjustment Amount calculation to the Sellers and Crowe, Chizek and Company LLP ("Crowe Chizek"). Crowe Chizek shall be provided with reasonable access to (i) the workpapers of D&T supporting the audit of the Closing Balance Sheet and the computation of Net Assets as of the Closing Date, (ii) management of the Company and (iii) the books and records of the Company. (b) To the extent that Sellers owning two-thirds of the aggregate of the Shares and Option Shares dispute (the "Disputing Sellers") either the amount of, or basis for, the Adjustment Amount or object to the Closing Balance Sheet, then, within thirty (30) days from the date of receipt by Crowe Chizek and the Sellers of the Closing Balance Sheet, the Disputing Sellers shall provide joint written notice thereof to Buyer, stating any objection and the basis for such objection. If the Adjustment Amount is a negative number and the Sellers do not timely deliver a notice of objection to Buyer, Buyer and each of the Sellers shall jointly and immediately provide notice to the Escrow Agent of the final Adjustment Amount. If any amount claimed as an Adjustment Amount is timely disputed in a notice of objection delivered to Buyer, then the parties shall undertake to resolve the amount so disputed. If the Buyer and the Disputing Sellers -12- 20 are able to agree on a final Adjustment Amount and the final Adjustment Amount is a negative number, Buyer and each of the Sellers shall jointly and immediately provide notice to the Escrow Agent of the agreed-upon final Adjustment Amount. If the Buyer and the Disputing Sellers are unable to resolve any part of the amount so disputed within thirty (30) days from the date of Buyer's receipt of the Disputing Sellers' notice of objection, then the issues in dispute will be submitted to the Birmingham, Alabama office of Arthur Andersen LLP, certified public accountants (the "Accountants"), for resolution. If issues in dispute are submitted to the Accountants for resolution, (x) each party will furnish to the Accountants such workpapers and other documents and information relating to the disputed issues as the Accountants may request and are available to that party (or its independent public accountants), and will be afforded the opportunity to present to the Accountants any material relating to the determination and to discuss the determination with the Accountants; (y) the determination by the Accountants, as set forth in a notice delivered to Buyer, each of the Sellers and the Escrow Agent (if the Adjustment Amount is a negative number) by the Accountants, will be binding and conclusive on the parties; and (z) Buyer and the Sellers will each bear 50% of the fees of the Accountants for such determination. Until resolution of the disputed Adjustment Amount, the disputed amount thereof will not be disbursed by the Escrow Agent. 4.3. Payments Relating to Adjustment Amount. Within ten (10) business days following a final determination of the Adjustment Amount as provided in Section 4.2, (i) if the Adjustment Amount is a positive number, Buyer will pay the Adjustment Amount to the Sellers, or (ii) if the Adjustment Amount is a negative number, the Escrow Agent will pay the Adjustment Amount to Buyer. Payments to the Sellers will be made in the manner and will be allocated in the proportions set forth in Section 2.4 and SCHEDULE 2.2. Payments to Buyer will be made by wire transfer to such bank account as Buyer will specify. If the parties are disputing the final determination of the Adjustment Amount, to the extent part of any payment that would be payable pursuant to Section 4.2 is not in dispute, the payor shall pay the amount not in dispute within three (3) Business Days of the determination that no such dispute exists. ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents and warrants to Buyer as follows: 5.1. Incorporation; Qualification and Corporate Authority. The Company has been duly incorporated and is validly existing and in good standing under the laws of the State of Delaware with corporate power and authority to conduct its business in all material respects as presently conducted. The Company is duly qualified to transact business as a foreign corporation and is in good standing in each jurisdiction set forth on SCHEDULE 5.1A, which (together with the locations set forth on SCHEDULE 5.1B) constitute all of the jurisdictions where the Company owns or leases property, and there exists no other jurisdictions in which a failure to qualify to do business would have a Material Adverse Effect. SCHEDULE 5.1B hereto contains the address (including city, county, state, or other jurisdiction and zip code) of each location where any of the -13- 21 Company's assets are located and each trade name under which the Company operates at each such address and any additional business and trade names under which the Company has operated at each such address. 5.2. Subsidiaries; Joint Ventures. The Company does not own, directly or indirectly, any capital stock or other proprietary interest, in any corporation, association, trust, partnership, joint venture or other legal entity, and has no agreement to acquire any such capital stock or proprietary interest. 5.3. Financial Statements. Attached as SCHEDULE 5.3A are true, correct and complete copies of the Financial Statements, which have been prepared from the books and records of the Company. The balance sheets included in the Financial Statements present fairly the financial position of the Company as of their respective dates, the deferred tax assets recorded on the December 31, 1997 balance sheet of the Company are available for utilization, and the other related statements included in the Financial Statements present fairly the results of operations and cash flows for the periods indicated, in each case in accordance with GAAP, applied on a consistent basis, with only such deviations from such accounting principles and/or their consistent application as are referred to in SCHEDULE 5.3B hereto. Except as set forth in Schedule 5.3B, the Company has not received any advice or notification from its independent certified public accountants that the Company has used any improper accounting practice that would have the effect of not reflecting or incorrectly reflecting in the Financial Statements or the books and records, any properties, assets, liabilities, revenues, or expenses. The books, records, and accounts of the Company in all material respects accurately and fairly reflect, in reasonable detail, the transactions and the assets and liabilities of the Company. 5.4. Absence of Certain Changes or Events. Except with respect to (i) the grant of authorized but unissued options (the "New Options") to purchase up to 109 shares of Common Stock, (ii) the deemed exercise of the currently outstanding Options and the New Options as described in Section 2.1, (iii) the Bonus to be paid by the Company in connection with the exercise of the New Options and the Options as described in Section 2.6(c) and Section 8.19, and (iv) the costs and expenses relating to this Agreement and the transactions contemplated by this Agreement, since December 31, 1997, there has not been any transaction or occurrence in which the Company has: (a) suffered any material adverse change in its business, operations, financial condition, liabilities, assets, or earnings nor has there been any event which has had or may reasonably be expected to have a Material Adverse Effect; (b) incurred any obligations or liabilities of any nature other than items incurred in the regular and ordinary course of business, consistent with past practice, or increased (or experienced any change in the assumptions underlying or the methods of calculating) any bad debt, contingency, or other reserve, other than in the ordinary course of business consistent with past practice; -14- 22 (c) except for the prepayment of Indebtedness incurred in connection with the First Bank Credit Facility on the Closing Date, paid, discharged, or satisfied the principal amount of any Indebtedness (if such payment would result in Indebtedness on the Closing Date being less than Indebtedness on the December 31, 1997 balance sheet), or paid, discharged, or satisfied interest not otherwise due and payable; (d) paid, discharged, or satisfied any non-Indebtedness related claim, lien, encumbrance, obligation, or liability (whether absolute, accrued, contingent, and whether due or to become due), other than the payment, discharge, or satisfaction in the ordinary course of business consistent with past practice of claims, liens, encumbrances, obligations, or liabilities of the type reflected or reserved against in the Financial Statements or which were incurred in the ordinary course of business consistent with past practice; (e) permitted, allowed, or suffered any of its properties or assets (real, personal or mixed, tangible, or intangible) to be subjected to any mortgage, pledge, lien, encumbrance, restriction, or charge of any kind, other than Permitted Encumbrances; (f) written down or written up the value of any Inventory (including write-downs by reason of shrinkage or markdowns), determined as collectible any Accounts Receivable or any portion thereof which were previously considered uncollectible, or written off as uncollectible any Accounts Receivable or any portion thereof, except for write-downs, write-ups, and write-offs in the ordinary course of business consistent with past practice; (g) canceled any debts or waived any claims or rights other than in the ordinary course of business consistent with past practice; (h) disposed of or permitted to lapse any right to the use of any material patent, trademark, assumed name, service mark, trade name, copyright, license, or application therefor or disposed of or disclosed to any person not authorized to have such information any trade secret, proprietary information, formula, process, or know-how not previously a matter of public knowledge or existing in the public domain; (i) except for the capital expenditure commitments described on SCHEDULE 5.12B and the capital expenditures related to the gantry crane, made any significant capital expenditure or commitment for additions to property, plant, equipment, intangible, or capital assets or for any other purpose in excess of $25,000, other than for emergency repairs or replacement; (j) except for indebtedness incurred under the First Bank Credit Facility to pay liabilities incurred in the ordinary course of business, which indebtedness will be repaid prior to Closing, incurred any long term indebtedness; -15- 23 (k) paid, loaned, distributed, or advanced any amounts to, sold, transferred, or leased any properties or assets (real, personal or mixed, tangible or intangible) to, purchased, leased, licensed, or otherwise acquired any properties or assets from, or entered into any other agreement or arrangement with (i) any stockholder, officer, employee, or director of the Company, (ii) any corporation or partnership in which any Affiliate is an officer, director, or holder directly or indirectly of five percent (5%) or more of the outstanding equity or debt securities of the Company, or (iii) any person controlling, controlled by, or under common control with any such partner, stockholder, officer, director, or Affiliate except for compensation or fees not exceeding the 1997 rate of compensation or fees or as permitted by Section 5.4(p) and for routine travel expenses to officers, employees, directors and stockholders; (l) declared, set aside or paid any dividend or other distribution (whether in cash, stock or property) with respect to any of the Shares, or made any redemption, purchase or other acquisition of any of its equity securities; (m) made or instituted any change in accounting methods, principles or practices by the Company materially affecting its assets, liabilities or business, except insofar as may have been required by a change in GAAP; (n) entered into any collective bargaining or labor agreement (oral and legally binding or written), or experienced any organized slowdown, work interruption, strike, or work stoppage; (o) sold, transferred, or otherwise disposed of any of the Company's assets except in the ordinary course of business consistent with past practice; (p) granted or incurred any obligation for any increase in the compensation of any officer or employee of the Company (including, without limitation, any increase pursuant to any bonus, pension, profit-sharing, retirement, or other plan or commitment) except for raises to employees in the ordinary course of business consistent with past practice and bonuses for the year ending December 31, 1997; (q) suffered any casualty loss or damage in excess of $100,000 in the aggregate (whether or not insured against); (r) agreed to make charitable contributions in excess of $20,000; (s) amended any provision of its Certificate of Incorporation or Bylaws or changed any of its authorized or issued capital stock, except as specifically required by this Agreement; (t) taken any other action neither in the ordinary course of business and consistent with past practice nor provided for in this Agreement; or -16- 24 (u) agreed, so as to legally bind the Company whether in writing or otherwise, to take any of the actions set forth in this Section 5.4 and not otherwise permitted by this Agreement. 5.5. Capitalization. (a) SCHEDULE 5.5 sets forth the authorized, issued, outstanding and treasury capital stock of the Company, as of the date hereof. Each Seller is the record owner of the Shares set forth opposite his or its name on SCHEDULE 2.2. (b) All of the issued and outstanding shares of Common Stock have been duly authorized and validly issued and are fully paid and non-assessable. (c) Except as set forth on SCHEDULE 5.5, no other shares of capital stock have been issued and remain outstanding, no other class of capital stock is authorized or outstanding, and the Sellers executing this Agreement on the date hereof represent all of the holders of capital stock or rights to acquire shares of capital stock of the Company. None of the outstanding shares of capital stock of the Company was issued in violation of the Securities Act or any other material Legal Requirement. 5.6. Options and Other Rights. Except for ownership of the Options as set forth on SCHEDULE 2.2 and as otherwise set forth in SCHEDULE 5.5, there are (a) no outstanding options, warrants, agreements, calls, conversion rights, exchange rights, preemptive rights or other rights to subscribe for, purchase or otherwise acquire, or any other agreements or commitments of any character relating to the sale, issuance or voting of, any shares of capital stock of the Company, whether issued or unissued, or any securities convertible into or evidencing the right to purchase any shares of capital stock of the Company to which the Company is a party, and (b) no existing agreements, options, commitments or rights with, of or to any person to acquire any of the Company's assets, properties or rights or any interest therein, other than sales of the goods and services of the Company in the ordinary course of business consistent with past practices. 5.7. Binding Obligation. The Company has full power and authority to enter into this Agreement and the agreements to which it is a party contemplated hereby, or executed in connection herewith (collectively, this Agreement, the Pre-Closing Escrow Agreement and the Escrow Agreement shall be referred to hereinafter as the "Acquisition Documents"), and to consummate the transactions contemplated hereby and thereby. The execution, delivery and performance by the Company of each of the Acquisition Documents to which the Company is a party have been duly and validly authorized and approved by all necessary action on the part of the Company. Each of the Acquisition Documents to which the Company is a party, assuming each of the Acquisition Documents constitutes a valid and binding obligation of the other parties thereto, constitutes the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except to the extent that the enforceability thereof may be limited by: (i) applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or similar laws from time to time in effect affecting generally -17- 25 the enforcement of creditors' rights and remedies; and (ii) general principles of equity, including, without limitation, principles of reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in equity or at law). 5.8. No Defaults or Conflicts. Other than as listed in SCHEDULE 5.8, the execution and delivery of any of the Acquisition Documents by the Company and the performance by the Company of its obligations hereunder (i) does not and, on the Closing Date, will not result in any violation of the charter or by-laws of the Company; (ii) does not and, on the Closing Date, will not conflict with, or result in a breach of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any lien, claim, charge, encumbrance or other security interest (collectively referred to herein as "Liens"), upon any property or assets of the Company under: (A) any indenture, mortgage, lease or loan agreement or any other agreement or instrument to which the Company is a party or by which it may be bound or to which any of its respective properties may be subject; or (B) any existing applicable law, rule, regulation, judgment, order or decree of any Governmental Authority to which the Company or any of its properties is subject, other than such conflicts, breaches and defaults as would be waived or avoided by the consents, approvals, authorizations, filings or notices described in Section 5.9; and (iii) does not and, on the Closing Date, will not result pursuant to the terms of any Contract to which the Company is a party in the acceleration of the maturity of any payment date of, or increase or adversely affect, any liability of the Company other than Indebtedness paid in connection herewith. 5.9. No Governmental Authorization or Consents Required. Other than as listed in SCHEDULE 5.9, no consent, authorization or approval or other action by, and no notice to or declaration, filing or registration with, any Governmental Authority or any third party will be required to be obtained or made by the Company in connection with the due execution and delivery and performance by the Company or the Sellers of this Agreement or the consummation by the Company or the Sellers of the transactions contemplated hereby. 5.10. Permits. SCHEDULE 5.10 lists and Buyer has been furnished access to all material Federal, state, local and foreign governmental approvals, consents, authorizations, orders, certificates, filings, franchises, licenses, notices, permits and rights (collectively, "Permits") which the Company has obtained. Except as set forth on SCHEDULE 5.10, there are no other Permits that are required for the conduct of the business of the Company as presently conducted and its business as presently conducted. There has occurred no default under any Permit. There are no proceedings relating to the suspension, revocation or modification of any Permit. 5.11. No Actions, Suits or Proceedings. Except as disclosed on SCHEDULE 5.11, (i) there is no action, suit or proceeding (a "Proceeding") pending against, nor, to the Company's knowledge, threatened or alleged against, the Company, and to the Company's knowledge no basis exists for any claim relating to any Antitrust Law as to which the Company would be responsible. There is no Proceeding pending or, to the -18- 26 knowledge of the Company threatened, which questions the validity or legality of this Agreement or of the transactions contemplated hereby or which seeks to prevent the consummation of the transactions contemplated hereby or which if decided adversely to the Company could reasonably be expected to have a Material Adverse Effect and (ii) the Company (or any officer thereof in such capacity) is not subject to any judgment, decree, writ, injunction or order of any Governmental Authority. 5.12. Contracts. (a) SCHEDULE 5.12A contains a true and correct list of all Contracts not otherwise listed on SCHEDULE 5.13A, 5.15A, 5.15B, 5.18, 5.22C, 5.23A, 5.23C, 5.28 or 5.31, including but not limited to the following: (i) any Contract with any present or former employee or consultant or for the employment of any person, including any consultant; (ii) any Contract for the future purchase of, or payment for, supplies or products, or for the performance of services by a third party involving in any one case $50,000 or more; (iii) any Contract to sell or supply products or to perform maintenance, services or similar duties involving in any one case $50,000 or more; (iv) any distribution, marketing, dealer, representative, or sales agency Contract; (v) any lease under which the Company is lessor relating to the assets of the Company or any property at which assets of the Company are located; (vi) any note, debenture, bond, equipment trust agreement, letter of credit agreement, loan agreement, or other Contract for the borrowing or lending of money or agreement or arrangement for a line of credit or guarantee, pledge, or undertaking of the indebtedness of any other person; (vii) any Contract for any charitable or political contribution; (viii) any Contract limiting or restraining the Company, its business or any successor thereto from engaging or competing in any manner or in any business, nor, to the Company's knowledge, is any employee of the Company engaged in the conduct of the Company's business subject to any such agreement, contract, or commitment; (ix) any Contract that has a duration of twelve (12) months or more; or -19- 27 (x) any agreement, contract or transaction with any officer, stockholder, director or Affiliate of the Company. (b) SCHEDULE 5.12B contains a true and correct list of all commitments for capital expenditures that have been approved by the Board of Directors of the Company prior to the date of this Agreement in excess of $50,000 by the Company and that remain outstanding as of the date hereof. (c) Except for the potential unenforceability of the Cahaba Woodchip agreement listed on SCHEDULE 5.12A, each of the Contracts is in full force and effect and there exists no breach or violation of or default under any of such Contracts by the Company or, to the knowledge of the Company, any other party to such Contracts or any event which, with notice or the lapse of time, or both, will create a breach or violation thereof or default thereunder by the Company or, to the knowledge of the Company, any other party to such Contracts. (d) Except as indicated on SCHEDULE 5.12C, there exists no actual or, to the best knowledge of the Company, any threatened termination, cancellation, or limitation of, or any material amendment, modification, or change to any Contract, including without limitation, (i) the business relationship of the Company with any customer, distributor, or related group of customers or distributors whose purchases individually or in the aggregate are material to the operations and financial condition of the Company, (ii) the requirements of any customer or related group of customers of the Company whose purchases individually or in the aggregate are material to the operations and financial condition of the Company, or (iii) the business relationship of the Company with any material supplier to the Company. (e) As of the Closing, the Company has not granted any power of attorney affecting or with respect to the Company, its business or its assets that remains outstanding. (f) SCHEDULE 5.12D contains a true and correct list of customers which collectively accounted for eighty percent (80%) of the Company's revenues during the fiscal year ended December 31, 1997, and for the period commencing January 1, 1998 through the last day of the month preceding the date hereof, together with the dollar amount of sales made to each customer for each such period. 5.13. Title to Leased Real Property & Liens. (a) The Company does not own any real property. With respect to the real and personal property constituting the Company's physical plant (the "Plant"), the Company leases the Plant from The Industrial Development Board of the City of Montgomery (the "IDB") under the Consolidated, Amended and Restated Lease Agreement dated as of January 1, 1995 (the "Lease") between the IDB and the Company. SCHEDULE 5.13A lists the only real estate leases of the Company. Pursuant to the terms of the Lease taken as a whole, the Company is deemed to be the owner of the Plant for -20- 28 federal tax purposes. The leases of the Company listed on SCHEDULE 5.13A are in full force and effect and, to the knowledge of the Company, there is no existing actual or claimed default or event of default or event which with notice or lapse of time or both would constitute a default thereunder by the Company or any other party to such leases. Attached as SCHEDULE 5.13B hereto is the Leasehold Owner's Title Policy issued by Lawyers Title Insurance Corporation on February 10, 1995 (the "Policy") insuring the Company's interest in the Plant, subject to the exceptions described in Schedule B, Part I of the Policy. To the knowledge of the Company, except for the Permitted Encumbrances, the Leased Real Property is free and clear of any Lien, and is not subject to any deeds of trust, assignments, subleases, or rights of any third parties known to or created or permitted by the Company other than the lessors thereof, and to the Company's knowledge, there are no defaults with respect to any leases of real property under which the Company is lessee or lessor which, in the aggregate, could reasonably be expected to have a Material Adverse Effect. (b) To the knowledge of the Company, all improvements on the Leased Real Property conform to all applicable state and local laws, use restrictions, building ordinances, and health and safety ordinances the noncompliance of which would have a Material Adverse Effect on the Company's current ownership or use of such property by the Company. (c) Other than as may be set forth in the Permitted Encumbrances, the Company has received no written notice of any pending or threatened condemnations, planned public improvements, annexation, special assessments, zoning or subdivision changes, or other adverse claims affecting the Leased Real Property. (d) Other than may be set forth in the Permitted Encumbrances, to the knowledge of the Company, there is no private restrictive covenant or governmental use restriction (including zoning) on all or any portion of the Leased Real Property which prohibits the current use of the Leased Real Property. (e) To the knowledge of the Company, all licenses, permits and approvals required for the occupancy and operation of the Leased Real Property (with appurtenant parking uses) as presently being used have been obtained and are in full force and effect and the Company has received no notices of violations in connection with such items. (f) Except as may have been disclosed to Buyer or contained in any report prepared for the Benefit of Buyer, the Company does not have in its possession any studies or reports which indicate any material defects in the design or construction of any of the improvements on the Leased Real Property. (g) Other than as may be set forth in the Permitted Encumbrances, the Company has not granted to any person or entity, other than Buyer, any right, agreement, commitment, option, or right of first refusal, whether oral or written, -21- 29 with respect to the purchase, assignment or transfer of all or any portion of the Leased Real Property. (h) Other than as may be set forth in the Permitted Encumbrances, to the knowledge of the Company, the Leased Real Property is not subject to any special assessment for public improvements or otherwise, whether or not presently a lien upon the Leased Real Property. The Company has made no commitment to any governmental authority, utility company, school board, church or other religious body, homeowner or homeowner's association or any other organization, group or individual relating to the Leased Real Property which would impose a material obligation upon the Company or its successors or assigns to make any contributions or dedications of money or land, or to construct, install or maintain any improvements of a public or private nature as part of the Leased Real Property or upon separate lands. To the knowledge of the Company, except under the Lease, no governmental authority has imposed any requirement that the Company pay, directly or indirectly, any special fees or contributions or incur any expenses or obligations in connection with the development of the Leased Real Property or any portion thereof, other than the Permitted Encumbrances. Other than as may be set forth in the Permitted Encumbrances, the Company has not received written notice of any contemplated or actual reassessment of the Leased Real Property or any portion thereof for general real estate tax purposes. (i) To the knowledge of the Company, there have been no additional matters of title put of record from the effective date of the Commitment (i.e., December 15, 1997) through the date hereof. 5.14. Intellectual Property. SCHEDULE 5.14 contains a true and correct list of the material Intellectual Property used or owned by the Company. None of the Intellectual Property listed on SCHEDULE 5.14 has been declared invalid or is the subject of a pending or, to the knowledge of the Seller, threatened action for cancellation or a declaration of invalidity, and there is no pending judicial proceeding involving any claim, and the Company has not received any written notice or claim of infringement, misuse or misappropriation of such Intellectual Property by the Company. 5.15. Employment Matters. SCHEDULE 5.15A lists, and Buyer has been furnished access to, all written or legally binding oral employment, collective bargaining and consulting contracts to which the Company is a party or by which it is bound, and, with respect to all such contracts, the Company is not in material breach thereof or material default thereunder and there does not exist under any such contract any event which, with the giving of notice or the lapse of time, would constitute such a breach or default by the Company, except for such breaches, defaults and events as to which requisite waivers or consents have been obtained. The Company is in material compliance with all applicable Legal Requirements concerning the employer-employee relationship and with all agreements relating to the employment of the Company's employees, including applicable wage and hour laws, fair employment laws, safety laws, worker compensation statutes, unemployment laws, and social security laws. Except as set forth on SCHEDULE 5.15A, the Company is not a party to nor does the Company have any -22- 30 obligation pursuant to any other agreement with any party regarding the rates of pay or working conditions of any of the employees of the Company, nor is the Company obligated under any agreement to recognize or bargain with any labor organization or union on behalf of such employees. The Company, since incorporation, has not experienced any organized slowdown, work interruption, strike, or work stoppage by employees of the Company. Except as described on SCHEDULE 5.15B, there is no outstanding agreement or arrangement with respect to severance payments with respect to any employee of the Company. 5.16. Environmental and OSHA Compliance. (a) SCHEDULE 5.16A contains a true, complete and accurate listing of, and the Company represents that it has delivered to the Buyer true and complete copies of, all environmental site assessments, test results, analytical data, boring logs, and other environmental reports and studies conducted by, at the expense of, or on behalf of the Company or that are otherwise in the Company's possession. (b) Except as set forth on SCHEDULE 5.16B, the Company: (i) is in compliance with all applicable Environmental Laws. The Company has not (A) received written notice that it is potentially liable under or (B) received any requests for information or other correspondence concerning any site or facility under, nor has the Company received any written notice that it is considered potentially liable under the Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C. ss.ss. 9601 et seq.), as amended ("CERCLA"), or any similar state law; (ii) has accurately prepared and timely filed with the appropriate Governmental Authorities all reports, notifications, applications, and filings required pursuant to any applicable Environmental Law; (iii) has not entered into or received any consent decree, compliance order, administrative order, or settlement, indemnification, or release agreement or proposed agreement from any Governmental Authority or other third party relating to violations of Environmental Law; (iv) has not entered into or received nor is the Company in default under any judgment, order, writ, injunction or decree of any federal, state, or municipal court or other Governmental Authority relating to violations of Environmental Laws; (v) has obtained all permits, licenses, approvals, consents, orders, and authorizations required under Environmental Laws ("Environmental Permits") that are required to operate the Company's facilities, assets and business. The Company is in compliance with each such Environmental Permit. No Environmental Permit has a material effect on the Company's ability to operate any equipment, facility, improvement or process covered by such Environmental Permit as currently being conducted; and -23- 31 (vi) has not been, and currently is not, a "generator" of "hazardous waste" (as those terms are defined by the Resource Conservation and Recovery Act of 1976 and the regulations promulgated thereunder), for the purposes of obtaining an EPA identification number under 40 C.F.R. ss.262.12(a) or complying with the manifest system under Subpart 8 of 40 C.F.R. Part 262. (c) With respect to the Company, (i) there are no actions, suits, claims, arbitration proceedings, or complaints pending or threatened by any Governmental Authority, municipality, community, citizen or citizen's group, or other entity, against the Company relating to any violation of Environmental Laws; (ii) except as set forth on SCHEDULE 5.16C, there has been no disposal, Release, burial, or placement of any Hazardous Materials by the Company or, to the Company's knowledge, by any other party on, in, at, or about the Plant or any facilities used by the Company or in connection with its business; (iii) all active, inactive, closed, or abandoned above-ground and underground storage tanks located at the Plant have been identified on SCHEDULE 5.16D, together with a description of the materials stored therein and a statement as to whether such tanks are currently used by the Company, and all such tanks are in compliance with all Environmental Laws; (iv) no lien has arisen on any of the Company's assets under or as a result of any Environmental Law; (v) no environmental audit or remedial investigation has been conducted as to environmental matters at any of the Company's properties by any Governmental Authority during or, to the best of the Company's knowledge, prior to the period during which the Company owned, leased or operated such properties; and (vi) the Leased Real Property is not listed or proposed for listing on the National Priorities List pursuant to CERCLA, on the CERCLIS, or on any other similar state environmental list of potentially hazardous sites. (d) The Company is in material compliance with all applicable Legal Requirements relating to employee health and safety, and the Company has not received any notice that past or present conditions of the Company's assets violate any applicable Legal Requirements as of the Closing Date. -24- 32 5.17. Taxes. (a) Except as set forth on SCHEDULE 5.17: (i) all United States federal income Tax Returns of the Company required by law to be filed have been timely filed and all such federal income Taxes and assessments (including penalties and interest in respect thereof, if any) that have become or are due with respect to any period ended on or prior to the Closing Date whether shown as due on such Returns or not have been paid except (x) Tax assessments against which appeals have been or will be promptly taken in good faith, in which event the Company has disclosed the details of such appeals on SCHEDULE 5.17, and as to which adequate reserves have been provided in accordance with GAAP and (y) Taxes to the extent accrued or reserved for in the Financial Statements or included in current liabilities for purposes of calculating Net Assets; (ii) all other Tax Returns of the Company required to be filed pursuant to applicable foreign, state, local or other law have been timely filed, and all such Taxes that have become or are due with respect to any period ended on or prior to the Closing Date whether shown as due on such returns or not have been paid except (x) Tax assessments against which appeals have been or will be promptly taken in good faith, in which event the Company has disclosed the details of such appeals on SCHEDULE 5.17, and as to which adequate reserves have been provided in accordance with GAAP and (y) Taxes to the extent accrued or reserved for in the Financial Statements or included in current liabilities for purposes of calculating Net Assets; and (iii) the charges, accruals and reserves on the books of the Company in respect of any Tax liability for any years not finally determined or with respect to which the applicable statute of limitations has not expired are believed to be adequate to meet any assessments or re-assessments for additional income or corporate franchise tax for any such years. All Tax Returns that have been filed by the Company are true, complete and correct in all material respects for the periods covered thereby. (b) SCHEDULE 5.17 provides a brief description of any pending federal or state Tax dispute in which the Company is alleged to be liable or in which the Company is claiming a refund, including the nature and amount of the controversy, the respective positions of the parties as to any amounts claimed to be due thereunder, and the current status thereof. (c) All Taxes required to be withheld prior to the Closing Date from employees, independent contractors, creditors, shareholders and other third parties for income, social security, payroll or other Taxes have been properly withheld and, if required prior to the Closing Date, have been deposited with the appropriate governmental agency. (d) No claim is pending, and, to the best of the Company's knowledge, no investigation is pending or threatened and no claim is threatened, by any state, local, or other jurisdiction alleging that the Company has a duty to file Tax Returns and pay Taxes or is otherwise subject to the taxing authority of any jurisdiction not included in SCHEDULE 5.17, nor, except as set forth in SCHEDULE 5.17, has the Company received any notice or questionnaire from any such jurisdiction which suggests or asserts -25- 33 that the Company may have a duty to file such Returns and pay such Taxes, or otherwise is subject to the taxing authority of such jurisdiction. (e) The Company has not granted any extension to any Tax authority of the limitation period during which any Tax liability may be asserted after the Closing Date. No Taxes of the Company will become due as a result of the transactions contemplated by this Agreement. The Company is not a party to any Tax sharing or Tax allocation agreement, understanding, arrangement or commitment and, except as set forth on SCHEDULE 5.17, is under no contractual obligation to pay the Tax liability of any other Person. The Company is not a consenting corporation under Section 341(f) of the Code. The Company has not agreed to, nor is it required to make, any adjustment under Code Section 481(a) by reason of a change in accounting method or otherwise. All positions that could give rise to substantial understatement penalties have been disclosed under Section 6662 of the Code. The Company has not entered into any compensatory agreements with respect to the performance of services that could obligate it to make a payment that would be nondeductible pursuant to Section 280G of the Code. (f) Each of the representations contained in this Section 5.17 relates solely to operations and actions of the Company prior to or on the Closing Date and in no way will be construed to relate to any period following the Closing Date or create any liability of Sellers for actions taken by Buyer or the Company consistent with prior practice but occurring following the Closing Date. (g) Each Seller is and shall be able to and will deliver to Buyer a certificate substantially in the form required by Section 1.1445-2(b)(2)(iii) of the regulations under the Code. 5.18. Employee Benefits. (a) SCHEDULE 5.18 contains a true and complete list of all the following agreements or plans hereinafter collectively referred to as the "Benefit Plans" which are presently in effect and which cover employees of the Company ("Employees"): (i) Any employee benefit plan as defined in Section 3(3) of ERISA; or (ii) Any other pension, profit sharing, retirement, deferred compensation, stock purchase, stock option, stock appreciation, phantom stock or other equity-based, incentive, bonus, performance, vacation, termination, retention, change of control, severance, "golden parachute," disability, hospitalization, medical, life insurance, or other employee benefit plan, program, policy, or arrangement, which the Company maintains or to which the Company has any outstanding, present, or future obligations to contribute or make payments under, whether voluntary, contingent, or otherwise. -26- 34 (b) With respect to all Benefit Plans, the Company makes the following representations and warranties: (i) The Benefit Plans have been made available to Buyer for review, including correct and complete copies of: (A) all trust agreements or other funding arrangements for such Benefit Plans (including insurance contracts), and all amendments thereto, (B) all current determination letters and, if any, rulings, opinion letters, information letters, or advisory opinions issued by the IRS, the United States Department of Labor, or the Pension Benefit Guaranty Corporation, (C) annual reports or returns, audited or unaudited financial statements, actuarial valuations and reports, and summary annual reports prepared for any Benefit Plan with respect to the most recent three (3) plan years, and (d) the most recent summary plan descriptions and any modifications thereto. (ii) Except with respect to the failure to file certain IRS Forms 5500 as referenced on SCHEDULE 5.17, all the Benefit Plans and the related trusts subject to ERISA comply with and have been administered in compliance with, (A) the applicable provisions of ERISA, (B) with respect to each Benefit Plan that is intended to be a qualified plan under Section 401(a) of the Code ("Qualified Plan"), all applicable provisions of the Code relating to qualification and tax exemption under Code Sections 401(a) and 501(a) or otherwise applicable to secure intended tax consequences, and (C) all other applicable laws and collective bargaining agreements, and the Company has not received any notice from any governmental authority questioning or challenging such compliance. Each Benefit Plan that is a Qualified Plan either (I) has a current determination letter from the IRS or (II) is a standardized, prototype plan and the Company is permitted to rely on an opinion letter issued by the IRS on the qualified status of the prototype plan. No event has occurred which will or could reasonably be expected to give rise to disqualification of any such plan or loss of intended Tax consequences under the Code or to any Tax under Section 511 of the Code. Other than with respect to claims for benefits under the Benefits Plans, no event has occurred which will or could reasonably be expected to result in a liability in excess of $50,000. (iii) No oral or written representation or communication with respect to any aspect of the Benefit Plans has been made to Employees prior to the date hereof that is not in accordance with the written or otherwise preexisting terms and provisions of such plans. Neither the Company nor any administrator or fiduciary of any Benefit Plan (or any agent of any of the foregoing) has engaged in any transaction, or acted or failed to act in any manner that could subject Buyer to any direct or indirect liability or excise tax (by indemnity or otherwise) for breach of any fiduciary, co-fiduciary or other duty under ERISA or prohibited transaction under Section 4975 of the Code or Section 406 of ERISA. The representation in the preceding sentence is made subject to the Company's knowledge when such representation is made with respect to a non-employee of the Company. There are no unresolved claims or disputes under the terms of, or in connection with, the Benefit Plans other than claims for benefits which are payable in -27- 35 the ordinary course and no litigation has been commenced with respect to any Benefit Plans. (iv) Except with respect to the failure to file certain IRS Forms 5500 as referenced on SCHEDULE 5.17, all Benefit Plan documents and annual reports or returns, audited or unaudited financial statements, actuarial valuations, summary annual reports, and summary plan descriptions issued with respect to the Benefit Plans are correct and complete, and, to the extent required under applicable law, have been timely filed with the IRS and the United States Department of Labor, have been timely distributed to participants in the Benefit Plans, and there have been no changes in the information set forth therein. (v) There has been no termination or partial termination, withdrawal or partial withdrawal with respect to any of the Benefit Plans. (vi) Neither the Company nor any entity aggregated with the Company under Code Section 414 (an "ERISA Affiliate") has at any time sponsored, contributed to, or been obligated under Title I or Title IV of ERISA to contribute to a "defined benefit plan" (as defined in ERISA 3(35)). On or after September 26, 1980, neither the Company nor its ERISA Affiliates have had an "obligation to contribute" (as defined in ERISA Section 4212) to a "multiemployer plan" (as defined in ERISA Sections 4001(a)(3) and 3(37)(A)). The Company has no liability under Title IV of ERISA either directly or through its ERISA Affiliates. (vii) The Company has neither maintained in the past nor currently maintains a Benefit Plan providing welfare benefits (as defined in ERISA Section 3(1)) to employees after retirement or other separation of service except to the extent required under Part 6 of Title I of ERISA or Code Section 4980B or their successors. No tax under Code Sections 4980B or 5000 has been incurred with respect to any Benefit Plan and to the best of the Company's knowledge no circumstances exist which could reasonably be expected to give rise to such taxes. (viii) Except as disclosed on SCHEDULE 5.18 hereto, neither the execution and delivery of this Agreement or the Acquisition Documents, nor the consummation of the transactions contemplated hereby or thereby, will (i) entitle any current or former employee or director of the Company to severance pay, unemployment compensation or any payment contingent upon a change in control or ownership of the Company, (ii) increase or enhance any benefits payable under any Benefit Plan, or (iii) accelerate the time of payment or vesting, or increase the amount, of any compensation due to any such employee or former employee. (c) The Company has complied in all material respects with the continuation coverage requirements of Section 1001 of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, and ERISA Sections 601 through 608. The Company shall be responsible for complying with the requirements of Code Section 4980B and Part 6 of Title I of ERISA for its employees and their "qualified beneficiaries" -28- 36 whose "qualifying event" (as such terms are defined in Code Section 4980B) occurs on or prior to the Closing Date. (d) The Company has complied in all material respects with the Health Insurance Portability and Accountability Act of 1996, as amended and ERISA Sections 700 et. seq. 5.19. No Other Broker. Other than BT Wolfensohn, a division of BT Alex. Brown Incorporated, the fees and expenses of which are payable by the Company, no broker, finder, agent or similar intermediary has acted for or on behalf of the Company or an Affiliate in connection with this Agreement, the Acquisition Documents or the transactions contemplated hereby or thereby, and no broker, finder, agent or similar intermediary is entitled to any broker's, finder's or similar fee or other commission in connection therewith based on any agreement, arrangement or understanding with the Company or an Affiliate or any action taken by either of them. 5.20. Inventories. Except as described in SCHEDULE 5.1B, (a) all Inventory, whether reflected on the Financial Statements or subsequently acquired, is now and at the Closing Date will be located at the Plant consistent with past practices, (b) has been or will be acquired by the Company only in bona fide transactions entered into in the ordinary course of business, (c) is of good and merchantable quality except to the extent adequately reserved for in the Financial Statements, consistent with past practice, (d) is not now and at the Closing Date will not be subject to any write-down or write-off in excess of the reserves established based on past practice, and (e) is valued at the lesser of cost or net realizable market value, with appropriate adjustments for obsolete and slow moving Inventory in accordance with GAAP. Except as described in SCHEDULE 5.20, the Company has now and on the Closing Date will have valid legal title to its Inventory free and clear of any consignments, liens, claims, charges, and encumbrances. The Company is not under any liability or obligation with respect to the return of inventory in the possession of wholesalers, retailers, or other customers which is not reserved against in the Financial Statements. 5.21. Accounts Receivable. All Accounts Receivable shown on the Financial Statements represent, and the Accounts Receivable of the Company outstanding on the Closing Date will represent, sales actually made or services actually performed in the ordinary course of business in bona fide transactions completed in accordance with the terms and provisions contained in any documents relating thereto, if any, and, to the knowledge of the Company, are fully collectible to the extent not reserved for in the Company's balance sheet as of December 31, 1997 included in the Financial Statements. The reserves for uncollectible Accounts Receivable reflected on the Financial Statements were established in accordance with GAAP and are adequate in light of all the facts then known to the Company and the Company's historical methods and practices in establishing such reserves. The Accounts Receivable outstanding on the Closing Date are subject to no defenses, counterclaims, or rights of setoff other than those arising in the ordinary course of business and for which adequate reserves have been established. -29- 37 5.22. Personal Property. (a) As referenced in Section 5.13(a) and except as set forth in Schedule 5.22C, all of the personal property comprising part of, or situated at, the Plant is leased by the Company from the IDB under and pursuant to the Lease. SCHEDULE 5.22A contains a true and correct list and a description (including serial number, vehicle registration and tag number, if available) of such personal property. The Company has good leasehold title to all of the personal property listed in SCHEDULE 5.22A, free and clear of all Liens, except as disclosed on SCHEDULE 5.22B. (b) SCHEDULE 5.22C contains a list of all leases for Vehicles, Equipment, Furniture and Fixtures, or other items of personal property leased by the Company other than pursuant to the Lease (except miscellaneous leases having an aggregate value, if capitalized, of less than $50,000). Each of the leases described on SCHEDULE 5.22C is in full force and effect and there are no existing defaults or events of default, real or claimed, or events which with notice or lapse of time or both would constitute defaults, the consequences of which, severally or in the aggregate, could reasonably be expected to have a Material Adverse Effect. 5.23. Insurance. (a) The Company and its assets are insured under various policies of general liability and other forms of insurance which policies are in amounts adequate in the reasonable judgment of the Sellers. Set forth in SCHEDULE 5.23A is a true and complete list and description of all insurance policies of the Company in force on the date hereof, together with a statement of the aggregate amount of claims paid out, and claims pending, under each such policy through the date hereof. All such policies are in full force and effect, all premiums due thereon have been paid by the Company, and the Company has complied in all material respects with the provisions of such policies. The Company has not received any notice of cancellation or non-renewal of any such policy, nor has the Company received any notice from any of its insurance carriers that any insurance premiums will be increased in the future or that any insurance coverage presently provided for will not be available to the Company in the future on substantially the same terms as now in effect. Set forth on SCHEDULE 5.23B is a true and complete list of all claims for medical expenses in excess of $25,000 for any employee of the Company. The Company has not been refused any insurance by any insurance carrier to which it has applied for insurance since incorporation. There are no outstanding requirements or recommendations by any current insurer or underwriter of the Company which require or recommend changes in the conduct of the Company's business, or require any repairs or other work to be done with respect to any of the Company's assets or operations of the Company's business since incorporation. (b) The Company has delivered to Buyer (i) true and complete copies of all current policies of insurance to which either the Company is a party or under which either the Company, or any director of the Company, is or has been covered at any time since incorporation of the Company; and (ii) any statement by the auditor of the -30- 38 Company's financial statements with regard to the adequacy of such entity's coverage or of the reserves for claims. (c) SCHEDULE 5.23C sets forth (i) any contract or arrangement, other than a policy of insurance, for the transfer or sharing of any risk by the Company or (ii) all obligations of the Company to third parties with respect to insurance (including such obligations under leases and service agreements) and identifies the policy under which such coverage is provided. 5.24. Compliance with Laws. Except as disclosed in SCHEDULE 5.24, the Company since its incorporation has not engaged in and is not engaging in any activity or omitting to take any action that is or creates a violation of any law, statute, ordinance, or regulation applicable to the Company, its business or its assets. 5.25. Product Warranty. Each product manufactured, sold, leased or delivered in connection with the operation of the Company's business is in conformity with all applicable contracts and all express and implied warranties, and the Company has no liability (and to the Company's knowledge there is no basis for any assertion of liability) for replacement or repair thereof or other damages in connection therewith. 5.26. Product Liability. The Company has no liability (and to the Company's knowledge there is no basis for any assertion of liability) arising from any claims related to the manufacture, sale or supply of the Company's products, including, but not limited to, claims of professional negligence, manufacturing negligence or improper workmanship, or claims in whole or in part premised upon product liability. 5.27. Compliance with the Immigration Reform and Control. To the knowledge of the Company, the Company is in full material compliance with and has not materially violated the terms and provisions of the Immigration Reform and Control Act of 1986, and all related regulations promulgated thereunder (the "Immigration Laws"). With respect to each employee (as defined in Section 274a.1(f) of Title 8, Code of Federal Regulations) of the Company for whom compliance with the Immigration Laws by an employer (as defined in Section 274a.1(g) of Title 8, Code of Federal Regulations) is required, the Company, upon request of Buyer, will make available to Buyer prior to the Closing Date such employee's Form I-9 (Employment Eligibility Verification Form) and all other records, documents or other papers which are retained with the Form I-9 by the employer pursuant to the Immigration Laws. 5.28. Transactions with Related Parties. SCHEDULE 5.28 sets forth all: (a) Current agreements or transactions between the Company and (i) any director, officer, stockholder or Affiliate of the Company, or (ii) any relative or spouse (or relative of such spouse) of any such director, officer, stockholder or Affiliate (such persons in (i) and (ii) being referred to herein as a "Related Party" or collectively as the "Related Parties"). -31- 39 (b) To the Company's knowledge, no Related Party is a director or officer of, or has any direct or indirect interest in (other than the ownership of not more than 5% of the publicly traded shares of), any person or entity which is a supplier, vendor, landlord, sales agent or competitor of the Company; (c) No Related Party owns or has any interest in, directly or indirectly, in whole or in part, any tangible or intangible property used in the conduct of the Company's business. (d) Other than expense advance reimbursements not exceeding $2,000 in the aggregate and compensation, no stockholder owes any money or other amounts to, nor is any stockholder owed any money or other amounts by, the Company; (e) The Company does not currently, directly or indirectly, guarantee or assume any indebtedness for borrowed money or otherwise for the benefit of any Related Party; and (f) The Company does not have an agreement to make any loans, payments or transfers of the Company's assets to any Related Party. 5.29. Corporate Records. Attached to SCHEDULE 5.29 hereto are true and complete copies of (i) the Certificate of Incorporation of the Company, with all amendments thereto, certified by the appropriate official, and (ii) the Bylaws of the Company, certified by the Secretary of the Company. The minute books of the Company since incorporation, heretofore made available to Buyer for examination, are complete and accurately reflect the stock ownership of the Company, the transfer of any shares of capital stock of the Company, and all proceedings of the shareholders and directors and all committees thereto of the Company. 5.30. Undisclosed Liabilities. Except for (w) liabilities and obligations which are insured against (subject to immaterial deductibles) or as to which the Company is entitled to be indemnified, (x) liabilities and obligations reflected on the Company's balance sheet as at December 31, 1997 included in the Financial Statements or the Schedules hereto, (y) obligations arising in the ordinary course pursuant to Contracts (but excluding those arising as a result of the breach of a Contract) and (z) liabilities and obligations arising since December 31, 1997 in accordance with this Agreement, the Company has no material liabilities or obligations of any kind, fixed, or contingent. 5.31. Indebtedness. Except for the Indebtedness listed on SCHEDULE 5.31, the Company has no liabilities or obligations in respect of borrowed money. 5.32. Correctness of Representations. No representation or warranty of the Company in this Agreement, the other Acquisition Documents, or in any Exhibit or certificate or furnished pursuant hereto or thereto, contains, or on the Closing Date will contain, any untrue statement of material fact or omits, or on the Closing Date will omit, -32- 40 to state any fact necessary in order to make the statements contained therein not misleading in any material respect, and all such statements, representations, warranties, Exhibits, certificates, and Schedules shall be true and complete in all material respects on and as of the Closing Date as though made on that date. True copies of all written mortgages, indentures, notes, leases, agreements, plans, Contracts, and other instruments listed on the Schedules pursuant to this Agreement have been (or will be prior to the Closing Date) delivered to Buyer. 5.33. Definition of "Knowledge". The phrases "to the knowledge of the Company", "the Company has not received notice", "to the Company's knowledge", "the Company has not been notified" and any other similar phrases as used in this Article 5 refer to the knowledge, after due inquiry, of Carl Edward Boardwine, Myles Cowan and Dwight Goff. 5.34. Unclaimed Property. The Company has complied in all material respects with any applicable unclaimed property escheat, or similar law, and has no material liability under any such law. ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF SELLERS Each Seller, severally but not jointly, represents and warrants to Buyer as follows: 6.1. Authority. Such Seller has all requisite power and authority or (in the case of any Seller who is a natural person) all requisite capacity to enter into and perform its obligations under the Acquisition Documents and to consummate the transactions contemplated therein, and each of the Acquisition Documents to which such Seller is a party has been duly executed and delivered by such Seller pursuant to any necessary authorization. Each of the Acquisition Documents to which such Seller is a party constitutes the legal, valid and binding obligation of such Seller enforceable against such Seller in accordance with its terms, except to the extent that enforceability thereof may be limited by: (i) applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or similar laws from time to time in effect affecting generally the enforcement of creditors' rights and remedies; and (ii) general principles of equity, including, without limitation, principles of reasonableness, good faith and fair dealing (regardless of whether enforceability is considered in a proceeding at law or in equity). 6.2. Title. Such Seller is, directly or indirectly, the record and beneficial owner of the Shares and/or the Options set forth opposite such Seller's name on SCHEDULE 2.2 free and clear of any Lien, and, upon delivery of and payment for the Shares and/or the Options as herein provided, such Seller shall convey to Buyer valid and marketable title thereto, free and clear of any and all Liens. Such Seller has no interest in any shares of capital stock, or any rights to acquire shares of capital stock, of the Company, except as set forth on SCHEDULE 2.2. No other person or entity, including -33- 41 Affiliates of such Seller shall to the best knowledge of such Seller, as of the Closing Date, have any rights in, to or under the Shares or the Options. 6.3. Broker or Finders. Except as set forth in Section 5.19, no broker or finder is entitled to any brokerage or other fee from Buyer or the Company based upon arrangements made by or on behalf of such Seller in connection with the transactions contemplated hereby. 6.4. No Violation. The execution, delivery and performance by the Sellers of this Agreement and the transactions contemplated hereby (including under the Acquisition Documents), do not and will not conflict with or result in, with or without the giving of notice or lapse of time or both, any violation of or constitute a breach or default, or give rise to any right of acceleration, payment, cancellation or termination, under (a) any agreement or other instrument to which any Seller is a party or by which any Seller is bound, or (b) any order, judgment or decree of any court or other governmental or regulatory authority to which any Seller is bound or subject, or (c) any Legal Requirement applicable to any Seller. 6.5. Third Party Approvals. Except as set forth on SCHEDULE 6.5, the execution, delivery and performance by the Sellers of this Agreement and the transactions contemplated hereby (including under the Acquisition Documents) do not require any consents, waivers, authorizations or approvals of any third persons or entities which have not been obtained by the Sellers. Any consent or approval required to be obtained from the Company to effect the transfer of the Shares and Options in accordance with the terms of this Agreement is hereby waived by the Sellers and the Company (including, without limitation, the required consents and approvals under the Shareholders Agreement dated February 9, 1995 by and among the Company, Capital One Investors, Charter Oak Partners and Carl Edward Boardwine, and the Subscription Agreements of the Sellers), but such waiver is effective only in respect to the transfers contemplated by this Agreement. 6.6. Sale of Shares. Except as otherwise expressly provided for in this Agreement, such Seller will not, prior to termination of this Agreement pursuant to the terms hereof or consummation of the transactions contemplated herein, make or agree to any transfers of his or its respective Shares or Options or exercise or agree to exercise his Options. 6.7. Foreign Status. Such Seller is not a "foreign person" within the meaning of Section 1445(b)(2) of the Code and will deliver to Buyer prior to Closing certification of non-foreign status meeting the requirements of Treasury Regulation Section 1.1445-2(b)(2)(iii). -34- 42 ARTICLE 7 REPRESENTATIONS AND WARRANTIES OF BUYER The Buyer represents and warrants to the Company and each Seller that: 7.1. Incorporation and Corporate Authority. Buyer has been duly incorporated and is validly existing and in good standing under the laws of the State of Georgia with all requisite corporate power and authority to enter into this Agreement and perform its obligations hereunder. 7.2. Binding Obligation. Buyer has full power and authority to enter into each of the Acquisition Documents to which it is a party and to consummate the transactions contemplated thereby. The execution, delivery and performance by Buyer of each of the Acquisition Documents to which it is a party have been duly and validly authorized and approved by all necessary action on the part of Buyer. Each of the Acquisition Documents to which Buyer is a party, assuming such Acquisition Document constitutes a valid and binding obligation of the other parties thereto, constitutes the legal, valid and binding obligation of the Buyer, enforceable against the Buyer in accordance with its terms, except to the extent that the enforceability thereof may be limited by: (i) applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or similar laws from time to time in effect affecting generally the enforcement of creditors' rights and remedies; and (ii) general principles of equity, including, without limitation, principles of reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in equity or at law). 7.3. No Defaults or Conflicts. The execution and delivery of each of the Acquisition Documents to which Buyer is a party and performance by Buyer of its obligations thereunder have been duly authorized by all necessary corporate action on the part of Buyer and: (i) do not and, on the Closing Date, will not result in any violation of the charter or by-laws or other constituent documents of Buyer; and (ii) on the Closing Date, will not conflict with, or result in a breach of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of Buyer (except for such conflicts, breaches or defaults or liens, charges or encumbrances as would not adversely affect the consummation of the transactions contemplated hereby) under: (A) any indenture, mortgage, lease or loan or any other agreement or instrument to which the Buyer is a party or by which either of them may be bound or to which any of their respective properties may be subject; or (B) any existing applicable law, rule, regulation, judgment, order or decree of any Governmental Authority having jurisdiction over Buyer or any of their respective properties, other than such conflicts, breaches and defaults as would be waived or avoided by the consents, approvals and notices, which are described in Section 7.4. 7.4. No Governmental Authorization or Consents Required. Other than consents required under the HSR Act, as of the Closing Date, no consent, authorization or approval or other action by, and no notice to or declaration, filing or registration with, any -35- 43 Governmental Authority or any third party will be required to be obtained or made by Buyer in connection with the due execution and delivery and performance by Buyer of this Agreement or the consummation by Buyer of the transactions as contemplated hereby. 7.5. No Actions, Suits or Proceedings. There is no action, suit or proceeding pending against, nor, to Buyer's knowledge, threatened against Buyer before any Governmental Authority which questions the validity or legality of this Agreement or of the transactions contemplated hereby or which seeks to prevent the consummation of the transactions contemplated hereby. 7.6. Investment Purpose. Buyer is buying the Shares for investment only and not with a view to resale in connection with any distribution of any of the Shares except in compliance with the Securities Act, and all other applicable securities laws. Buyer understands that the Shares have not been registered under the Securities Act or under the securities laws of any state and that the Shares may not be sold, transferred, offered for sale, pledged, hypothecated or otherwise disposed of in the absence of an effective registration under the Securities Act except pursuant to a valid exemption from such registration. Buyer is an "accredited investor" as defined in Rule 501(a) under the Securities Act. 7.7. Sufficient Funds. Buyer will have on the Closing Date sufficient funds to purchase all of the Shares in accordance with the terms of this Agreement. 7.8. Solvency. Upon the consummation of the transactions contemplated by this Agreement, neither Buyer nor the Company will be insolvent and each of them will continue to be able to pay their respective debts as they mature and will have sufficient capital to be engaged in their respective businesses as presently conducted. 7.9. No Broker. No broker, finder, agent or similar intermediary has acted for or on behalf of Buyer or an Affiliate in connection with this Agreement, the Acquisition Documents or the transactions contemplated hereby or thereby, and no broker, finder, agent or similar intermediary is entitled to any broker's, finder's or similar fee or other commission in connection therewith based on any agreement, arrangement or understanding with Buyer or an Affiliate or any action taken by either of them. ARTICLE 8 COVENANTS The parties hereto covenant and agree as follows: 8.1. Conduct of Business. Except as contemplated by this Agreement, during the period from the date of this Agreement to the Closing Date, the Company shall: (a) operate the business substantially as previously operated and only in the regular and ordinary course; -36- 44 (b) not purchase or acquire any assets or properties, whether real or personal, tangible or intangible, and not sell or otherwise dispose of any real or personal property or asset, except in the ordinary course of business and consistent with past practices; (c) use reasonable efforts to maintain its assets in their present order and condition, reasonable wear and use excepted; (d) maintain all policies of insurance in amounts and on terms substantially equivalent to those in effect on the date hereof; (e) comply with all laws applicable to the Company and the conduct of its business where the failure to so comply would have a Material Adverse Effect; (f) maintain the books and records of the Company in the usual, regular, and ordinary manner and prepare and file all foreign, federal, state, and local tax returns and amendments thereto required to be filed by the Company after taking into account any extensions of time granted by such taxing authorities on a basis consistent with past practices; (g) use reasonable efforts to preserve the goodwill and patronage of its customers, Employees, suppliers and others having a business relationship with the Company; (h) not, without the prior written consent of Buyer, take any of the actions described in Section 5.4 hereof; and (i) use reasonable efforts to obtain the consent of the IDB to construct a fourth furnace. 8.2. Access to Information; Confidentiality. (a) During the period from the date of this Agreement to the Closing Date, the Company shall, during regular business hours and upon reasonable written request, give Buyer, its lenders, counsel, accountants and other authorized representatives reasonable access to all books and records, offices, facilities, properties, vendors and customers of the Company, and shall furnish such persons with all information (including financial and operating data) concerning the Company as they reasonably may request; provided, however, that any such access shall not unreasonably interfere with the business or operations of the Company. Requests for such information shall be coordinated with the Company's designated representatives. (b) Any information provided to or obtained by Buyer or its financing sources, accountants counsel, representatives and agents pursuant to paragraph (a) above shall be "Information" as defined under the Confidentiality -37- 45 Agreement, dated October 1, 1997, between the Company and Buyer (the "Confidentiality Agreement"), and shall be held by Buyer or its financing sources, accountants counsel, representatives and agents in accordance with and be subject to the terms of the Confidentiality Agreement. (c) Buyer agrees to be bound by and comply with the provisions set forth in the Confidentiality Agreement as if such provisions were set forth herein, and such provisions are hereby incorporated herein by reference. (d) Buyer shall indemnify the Seller and the Company and hold the Seller and the Company harmless from and against any and all claims, demands, causes of action, losses, damages, liabilities, costs and expenses (including, without limitation, attorneys' fees and disbursements) suffered or incurred by the Sellers or the Company arising out of or in connection with any inspection or other activities conducted by Buyer or Buyer's authorized representatives pursuant to this Section 8.2. 8.3. Further Assurances. Each of the parties hereto shall execute such documents and other papers and perform such further acts as may be reasonably required to carry out the provisions hereof and the transactions contemplated hereby. Subject to such party's right to terminate this Agreement pursuant to Article 11 hereof, each party shall do all things reasonably necessary to effect the consummation of the transactions contemplated by this Agreement. Each such party shall, on or prior to the Closing, use its best efforts to fulfill or obtain the fulfillment of the conditions precedent to the consummation of the transactions contemplated hereby, including the execution and delivery of any documents, certificates, instruments or other papers that are reasonably required for the consummation of the transactions contemplated hereby. Each party shall promptly notify each of the other parties of any action, suit, or proceeding that shall be instituted or threatened against such party to restrain, prohibit, or otherwise challenge the legality of any transaction contemplated by this Agreement. 8.4. Notice of Events. During the period from the date of this Agreement to the Closing Date, the Company shall give prompt notice to Buyer, and Buyer shall give prompt notice to the Company, of: (i) the occurrence or non-occurrence of any event of which it has knowledge, the occurrence or non-occurrence of which would be likely to result in any of the conditions specified in (x) in the case of the Buyer, Sections 9.1 and 9.4, or (y) in the case of the Company, Sections 10.1 and 10.4, not being satisfied so as to permit the consummation of the transfer of Shares in accordance with the time schedule contemplated by this Agreement; and (ii) any material failure on its part, or on the part of the other party hereto of which it has knowledge, to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder; provided, however, that the delivery of any notice pursuant to this Section 8.4 shall not limit or otherwise affect the remedies available hereunder to any party. Without in any way limiting the foregoing, during the period from the date of this Agreement to the Closing Date, the Company shall promptly notify Buyer in writing of any Material Adverse Effect, any material damage to or loss of any of the Company's assets (whether owned or leased), or the institution of or, if known by the Company, the overt threat in writing of -38- 46 institution of legal, administrative, or other proceedings against the Company, except that if the Closing occurs and the Company or the Sellers have excluded the matters covered by such notice from the coverage of the Certificates delivered to Buyer pursuant to Section 9.1 or 9.2, Buyer shall have no available remedy with respect to such matters. 8.5. Indemnification. Subject to obtaining Releases from all current directors of the Company, and from all Sellers, Buyer agrees that all rights to indemnification and exculpation from liability for acts or omissions occurring prior to the Closing Date now existing in favor of the current or former directors, officers or employees acting as fiduciaries for any 401(k) plan of the Company, as provided in the certificate of incorporation or by-laws, or under any document or agreement relating to any Benefit Plan to which it is a party, shall survive the Closing Date and shall continue in full force and effect in accordance with their respective terms for a period of not less than three (3) years and six (6) months after the Closing Date. As of the Closing Date, Buyer shall, without any further action, be jointly and severally liable with the Company for all obligations of the Company with respect to such indemnification and exculpation from liability as are provided for in this Section 8.5. 8.6. Filings and Authorizations. Each of the Company and Buyer within five (5) Business Days of the date hereof, shall, if required, file or supply, or cause to be filed or supplied, all notifications and information required to be filed or supplied pursuant to the HSR Act in connection with the sale and transfer of the Shares pursuant to this Agreement and consummation of the other transactions contemplated hereby, and request early termination of the waiting period under the HSR Act. Each of the Company and Buyer, as promptly as practicable, shall (a) make, or cause to be made, all such other filings and submissions under laws, rules and regulations applicable to it, or to its subsidiaries and Affiliates, as may be required for it to consummate the transfer of Shares and other transactions contemplated hereby in accordance with the terms of this Agreement; (b) use its best efforts to obtain, or cause to be obtained, at its sole cost and expense, all authorizations, approvals, consents and waivers from all persons and Governmental Authorities necessary or appropriate (as determined in the reasonable judgment of the other party) to be obtained by it, or its subsidiaries or Affiliates, in order for it so to consummate such transactions; and (c) use its best efforts to take, or cause to be taken, all other action necessary, proper or advisable in order for it to fulfill its obligations hereunder. The Company, the Sellers and Buyer shall coordinate and cooperate with one another in exchanging such information and supplying such reasonable assistance as may be reasonably requested by each in connection with the foregoing. 8.7. Tax Matters. (a) Buyer will cause the Company to file a federal income Tax Return for the period from January 1, 1998 through the Closing Date. Buyer and the Company shall prepare or cause to be prepared and file or cause to be filed all Tax Returns for the Company for all periods ending on or prior to the Closing Date that are filed after the Closing Date. Buyer shall deliver to Sellers drafts of each such Tax Return (and supporting work papers) at least 60 days prior to the due date for such Tax Return -39- 47 (provided that with respect to the Tax Return for 1997, if not previously filed, and the period ending on the Closing Date, Buyer shall deliver to the Sellers such draft within thirty (30) days after final determination of the Closing Balance Sheet and the Adjustment Amount) and shall permit Sellers to review and comment on each such Tax Return and shall not file any such Tax Return without incorporating Sellers' reasonable requests for changes therein. Buyer shall cause the Company to file such Tax Returns within fifteen (15) days after agreement on such proposed changes. Sellers shall reimburse Buyer for (or Buyer or the Company shall refund to Sellers the amount of) Taxes of the Company with respect to such periods within fifteen (15) days after payment by Buyer or the Company after the Closing Date of such Taxes (or within fifteen (15) days after the date Buyer or the Company files such Tax Return) to the extent such Taxes exceed (or are less than) the sum of (i) Taxes paid with respect to the periods covered by such Tax Returns prior to or on the Closing Date and (ii) any accrual or reserve for Tax liability (rather than any reserve for deferred Taxes established to reflect timing differences between book and Tax income) contained in the Closing Balance Sheet. Buyer, the Company and Sellers agree that all Tax Returns filed pursuant to this paragraph (a) or the succeeding paragraph (b) shall be filed on the basis that a compensation deduction relating to amounts paid to employees in respect of the Option exercise and the Bonus shall be allocable only to the period that ends on the Closing Date (or the portion ending on the Closing Date of any period that includes, but does not end on, the Closing Date). (b) Buyer and the Company shall prepare or cause to be prepared and file or cause to be filed any Tax Returns of the Company for Tax periods which begin before the Closing Date and end after the Closing Date. Buyer shall deliver to Sellers drafts of each such Tax Return (and supporting work papers) at least 60 days prior to the due date of such Tax Return, and shall permit Sellers to review and comment on each such Tax Return and shall not file any such Tax Return without incorporating Sellers' reasonable requests for changes therein. Sellers shall pay to Buyer (or Buyer or the Company shall refund to Sellers) within fifteen (15) days after the date on which Taxes are paid with respect to such periods an amount equal to the portion of such Taxes which relates to the portion of such Taxable period ending on the Closing Date to the extent such Taxes exceed (or are less than) (i) Taxes paid with respect to the periods covered by such Tax Returns prior to or on the Closing Date and (ii) any accrual or reserve for Tax Liability (rather than any reserve for deferred Taxes established to reflect timing differences between book and Tax income) shown on the face of the Closing Balance Sheet. For purposes of this Section, in the case of any Taxes that are imposed on a periodic basis and are payable for a Taxable period that includes (but does not end on) the Closing Date, the portion of such Tax which relates to the portion of such Taxable period ending on the Closing Date shall (x) in the case of any Taxes other than Taxes based upon or related to income or receipts, be deemed to be the amount of such Tax for the entire Taxable period multiplied by a fraction the numerator of which is the number of days in the Taxable period ending on the Closing Date and the denominator of which is the number of days in the entire Taxable period, and (y) in the case of any Tax based upon or related to income or receipts be deemed equal to the amount which would be payable if the relevant Taxable period ended on the Closing Date. Any credit relating to a Taxable -40- 48 period that begins before and ends after the Closing Date shall be taken into account as though the relevant Taxable period ended on the Closing Date. All determinations necessary to give effect to the foregoing allocations shall be made in a manner consistent with prior practice of the Company. On and after the Closing Date, Buyer shall be liable for, and shall hold the Sellers harmless against, any and all Taxes due or payable by the Company related to periods that begin after the Closing Date and the portion beginning on the day after the Closing Date of any period that includes (but does not end on) the Closing Date. (c) (i) Buyer, the Company and Sellers shall cooperate fully, as and to the extent reasonably requested by the other party, in connection with the filing of Tax Returns pursuant to this Section and any audit, litigation or other proceeding with respect to Taxes. Such cooperation shall include the retention and (upon the other party's request) the provision of records and information which are reasonably requested by another party and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder. Buyer, the Company and Sellers agree (A) to retain all books and records with respect to Tax matters pertinent to the Company relating to any taxable period beginning before the Closing Date until the expiration of the statute of limitations (and, to the extent notified by Buyer or Sellers, any extensions thereof) of the respective taxable periods, and to abide by all record retention agreements entered into with any taxing authority, and (B) to give the other party reasonable written notice prior to transferring, destroying or discarding any such books and records and, if the other party so requests, the Company or Sellers, as the case may be, shall allow the other party to take possession of such books and records. (ii) Buyer, the Company and Sellers further agree, upon request, to use all commercially reasonable efforts to obtain any certificate or other document from any governmental authority or any other Person as may be necessary to mitigate, reduce or eliminate any Tax that could be imposed (including, but not limited to, with respect to the transactions contemplated hereby). (iii) Buyer, the Company and Sellers further agree, upon request, to provide the other party with all information that either party may be required to report pursuant to Section 6043 of the Code and all Treasury Department Regulations promulgated thereunder. (d) To the extent the Tax Return for the period ending on the Closing Date reflects a net operating loss, Buyer agrees to cause the Company, to the maximum extent permitted by law, to carry-back any such net operating loss and promptly seek a refund for Taxes for periods prior to the Closing Date by preparing appropriate claims for refund. To the extent that such claims for refund result in a refund by a taxing authority to the Company of any amount, , the Company shall pay such amount to Sellers within five (5) days after receipt thereof, together with any interest actually received from the taxing authority. -41- 49 (e) Any payment by Sellers to Buyer pursuant to this Section 8.7 shall be made from the Escrow Account and shall be subject to (and included in) the Maximum Amount, but shall not be included in the Threshhold Amount described in Section 12.7(a). 8.8. Severance. Buyer agrees that, for a period of one year after the Closing Date, if any employee not covered by an existing collective bargaining agreement with the Company other than an officer is (a) terminated as determined in the Buyer's sole discretion (other than for cause relating to that employee's failure to perform duties) or (b) resigns because such employee was required to transfer to a work location more than 50 miles from that employee's current work location, the employee shall receive, and the Buyer shall pay, as severance the following: the greater of (a) one week of severance pay per year of service, or (b) severance pay equal to payment of base pay (i.e., wages for 40 hours of employment per week based on the employee's wage scale as of the employee's termination of employment) for the balance of the period until the six month anniversary of the Closing Date. Health and life insurance programs and pension benefit accruals will continue during the period of severance payments to the extent permitted by law and by the terms of the applicable plan documents and to the extent the terminated employee pays any insurance premiums applicable to their continued participation in such plans. Any employee covered by this Section 8.8 shall be an intended third party beneficiary of this Agreement. 8.9. Sales and Transfer Taxes. All transfer taxes (including all stock transfer taxes, if any) exclusive of income taxes incurred in connection with this Agreement and the transactions contemplated hereby will be borne fifty (50%) percent by Sellers and fifty (50%) percent by Buyer. Buyer and Sellers shall cooperate to file all necessary tax returns and other documentation with respect to all such transfer taxes and, if required by applicable law, Buyer and Sellers shall join in the execution of any such tax return or other documentation. 8.10. Public Announcements. The Company, the Sellers and Buyer shall consult with each other before issuing any press release or otherwise making any public statement or filings with governmental entities with respect to this Agreement or the transactions contemplated hereby, and shall not issue any such press release or make any such public statement or filing without prior approval thereof by the other parties, which approval shall not be unreasonably withheld or delayed. The parties shall not issue any press release or public statement (other than pursuant to the HSR Act) prior to the Closing. In no event shall Buyer disclose any of the terms or conditions of this Agreement (including, without limitation, the identity of any of the Sellers or the allocation of the Purchase Price among them, or any other matter relating to their affairs) to anyone other than its lenders, advisors or representatives without the prior written approval of the Company or the Sellers. Nothing in this Section 8.10 shall prevent such disclosure by Buyer, and the Company or the Sellers with respect to this Agreement and the transactions contemplated hereby as Buyer, the Company or the Sellers may be required to make by applicable law; provided, however, that the party required to make such -42- 50 disclosure shall give prompt notice to the other parties hereto of the nature of the requirement, the identity of the person or persons to whom such disclosure is required to be made and the information so disclosed. 8.11. Records. With respect to the financial books and records and minute books of the Company relating to matters on or prior to the Closing Date: (a) for a period of ten years after the Closing Date, Buyer shall not cause or permit their destruction or disposal except for a transfer that may be required in the event of a sale of stock of the Company to a party that will assume Buyer's obligations under this Agreement, without first offering to surrender them to the Sellers, and (b) where there is legitimate purpose, including, without limitation, an audit of any of the Sellers by the IRS or any other taxing authority, Buyer shall allow the Sellers and their respective representatives or agents, during regular business hours, access to such books and records and the ability to inspect and copy same or (if required) obtain the originals thereof. 8.12. No Section 338 Election; Certain Transactions Prohibited. Neither Buyer nor any Affiliate thereof shall make an election under Section 338 of the Code or any similar provision of state or local law, in respect of the purchase of the Shares or the other transactions contemplated by this Agreement. In addition, neither Buyer nor any Affiliate thereof shall cause the Company to engage in any transaction (including, without limitation, the merger of the Company with a direct or indirect subsidiary of Buyer) that could cause the purchase of the Shares or the other transactions contemplated by this Agreement to be treated as a purchase or sale of assets of the Company. 8.13. WARN Act Notice. Buyer shall be solely responsible for providing any notice required under the Worker Adjustment and Retraining Notification Act and shall indemnify and hold Sellers harmless from any liability arising from any failure of the Buyer to comply fully with the requirements of such Act. 8.14. Other Transactions. The Company shall deal exclusively and in good faith with Buyer with regard to the transactions contemplated by this Agreement and will not, and will direct its officers, directors, financial advisors, accountants, agents, and counsel not to, (i) solicit submission of proposals or offers from any person other than Buyer relating to any acquisition of all or any part of the Shares or the Options or any acquisition of substantially all of the assets of the Company (an "Acquisition Proposal"), or (ii) participate in any discussions or negotiations regarding, or furnish any non-public information to any other person contemplating an Acquisition Proposal regarding the Company or its business other than Buyer and its representatives or otherwise cooperate in any way or assist, facilitate, or encourage any Acquisition Proposal by any person other than Buyer. 8.15. Supplemental Disclosure. The Company shall have the continuing obligation up to and including the Closing Date to supplement promptly or amend the Schedules with respect to any matter hereafter arising or discovered which, if existing or known at the date of this Agreement, would have been required to be set forth or listed in the Schedule; provided, however, that for the purpose of the rights and obligations of the -43- 51 parties hereunder, any such supplemental disclosure shall not be deemed to have been disclosed as of the date of this Agreement unless so agreed to in writing by Buyer. A breach of this covenant shall not in and of itself constitute a breach which would entitle the Buyer to terminate this Agreement pursuant to Section 11.1(a)(iii) hereof. 8.16. Contracts and Capital Expenditures. Except for the capital expenditures related to the gantry crane reflected on SCHEDULE 5.12B, the Company shall cause its management to discuss with Buyer any significant Contract to be executed, or any proposed significant capital expenditure to be made prior to the Closing Date prior to entering into any contract (including any Contract relating to any commitment described in SCHEDULE 5.12B other than the commitments with respect to the gantry crane) or commitment for such capital expenditure, other than emergency capital expenditures. No significant capital expenditure (other than emergency capital expenditures and expenditures related to the gantry crane) shall be made by the Company prior to the Closing Date without the prior written consent of Buyer, which consent shall not be unreasonably withheld or delayed. The Company will promptly notify Buyer of the nature and extent of emergency capital expenditures or gantry crane capital expenditures made by the Company without the prior written consent of Buyer. 8.17. Discharge of Liens and Encumbrances. All Liens that are not Permitted Encumbrances, and all Liens that evidence Indebtedness which is to be paid off at Closing, or the existence or persistence of which the Buyer expressly waived in writing, shall be satisfied, terminated, and discharged by the Company on or prior to the Closing Date and evidence reasonably satisfactory to Buyer and its counsel of such satisfaction, termination, and discharge shall be delivered to Buyer at or prior to the Closing. 8.18. Environmental Fines. The Company shall upon demand, promptly (but not before due) pay all fines, penalties, and assessments due on or before the Closing ("Environmental Fines") that the Company is not disputing in good faith and by appropriate proceedings, and that are attributable to (a) the Company's operation of Equipment which was not in compliance with applicable Environmental Laws, (b) the Company's failure to possess all required Environmental Permits, or (c) violation of applicable Environmental Laws; such Environmental Fines shall be paid directly to any agency enforcing compliance with such Environmental Laws and Environmental Permits. 8.19. Payment of Bonus. The Buyer shall pay the Bonus within thirty (30) days of the Closing Date or such other date as mutually agreed upon by the Buyer and the employees receiving any portion of the Bonus. 8.20. Financing Cooperation. The Company and management of the Company shall cooperate (and the Sellers shall cause the Company and management of the Company to cooperate) in all reasonable respects with the Buyer and the Buyer's agents to facilitate the consummation of the financing conducted by Buyer (the expense of such cooperation to be borne by the Buyer), including without limitation, the preparation of any offering memorandum, any audited financial statements, and any marketing efforts necessary in connection with the financing. -44- 52 8.21. Asset Appraisal. Buyer shall deliver the asset appraisal to the parties referenced in the commitment letter dated the date hereof between Buyer and NationsBank, N.A. and NationsBanc Montgomery Securities LLC on or before March 13, 1998. ARTICLE 9 CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER The obligation of Buyer under this Agreement to consummate the purchase of the Shares and Options at the Closing shall be subject to the satisfaction, at or prior to the Closing, of all of the following conditions, any one or more of which (other than performance and compliance by all of the Sellers as required by Section 9.2 which waiver requires the approval of the other Sellers to be effective) may be waived in writing, in whole or in part, by Buyer: 9.1. Representations and Warranties Accurate. All representations and warranties of the Company and the Sellers contained in Articles 5 and 6 shall be true and correct in all material respects (except that representations and warranties qualified by materiality or Material Adverse Effect shall be true and correct in all respects) on and as of the Closing Date with the same force and effect as though such representations and warranties had been made on and as of the Closing Date. Buyer shall have received certificates dated as of the Closing Date executed by an authorized officer of the Company (in the case of Article 5) and each of the Sellers (in the case of Article 6) to such respective effect. 9.2. Performance. The Company and each of the Sellers, respectively, shall have performed and complied with, in all material respects, all agreements, covenants and conditions required by this Agreement to be performed and complied with by them prior to or on the Closing Date, and Buyer shall have received certificates, dated as of the Closing Date, executed by an authorized officer of the Company and each of the Sellers, to such respective effect. 9.3. Opinion of Counsel. Buyer shall have received the Company Opinion dated the Closing Date. 9.4. HSR Act; Authorizations; Consents; Legal Prohibition. (a) With respect to the transactions contemplated hereby, all applicable waiting periods under the HSR Act shall have expired or been terminated. (b) Buyer shall have obtained all governmental authorizations, approvals, orders, consents and waivers, the lack of which prior to the Closing, under any applicable law, rule or regulation, would render legally impermissible the purchase hereunder of the Shares by Buyer. -45- 53 (c) The Sellers and the Company shall have obtained or made all governmental authorizations, approvals, orders, consents, waivers and filings, the lack of which prior to the Closing, under any applicable law, rule or regulation, would render legally impermissible the sale hereunder of the Shares by the Sellers. (d) Buyer shall have received a true and correct copy of each consent and waiver identified on any Schedule hereto as being requested by Buyer that is (i) required for the transfer of the Shares or (ii) otherwise required for the execution, delivery and performance of this Agreement and the other Acquisition Documents by the Company and the Sellers. (e) On the Closing Date, there shall exist no, injunction or other order issued by a court of competent jurisdiction, regulation or legislation, which would prohibit the purchase and sale of any of the Shares contemplated by this Agreement. 9.5. Incumbency. Buyer shall have received a certificate of incumbency of the Company executed by an executive officer and Secretary or Assistant Secretary of the Company listing the officers of the Company authorized to execute this Agreement and the other Acquisition Documents to which the Company is a party and all instruments on behalf of the Company and certifying the authority of each such officer to execute the agreements, documents, and instruments on behalf of the Company in connection with the consummation of the transactions contemplated herein. 9.6. Certified Resolutions. Buyer shall have received a certificate of the Secretary or Assistant Secretary of the Company containing a true and correct copy of the resolutions duly adopted by the board of directors of the Company, approving and authorizing this Agreement and each other Acquisition Document to which the Company is a party and the transactions contemplated hereby and thereby. The Secretary or Assistant Secretary of the Company shall also certify that such resolutions have not been rescinded, revoked, modified, or otherwise affected and remain in full force and effect. 9.7. Basic Corporate Documents. The Company shall have delivered to Buyer on the Closing Date a certified copy from the Secretary of State of Delaware of the Company's Certificate of Incorporation dated within twenty (20) days prior to the Closing Date and certificates from the Secretaries of State in each jurisdiction listed on SCHEDULE 5.1A, indicating that, as of a date within twenty (20) days prior to the Closing Date, the Company was in good standing and had paid all taxes required to have been paid as of such date. 9.8. No Adverse Change. Since December 31, 1997, there shall not have been any change in the Company as would have a Material Adverse Effect, and Buyer shall have received a certificate dated as of the Closing Date, executed by an authorized officer of the Company to such effect. -46- 54 9.9. Acquisition Documents. Buyer shall have received the Acquisition Documents to which the Company or the Sellers are a party, executed by the Company and/or the Sellers as applicable. 9.10. Releases. Buyer shall have received executed Releases from each of the Sellers and each of the current directors of the Company. 9.11. Termination of Agreements. Buyer shall have received executed written terminations of all guarantees of the Company and all agreements between the Company and any Seller, any Affiliate of a Seller, or any employee of the Company, including, without limitation the Contracts listed on SCHEDULE 5.28 (except for the Company's agreement with Paul Selmon dated January 27, 1998 and the Company's agreement with Gene Simms dated January 22, 1998). 9.12. Substitute Letter of Credit. Buyer shall have received from the Trustee and the Bondholder a waiver of the timing requirements for substitution of a letter of credit pursuant to Section 5.4 of the Loan Agreement by and among State Industrial Development Authority, as lender, and SIMCALA, Inc. and The Industrial Development Board of the City of Montgomery, as borrowers, dated as of January 1, 1995, relating to $6,000,000 State Industrial Development Authority Taxable Industrial Revenue Bonds (SIMCALA, Inc. Project) Series 1995 (the "Loan Agreement"); provided, however, Buyer shall be responsible for satisfying or causing to be satisfied the requirements of Section 5.4(c) and (d) of the Loan Agreement. 9.13. FIRPTA Certificates. Each Seller shall deliver to Buyer a duly executed certificate substantially in the form required by Section 1.1445-2(b)(2)(iii) of the Treasury Regulations promulgated under the Code. 9.14. Comfort Letter. The Buyer shall have received from Crowe Chizek (at Buyer's expense and which amount shall not be included in Professional Fees) a letter dated such date, together with signed or reproduced copies of such letter, containing statements and information of the type ordinarily included in an accountants' "comfort letter" to the initial purchaser consistent with the provisions of SAS 72 (provided that the initial purchaser provides a letter indicating that it is a party entitled to receive a comfort letter under SAS 72) with respect to the financial statements audited by such firm included in the Financial Statements and certain financial information with respect to the periods covered thereby contained in a final offering memorandum related to the Rule 144A/High Yield financing obtained by Buyer. ARTICLE 10 CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY AND THE SELLERS The obligations (i) of the Company to consummate the transactions contemplated by this Agreement and (ii) of each of the Sellers under this Agreement to consummate the sale of the Shares and Options owned by such Seller at the Closing shall -47- 55 be subject to the satisfaction, at or prior to the Closing, of all of the following conditions, any one or more of which (other than performance and compliance by each of the other Sellers as required by Section 10.2) may be waived in writing, in whole or in part, by the Company (on its own behalf or on behalf of the Sellers) or the Sellers: 10.1. Representations and Warranties Accurate. All representations and warranties of Buyer contained in Article 7 shall be true and correct in all material respects (except that representations and warranties qualified by materiality shall be true and correct in all respects), on and as of the Closing Date with the same force and effect as though such representations and warranties had been made on and as of the Closing Date. Each of the Company and the Sellers shall have received a certificate dated as of the Closing Date executed by an authorized officer of Buyer to such effect. 10.2. Performance by Others. Buyer shall have performed and complied with, in all material respects, all agreements, covenants and conditions required by this Agreement to be performed and complied with by it prior to or on the Closing Date, and each of the Company and the Sellers shall have received a certificate, dated as of the Closing Date, executed by an authorized officer of Buyer to such effect. 10.3. Opinion of Counsel for Buyer. Each of the Company and the Sellers shall have received the Buyer Opinion, executed by Alston & Bird, counsel for Buyer, and dated the Closing Date. 10.4. HSR Act; Authorization: Consents; Legal Prohibition. (a) With respect to the transactions contemplated hereby, all applicable waiting periods under the HSR Act shall have expired or been terminated. (b) Buyer shall have obtained or made all governmental authorizations, approvals, orders, consents, waivers and filings, the lack of which prior to the Closing, under any applicable law, rule or regulation, would render legally impermissible the purchase hereunder of the Shares by Buyer. (c) The Company and the Sellers shall have received a true and correct copy of each consent and waiver identified on any Schedule hereto as being requested by the Company or the Sellers that is (i) required for the transfer of the Shares or (ii) otherwise required for the execution, delivery and performance of this Agreement and the other Acquisition Documents by Buyer. (d) On the Closing Date, there shall exist no injunction or other order issued by a court of competent jurisdiction, regulation or legislation, which would prohibit the purchase and sale of any of the Shares contemplated by this Agreement. (e) Each of the Sellers and the current directors of the Company shall have received executed Releases from Buyer and the Company. -48- 56 10.5. Acquisition Documents. Sellers shall have received the Acquisition Documents to which the Buyer is a party, executed by the Buyer. ARTICLE 11 TERMINATION OF AGREEMENT 11.1. Termination. (a) This Agreement may be terminated on or prior to the Closing as follows: (i) by consent of Buyer and the Company (acting on its behalf and for the Sellers); (ii) at the election of Buyer or the Company (acting on its behalf and for the Sellers), if the Closing Date shall not have occurred on or before March 31, 1998, because (A) the conditions thereto have not been satisfied on or before that date unless the failure to consummate the transactions contemplated hereby is the result of a breach of this Agreement by the party seeking to terminate this Agreement or (B) the other party wrongfully refuses to close the transactions contemplated hereby; (iii) by Buyer if any condition in Article 9 becomes impossible of performance or has not been satisfied in full or previously waived by Buyer in writing at or prior to the Closing Date; and (iv) by the Company or all of the Sellers if any condition in Article 10 becomes impossible of performance or has not been satisfied in full or previously waived by the Company or all of the Sellers, as applicable in writing at or prior to the Closing Date. (b) The termination of this Agreement shall be effectuated by the delivery by the party terminating this Agreement to each other party of a written notice of such termination. If this Agreement so terminates, it shall become null and void and have no further force or effect, except as provided in Section 11.2. 11.2. Survival After Termination. If this Agreement is terminated in accordance with Section 11.1 hereof and the transactions contemplated hereby are not consummated, this Agreement shall become void and of no further force and effect, except that the provisions set forth in Section 3.1, Section 8.2(b), (c), (d), 8.20 and this Section 11.2 shall survive the termination of this Agreement. None of the parties hereto shall have any liability in respect of a termination of this Agreement, except with respect to Section 8.2(b) and (c) of this Agreement and except to the extent that failure to satisfy the conditions of Articles 9 or 10 result from a breach of or default under any representation, warranty or covenant made by such party under this Agreement or a breach of or default under the provisions of any agreement made or to be made pursuant to this Agreement. In the event of a termination of this Agreement based on a failure to satisfy one or more of -49- 57 the conditions of Article 10 (other than with respect to a failure to obtain expiration or termination of the waiting periods under the HSR Act after filings have been made) resulting from Buyer's breach of or default under any representation, warranty or covenant made under this Agreement or a breach of or default under the provisions of any agreement made or to be made pursuant to this Agreement, the Company may exercise its rights under the Pre-Closing Escrow Agreement. Such amount is being fixed as liquidated damages in any such event by reason of the fact that the actual damages to be suffered by the Company and the Sellers are by their nature uncertain and unascertainable with exactness. In the event of a termination of this Agreement based on a failure to satisfy one or more of the conditions of Article 9 (other than with respect to a failure to obtain expiration or termination of the waiting periods under the HSR Act after filings have been made) resulting from the Company's or a Seller's breach of or default under any representation, warranty or covenant made by such party under this Agreement or a breach of or default under the provisions of any agreement made or to be made pursuant to this Agreement, liability of the Company and the Sellers for such termination shall not exceed the lesser of (i) $500,000, or (ii) Buyer's actual damages, costs and expenses related to the preparation of the Acquisition Documents (including those related to the negotiations, due diligence, and expenses related to obtaining financing). Except as set forth in this Section 11.2, no party in relation to the termination of this Agreement shall seek any money or other judgment against the other party, or against any officer, director, shareholder or partner of any of them or against their assets, and the sole recourse of the party seeking damages shall be to recover damages in the foregoing amount. ARTICLE 12 INDEMNIFICATION 12.1. Definitions. For the purposes of this Article: (a) "Indemnification Claim" shall mean a claim for indemnification hereunder. (b) "Indemnitee" shall mean the party or parties seeking indemnification hereunder. (c) "Indemnitor" shall mean the party or parties against whom indemnification hereunder is sought. (d) "Losses" shall mean any and all demands, claims, actions or causes of action, assessments, losses, fines, judgments, costs, damages (including consequential damages), liabilities, costs, removal and remediation requirements and expenses, including without limitation, interest, penalties, cost of investigation and defense, and reasonable attorneys' and other professional fees and expenses. -50- 58 (e) "Buyer Indemnitees" shall mean Buyer, the Company and Affiliates. (f) "Third Party Claim" shall mean any claim, suit or proceeding (including, without limitation, a binding arbitration or an audit by any taxing authority) that is instituted against the Indemnitee which, if prosecuted successfully, would result in a Loss for which the Indemnitee is entitled to indemnification hereunder. 12.2 Agreement of the Indemnitors to Indemnify. (a) Subject to the terms and conditions of this Article 12, each Seller severally (in proportion of the percentage of the Purchase Price paid to such Seller) but not jointly agrees to indemnify, defend and hold harmless the Buyer Indemnitees from, against, for and in respect of any and all Losses asserted against, paid, suffered or incurred by the Buyer Indemnitees, or any of them, and resulting from, based upon, or arising out of: (i) the breach of any representation or warranty of the Company or a Seller contained in or made pursuant to this Agreement or any other Acquisition Document or in any certificate, Schedule or Exhibit furnished by the Company or such Seller in connection herewith or therewith; and (ii) a breach of or failure to perform any covenant or agreement of the Company or such Seller made pursuant to this Agreement or any other Acquisition Document or any certificate, Schedule or Exhibit furnished by the Company or such Seller in connection herewith or therewith (b) Subject to the terms and conditions of this Article 12, Buyer agrees to indemnify, defend and hold harmless the Sellers from, against, for and in respect of any and all Losses asserted against, paid, suffered or incurred by any of the Sellers, and resulting from, based upon, or arising out of: (i) the breach of any representation or warranty of Buyer contained in or made pursuant to this Agreement or any other Acquisition Document or in any certificate, Schedule or Exhibit furnished by Buyer in connection herewith or therewith; and (ii) a breach of or failure to perform any covenant or agreement of Buyer made pursuant to this Agreement or any other Acquisition Document or in any certificate, Schedule or Exhibit furnished by Buyer in connection herewith or therewith. 12.3. Procedures for Indemnification. (a) An Indemnification Claim shall be made by the Indemnitee, promptly upon becoming aware of such Indemnification Claim, by delivery of a written -51- 59 notice to the Indemnitor requesting indemnification and specifying the basis on which indemnification is sought and the amount of asserted Losses and, in the case of a Third Party Claim, containing (by attachment or otherwise) such other information as the Indemnitee shall have concerning such Third Party Claim. (b) If the Indemnification Claim involves a Third Party Claim, the procedures set forth in Section 12.4 hereof shall be observed by the Indemnitee and the Indemnitor. (c) If the Indemnification Claim involves a matter other than a Third Party Claim, the Indemnitor shall have thirty (30) Business Days to object to such Indemnification Claim by delivery of a written notice of such objection to the Indemnitee specifying in reasonable detail the basis for such objection. Failure to timely so object shall constitute a final and binding acceptance of the Indemnification Claim by the Indemnitor, and the Indemnification Claim shall be paid in accordance with Section 12.3(d) hereof. If an objection is timely interposed by the Indemnitor, then the Indemnitee and the Indemnitor shall negotiate in good faith for a period of sixty (60) business days from the date (such period is hereinafter referred to as the "Negotiation Period") the Indemnitee receives such objection prior to commencing any formal legal action, suit or proceeding with respect to such Indemnification Claim. (d) Upon determination of the amount of an Indemnification Claim that is binding on both the Indemnitor and the Indemnitee, the amount of such Indemnification Claim shall be paid within ten (10) Business Days of the date such amount is determined. If the Indemnitor responsible for payment of such Indemnification Claim is Buyer, such payment shall be made by wire transfer to the Indemnitee to an account designated by the Indemnitee. If the Indemnitor responsible for payment of such Indemnification Claim is a Seller, and the payment relates to a Loss arising from a breach of any representation, warranty or covenant of the Company, such payment shall be made first by wire transfer by the Escrow Agent to an account designated by Buyer in accordance with the terms of the Escrow Agreement until Seller's portion of the Escrowed Funds is exhausted and such Loss shall be shared on a pro rata basis among all Sellers. Such payment shall otherwise be made at the sole option of Buyer either by wire transfer by the Escrow Agent to an account designated by Buyer in accordance with the terms of the Escrow Agreement or by wire transfer by the Seller to an account designated by Buyer. 12.4. Third Party Claims. The obligations and liabilities of the Indemnitee and Indemnitor hereunder with respect to a Third Party Claim shall be subject to the following terms and conditions: (a) The Indemnitee seeking indemnification for such Third Party Claim shall give the Indemnitor written notice of the Third Party Claim promptly after receipt by the Indemnitee of notice thereof, and the Indemnitor may undertake the defense, compromise and settlement thereof by representatives of its own choosing reasonably acceptable to the Indemnitee. The failure of the Indemnitee to notify the -52- 60 Indemnitor of such claim shall not relieve the Indemnitor of any liability that the Indemnitor may have with respect to such claim except to the extent the Indemnitor demonstrates that the defense of such claim is prejudiced by such failure. The assumption of the defense, compromise and settlement of any such Third Party Claim by the Indemnitor shall not be an acknowledgment of the obligation of the Indemnitor to indemnify such Indemnitee with respect to such claim hereunder. If the Indemnitee desires to participate in, but not control, any such defense, compromise and settlement, it may do so at its sole cost and expense. If, however, the Indemnitor fails or refuses to undertake the defense of such Third Party Claim within fifteen (15) days after written notice of such claim has been given to the Indemnitor by the Indemnitee, the Indemnitee shall have the right to undertake the defense, compromise and settlement of such claim with counsel of its own choosing. In the circumstances described in the preceding sentence, the Indemnitee shall, promptly upon its assumption of the defense of such claim, make an Indemnification Claim as specified in Section 12.3 which shall be deemed an Indemnification Claim that is not a Third Party Claim for the purposes of the procedures set forth herein. (b) If, in the reasonable opinion of the Indemnitee, any Third Party Claim or the litigation or resolution thereof involves an issue or matter which could reasonably be expected to have a material adverse effect on the business, operations, assets, properties or prospects of the Indemnitee (including, without limitation, the administration of the Tax Returns and responsibilities under the Tax laws of the Indemnitee), the Indemnitee shall have the right to control the defense, compromise and settlement of such Third Party Claim undertaken by the Indemnitor, and the costs and expenses of the Indemnitee in connection therewith shall not be included as part of the indemnification obligations of the Indemnitor hereunder. If the Indemnitee elects to exercise such rights, the Indemnitor shall have the right to participate in, but not control, the defense, compromise and settlement of such Third Party Claim at its sole cost and expense. (c) No settlement of a Third Party Claim involving the asserted liability of the Indemnitor under this Article 12 shall be made without the prior written consent of the Indemnitor, which consent shall not be unreasonably withheld or delayed. Consent shall be presumed in the case of settlements of $100,000 or less where the Indemnitor has not responded within thirty (30) business days of notice of a proposed settlement. If the Indemnitor assumes the defense of such a Third Party Claim, (i) no compromise or settlement thereof may be effected by the Indemnitor without the Indemnitee's consent unless (A) there is no finding or admission of any violation of law or any violation of the rights of any person and no effect on any other claim that may be made against the Indemnitee, (B) the sole relief provided is monetary damages that are paid in full by the Indemnitor, and (C) the compromise or settlement includes, as an unconditional term thereof, the giving by the claimant or the plaintiff to the Indemnitee of a release, in form and substance satisfactory to the Indemnitee, from all liability in respect of such Third Party Claim, and (ii) the Indemnitee shall have no liability with respect to any compromise or settlement thereof effected without its consent. -53- 61 (d) In connection with the defense, compromise or settlement of any Third Party Claim, the Indemnitee and the Indemnitor shall execute such powers of attorney as may reasonably be necessary or appropriate to permit participation of counsel selected by such Indemnitee or Indemnitor and, as may reasonably be related to any such Third Party Claim, shall provide access to the counsel, accountants and other representatives of such Indemnitee or Indemnitor during normal business hours to all properties, personnel, books, tax records, contracts, commitments and all other business records of such Indemnitee or Indemnitor and will furnish to such Indemnitee or Indemnitor copies of all such documents as may reasonably be requested (certified, if requested). 12.5. Other Rights and Remedies. Except for the rights of Buyer described in Section 11.2 hereof, the rights of Buyer Indemnitees under this Article 12 are the sole and exclusive rights and remedies of the Buyer Indemnitees as to the Sellers for the inaccuracy or breach of any representation or warranty of the Company or any Seller contained herein or in any certificate, Schedule or Exhibit furnished by the Company or any Seller in connection herewith, or for the failure of the Company or any Seller to perform any agreement, covenant or undertaking required by the terms hereof to be performed by the Company or any Seller. Except for the rights of the Company and/or the Sellers described in Section 11.2 hereof, the rights and remedies of the Sellers under this Article 12 are the sole and exclusive rights and remedies of such parties for the inaccuracy or breach of any representation and warranty of Buyer contained herein, or in any certificate, Schedule or Exhibit furnished by Buyer in connection herewith, or for the failure of Buyer to perform any agreement, covenant or undertaking required by the terms hereof to be performed by Buyer. 12.6 Duration. The indemnification rights of the parties hereto for Losses resulting from a breach of representations and warranties or for breaches of covenants contained in this Agreement or any other Acquisition Document or in any certificate, Schedule or Exhibit furnished in connection herewith or therewith (other than for tax matters) are subject to the condition that the Indemnitor shall have received written notice of the Losses for which indemnity is sought on or before the date which is eighteen (18) months from the Closing Date. The indemnification rights of the parties hereto for Losses resulting from a breach of representations and warranties or for breaches of covenants that are related to tax, is subject to the condition that the Indemnitor shall have received written notice of the Losses for which indemnity is sought on or before September 15, 2002. The indemnification rights of the parties hereto for Losses resulting from a breach of any representation and warranty with respect to title to the Shares and Options shall be effective for all purposes hereunder without limitation as to the time within which such notice may be given. 12.7. Limitations. (a) The Indemnitor shall be obligated to indemnify the Indemnitee only when the aggregate of all Losses suffered or incurred by the Indemnitee as to which a right of indemnification is provided under this Article 12 and Section 8.7 -54- 62 exceeds Five Hundred Thousand Dollars ($500,000) (the "Threshold Amount"). After the aggregate of all Losses suffered or incurred by the Indemnitee exceeds the Threshold Amount, the Indemnitor shall be obligated to indemnify the Indemnitee for all such Losses reduced by Two Hundred Fifty Thousand Dollars ($250,000). Except with respect to a breach of any representation and warranty with respect to title to any of the Company's assets and title to the Shares and Options, for which the aggregate liability of the Sellers shall not exceed Seventy Six Million Dollars ($76,000,000), in no event shall the aggregate liability of the Sellers, or the aggregate liability of Buyer, under this Article 12 and Sections 8.7(a) or 8.7(b) (other than the last sentence of Section 8.7(b) thereof) exceed Eight Million Two Hundred Thousand ($8,200,000) Dollars (the "Maximum Amount"). (b) The Indemnitor shall not be liable for damages in excess of the actual damages suffered by the Indemnitee as a result of the act, circumstance, or condition for which indemnification is sought net of any insurance proceeds received by the Indemnitee or any tax benefits realized by the Indemnitee as a result of the Losses for which indemnification is claimed. 12.8. Subrogation. Upon payment in full of any Indemnification Claim, whether such payment is effected by set-off or otherwise, or the payment of any judgment or settlement with respect to a Third Party Claim, the rights of the Indemnitors shall be subrogated to the extent of such payment to the rights of the Indemnitee against any person or entity with respect to the subject matter of such Indemnification Claim or Third Party Claim. 12.9. Cooperation. The Company, the Sellers and Buyer shall cooperate with each other in all reasonable respects in connection with the defense of any claim, including making available records relating to such claim and furnishing, without expense, management employees of the party as may be reasonably necessary for the preparation of the defense of any such claim or for testimony as a witness in any proceeding relating to such claim; provided, however, that the foregoing right to cooperation shall not be exercisable by one party in such a manner as to interfere unreasonably with the normal operations and business of the other party. ARTICLE 13 MISCELLANEOUS 13.1. Expenses. Each party to this Agreement shall pay its own costs and expenses (including all legal, accounting, broker, finder and investment banker fees) relating to this Agreement, the negotiations leading up to this Agreement and the transactions contemplated by this Agreement; provided that the Company shall pay the expenses of the Sellers. 13.2. Investigation. Buyer acknowledges that Buyer and its representatives have received or been given access to all information, documents and other materials concerning the Company which Buyer and its representatives deem appropriate -55- 63 in the circumstances and have been afforded the opportunity to ask questions of and receive answers from management employees of the Company regarding the Company and its business in connection with Buyer's determination to enter into this Agreement and to consummate the transactions contemplated hereby. Any inspection, preparation, or compilation of information or Schedules, or audit of the inventories, properties, financial condition, or other matters relating to the Company conducted by or on behalf of Buyer pursuant to this Agreement shall in no way limit, affect, or impair the ability of Buyer to rely on the representations, warranties, covenants, and agreements of the Company and the Sellers set forth herein, except that Buyer may not assert any claim hereunder for a breach of or a default under any of the Company's or any of the Sellers' representations, warranties or covenants if, prior to the Closing, Buyer knows of such breach or default and such breach or default would have resulted in the failure of Sellers to deliver the certificate described in Section 9.1 hereof, and Buyer does not give to the Company or the Sellers notice thereof pursuant to Section 8.4. Any disclosure made on one Schedule shall not be deemed made on any other Schedule, unless appropriate cross-referencing is made. The covenants and representations and warranties of the Company, the Sellers and Buyer shall survive the Closing and the execution and delivery of all instruments for the periods set forth in Section 12.6. 13.3. Governing Law. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without giving effect to the principles of conflict of laws thereof. (b) To the extent permitted by law, each of the Buyer, the Sellers, and the Company hereby irrevocably submits to the jurisdiction of any Delaware State court or United States federal court over any suit, action or other proceeding brought by any party arising out of or relating to this Agreement and each of the Company and the Buyer hereby irrevocably agrees that all claims with respect to such suit, action or other proceeding shall be heard and determined in such courts. 13.4. Binding Effect; Persons Benefiting; No Assignment. This Agreement shall inure to the benefit of and be binding upon the parties hereto and the respective successors and assigns of the parties and such persons. Nothing in this Agreement is intended or shall be construed to confer upon any entity or person other than the parties hereto and their respective successors and permitted assigns any right, remedy or claim under or by reason of this Agreement or any part hereof. Except as provided in this Section 13.4, prior to the Closing, without the prior written consent of the parties hereto, this Agreement may not be assigned by any of the parties hereto; provided, however, that at the Closing, Buyer may assign all of its rights to be indemnified as provided in Article 12 to any lender or lenders providing financing to Buyer subject to all of the provisions hereof and all rights, remedies and defenses that the Sellers or the Company could assert against Buyer. From and after any such assignment, the word "Buyer" shall mean such assignee. -56- 64 13.5. Amendments. This Agreement may not be amended, altered or modified except by a written instrument executed by all of the Sellers, Buyer and the Company. 13.6. Interpretation. When a reference is made in this Agreement to a Section or Schedule, such reference shall be to a Section of, or a Schedule to, this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words "include", "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation". Words used herein, regardless of the number and gender specifically used, shall be deemed and construed to include any other number, singular or plural, and any other gender, masculine, feminine, or neuter, as the context requires. Any reference to a "person" herein shall include an individual, firm, corporation, partnership, trust, governmental authority or body, association, unincorporated organization or any other entity. 13.7. Counterparts. This Agreement may be executed in two (2) or more counterparts, each of which shall be deemed an original and all of which shall constitute one and the same instrument, and shall become effective when one counterpart has been signed by each party and delivered to the other parties hereto. 13.8. Entire Agreement. This Agreement, including the Schedules, Exhibits, certificates and lists referred to herein, and any documents executed by the parties simultaneously herewith or pursuant thereto, constitute the entire understanding and agreement of the parties hereto with respect to the subject matter hereof and supersede all other prior agreements and understandings, written or oral, between the parties with respect to such subject matter. 13.9. Severability. If any provisions of this Agreement, or the application thereof to any person or circumstance, is invalid or unenforceable in any jurisdiction, (i) a substitute and equitable provision shall be substituted therefor in order to carry out, so far as may be valid and enforceable in such jurisdiction, the intent and purpose of the invalid or unenforceable provision; and (ii) the remainder of this Agreement and the application of such provision to other persons or circumstances shall not be affected by such invalidity or unenforceability, nor shall such invalidity or unenforceability of such provision affect the validity or enforceability of such provision, or the application thereof, in any other jurisdiction. 13.10. Waiver. Waiver of any term or condition of this Agreement by any party shall only be effective if in writing and shall not be construed as a waiver of any subsequent breach or failure of the same term or condition, or a waiver of any other term or condition of this Agreement. 13.11. Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given when delivered -57- 65 (a) by hand, (b) by telex or telecopier (with receipt confirmed), provided a copy is also sent by registered mail, return receipt requested, (c) by courier, or (d) by overnight service, addressed as follows (or to such other address as a party may designate by notice to the other): (a) If to the Buyer: SAC Acquisition Corp. c/o CGW Southeast Partners III, L.P. Twelve Piedmont Center, Suite 210 Atlanta, Georgia 30305 Attention: William A. Davies Telecopier: (404) 816-3258 with copies (which shall not constitute notice) to: Alston & Bird One Atlantic Center 1201 West Peachtree Street Atlanta, Georgia 30309 Attention: Teri L. McMahon, Esq. Telecopier: (404) 881-4777 (b) If to the Company: SIMCALA, Inc. P.O. Box 68 Mt. Meigs, Alabama 36057 Attention: Carl Edward Boardwine Telecopier: (334) 215-8232 with copies (which shall not constitute notice) to: Schulte Roth & Zabel LLP 900 Third Avenue New York, New York 10022 Attention: Andre Weiss, Esq. Telecopier: 212-593-5955 -58- 66 and copies (which shall not constitute notice) to: Roy S. Goldfinger, P.C. 4137 Carmichael Road, Suite 210 P. O. Box 231555 (36123-1555) Montgomery, Alabama 36106 Attention: Roy S. Goldfinger, Esq. Telecopier: (334) 277-7007 (c) If to Charter Oak Partners: P.O. Box 5147 10 Wright Street, Building B Westport, Connecticut 06880 Attention: Anthony J. Dowd Telecopier: (203) 222-2720 (d) If to Capital One Investors: 111 Chester Avenue, Suite 815 Cleveland, Ohio 44144 Attention: James Petras Telecopier: (216) 781-0158 (e) If to Carl Edward Boardwine: c/o SIMCALA, Inc. P.O. Bo 68 Mt. Meigs, Alabama 36057 Attention: Carl Edward Boardwine Telecopier: (334) 215-2969 (f) If to Dwight L. Goff: c/o SIMCALA, Inc. P.O. Box 68 Mt. Meigs, Alabama 36057 Attention: Dwight L. Goff Telecopier: (334) 215-8969 -59- 67 (g) If to R. Myles Cowan: c/o SIMCALA, Inc. P.O. Box 68 Mt. Meigs, Alabama 36057 Attention: R. Myles Cowan Telecopier: (334) 215-8969 (h) If to George W. Rapp, Jr.: c/o SIMCALA, Inc. P.O. Box 68 Mt. Meigs, Alabama 36057 Attention: George W. Rapp, Jr. Telecopier: (334) 215-8969 (The remainder of this page was intentionally left blank.) -60- 68 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. SAC ACQUISITION CORP. By: /s/ William A. Davies --------------------------------------- Name: Title: SIMCALA, INC. By: /s/ C. Edward Boardwine --------------------------------------- Name: Title: SELLERS: Charter Oak Partners -------------------- Jerrold N. Fine Managing Partner of Fine Partners L.P., the Managing Partner of Charter Oak Partners /s/ Jerrold N. Fine -------------------------------------------- Capital One Investors --------------------- By: MCK Corporation, General Partner By: /s/ James M. Petras ----------------------------------- James M. Petras, President of MCK Corporation By: Briseis Capital Corporation, General Partner By: /s/ James D. Ireland III ----------------------------------- James D. Ireland III, President of Briseis Capital Corporation 69 Carl Edward Boardwine --------------------- /s/ Carl Edward Boardwine ----------------------------------------------- Dwight L. Goff -------------- /s/ Dwight L. Goff ----------------------------------------------- R. Myles Cowan -------------- /s/ R. Myles Cowan ----------------------------------------------- George W. Rapp, Jr. ------------------- /s/ George W. Rapp, Jr. ----------------------------------------------- 70 AMENDMENT TO THE STOCK PURCHASE AGREEMENT AMENDMENT, dated as of March 4, 1998, to the Stock Purchase Agreement, dated as of February 10, 1998 (the "Purchase Agreement"), by and among SIMCALA, Inc., a Delaware corporation (the "Company"), each of the individuals and entities listed under the heading "Sellers" on the signature pages hereto (each being a "Seller", and all of them together being the "Sellers"), and SAC ACQUISITION CORP., a Georgia corporation (the "Buyer"). WHEREAS, all capitalized terms used herein without definition shall have their respective meanings in the Purchase Agreement; WHEREAS, in connection with the acquisition of all of the issued and outstanding capital stock of the Company pursuant to the Purchase Agreement, the Buyer is proposing to issue certain debt securities (the "Debt Financing") and merge into the Company (the "Merger"); WHEREAS, in connection with the Debt Financing, Deloitte & Touche, LLP, the certified independent public accountants for the Buyer, has audited new financial statements for the fiscal year ended December 31, 1997 (the "D&T Financial Statements") which differ from the Financial Statements, including changes in the treatment of certain interest expenses, compensation from employee options and tax reserves; and WHEREAS, the parties desire to reaffirm certain aspects of the Purchase Price adjustment and the adjustment procedures as set forth in the Purchase Agreement. NOW, THEREFORE, the parties hereto agree as follows: 1. The Buyer hereby confirms that the use of the D&T Financial Statements by the Company does not and will not constitute a breach of any representation, warranty or covenant in the Purchase Agreement. Delivery by the management of the Company of the representation letter relating to the D&T Financial Statements shall not be used as evidence with respect to any claim by the Buyer of a breach of any representation or warranty under the Purchase Agreement. The foregoing shall in no other way affect or limit any rights of the Buyer under the Purchase Agreement, including, without limitation, the right to cite to any item disclosed by the D&T Financial Statements as a basis for a claim of a breach of any representation or warranty in the Purchase Agreement. 2. The accounting principles, policies and estimates used by the Company in preparing the December 31, 1997 Financial Statements audited by Crowe Chizek will be consistently used to determine the Adjustment Amount at the Closing without regard to the D&T Financial Statements. 71 3. None of the differences between the Financial Statements and the D&T Financial Statements will be used to revise the Adjustment Amount pursuant to Section 2.6 of the Purchase Agreement. 4. The Sellers consent to the Merger. The Agreement, as amended hereby, is in all respects ratified and confirmed, and shall continue to be in full force and effect. 5. This Amendment shall be governed by and construed in accordance with the laws of the State of Delaware without giving effect to the principles of conflict of laws thereof. 6. This Amendment may be executed in two or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. [End of Text] -2- 72 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first written above. SAC ACQUISITION CORP. By: /s/ William A. Davies ---------------------------------------------- Name: Title: SIMCALA, INC. By: /s/ C. Edward Boardwine ---------------------------------------------- Name: Title: SELLERS: CHARTER OAK PARTNERS Jerrold N. Fine Managing Partner of Fine Partners L.P. the Managing Partner of Charter Oak Partners CAPITAL ONE INVESTORS By: MCK Corporation, General Partner By: /s/ James M. Petras ------------------------------------------ James M. Petras, President By: Briseis Capital Corporation, General Partner By: /s/ James D. Ireland III ------------------------------------------ James D. Ireland III, President CARL EDWARD BOARDWINE /s/ Carl Edward Boardwine -------------------------------------------------- DWIGHT L. GOFF /s/ Dwight L. Goff -------------------------------------------------- R. MYLES COWAN /s/ R. Myles Cowan -------------------------------------------------- GEORGE W. RAPP, JR. /s/ George W. Rapp, Jr. -------------------------------------------------- -3- EX-2.2 3 SAC ACQUISITION CORP AS ACQUIROR OF SIMCALA INC 1 EXHIBIT 2.2 SAC Acquisition Corp. as Acquiror of SIMCALA, Inc. $75,000,000 9 5/8% SENIOR NOTES DUE 2006 PURCHASE AGREEMENT March 24, 1998 NationsBanc Montgomery Securities LLC 100 North Tryon Street Charlotte, North Carolina 28255 Ladies and Gentlemen: SAC Acquisition Corp., a Georgia corporation ("SAC"), proposes to issue and sell to you (the "Initial Purchaser") $75,000,000 aggregate principal amount of its 9 5/8% Senior Notes due 2006 (the "Securities") in connection with SAC's acquisition (the "Acquisition") of SIMCALA, Inc., a Delaware corporation (the "Company"). Upon consummation of the Acquisition, SAC will be merged with and into the Company, with the Company being the surviving corporation (the "Merger"). The Securities are to be issued pursuant to an indenture, dated as of March 31, 1998 (the "Indenture"), between SAC and IBJ Schroder Bank & Trust Company, as trustee (the "Trustee"). Immediately after consummation of the Acquisition, the Company and the Initial Purchaser will enter into the Purchase Agreement Supplement (the "Purchase Agreement Supplement"), in substantially the form attached as Exhibit A hereto, pursuant to which the Company will assume all the rights and obligations of SAC under this Agreement. The sale of the Securities to the Initial Purchaser will be made without registration of the Securities under the Securities Act of 1933, as amended (the "Securities Act"), in reliance upon exemptions from the registration requirements of the Securities Act. You have advised SAC that you will offer and sell the Securities purchased by you hereunder in accordance with Section 3 hereof as soon as you deem advisable. In connection with the sale of the Securities, SAC has prepared a preliminary offering memorandum, dated March 6, 1998 (the "Preliminary Memorandum") and a final offering memorandum, dated March 24, 1998 (the "Final Memorandum"). Each of the Preliminary Memorandum and the Final Memorandum sets forth certain information concerning the Company and the Securities. SAC hereby confirms that it has authorized the use of the Preliminary Memorandum and the Final Memorandum, and any amendment or supplement thereto, in connection with the offer and sale of the Securities by the Initial Purchaser. Unless stated to the contrary, all references herein to the Final Memorandum are to the Final Memorandum at the time of execution and delivery of this 2 Agreement (the "Execution Time") and are not meant to include any amendment or supplement thereof, subsequent to the Execution Time. The Initial Purchaser and its direct and indirect transferees will be entitled to the benefits of the Registration Rights Agreement, substantially in the form attached hereto as Exhibit B (the "Registration Rights Agreement"), pursuant to which SAC will agree to use commercially reasonable efforts to commence an offer to exchange the Securities for the Series B Notes (as defined in the Registration Rights Agreement) that have been registered under the Securities Act, and that otherwise are identical in all respects to the Securities (except that holders of the Series B Notes shall not generally have the registration rights provided by the Registration Rights Agreement), or to cause a shelf registration statement to become effective under the Securities Act and to remain effective for the period designated in such Registration Rights Agreement. Immediately after consummation of the Acquisition, the Company and the Initial Purchaser will enter into the Registration Rights Agreement Supplement (the "Registration Rights Agreement Supplement"), in substantially the form attached as Exhibit A thereto, pursuant to which the Company will assume all the rights and obligations of SAC under the Registration Rights Agreement. 1. REPRESENTATIONS AND WARRANTIES. SAC represents and warrants to the Initial Purchaser as follows: (a) The Preliminary Memorandum, at the date thereof, did not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. The Final Memorandum, at the date hereof, does not, and at the Closing Date (as defined below) will not (and any amendment or supplement thereto, at the date thereof and at the Closing Date, will not), contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however that SAC makes no representation or warranty as to the information relating to the Initial Purchaser contained in or omitted from the Preliminary Memorandum or the Final Memorandum, or any amendment or supplement thereto, in reliance upon and in conformity with information furnished in writing to SAC by or on behalf of the Initial Purchaser specifically for inclusion therein. (b) Neither SAC nor the Company, nor any of their "Affiliates" (as defined in Rule 501(b) of Regulation D under the Securities Act ("Regulation D")), nor any person acting on their behalf has, directly or indirectly, made offers or sales of any security, or solicited offers to buy any security, under circumstances that would require the registration of the Securities under the Securities Act. Neither SAC nor the Company, nor any of their Affiliates, nor any person acting on their behalf has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D) in connection with any offer or sale of the Securities, provided, that SAC makes no representation in this sentence regarding the Initial Purchaser. The Securities satisfy the eligibility requirements of Rule 144A(d)(3) under the Securities Act. The Final Memorandum and each amendment or supplement thereto, as of its date, contains the information specified in Rule 144A(d)(4) under the Act. 2 3 (c) Neither SAC nor the Company nor any of their Affiliates or any person acting on its or their behalf (other than the Initial Purchaser, as to whom SAC makes no representation) has engaged or will engage in any directed selling efforts within the meaning of Regulation S under the Securities Act ("Regulation S") with respect to the Securities. The Securities offered and sold in reliance on Regulation S have been and will be offered and sold only in offshore transactions. The sale of the Securities pursuant to Regulation S is not part of a plan or scheme to evade the registration provisions of the Securities Act. No registration under the Securities Act of the Securities is required for the sale of the Securities to the Initial Purchaser as contemplated hereby or for the Exempt Resales (as defined below) assuming the accuracy of, and compliance with, the Initial Purchaser's representations, warranties and agreements set forth in this Agreement. The Securities sold pursuant to Regulation S will initially be represented by a temporary global security as required by Rule 903(c)(3)(ii) of Regulation S. (d) Neither SAC nor the Company is, or will be after giving effect to the offering and sale of the Securities and the application of the net proceeds therefrom as described in the Final Memorandum, an "investment company" within the meaning of the Investment Company Act of 1940, as amended (the "Investment Company Act"). (e) Assuming (i) that the representations and warranties and covenants of the Initial Purchaser contained in Section 3 hereof are true and correct; (ii) that the Initial Purchaser complies with its agreements contained in Section 3 hereof and (iii) that the representations and warranties by each Accredited Investor (as defined herein) in the letter to be delivered by Accredited Investors, substantially in the form of Annex A to the Final Memorandum (each, an "AI Letter"), of such Accredited Investor are true and correct, and compliance by such Accredited Investor therewith, registration under the Securities Act of the Securities or qualification of the Indenture under the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"), is not required in connection with (A) the offer and sale of the Securities to the Initial Purchaser in the manner contemplated by the Final Memorandum or this Agreement and (B) initial resales of the Securities by the Initial Purchaser on the terms and in the manner set forth in the Final Memorandum and Section 3 hereof are exempt from the registration requirements of the Securities Act. (f) Since the respective dates as of which information is given in the Preliminary Memorandum and the Final Memorandum, except as otherwise stated therein, (i) there has been no material adverse change in the condition (financial or otherwise), results of operations or affairs of the Company, whether or not arising in the ordinary course of business (a "Material Adverse Change") and (ii) there have been no material transactions entered into by the Company. (g) Each of the Company and SAC has been duly organized and is validly existing as a corporation in good standing under the laws of the state of its incorporation with corporate power and authority to own, lease and operate its properties and conduct its business as described in the Preliminary Memorandum and the Final Memorandum; and each of the Company and SAC is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which the conduct of its business requires such 3 4 qualification, except to the extent that the failure to be so qualified or be in good standing would not, singly or in the aggregate, reasonably be expected to have a material adverse effect on the condition (financial or otherwise), results of operations or affairs of the Company (a "Material Adverse Effect"). (h) All of the issued and outstanding capital stock of the Company at December 31, 1997 was, in all material respects, as set forth in the "Historical" column under the caption "Capitalization" in the Preliminary Memorandum and the Final Memorandum. All of the outstanding shares of capital stock of the Company have been duly authorized and validly issued and are fully paid and nonassessable. There are no subsidiaries of the Company. (i) This Agreement has been duly authorized, executed and delivered by SAC. Immediately after the Acquisition is consummated on the Closing Date, the Purchase Agreement Supplement will have been duly authorized, executed and delivered by the Company. (j) The Securities have been duly authorized by SAC, and, when executed and authenticated in accordance with the provisions of the Indenture and delivered to and paid for by the Initial Purchaser in accordance with this Agreement, will constitute the valid and binding obligations of SAC enforceable against SAC in accordance with their terms, and will be entitled to the benefits of the Indenture, except that enforcement thereof may be subject to (A) bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws now or hereafter in effect relating to or affecting creditors' rights generally and (B) general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law). (k) The Indenture has been duly authorized by SAC and, when duly executed and delivered by SAC (assuming the due execution and delivery by the Trustee), will constitute a valid and binding agreement of SAC, enforceable against SAC in accordance with its terms, except that enforcement thereof may be subject to (A) bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws now or hereafter in effect relating to or affecting creditors' rights generally and (B) general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law). When the Merger is consummated on the Closing Date, the Supplemental Indenture, dated as of March 31, 1998, by and between the Company and the Trustee (the "Supplemental Indenture") will have been duly authorized, executed and delivered by the Company. (l) The Series B Notes have been duly authorized and, when duly executed and authenticated in accordance with the provisions of the Indenture, and issued and delivered, will be validly issued and outstanding, and will constitute the valid and binding obligations of SAC, entitled to the benefits of the Indenture and enforceable against SAC in accordance with their terms except that enforcement thereof may be subject to (A) bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws now or hereafter in effect relating to or affecting creditors' rights generally and (B) general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law). 4 5 (m) The Registration Rights Agreement has been duly authorized by SAC and when duly executed and delivered by SAC (assuming the due execution and delivery by the Initial Purchaser), will constitute a valid and binding agreement of SAC, enforceable against SAC in accordance with its terms except that (i) enforcement thereof may be subject to (A) bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws now or hereafter in effect relating to or affecting creditors' rights generally and (B) general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law) and (ii) the enforceability of any indemnification or contribution provisions thereof may be limited under applicable securities laws or the public policies underlying such laws. Immediately after the Acquisition is consummated on the Closing Date, the Registration Rights Agreement Supplement will have been duly authorized, executed and delivered by the Company. (n) On the Closing Date, when duly authorized, executed and delivered by the Company (assuming the due execution and delivery by the other parties thereto) the credit agreement (the "New Credit Agreement") governing the New Credit Facility (as defined in the Final Memorandum) will constitute the valid and binding agreement of the Company enforceable against the Company in accordance with its terms except that (i) enforcement thereof may be subject to (A) bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws now or hereafter in effect relating to or affecting creditors' rights generally and (B) general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law) and (ii) the enforceability of any indemnification or contribution provisions thereof may be limited under applicable securities laws or public policies. (o) The stock purchase agreement, dated February 10, 1998, among SAC, the Company and the Selling Stockholders (as defined in the Final Memorandum) (the "Stock Purchase Agreement"), pursuant to which SAC will purchase all of the outstanding capital stock of the Company, has been duly authorized, executed and delivered by, and constitutes the valid and binding agreement of, the parties thereto, enforceable against them in accordance with its terms except as enforcement thereof may be subject to (A) bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws now or hereafter in effect relating to or affecting creditors' rights generally and (B) general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law). The Stock Purchase Agreement is in full force and effect and, to the knowledge of SAC, there exists no breach by any of the parties thereto of any representation or covenant thereunder and no facts have come to the attention of SAC that have led SAC to believe that the conditions to the consummation of the transactions contemplated thereby will not be satisfied or waived in accordance with the terms thereof. (p) When duly authorized, executed and delivered by SAC and the Company, the merger agreement (the "Merger Agreement"), pursuant to which the Merger will be consummated, will be the valid and binding agreement of SAC and the Company, enforceable against SAC and the Company in accordance with its terms except as enforcement thereof may be subject to (A) bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws now or hereafter in effect relating to or affecting creditors' rights 5 6 generally and (B) general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law). (q) The execution, delivery and performance of this Agreement, the Purchase Agreement Supplement, the Indenture, the Supplemental Indenture, the Registration Rights Agreement, the Registration Rights Agreement Supplement, the Merger Agreement, the Stock Purchase Agreement and the New Credit Agreement (collectively, the "Transaction Documents") by SAC or the Company, as the case may be, and the consummation of the transactions contemplated hereby and thereby will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan or credit agreement or other agreement or instrument to which the Company is a party or by which the Company or is bound or to which any of the properties or assets of the Company are subject, nor will such actions result in any violation of the provisions of the charter or by-laws of the Company or any statute to which it is subject or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company or any of its properties or assets (except to the extent any such conflict, breach, violation or default singly or in the aggregate, would not reasonably be expected to have a Material Adverse Effect); and except (A) for such consents, approvals, authorizations, registrations or qualifications as may be required under applicable state securities and Blue Sky laws in connection with the purchase and distribution of the Securities by the Initial Purchaser or as set forth in the Registration Rights Agreement and (B) in connection with the registration under the Securities Act of the Series B Notes pursuant to the Registration Rights Agreement (including, without limitation, the qualification of the Indenture under the Trust Indenture Act and any filings with the NASD), no consent, approval, authorization or order of, or filing or registration with, any such court or governmental agency or body is required for the execution, delivery and performance of the Transaction Documents by SAC or the Company (to the extent a party thereto), the consummation of the transactions contemplated hereby and thereby, and the issuance and sale of the Notes and the Series B Notes by SAC. (r) The Company is not in breach or violation of any of the terms or provisions of any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company is a party or by which the Company is bound or to which any of the properties or assets of the Company are subject, nor is the Company in violation of the provisions of its charter or by-laws or any statute or any judgment, order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company, or any of its properties or assets (except to the extent any such conflict, breach, violation or default is cured at or prior to the Closing Date and within the grace period applicable thereto or would not, singly or in the aggregate, reasonably be expected to have a Material Adverse Effect). (s) As of the Closing Date, the Securities and the Indenture will conform in all material respects to the descriptions thereof contained in the Final Memorandum. As of the Closing Date, the provisions of the Registration Rights Agreement, the Merger Agreement the Stock Purchase Agreement and the New Credit Agreement (as defined in the Final Memorandum), to the extent that such provisions are summarized in the Final Memorandum, will conform in all material respects to the descriptions thereof contained in the Final Memorandum. 6 7 (t) Except as set forth in the Registration Rights Agreement, there are no contracts, agreements or understandings between the Company and any person granting such person the right to require the Company to file a registration statement under the Securities Act with respect to any securities owned or to be owned by such person or to require the Company to include such securities in any securities being registered pursuant to any registration statement filed by the Company under the Securities Act. (u) Except as set forth in the Preliminary Memorandum and the Final Memorandum, there is no action, suit or proceeding before or by any court or governmental agency or body, domestic or foreign, now pending or, to the knowledge of SAC and the Company, threatened against or affecting the Company which would reasonably be expected to result in a Material Adverse Change or, singly or in the aggregate, reasonably be expected to have a Material Adverse Effect or materially and adversely affect the initial resale of the Securities by the Initial Purchaser. (v) The Company has good title to all personal property owned by it and necessary in the conduct of the business of the Company free and clear of all liens, encumbrances and defects except (i) such as are referred to in the Final Memorandum or (ii) such as do not materially and adversely affect the value of such property to the Company and do not interfere with the use made and proposed to be made of such property by the Company to an extent that such interference would, singly or in the aggregate, reasonably be expected to have a Material Adverse Effect. All leases to which the Company is a party are valid and binding, and no default has occurred and is continuing thereunder which could, singly or in the aggregate, reasonably be expected to have a Material Adverse Effect or materially and adversely affect the offering of the Securities, and the Company and its subsidiaries enjoy peaceful and undisturbed possession under all such leases to which any of them is a party as lessee (with such exceptions as do not materially interfere with the use made by the Company). The Company possesses adequate certificates, authorizations or permits issued by the appropriate state, federal or foreign regulatory agencies or bodies necessary to conduct the business now operated by it, and except as set forth in the Final Memorandum, the Company has not received any notice of proceedings relating to the revocation or modification of any such certificate, authority or permit which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would, singly or in the aggregate, reasonably be expected to have a Material Adverse Effect. (w) Each of Ernst & Young LLP, Crowe Chizek & Company LLP and Deloitte & Touche LLP, who have certified certain financial statements of the Company are independent public accountants within the meaning of the Securities Act and the rules and regulations thereunder. The financial statements included in the Preliminary Memorandum and the Final Memorandum present fairly in all material respects the financial position of the Company as at the dates and for the periods indicated; said financial statements have been prepared in conformity with generally accepted accounting principles applied on a consistent basis during the periods involved, except as indicated therein, and comply as to form in all material respects with the requirements applicable to such financial statements included in registration statements under the Securities Act. The Company maintains a system of internal accounting controls 7 8 sufficient to provide reasonable assurances that (i) transactions are executed in accordance with management's general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability; (iii) access to assets is permitted only in accordance with management's general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. The pro forma financial information included in the Preliminary Memorandum and the Final Memorandum have been prepared on a basis consistent with the historical financial statements of the Company and give effect to assumptions used in the preparation thereof on a reasonable basis and in good faith and present fairly, in all material respects, the historical and proposed transactions contemplated by the Preliminary Memorandum and the Final Memorandum; and such pro forma financial information comply as to form in all material respects with the requirements applicable to pro forma financial information included in registration statements on Form S-1 under the Act. The other pro forma financial and statistical information and data included in the Preliminary Memorandum and the Final Memorandum are, in all material respects, accurately presented and prepared on a basis consistent with the pro forma financial statements. The historical and pro forma financial information included in the Preliminary Memorandum and the Final Memorandum constitute all of the financial statements that would be required to be included in a registration statement on Form S-1 under the Securities Act. (x) The Company is not now and, after giving effect to the issuance of the Securities, and the application of the net proceeds thereof, will not be (i) insolvent, (ii) left with unreasonably small capital with which to engage in its anticipated businesses or (iii) incurring debts beyond its ability to pay such debts as they become due. (y) Except as would not reasonably be expected to have a Material Adverse Effect, the Company owns, or otherwise possesses the right to use, all patents, trademarks, service marks, trade names and copyrights, all applications and registrations for each of the foregoing, and all other proprietary rights and confidential information used in the conduct of its business as currently conducted; and the Company has not received any notice, or is otherwise aware, of any infringement of or conflict with the rights of any third party with respect to any of the foregoing which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would reasonably be expected to have a Material Adverse Effect. The Company does not own or otherwise possess the right to use any patents, trademarks, service marks, trade names and copyrights, the loss of which would result in a Material Adverse Effect. (z) The Company is (i) in compliance with any and all applicable foreign, federal, state and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants ("Environmental Laws"), (ii) has received all permits, licenses or other approvals required under applicable Environmental Laws to conduct its business and (iii) is in compliance with all terms and conditions of any such permit, license or approval, except where such 8 9 noncompliance with Environmental Laws, failure to receive required permits, licenses or other approvals or failure to comply with the terms and conditions of such permits, licenses or approvals would not, singly or in the aggregate, reasonably be expected to have a Material Adverse Effect. (aa) No labor dispute between the Company and its employees exists or, to the knowledge of SAC, is threatened which, singly or in the aggregate, would reasonably be expected to have a Material Adverse Effect. (ab) Neither the Company nor, to SAC's knowledge, any director, officer, agent, employee, stockholder or other person, in any such case, acting on behalf of the Company has used any corporate funds during the last five years for any unlawful contribution, gift, entertainment or other unlawful expense relating to political activity; made any unlawful payment to any foreign or domestic government official or employee from corporate funds; violated or is in violation of any provision of the Foreign Corrupt Practices Act of 1977, as amended; or made any bribe, payoff, influence payment, kickback or other payment that is unlawful. (ac) The Company has not taken and will not take, any action that would cause this Agreement or the issuance or sale of the Securities and the Series B Notes to violate Regulation G, T, U or X of the Board of Governors of the Federal Reserve System or analogous foreign laws and regulations. (ad) Other than as set forth on Schedule I hereto, the Company is not a party to any contract or agreement that would be required to be filed with the Securities and Exchange Commission (the "Commission") as an exhibit to a registration statement on Form S-1 pursuant to entries (2), (4) and (10) of the Exhibit Table of Item 601 of Regulation S-K under the Securities Act. (ae) Neither SAC nor any Affiliate of SAC has sold, offered for sale or solicited offers to buy or otherwise negotiated in respect of any security (as defined in the Securities Act) in a transaction that would require the registration under the Securities Act of the Securities. (af) Neither the issuance or sale of the Securities nor the application by SAC or the Company of the net proceeds therefrom as set forth in the Final Memorandum will violate Regulation G, T, U or X of the Board of Governors of the Federal Reserve System. 2. PURCHASE AND SALE. On the basis of the representations and warranties contained in, and subject to the terms and conditions of, this Agreement, SAC agrees to sell to the Initial Purchaser and the Initial Purchaser agrees to purchase from SAC the aggregate principal amount of Securities set forth opposite its name as shown in Schedule II hereto, at a purchase price equal to 97.0% of the principal amount thereof. SAC shall not be obligated to deliver any of the Securities to be delivered except upon payment for all the Securities to be purchased as provided herein. 9 10 3. SALE AND RESALE OF THE SECURITIES BY THE INITIAL PURCHASER. The Initial Purchaser represents and warrants to SAC that: (a) It will offer the Securities to be purchased hereunder for resale only upon the terms and conditions set forth in this Agreement and in the Final Memorandum. (b) It (i) will not solicit offers for, or offer or sell, the Securities by means of any form of general solicitation or general advertising within the meaning of Regulation D or in any manner involving a public offering within the meaning of Section 4(2) of the Securities Act, and (ii) will solicit offers for the Securities only from, and will offer, sell or deliver the Securities, as part of its initial offering, only to the following persons (each an "Eligible Purchaser"): (A) persons whom the Initial Purchaser reasonably believes to be qualified institutional buyers ("QIBs") as defined in Rule 144A under the Securities Act, as such rule may be amended from time to time ("Rule 144A") or, if any such person is buying for one or more institutional accounts for which such person is acting as fiduciary or agent, only when such person has represented to the Initial Purchaser that each such account is a QIB, to whom notice has been given that such sale or delivery is being made in reliance on Rule 144A, (B) to a limited number of institutional accredited investors as defined in Rule 501(a) (1), (2), (3) or (7) under Regulation D ("Accredited Investors") that, prior to their purchase of the Securities, execute and deliver an AI Letter and (C) outside the United States in offshore transactions in reliance on Regulation S ((A), (B) and (C) are, collectively, "Exempt Resales"). (c) With respect to Securities sold in reliance on Regulation S, (i) neither the Initial Purchaser nor any of its affiliates nor anyone acting on its behalf has offered or sold, or will offer or sell, any Securities by means of any directed selling efforts (as defined in Rule 902 of Regulation S) in the United States, (ii) at or prior to confirmation of all sales of Securities made in reliance on Regulation S, it will have sent to each distributor, dealer or person receiving a selling concession, fee or other remuneration that purchases the Securities from it during the restricted period a confirmation or notice to substantially the following effect: "The Securities covered hereby have not been registered under the U.S. Securities Act of 1933 (the "Securities Act") and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons (i) as part of a distribution thereof at any time or (ii) until 40 days after the later of the date of the commencement of the offering and the closing date, except in either case in accordance with an exemption from or in a transaction not subject to the Securities Act. Terms used above have the meanings given them by Regulation S under the Securities Act." The sale of the Securities to non-U.S. persons in offshore transactions is not part of a plan or scheme to avoid the registration requirements of the Securities Act. (d) (i) It has not solicited, and will not solicit, offers to purchase any of the Securities from, (ii) it has not sold, and will not sell, any of the Securities to, and (iii) it has 10 11 not distributed, and will not distribute, the Preliminary Memorandum or the Final Memorandum to, any person or entity in any jurisdiction outside of the United States except, in each case, in compliance in all material respects with all applicable laws of such jurisdiction. For purposes of this Agreement, "United States" means the United States of America, its territories, its possessions (including the Commonwealth of Puerto Rico), and other areas subject to its jurisdiction. (e) Unless prohibited by applicable law, (i) it will furnish to each person to whom it offers any Securities, a copy of the Preliminary Memorandum (as amended or supplemented) or Final Memorandum or (unless delivery of such Preliminary Memorandum is required by applicable law) shall inform each such person that a copy of such Preliminary Memorandum or the Final Memorandum will be available upon request and (ii) it will furnish to each person to whom it sells Securities a copy of the Final Memorandum (as then amended or supplemented by applicable law) and shall inform each such person that a copy of such Final Memorandum will be available upon request. 4. DELIVERY OF AND PAYMENT FOR THE SECURITIES. Delivery of and payment for the Securities shall be made at the office of Alston & Bird LLP, 1201 W. Peachtree Street, Atlanta, Georgia at 9:00 A.M., on March 31, 1998, or at such other date or place as shall be determined by agreement between the Initial Purchaser and SAC. This date and time are sometimes referred to as the "Closing Date." On the Closing Date, SAC shall deliver or cause to be delivered the Securities to the Initial Purchaser for the account of the Initial Purchaser against payment to or upon the order of SAC of the purchase price by wire transfer in immediately available funds. Time shall be of the essence, and delivery at the time and place specified pursuant to this Agreement is a further condition of the obligation of the Initial Purchaser hereunder. Upon delivery, the Securities shall be in definitive fully registered form and registered in the name of Cede & Co., as nominee of the Depositary Trust Company ("DTC"), or such other name or names and in such denominations as the Initial Purchaser shall request in writing not less than one business day prior to the Closing Date. For the purpose of expediting the checking and packaging of the Securities, SAC shall make the Securities available for inspection by the Initial Purchaser in Atlanta, Georgia, not later than 2:00 P.M., on the business day prior to the Closing Date. 5. FURTHER AGREEMENTS OF SAC. SAC agrees with the Initial Purchaser as set forth below in this Section 5: (a) SAC will furnish to the Initial Purchaser, without charge, as many copies of the Final Memorandum and any supplements and amendments thereto as the Initial Purchaser may reasonably request. (b) Prior to making any amendment or supplement to the Preliminary Memorandum or the Final Memorandum, SAC shall furnish a copy thereof to the Initial Purchaser and counsel to the Initial Purchaser and will not effect any such amendment or supplement to which the Initial Purchaser shall reasonably object by notice to SAC after a reasonable period to review. 11 12 (c) If, at any time prior to completion of the distribution of the Securities by the Initial Purchaser, any event shall occur or condition exist as a result of which it is necessary, in the opinion of counsel for the Initial Purchaser or counsel for SAC, to amend or supplement the Final Memorandum in order that the Final Memorandum will not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein not misleading in light of the circumstances existing at the time it is delivered to a purchaser, or if it is necessary to amend or supplement the Final Memorandum to comply with applicable law, SAC will promptly prepare such amendment or supplement as may be necessary to correct such untrue statement or omission or so that the Final Memorandum, as so amended or supplemented, will comply in all material respects with applicable law and furnish to the Initial Purchaser such number of copies of such amendment or supplement as they may reasonably request. (d) So long as any Securities are outstanding and are "Restricted Securities" within the meaning of Rule 144(a)(3) under the Securities Act and during any period in which SAC is not subject to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), SAC will furnish to holders of the Securities and prospective purchasers of Securities designated by such holders, upon request of such holders or such prospective purchasers, the information, if any, required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act. (e) So long as the Securities and the Series B Notes are outstanding, SAC will furnish to the Initial Purchaser copies of any annual reports, quarterly reports and current reports filed with the Commission on Forms 10-K, 10-Q and 8-K, or such other similar forms as may be designated by the Commission as the successor or successors to such forms, and such other documents, reports and information as shall be furnished by SAC to the Trustee or to the holders of the Securities and the Series B Notes pursuant to the Indenture. (f) SAC will use commercially reasonable efforts to qualify the Securities for sale under the securities or Blue Sky laws of such jurisdictions as the Initial Purchaser reasonably designates and to continue such qualifications in effect so long as reasonably required for the distribution of the Securities. SAC will also arrange for the determination of the eligibility for investment of the Securities under the laws of such jurisdictions as the Initial Purchaser reasonably requests. Notwithstanding the foregoing, SAC shall not be obligated to (i) qualify as a foreign corporation or as a broker or dealer in securities in any jurisdiction in which it would not otherwise be required to so qualify, (ii) file a general consent to service of process or (iii) subject itself to taxation in respect of doing business in any jurisdiction in which it is not otherwise subject. (g) SAC will use commercially reasonable efforts to permit the Securities to be designated National Association of Securities Dealers, Inc. Private Offerings, Resales and Trading through Automated Linkages Market ("PORTAL") securities in accordance with the rules and regulations adopted by the National Association of Securities Dealers, Inc. relating to trading in the PORTAL market and to permit the Securities to be eligible for clearance and settlement through DTC. 12 13 (h) Except following the effectiveness of any Registration Statement (as defined in the Registration Rights Agreement) and except for such offers as may be made as a result of, or subsequent to, filing such Registration Statement or amendments thereto in accordance with the Registration Rights Agreement prior to the effectiveness of such filings, SAC will not solicit any offer to buy or offer to sell the Securities by means of any form of general solicitation or general advertising (as those terms are used in Regulation D under the Securities Act) or in any manner involving a public offering within the meaning of Section 4(2) of the Securities Act. (i) SAC will consummate the transactions contemplated by the Stock Purchase Agreement in accordance with the terms thereof, and apply the net proceeds from the sale of the Securities, in each case, as set forth in the Final Memorandum. (j) The Company will not take any action that would require the registration under the Securities Act of the Securities (other than pursuant to the Registration Rights Agreement) including, without limitation, (i) engaging in any directed selling efforts (within the meaning of Regulation S) during any applicable restricted period or (ii) offering any other securities in a manner that would be integrated with the transactions contemplated hereby. (k) Prior to the consummation of the Exchange Offer or the effectiveness of an applicable shelf registration statement pursuant to the Registration Rights Agreement, if, in the reasonable judgment of the Initial Purchaser, the Initial Purchaser or any of its affiliates are required to deliver an offering memorandum in connection with sales of, or market-making activities with respect to, the Securities, (A) SAC will periodically amend or supplement the Final Memorandum so that the information contained in the Final Memorandum complies with the requirements of Rule 144A of the Securities Act, (B) SAC will amend or supplement the Final Memorandum when necessary to reflect any material changes in the information provided therein so that the Final Memorandum will not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in light of the circumstances existing as of the date the Final Memorandum is so delivered, not misleading and (C) SAC will provide the Initial Purchaser with copies of each such amended or supplemented Final Memorandum, as the Initial Purchaser may reasonably request. SAC hereby expressly acknowledges that the indemnification and contribution provisions of Section 8 hereof are specifically applicable and relate to each offering memorandum, registration statement, prospectus, amendment or supplement referred to in this Section 5(m). (l) On the Closing Date, immediately after consummation of the Acquisition, the Company shall authorize, execute and deliver the New Credit Agreement, and satisfy the conditions precedent to the initial extension of credit thereunder (unless such conditions shall have been waived). (m) On the Closing Date, immediately after consummation of the Acquisition, SAC shall cause the Company to, and the Company shall, authorize, execute 13 14 and deliver the Purchase Agreement Supplement, the Registration Rights Agreement Supplement and the Supplemental Indenture. (n) On the Closing Date, no event of default or event which, with the giving of notice or passage of time or both, would constitute an event of default, shall have occurred and be continuing under the New Credit Agreement and all conditions to the extension of credit thereunder shall have been satisfied or waived. (o) On the Closing Date and immediately after consummation of the Acquisition and the Merger, Alston & Bird LLP, counsel for the Company, shall have furnished to the Initial Purchaser its written opinion (containing customary limitations that shall be reasonably satisfactory to the Initial Purchaser's counsel), addressed to the Initial Purchaser and dated the Closing Date, in form and substance reasonably satisfactory to the Initial Purchaser, to the effect that: (i) The Company has the corporate power and authority to execute and deliver the Purchase Agreement Supplement, the Supplemental Indenture, the Series B Notes and the Registration Rights Agreement Supplement and to consummate the transactions contemplated thereby. (ii) The execution and delivery of the Purchase Agreement Supplement and the Registration Rights Agreement Supplement have been duly authorized by all requisite corporate action of the Company. The Purchase Agreement Supplement and the Registration Rights Agreement Supplement have been duly executed and delivered by the Company. (iii) The execution and delivery of the Supplemental Indenture have been duly authorized by all requisite corporate action of the Company. The Supplemental Indenture has been duly executed and delivered by the Company and assuming due authorization, execution and delivery by the Trustee, is a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, subject to (A) bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws now or hereafter in effect relating to or affecting creditors' rights generally and (B) general principles of equity (regardless of whether enforceability is considered in proceeding n equity or at law) and the exercise of discretionary authority of any court before which a proceeding may be brought. (iv) Assuming due authorization thereof by the Trustee in accordance with the Indenture and payment therefor by the Initial Purchaser in accordance with the Agreement, the Securities are valid and binding obligations of the Company enforceable against the Company in accordance with their terms, except that enforcement thereof may be subject to (A) bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws now or hereafter in effect relating to or affecting creditors' rights generally and (B) general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or 14 15 at law) and the exercise of discretionary authority of any court before which a proceeding may be brought. (v) The execution and delivery of the Series B Notes have been duly authorized by all requisite corporate action of the Company and, when duly executed and delivered by the Company and duly authenticated by the Trustee in accordance with the Indenture, will be valid and binding obligations of the Company entitled to the benefits of the Indenture and will be enforceable against the Company in accordance with their terms, subject to (A) bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws now or hereafter in effect relating to or affecting creditors' rights generally and (B) general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law) and the exercise of discretionary authority of any court before which a proceeding may be brought. (vi) Upon the filing of the Certificate of Merger with the Secretary of State of the State of Delaware and the Articles of Merger with the Secretary of State of the State of Georgia, each relating to the Merger, the Merger will be effective. (p) On the Closing Date and immediately after consummation of the Acquisition and the Merger, Wolf, Block, Schorr & Solis-Cohen LLP, special New York counsel to the Company, shall have furnished to the Initial Purchaser its written opinion (containing customary limitations that shall be reasonably satisfactory to the Initial Purchaser's counsel), addressed to the Initial Purchaser and dated the Closing Date, in form and substance reasonably satisfactory to the Initial Purchaser, to the effect that: (i) Assuming the due authorization, execution and delivery thereof by the Company and Initial Purchaser, the Registration Rights Agreement Supplement is a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except that (A) enforceability of the Registration Rights Agreement Supplement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general principles of equity and the discretion of the court before which any proceedings therefor may be brought and (B) any rights to indemnity or contribution thereunder may be limited by public policy considerations. (q) SAC will take all commercially reasonable measures necessary to satisfy the closing conditions set forth in Section 7 on its part to be fulfilled. (r) The Initial Purchaser shall have received a certificate, dated the Closing Date, signed on behalf of the Company by (i) C. Edward Boardwine, President and Chief Executive Officer and (ii) R. Myles Cowan, II, Vice President of Finance, confirming that (A) such officers have participated in conferences with other officers and representatives of the Company, representatives of the independent public accountants of the Company and representatives of counsel to the Company at which the contents of the Final Memorandum and related matters were discussed and (B) the matters set forth in paragraphs (c) and (d) of Section 15 16 7 of this Agreement are true and correct in material respects as of the Closing Date, except as such matters relate to SAC. 6. EXPENSES. SAC agrees to pay (a) the costs incident to the authorization, issuance, sale and delivery of the Securities and the Series B Notes and any issue or stamp taxes payable in that connection; (b) the printer costs incident to the preparation and printing of the Preliminary Memorandum, the Final Memorandum and any amendments, supplements and exhibits thereto; (c) the costs of distributing the Preliminary Memorandum, the Final Memorandum and any amendment or supplement thereto; (d) the fees and expenses of qualifying the Securities and the Series B Notes under the securities laws of the several jurisdictions as provided in Section 5(f) and of preparing, printing and distributing a Blue Sky Memorandum (including reasonable related fees and expenses of counsel to the Initial Purchaser); (e) the cost of printing the Securities and the Series B Notes; (f) the fees and expenses of the Trustee and any agent of the Trustee and the fees and disbursements of any counsel for the Trustee in connection with the Indenture and the Securities and the Series B Notes; (g) any fees paid to rating agencies in connection with the rating of the Securities and the Series B Notes; (h) the costs and expenses of DTC and its nominee, including its book-entry system; (i) all expenses and listing fees incurred in connection with the application for quotation of the Securities on the PORTAL market; and (j) all other costs and expenses incident to the performance of the obligations of SAC under this Agreement. 7. CONDITIONS OF INITIAL PURCHASER'S OBLIGATIONS. The obligations of the Initial Purchaser to purchase the Securities shall be subject to the accuracy of the representations and warranties on the part of SAC contained herein at the Execution Time and the Closing Date, to the accuracy of the statements of SAC made in any certificates pursuant to the provisions hereof, to the performance by SAC of its obligations hereunder in all material respects and to the following additional conditions: (a) The Initial Purchaser shall not have discovered and disclosed to SAC on or prior to the Closing Date that the Final Memorandum or any amendment or supplement thereto contains an untrue statement of a fact which, in the opinion of Latham & Watkins, counsel for the Initial Purchaser, is material or omits to state a fact which, in the opinion of such counsel, is material and is necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (b) The Final Memorandum shall have been printed and copies distributed to the Initial Purchaser as soon as practicable but in no event later than the Business Day following the date of this Agreement or at such later date and time as to which the Initial Purchaser may agree. (c) No action shall have been taken and no statute, rule, regulation or order shall have been enacted, adopted or issued by any governmental agency which would, as of the Closing Date, singly or in the aggregate, reasonably be expected to have a Material Adverse Effect; no action, suit or proceeding shall have been commenced and be pending against or affecting or, to the knowledge of SAC or the Company, threatened against, the Company before any court or arbitrator or any governmental body, agency or official that, singly or in the aggregate, if adversely determined, would reasonably be expected to result in a 16 17 Material Adverse Effect; and no stop order shall have been issued by the Commission or any governmental agency of any jurisdiction referred to in Section 5(f) preventing the use of the Final Memorandum, or any amendment or supplement thereto, or which would reasonably be expected to have a Material Adverse Effect. (d) Since the dates as of which information is given in the Final Memorandum and other than as set forth in the Final Memorandum, (i) there shall not have been any Material Adverse Change, or any development that is reasonably likely to result in a Material Adverse Change, or any material increase in the long-term debt, or material increase in the short-term debt, from that set forth in the Final Memorandum; (ii) no dividend or distribution of any kind shall have been declared, paid or made by the Company on any class of its capital stock; (iii) the Company shall not have incurred any liabilities or obligations, direct or contingent, that are material, individually or in the aggregate, to the Company and that are required to be disclosed on a balance sheet or notes thereto in accordance with generally accepted accounting principles and are not disclosed on the latest balance sheet or notes thereto included in the Final Memorandum. (e) The Initial Purchaser shall have received a certificate, dated the Closing Date, signed on behalf of SAC by (i) William A. Davies, Chairman of the Board and (ii) James A. O'Donnell, President, confirming that (A) such officers have participated in conferences with other officers and representatives of SAC and the Company, representatives of the independent public accountants of SAC and the Company and representatives of counsel to SAC and the Company at which the contents of the Final Memorandum and related matters were discussed and (B) the matters set forth in paragraphs (c) and (d) of this Section 7 are true and correct in material respects as of the Closing Date. (f) All corporate proceedings and other legal matters incident to the authorization, form and validity of the Transaction Documents, the Securities, the Series B Notes, the Final Memorandum and all other legal matters relating to this Agreement and the transactions contemplated hereby and thereby, shall be reasonably satisfactory in all material respects to counsel for the Initial Purchaser, and SAC and the Company shall have furnished to such counsel all documents and information that they may reasonably request to enable them to pass upon such matters. (g) Alston & Bird LLP, counsel for SAC, shall have furnished to the Initial Purchaser its written opinion (containing customary limitations that shall be reasonably satisfactory to the Initial Purchaser's counsel), addressed to the Initial Purchaser and dated the Closing Date, in form and substance reasonably satisfactory to the Initial Purchaser, to the effect that: (i) SAC is validly existing as a corporation and is in good standing under the laws of the jurisdiction of its incorporation. SAC is duly qualified to do business as a foreign corporation and is in good standing in each of the jurisdictions listed on an exhibit to such opinion. 17 18 (ii) The Company is validly existing as a corporation and is in good standing under the laws of its jurisdiction of incorporation. The Company is duly qualified to do business as a foreign corporation and is in good standing in each of the jurisdictions listed on an exhibit to such opinion. (iii) Assuming, (a) the accuracy of and compliance with the representations, warranties and covenants of SAC set forth in Section 1 of this Agreement, and (b) the accuracy of and compliance with the representations, warranties and covenants of the Initial Purchaser set forth in this Agreement, the offer, sale and delivery of the Securities to the Initial Purchaser, and the initial reoffer, resale and delivery of the Securities by the Initial Purchaser, as contemplated by this Agreement and the Final Memorandum, do not require registration under the Securities Act, or qualification of the Indenture under the Trust Indenture Act, it being understood that no opinion is expressed as to any subsequent resale of Securities or any resale of Securities by any person other than the Initial Purchaser. (iv) SAC has the corporate power and authority to execute and deliver and to consummate the transactions contemplated by this Agreement. The execution and delivery of this Agreement have been duly authorized by all requisite corporate action of SAC. This Agreement has been duly executed and delivered by SAC. (v) SAC has the corporate power and authority to execute and deliver and to consummate the transactions contemplated by the Indenture. The execution and delivery of the Indenture have been duly authorized by all requisite corporate action of SAC. The Indenture has been duly executed and delivered by SAC and assuming due authorization, execution and delivery by the Trustee is a valid and binding agreement of SAC, enforceable against SAC in accordance with its terms, except that enforcement thereof may be subject to (A) bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws now or hereafter in effect relating to or affecting creditors' rights generally and (B) general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law) and the exercise of discretionary authority of any court before which a proceeding may be brought. (vi) SAC has the corporate power and authority to issue and deliver the Securities as contemplated by the Purchase Agreement. The execution and delivery of the Securities have been duly authorized by all requisite corporate action of SAC. The Securities have been duly executed and delivered by SAC and, when authenticated by the Trustee in accordance with the Indenture and paid for by the Initial Purchaser in accordance with this Agreement, the Securities will be valid and binding obligations of SAC entitled to the benefits of the Indenture, and be enforceable against SAC in accordance with their terms, except that enforcement thereof may be subject to (A) bankruptcy, insolvency, fraudulent, conveyance, reorganization, moratorium and other similar laws now or hereafter in effect relating to or affecting creditors' rights generally and (B) general principles of equity (regardless of whether enforceability is 18 19 considered in a proceeding in equity or at law) and the exercise of discretionary authority of any court before which a proceeding may be brought. (vii) SAC has the corporate power and authority to execute and deliver and to consummate the transactions contemplated by the Registration Rights Agreement. The execution and delivery of the Registration Rights Agreement have been duly authorized by all requisite corporate action of SAC. The Registration Rights Agreement has been duly executed and delivered by SAC. (viii) SAC and the Company have the corporate power and authority to execute and deliver and to consummate the transactions contemplated by the Stock Purchase Agreement. The execution and delivery of the Stock Purchase Agreement have been duly authorized by all requisite corporate action of SAC and the Company. The Stock Purchase Agreement has been duly executed and delivered by SAC and the Company and, assuming the due authorization, execution and delivery by the other parties thereto, is a valid and binding agreement of the Company and SAC, enforceable against the Company and SAC in accordance with its terms, except that enforcement thereof may be subject to (A) bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws now or thereafter in effect relating to or affecting creditors' rights generally and (B) general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law) and the exercise of discretionary authority of any court proceeding in equity or at law) and the exercise of discretionary authority of any court before which a proceeding may be brought. The foregoing opinion shall be based on the assumption that the relevant provisions of Georgia and Delaware law are the same. (ix) The execution and delivery by SAC and the Company of the Transaction Documents to which they are or will be parties, respectively, and the consummation by SAC and the Company of the transactions contemplated hereby and thereby and by the Final Memorandum will not (A) to the knowledge of such counsel, result in a breach or violation of any of the terms or provisions of, or constitute a default under, any agreement listed on an exhibit to such opinion or (B) result in any violation of the provisions of the charter or by-laws of SAC or the Company or, to the knowledge of such counsel, any material statute, rule or regulation (other than Securities Laws (as defined below) as to which an opinion is given in paragraph (iii) above) with respect to SAC or the Company or, to the knowledge of such counsel, any order of any court or governmental agency having jurisdiction over SAC or the Company, except in each of the foregoing cases, for such breaches and violations that would not, singly or in the aggregate, reasonably be expected to have a Material Adverse Effect. (x) To the knowledge of such counsel, except for such consents, approvals or authorizations of, or filings, registrations or qualifications with, governmental authorities as may be required under the Securities Act and the rules and regulations thereunder, the Trust Indenture Act and the rules and regulations thereunder, pursuant to the rules and regulations of the NASD or applicable states 19 20 securities or Blue Sky laws, rules or regulations (all of such laws, rules and regulations are collectively referred to herein as "Securities Laws") in connection with the purchase and distribution of the Securities by the Initial Purchaser and as set forth in and in order to consummate the transactions contemplated by, the Registration Rights Agreement and the Registration Rights Agreement Supplement, no consent, approval, authorization or order of, or filing or registration with, any such court or governmental agency or body is required in connection with the execution and delivery by SAC and the Company of the Transaction Documents to which they are or will be party, and the consummation by SAC and the Company of the transactions contemplated hereby and thereby. (xi) The descriptions in the Final Memorandum of the Indenture, the Securities, the Registration Rights Agreement, the Merger Agreement, the Stock Purchase Agreement and the New Credit Agreement are accurate summaries of such documents in all material respects. (xii) The Company is not an "investment company" within the meaning of the Investment Company Act. (xiii) When the Securities are issued and delivered pursuant to this Agreement and the Purchase Agreement Supplement such Securities will not be of the same class (within the meaning of Rule 144A(d)(3) under the Securities Act) as securities of the Company that are listed on a national securities exchange registered under Section 6 of the Exchange Act or quoted on an automated inter-dealer quotation system. (xiv) Neither the issuance or sale of the Securities nor the application by the Company of the net proceeds therefrom as set forth in the Final Memorandum will violate Regulation G, T, U or X of the Board of Governors of the Federal Reserve System. In addition, such counsel shall also state that such counsel has participated in conferences with officers and representatives of SAC and the Company, representatives of the independent public accountants for SAC and the Company and the Initial Purchaser and its counsel at which the contents of the Final Memorandum and related matters were discussed and, although such counsel is not passing upon and does not assume any responsibility for and has not verified the accuracy, completeness or fairness of the statements contained in the Final Memorandum, and has not made any independent check or verification thereof, on the basis of the foregoing (relying as to materiality to the extent they deemed appropriate upon facts provided by officers and other representatives of SAC and the Company), no facts have come to the attention of such counsel that lead such counsel to believe that the Final Memorandum, as of its date or the Closing Date, contained an untrue statement of a material fact or omitted to state any material fact necessary to make the statements therein, in light of the circumstances under which there were made, not misleading (it being understood that such counsel need express no belief or opinion with respect to (i) the financial statements and notes and schedules thereto and other financial and statistical data included or referred to therein and (ii) the 20 21 matters disclosed in the Final Memorandum under "Risk Factors--Anti-Dumping Duties on Foreign Competitors' Products" and "Business--Environmental and Regulatory Matters--Anti-Dumping Duties on Foreign Competitors' Products"). (h) On the Closing Date, Wolf, Block, Schorr & Solis-Cohen LLP, special New York counsel to the Company, shall have furnished to the Initial Purchaser its written opinion (containing customary limitations that shall be reasonably satisfactory in all material respects to the Initial Purchaser's counsel), addressed to the Initial Purchaser and dated the Closing Date, in form and substance reasonably satisfactory to the Initial Purchaser, to the effect that: (i) Assuming the due authorization, execution and delivery thereof by SAC and Initial Purchaser, the Registration Rights Agreement is a legal, valid and binding obligation of SAC, enforceable against SAC in accordance with its terms, except that (A) enforceability of the Registration Rights Agreement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general principles of equity and the discretion of the court before which any proceedings therefor may be brought and (B) any rights to indemnity or contribution thereunder may be limited by public policy considerations. (i) On the Closing Date, Baker & Botts LLP, special regulatory counsel to the Company, shall have furnished to the Initial Purchaser its written opinion (containing customary limitations that shall be reasonably satisfactory in all material respects to the Initial Purchaser's counsel), addressed to the Initial Purchaser and dated the Closing Date, in form and substance reasonably satisfactory to the Initial Purchaser, to the effect that such counsel has reviewed the portions of the Preliminary Memorandum and the Final Memorandum set forth under the captions "Risk Factors--Anti-Dumping Duties on Foreign Competitors' Products" and "Business--Environmental and Regulatory Matters--Anti-Dumping Duties on Foreign Competitors' Products" (collectively, the "Antidumping Provisions") and, although such counsel is not passing upon and does not assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Preliminary Memorandum and the Final Memorandum, no facts have come to such counsel's attention which lead such counsel to believe that the Antidumping Provisions of the Preliminary Memorandum and the Final Memorandum contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (j) You shall have received on the Closing Date an opinion of Latham & Watkins, counsel for the Initial Purchaser, dated the Closing Date and addressed to you, in form and substance reasonably satisfactory to you. (k) SAC and the Trustee shall have entered into the Indenture and the Initial Purchaser shall have received executed counterparts thereof. (l) SAC and the Initial Purchaser shall have entered into the Registration Rights Agreement and the Initial Purchaser shall have received executed counterparts, thereof. 21 22 (m) At the Execution Time and at the Closing Date, Ernst & Young LLP, Crowe, Chizek and Company LLP and Deloitte & Touche LLP shall have furnished to the Initial Purchaser a letter or letters, dated respectively as of the Execution Time and as of the Closing Date, in form and substance reasonably satisfactory to the Initial Purchaser, confirming that they are independent accountants within the meaning of the Securities Act and the Exchange Act and the applicable rules and regulations thereunder and Rule 101 of the Code of Professional Conduct of the American Institute of Certified Public Accountants (the "AICPA") and otherwise reasonably satisfactory in form and substance to the Initial Purchaser and their counsel. (n) (i) The Company shall not have sustained since the date of the latest financial statements included in the Final Memorandum losses or interferences with its businesses, from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth or contemplated in the Final Memorandum and (ii) since such date there shall not have been any change in the capital stock or long-term debt of the Company or any change, or any development involving a prospective change, in or affecting the general affairs, management, financial position, stockholders' equity or results of operations of the Company otherwise than as set forth or contemplated in the Final Memorandum, the effect of which, in any such case described in clause (i) or (ii), is, in the reasonable judgment of the Initial Purchaser, so material and adverse as to make it impracticable or inadvisable to proceed with the offering or the delivery of the Securities being delivered on the Closing Date on the terms and in the manner contemplated herein and in the Final Memorandum. (o) Subsequent to the execution and delivery of this Agreement there shall not have occurred any of the following: (i) trading in securities generally on the New York Stock Exchange or The NASDAQ Stock Market's National Market or in the over-the-counter market shall have been suspended or materially limited, or minimum prices shall have been established on such exchange by the Commission, or by such exchange or by any other regulatory body or governmental authority having jurisdiction, (ii) a banking moratorium shall have been declared by Federal or New York state authorities, (iii) the United States shall have become engaged in hostilities, there shall have been an escalation in hostilities involving the United States or there shall have been a declaration of a national emergency or war by the United States or (iv) there shall have occurred such a material adverse change in general economic, political or financial conditions (or the effect of international conditions on the financial markets in the United States shall be such) as to make it, in the reasonable judgment of the Initial Purchaser, impracticable or inadvisable to proceed with the offering or delivery of the Securities being delivered on the Closing Date on the terms and in the manner contemplated herein and in the Final Memorandum. (p) As of the Closing Date, no "nationally recognized statistical rating organization" as such term is defined for purposes of Rule 436(g)(2) under the Securities Act (i) will have imposed (or will have informed the Company that it is considering imposing) any condition (financial or otherwise) on the Company's retaining any rating assigned to the Company any securities of the Company or (ii) will have indicated to the Company that it is 22 23 considering (a) the downgrading, suspension, or withdrawal of, or any review for a possible change that does not indicate the direction of the possible change in, any rating so assigned or (b) any change in the outlook for any rating of the Company, or any securities of the Company. (q) Latham & Watkins shall have been furnished with such documents, in addition to those set forth above, as they may reasonably require for the purpose of enabling them to review or pass upon the matters referred to in this Section 7 and in order to evidence the accuracy, completeness or satisfaction in all material respects of any of the representations, warranties or conditions herein contained. (r) On the Closing Date, the Acquisition shall have been consummated. (s) Prior to the Closing Date, SAC and the Company shall have furnished to the Initial Purchaser such further information, certificates and documents as the Initial Purchaser may reasonably request. All opinions, letters, evidence and certificates mentioned above or elsewhere in this Agreement shall be deemed to be in compliance with the provisions hereof only if they are in form and substance reasonably satisfactory to counsel for the Initial Purchasers. 8. INDEMNIFICATION AND CONTRIBUTION. (a) SAC agrees to indemnify and hold harmless the Initial Purchaser, the directors, officers, employees and agents (including, without limitation, attorneys) of the Initial Purchaser and each person who controls the Initial Purchaser within the meaning of either the Securities Act or the Exchange Act against any and all losses, claims, damages or liabilities, joint or several, to which they or any of them may become subject under the Securities Act, the Exchange Act or other Federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the Preliminary Memorandum, the Final Memorandum or any information provided by the SAC to any holder or prospective purchaser of Securities pursuant to Section 5(e), or in any amendment thereof or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, and agrees to reimburse each such indemnified party, as incurred, for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action: provided, however, that SAC will not be liable in any such case to the Initial Purchaser to the extent that any such loss, claim, damage, liability or action arises out of or is based upon any such untrue statement or alleged untrue statement or omission or alleged omission relating to such Initial Purchaser made in the Preliminary Memorandum or the Final Memorandum, or in any amendment thereof or supplement thereto, in reliance upon and in conformity with written information furnished to SAC by or on behalf of the Initial Purchaser specifically for inclusion therein; and, provided, further, that neither SAC nor the Company will be liable in any such case if a copy of the Preliminary Memorandum or the Final Memorandum (including any amendment or supplement thereto delivered to the Initial Purchaser prior to the date such Preliminary Memorandum or Final Memorandum was sent or given to such purchaser) was not sent or given by or on behalf of the Initial Purchaser to such 23 24 person at or prior to the written confirmation of the sale of Notes to such person, and the Preliminary Memorandum or Final Memorandum (including any amendment or supplement thereto delivered to the Initial Purchaser prior to the date such Preliminary Memorandum or Final Memorandum was sent or given to such purchaser) cured the defect giving rise to such losses, claims, damages, liabilities or expenses. (b) The Initial Purchaser agrees to indemnify and hold harmless SAC, its directors, officers, employees and agents (including, without limitation, attorneys), and each person who controls SAC within the meaning of either the Securities Act or the Exchange Act, to the same extent as the foregoing indemnity from SAC to the Initial Purchaser, but only with reference to written information relating to the Initial Purchaser furnished to SAC by or on behalf of the Initial Purchaser specifically for inclusion in the Preliminary Memorandum or the Final Memorandum (or in any amendment or supplement thereto). This indemnity agreement will be in addition to any liability which any Initial Purchaser may otherwise have. SAC and the Initial Purchaser acknowledge that the statements set forth in the last paragraph of the cover page and under the heading "Plan of Distribution" in the Preliminary Memorandum and the Final Memorandum constitute the only information furnished in writing by or on behalf of the Initial Purchaser for inclusion in the Preliminary Memorandum or the Final Memorandum (or any amendment or supplement thereto). (c) Promptly after receipt by an indemnified party under this Section 8 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 8, notify the indemnifying party in writing of the commencement thereof, but the failure so to notify the indemnifying party (i) will not relieve it from liability under paragraph (a) or (b) above unless and to the extent it did not otherwise learn of such action and such failure results in the forfeiture by the indemnifying party of substantial rights and defenses and (ii) will not, in any event, relieve the indemnifying party from any obligations to any indemnified party other than the indemnification obligation provided in paragraph (a) or (b) above. The indemnifying party shall be entitled to appoint counsel of the indemnifying party's choice at the indemnifying party's expense to represent the indemnified party in any action for which indemnification is sought (in which case the indemnifying party shall not thereafter be responsible for the fees and expenses of any separate counsel retained by the indemnified party or parties except as set forth below); provided, however that such counsel shall be reasonably satisfactory to the indemnified party. Notwithstanding the indemnifying party's election to appoint counsel to represent the indemnified party in an action, the indemnified party shall have the right to employ separate counsel (including local counsel), and the indemnifying party shall bear the reasonable fees, costs and expenses of such separate counsel if (i) the use of counsel chosen by the indemnifying party to represent the indemnified party would, in the opinion of legal counsel to the indemnified party, present such counsel with a conflict of interest, (ii) the actual or potential defendants in, or targets of, any such action include both the indemnified party and the indemnifying party and the indemnified party shall have been informed in writing by legal counsel that there may be legal defenses available to it and/or other indemnified parties which are different from or additional to those available to the indemnifying party, (iii) the indemnifying party shall not have employed counsel reasonably satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of the institution of such action or (iv) the indemnifying party shall authorize the indemnified party to employ separate counsel at the expense of the indemnifying party. An indemnifying party or an indemnified party will not, without the prior written consent of the indemnified parties or the indemnifying parties, as the case 24 25 may be, settle or compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified parties are actual or potential parties to such claim or action) unless such settlement, compromise or consent includes an unconditional release of each indemnified party or indemnifying party from all liability arising out of such claim, action, suit or proceeding. (d) In the event that the indemnity provided in paragraph (a) or (b) of this Section 8 is unavailable to or insufficient to hold harmless an indemnified party for any reason, SAC and the Initial Purchaser agree to contribute to the aggregate losses, claims, damages and liabilities (including legal or other expenses reasonably incurred in connection with investigating or defending same) (collectively "Losses") to which SAC and the Initial Purchaser may be subject in such proportion as is appropriate to reflect the relative benefits received by SAC and by the Initial Purchaser from the offering of the Securities; provided, however, that in no case shall the Initial Purchaser be responsible for any amount in excess of the purchase discount or commission applicable to the Securities purchased by the Initial Purchaser hereunder. If the allocation provided by the immediately preceding sentence is unavailable for any reason, SAC and the Initial Purchaser shall contribute in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Issuer and of the Initial Purchaser in connection with the statements or omissions which resulted in such Losses as well as any other relevant equitable considerations. Benefits received by SAC shall be deemed to be equal to the total net proceeds from the offering (before deducting expenses), and benefits received by the Initial Purchaser shall be deemed to be equal to the total purchase discounts and commissions received by the Initial Purchaser from the Issuer in connection with the purchase of the Securities hereunder. Relative fault shall be determined by reference to whether any alleged untrue statement or omission relates to information provided by SAC or the Initial Purchaser and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. SAC and the Initial Purchaser agree that it would not be just and equitable if contribution were determined by pro rata allocation or any other method of allocation that does not take account of the equitable considerations referred to above. Notwithstanding the provisions of this paragraph (d), no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 8, each person who controls the Initial Purchaser within the meaning of either the Securities Act or the Exchange Act and each director, officer, employee and agent of the Initial Purchaser shall have the same rights to contribution as the Initial Purchaser, and each person who controls SAC within the meaning of either the Securities Act or the Exchange Act and each partner, officer, director, employee and agent of SAC shall have the same rights to contribution as the Issuer, subject in each case to the applicable terms and conditions of this paragraph (d). 9. TERMINATION. The obligations of the Initial Purchaser hereunder may be terminated by the Initial Purchaser by notice given to and received by the Company prior to delivery of and payment for the Securities if, prior to that time, any of the events described in Section 7(n) shall have occurred or if the Initial Purchaser shall decline to purchase the Securities for any reason permitted under this Agreement. 25 26 10. NOTICES, ETC. All statements, requests, notices and agreements hereunder shall be in writing, and: (a) if to the Initial Purchaser, shall be delivered or sent by mail, telex or facsimile transmission to NationsBanc Montgomery Securities, LLC., 100 North Tryon Street, 20th Floor, Charlotte, North Carolina 28255, Attention: Mark Wilson, with a copy to Latham & Watkins, 885 Third Avenue, New York, New York 10022, Attention: Kirk A. Davenport; (b) if to SAC, shall be delivered or sent by mail, telex or facsimile transmission to SAC Acquisition Corp., c/o CGW Southeast Partners III, L.P., Twelve Piedmont Center, Suite 210, Atlanta, Georgia 30305, Attention: William A. Davies, with a copy to Alston & Bird LLP, 1201 West Peachtree Street, Atlanta, Georgia 30309-3424, Attention: Teri McMahon. Any such statements, requests, notices or agreements shall take effect at the time of receipt thereof. SAC shall be entitled to act and rely upon any request, consent, notice or agreement given or made on behalf of the Initial Purchaser. 11. PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This Agreement shall inure to the benefit of and be binding upon the Initial Purchaser, SAC and their respective successors. This Agreement and the terms and provisions hereof are for the sole benefit of only those persons, except that (A) the representations, warranties, indemnities and agreements of SAC contained in this Agreement shall also be deemed to be for the benefit of directors, officers, employees and agents (including, without limitation, attorneys) of the Initial Purchaser and the person or persons, if any, who control the Initial Purchaser within the meaning of Section 15 of the Securities Act and (B) the indemnity agreement of the Initial Purchaser contained in Section 8(b) of this Agreement shall be deemed to be for the benefit of directors of the Issuer, officers, employees and agents (including, without limitation, attorneys) of SAC and any person controlling any of SAC within the meaning of Section 15 of the Securities Act. Nothing in this Agreement is intended or shall be construed to give any person, other than the persons referred to in this Section 12, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision contained herein. 12. SURVIVAL. The respective indemnities, representations, warranties and agreements of SAC and the Initial Purchaser contained in this Agreement or made by or on behalf on them, respectively, pursuant to this Agreement, shall survive the delivery of and payment for the Securities and shall remain in full force and effect, regardless of any investigation made by or on behalf of any of them or any person controlling any of them. 13. DEFINITION OF "BUSINESS DAY." For purposes of this Agreement, "business day" means each Monday, Tuesday, Wednesday, Thursday and Friday that is not a day on which banking institutions in The City of New York, New York are authorized or obligated by law, executive order or regulation to close. 14. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE CONFLICT OF LAW RULES THEREOF. 26 27 15. COUNTERPARTS. This Agreement may be executed in one or more counterparts and, if executed in more than one counterpart, the executed counterparts shall each be deemed to be an original but all such counterparts shall together constitute one and the same instrument. 16. HEADINGS. The headings herein are inserted for convenience of reference only and are not intended to be part of, or to affect the meaning or interpretation of, this Agreement. 27 28 If the foregoing correctly sets forth the agreement between SAC and the Initial Purchaser, please indicate your acceptance in the space provided for that purpose below. Very truly yours, SAC ACQUISITION CORP. By: /s/ William A. Davies ------------------------------------ Name: William A. Davis Title: Chairman of the Board 29 The foregoing Agreement is hereby confirmed, accepted and agreed as of the date first above written. NATIONSBANC MONTGOMERY SECURITIES LLC By: /s/ Mark Wilson --------------------------------------- Name: Mark Wilson Title: Managing Director EX-2.3 4 PURCHASE AGREE SUPP 3/31/98-SIMCALA & NATIONSBANC 1 EXHIBIT 2.3 PURCHASE AGREEMENT SUPPLEMENT THIS PURCHASE AGREEMENT SUPPLEMENT is a supplement to that certain Purchase Agreement, dated March 31, 1998 (the "Purchase Agreement"), between SAC Acquisition Corp., a Georgia corporation ("SAC"), and NationsBanc Montgomery Securities LLC. (the "Initial Purchaser"). Unless otherwise defined herein, defined terms are used herein as defined in the Purchase Agreement. As a result of the consummation of the Merger, SAC was merged with and into SIMCALA, Inc., a Delaware corporation (the "Company"), with the Company being the surviving corporation. The Company and the Initial Purchaser hereby agree as follows: (a) the Company hereby (i) assumes the obligations, and makes the agreements, of SAC under the Purchase Agreement (including, without limitation, the agreements and obligations in Sections 5 and 8 thereof), and (ii) makes the representations and warranties of SAC to the Initial Purchaser contained therein; and (b) the Initial Purchaser hereby (i) reaffirms its obligations and agreements under the Purchase Agreement (including without limitation, the agreements and obligations in Section 8 thereof), and (ii) reaffirms to the Company its representations and warranties contained therein. For the purposes of Section 11 of the Purchase Agreement, the address of the Company shall be the address of the Company set forth in the Final Memorandum, Attention: C. Edward Boardwine, with copies to: (i) CGW Southeast Partners III, L.P., Twelve Piedmont Center, Suite 210, Atlanta, Georgia 30305, Attention: William A. Davies; and (ii) Alston & Bird LLP, 1201 West Peachtree Street, Atlanta Georgia 30309-3424, Attention Terri McMahon, Esq. This Purchase Agreement Supplement does not cancel or extinguish any right or obligation of the parties to the Purchase Agreement. The parties hereto agree that the Purchase Agreement shall be supplemented only with respect to the matters referred to herein and the provisions of the Purchase Agreement are otherwise in full force and effect. This Purchase Agreement Supplement may be executed in one or more counterparts and, if executed in more than one counterpart, the executed counterparts shall each be deemed to be an original and all such counterparts shall together constitute one and the same instrument. THIS PURCHASE AGREEMENT SUPPLEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF NEW YORK, WITHOUT REGARD TO THE CONFLICT OF LAW RULES THEREOF. 2 IN WITNESS WHEREOF, the undersigned has executed this Purchase Agreement Supplement as of March 31, 1998. SIMCALA, INC. BY: /s/ C. E. Boardwine ------------------------------------ NAME: C. EDWARD BOARDWINE TITLE: CHIEF EXECUTIVE OFFICER 3 The foregoing Agreement is hereby confirmed and accepted as of the date first above written. NATIONSBANC MONTGOMERY SECURITIES LLC By: /s/ Mark Wilson ---------------------------------------- Name: Mark Wilson Title: Managing Director EX-2.4 5 AGREE & PLAN OF MERGER - 3/31/98 SAC ACQ & SIMCALA 1 EXHIBIT 2.4 AGREEMENT AND PLAN OF MERGER BETWEEN SAC ACQUISITION CORP. AND SIMCALA, INC. THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") dated as of March 31, 1998 between SAC ACQUISITION CORP., a Georgia corporation ("SAC"), and SIMCALA, INC., a Delaware corporation ("SIMCALA"; together with SAC, the "Constituent Corporations") and a wholly-owned subsidiary of SAC, sets forth certain agreements in connection with the merger of SAC with and into SIMCALA (the "Merger"). W I T N E S S E T H: WHEREAS, as of the date hereof, SAC has the following authorized capital stock: 1,000,000 shares of common stock, no par value per share ("SAC Stock"). WHEREAS, as of the date hereof, there are outstanding 1,000 shares of SAC Stock, all of which are owned by SIMCALA Holdings, Inc., a Georgia corporation ("Holdings"). WHEREAS, as of the date hereof, SIMCALA has the following authorized capital stock: (a) 20,000 shares of common stock, par value $.01 per share ("SIMCALA Common Stock"), and (b) 4,500 shares of preferred stock ("SIMCALA Preferred Stock"), consisting of (i) 1,500 shares of Series A Preferred Stock, par value $1.00 per share, and (ii) 3,000 shares Series B Preferred Stock, par value $1.00 per share. The SIMCALA Common Stock and the SIMCALA Preferred Stock are collectively referred to herein as the "SIMCALA Stock." WHEREAS, as of the date hereof, there are outstanding 10,889 shares of SIMCALA Common Stock, all of which are owned by SAC, and no outstanding shares of SIMCALA Preferred Stock. WHEREAS, the respective boards of directors and stockholders of the Constituent Corporations have approved this Agreement, the Merger and the other transactions contemplated hereby. NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements herein contained, and for the purpose of setting forth the terms and conditions of the Merger, the method by which the Merger will be effected, the manner and basis of converting the shares of SAC Stock into shares of SIMCALA Stock, the manner of determining the effective date of the Merger and such other provisions as are deemed necessary or desirable, the parties hereto do hereby agree as follows: 2 ARTICLE I THE MERGER 1.1 Upon the terms and subject to the conditions of this Agreement and in accordance with applicable law, on the Effective Date (as defined below) SAC shall be merged with and into SIMCALA and the separate existence of SAC shall thereupon cease. SIMCALA shall be the surviving corporation in the Merger (hereinafter sometimes referred to as the "Surviving Corporation"), and the Surviving Corporation shall retain the name "SIMCALA, Inc." 1.2 On the Effective Date, the Surviving Corporation shall thereupon and thereafter possess all of the rights, privileges, immunities and franchises of a public and a private nature of each of the Constituent Corporations; all property, real, personal and mixed, tangible and intangible and all and every other interest of or due to each of the Constituent Corporations shall be taken and deemed to be transferred to and vested in the Surviving Corporation without further action. The title to any real estate, or any interest therein, vested in any of the Constituent Corporations shall not revert or in any way be impaired by reason of the Merger. The Surviving Corporation shall thenceforth be responsible and liable for all the liabilities and obligations of each of the Constituent Corporations. Neither the rights of creditors nor any liens upon the property of any of the Constituent Corporations shall be impaired by the Merger. 1.3 The Merger shall be effective as of the date on which the Articles of Merger are filed with the Secretary of State of Georgia and the Certificate of Ownership and Merger is filed with the Secretary of State of Delaware (the "Effective Date"). 1.4 On the Effective Date, (a) all of the issued and outstanding shares of SIMCALA Stock shall be canceled, and no consideration shall be paid or delivered in exchange therefor; and (b) each of the authorized, issued and outstanding shares of SAC Stock shall be converted into and become 10.889 shares of SIMCALA Stock, which shares of SIMCALA Stock shall be the capital stock of the Surviving Corporation on the Effective Date. SIMCALA shall issue to Holdings a new certificate for 10,889 shares of SIMCALA Common Stock upon surrender of Holdings' certificate for 1,000 shares of SAC Stock. ARTICLE II CERTIFICATE OF INCORPORATION, BYLAWS, DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION 2.1 The Articles of Incorporation of SIMCALA in effect immediately prior to the Effective Date of the Merger shall be the Articles of Incorporation of the Surviving Corporation unless and until amended as provided by law and by such Articles of Incorporation. 2.2 The Bylaws of SIMCALA in effect immediately prior to the Effective Date of the Merger shall be the Bylaws of the Surviving Corporation unless and until amended or repealed as provided by law, by the Articles of Incorporation of the Surviving Corporation and by such Bylaws. -2- 3 2.3 The directors of SIMCALA immediately prior to the Effective Date of the Merger shall be the directors of the Surviving Corporation, and the officers of SIMCALA immediately prior to the Effective Date of the Merger shall be the officers of the Surviving Corporation, in both cases until their successors shall have been elected and shall qualify or until otherwise provided by law, by the Articles of Incorporation of the Surviving Corporation and by the Bylaws of the Surviving Corporation. ARTICLE III FURTHER ACTIONS AND AGREEMENTS 3.1 If at any time after the Effective Date of the Merger the Surviving Corporation shall consider or be advised that any deeds, bills of sale, assignments, assurances or any other actions or things are necessary or desirable to vest, perfect or confirm of record or otherwise in the Surviving Corporation its right, title or interest in, to or under any of the rights, properties or assets of either Constituent Corporation acquired by the Surviving Corporation as a result of, or in connection with, the Merger or to otherwise carry out this Agreement, the officers and directors of the Surviving Corporation shall, and hereby are authorized to, execute and deliver, in the name and on behalf of the Constituent Corporations or otherwise, all such deeds, bills of sale, assignments and assurances and to take and do, in the name and on behalf of the Constituent Corporations or otherwise, all such other actions and things as may be necessary or desirable to vest, perfect or confirm any and all right, title and interest in, to and under such rights, properties or assets in the Surviving Corporation or to otherwise carry out this Agreement. ARTICLE IV MISCELLANEOUS 4.1 This Agreement shall be governed by and construed in accordance with the laws of the State of Georgia. 4.2 The parties hereto, by resolution of their respective boards of directors, may amend, modify or supplement this Agreement, or waive the application of any provision hereof, provided that any such amendment, modification, supplement or waiver is in writing and signed by the parties hereto. 4.3 By written notice to the other party hereto at any time prior to the Effective Date, whether before or after approval by the stockholders of the Constituent Corporations of this Agreement, the Merger and the other transactions contemplated hereby for any reason, either of the Constituent Corporations, by resolution of their respective boards of directors, may terminate this Agreement and abandon the Merger and the other transactions contemplated hereby, and in that event, neither party shall have any further obligation to the other party or to the stockholders of the other party. -3- 4 IN WITNESS WHEREOF, each Constituent Corporation has caused this Agreement to be executed by its duly authorized officers as of the date first above written. SAC ACQUISITION CORP., a Georgia corporation By: /s/ William A. Davies ----------------------------------------- William A. Davies Chairman of the Board SIMCALA, INC., a Delaware corporation By: /s/ William A. Davies ----------------------------------------- William A. Davies Chairman of the Board -4- EX-3.1 6 CERTIFICATE OF INCORPORATION OF COMPANY AMENDED 1 EXHIBIT 3.1 CERTIFICATE OF INCORPORATION OF SIMETAL CORP. A STOCK CORPORATION I, the undersigned, for the purpose of incorporating and organizing a corporation under the General Corporation Law of the State of Delaware, do hereby certify as follow: FIRST: The name of the corporation (the "Corporation") is SiMetal Corp. SECOND: The address of the Corporation's registered office in the State of Delaware is Corporation Service Company, City of Wilmington, County of New Castle, Delaware 19805. The name of the Corporation's registered agent at such address is Corporation Service Company. THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. FOURTH: The total number of shares which the Corporation shall have authority to issue is One Thousand (1,000) shares of Common Stock, par value of $.01 per share. FIFTH: Elections of directors need not be by written ballot except and to the extent provided in the by-laws of the Corporation. SIXTH: To the full extent permitted by the General Corporation Law of the State of Delaware or any other applicable laws presently or hereafter in effect, no director of the Corporation shall be personally liable to the Corporation or its stockholders for or with respect to any acts or omissions in the performance of his or her duties as a director of the Corporation. Any repeal or modification of this Article Sixth shall not adversely affect any right or protection of a director of the corporation existing immediately prior to such repeal or modification. 2 SEVENTH: Each person who is or was or had agreed to became a director or officer of the Corporation, or each such person who is or was serving or who had agreed to serve at the request of the Board of Directors or an officer of the Corporation as an employee or agent of the Corporation or as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise (including the heirs, executors, administrators or estate of such person), shall be indemnified by the corporation to the full extent permitted by the General Corporation Law of the State of Delaware or any other applicable laws as presently or hereafter in effect. Without limiting the generality or the effect of the foregoing, the Corporation may enter into one or more agreements with any person which provide for indemnification greater or different than that provided in this Article. Any repeal or modification of this Article Seventh shall not adversely affect any right or protection existing hereunder immediately prior to such repeal or modification. EIGHTH: In furtherance and not in limitation of the rights, powers, privileges, and discretionary authority granted or conferred by the General Corporation Law of the State of Delaware or other statutes or laws of the State of Delaware, the Board of Directors is expressly authorized to make, alter, amend or repeal the by-laws of the Corporation, without any action on the part of the stockholders, but the stockholders may make additional by-laws and may alter, amend or repeal any by-law whether adopted by them or otherwise. The Corporation may in its by-laws confer powers upon its Board of Directors in addition to the foregoing and in addition to the powers and authorities expressly conferred upon the Board of Directors by applicable law. NINTH: The Corporation reserves the right at any time and from time to time to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, and other provisions authorized by the laws of the State of Delaware at the time in force may be added or inserted, in the manner now or hereafter prescribed herein or by -2- 3 applicable law; and all rights, preferences and privileges of whatsoever nature conferred upon stockholders, directors or any other persons whomsoever by and pursuant to this Certificate of Incorporation in its present form or as hereafter amended are granted subject to this reservation. TENTH: The name and mailing address of the Incorporator is Sally A. Jamieson, North Point, 901 Lakeside Avenue, Cleveland, Ohio 44114. ELEVENTH: The name and mailing addresses of the persons who are to serve as directors of the corporation until the first annual meeting of stockholders or until their successors are elected and qualified are as follows:
NAME MAILING ADDRESS ---- --------------- James M. Petras c/o Capital One Investors 1111 Chester Avenue, Suite 550 Cleveland, Ohio 44114 James D. Ireland c/o Capital One Investors 1111 Chester Avenue, Suite 550 Cleveland, Ohio 44114
IN WITNESS WHEREOF, I the undersigned, being the incorporator hereinabove named, do hereby execute this Certificate of Incorporation this 29th day of August, 1994. /s/ Sally A. Jamieson --------------------------------------- Sally A. Jamieson -3- 4 CERTIFICATE OF AMENDMENT OF THE CERTIFICATE OF INCORPORATION OF SIMCALA, INC. The undersigned, being all of the Directors of SIMCALA, Inc. (the "Corporation"), a corporation organized and existing under the General Corporation Law of the State of Delaware, DO HEREBY CERTIFY: A. That on February 9, 1995, in lieu of a meeting and pursuant to Section 141(f) of the General Corporation Law of the State of Delaware, the Board of Directors of the Corporation did unanimously recommend the adoption of the following amendment to the Certificate of Incorporation of the Corporation: RESOLVED, that the Certificate of Incorporation of the Corporation, as amended, be amended by deleting Article FOURTH in its entirety and replacing it so as to read as follows: FOURTH: The total number of shares which the Corporation shall have the authority to issue is 24,500 and the shares shall be divided into classes as follows: (i) 20,000 shares of Common Stock, par value $.01 per share; and (ii) 4,500 shares of Preferred Stock (the "Preferred Stock") consisting initially of: (X) 1,500 shares of Series A Preferred Stock, par value $1.00 per share; and (Y) 3,000 shares of Series B Preferred Stock, par value $1.00 per share. The voting powers, designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions of the shares and the authority of the Board of Directors to provide for such powers, designations, preferences, rights and qualifications, limitations or restrictions are as follows (as used herein, references to a specific Paragraph refer to the applicable paragraph within the Division identified by the capitalized letter contained in the paragraph reference): 5 DIVISION A Express Terms of Series A Preferred Stock The express terms of SIMCALA, INC.'s (the "Company") series A Preferred stock (the "Series A Preferred Shares") are as follows: 1. Number. The total number of Series A Preferred Shares that this Company shall have authority to issue is one thousand five hundred (1,500), $1.00 par value per share. All Series A Preferred Shares redeemed, purchased, surrendered upon exchange or otherwise acquired by the Company shall be cancelled, retired and eliminated from the Series A Preferred Shares that the Company shall be authorized to issue. The Company may from time to time take such appropriate corporate action as may be necessary to reduce the authorized number of Series A Preferred Shares to reflect any such cancellation, retirement and elimination of Series A Preferred Shares. 2. Dividends. No dividends shall be paid on the Series A Preferred Shares. 3. Liquidation Preference. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company (a "Liquidation Event"), the holders of series A Preferred Shares shall be entitled to receive $2,000 (as adjusted to reflect any share split, combination, reclassification or similar event affecting the Series A Preferred Shares) (the "Liquidation Value") for each Series A Preferred Share outstanding. If the assets of the Company available for distribution to the holders of its capital stock shall be insufficient to permit payment to the holders of all outstanding Series A Preferred Shares of the full amount to which they are entitled, then all of the assets of the Company so available for distribution shall be distributed ratably among holders of Series A Preferred Shares based upon the aggregate liquidation preference of the Series A preferred Shares held by each such holder and the aggregate liquidation preference of all Series A Preferred Shares. The Liquidation Value shall be paid to holders of Series A Preferred Shares before any distribution may be made to the holders of common stock or any other stock of the Company ranking junior to the Series A Preferred Shares as to distribution of assets upon the occurrence of a Liquidation Event ("Junior Stock"). After the Liquidation Value shall have been paid to the holders of the Series A Preferred Shares or funds necessary for such payment shall have been set aside by the Company in trust for the benefit of the holders of the Series A Preferred Shares so as to be available for such payment, the holders of Series A Preferred Shares shall have no further rights with respect to any remaining assets of the Company legally available for distribution to the holders of its capital stock. A reorganization, consolidation or merger of the Company or a sale or other disposition of all or substantially all of the assets of the Company shall not be treated as a Liquidation Event. The Company shall not make distributions to the holders of common stock or Junior Stock upon the sale or other disposition of all or substantially all of the assets of the Company unless the Company -2- 6 shall have paid the Liquidation Value or set aside funds equal to the Liquidation Value for each of the outstanding Series A Preferred Shares. 4. Voting Rights. Except as specifically required by law, the holders of the Series A Preferred Shares shall not have any right or power to vote on any question or in any proceeding or to be represented at, or to receive notice of, any meeting of the Company's shareholders. 5. Exchange of Shares. (a) The Company, at its option, may at any time from time to time, exchange outstanding Series A Preferred Shares for Subordinated Promissory Notes, in the form attached hereto as Exhibit A (the "Exchange Notes"). In the event that the Company exercises its right to exchange Series A Preferred Shares into Exchange Notes, each holder of outstanding Series A Preferred shares shall receive Exchange Notes in an aggregate principal amount equal to the product of (i) the Liquidation Value times (ii) the number of Series A Preferred Shares then held by such holder. (b) The Company shall mail written notice of its intention to exchange Exchange Notes for Series A Preferred Shares to each holder of Series A Preferred Shares not less than 10 days prior to the date on which such exchange is to be made (the "Exchange Date"). Such notice shall state the Exchange Date and the place where certificates for such series A Preferred Shares are to be surrendered in exchange for Exchange Notes. (c) From and after the Exchange Date, the Series A Preferred Shares exchanged for Exchange Notes shall no longer be deemed to be issued and outstanding, and all rights of the holders of Series A Preferred Shares so exchanged as stockholders of the Company with respect to such Series A Preferred Shares (except for the right to receive Exchange Notes) shall cease and terminate. Upon surrender of the certificates for Series A Preferred Shares so exchanged (properly endorsed for transfer) in accordance with the Company's notice, the Company shall cause the Exchange Notes to be duly executed and delivered as provided above. 6. Redemption. (a) The Company shall redeem 230 of the issued and outstanding Series A Preferred Shares on the earlier to occur of the following (the "Initial Redemption Date"): (i) the date which in six months following the date, as determined in good faith by the Board of Directors of the Company, that all three of the Company's furnaces located in Mt. Meigs, Alabama are in operation or (ii) the second anniversary of the date on which the Series A Preferred Shares were originally issued. Thereafter, the Company shall redeem Series A Preferred Shares, as follows: -3- 7 (i) 100 of the issued and outstanding Series A Preferred Shares on each of the first, second and third anniversary of the Initial Redemption Date; (ii) 160 of the issued and outstanding Series A Preferred shares on each of the fourth and fifth anniversary of the Initial Redemption Date; and (iii) 210 of the issued and outstanding Series A Preferred Shares on each of the sixth, seventh and eighth anniversary of the Initial Redemption Date (the Initial Redemption Date and each other date on which Series A Preferred Shares are redeemed under this Section 6(a) or Section 6(b) shall be referred to as a "Redemption Date"). The redemption price for each series A Preferred Share redeemed shall be the Liquidation Value at the time of such redemption (the "Redemption Price"). The number of Series A Preferred Shares required to be redeemed on any Redemption Date under this Section 6(a) shall be reduced by the number of Series A Preferred Shares (i) redeemed by the Company under Section 6(b), (ii) exchanged for Exchange Notes under Section 5, (iii) or otherwise acquired by the Company at any time prior to such Redemption Date. (b) The Company may, at its option at any time from time to time, redeem any or all of the outstanding Series A Preferred Shares at the Redemption Price. (c) If on any Redemption Date the funds of the Company legally available for the redemption of Series A Preferred Shares are insufficient to redeem all Series A Preferred Shares required to be redeemed on such date, the number of Series A Preferred Shares legally permitted to be redeemed shall be redeemed, and any Series A Preferred Shares that the Company is legally unable to redeem shall be redeemed as soon thereafter as funds become legally available for such redemption. (d) At least 10 days prior to a Redemption Date the Company shall mail written notice of such redemption (the "Redemption Notice") to each holder of record of the Series A Preferred Shares that are to be redeemed, at its address shown on the records of the Company; provided, however, that the Company's failure to give such Redemption Notice with respect to a redemption under Section 6(a) shall in no way affect its obligation to redeem Series A Preferred Shares as provided in Section 6(a). The Redemption Notice shall state the Redemption Date and the Redemption Price, the number of Series A Preferred Shares to be redeemed, and the place where such holders of Series A Preferred Shares shall deliver certificates representing the Series A Preferred Shares to be redeemed. (e) Each holder of Series A Preferred Shares to be redeemed shall surrender the certificate or certificates representing such Series A Preferred Shares to the Company in proper form for transfer, and thereupon the applicable Redemption Price for such Series A Preferred Shares shall be paid to such holder. Each surrendered certificate shall be cancelled and retired and new certificates representing any Series A Preferred Shares not redeemed shall be issued to such holder. From and after the date on which the -4- 8 Redemption Price for Series A Preferred Shares shall have been paid to the holders of the Series A Preferred Shares or funds or other property necessary for such payment shall have been set aside by the Company in trust for the benefit of the holders of the Series A Preferred Shares so as to be available for such payment, the Series A Preferred Shares so redeemed shall no longer be deemed to be outstanding. 7. Transfer Restrictions. No holder of Series A Preferred Shares may transfer, assign, sell, pledge, encumber or otherwise dispose of any Series A Preferred Shares other than as approved in writing by the Board of Directors of the Company. All certificates representing Series A Preferred Shares shall bear a legend reflecting these transfer restrictions and all restrictions required by law. 8. No Other Rights, Preferences or Privileges. Unless otherwise required by law, the Series A Preferred Shares shall not have any rights, preferences or privileges other than those expressly set forth herein. -5- 9 DIVISION B Express Terms of Series B Preferred Stock The express terms of SIMCALA, INC.'s (the "Company") Series B Preferred stock (the "Series B Preferred Shares") are as follows: 1. Number. The total number of Series B Preferred Shares that the Company shall have authority to issue is three thousand (3,000), $1.00 par value per share. All Preferred shares redeemed, purchased or otherwise acquired by the Company shall be cancelled, retired and eliminated from the Series B Preferred Shares that the Company shall be authorized to issue. The Company may from time to time take such appropriate corporate action as may be necessary to reduce the authorized number of Series B Preferred Shares to reflect any such cancellation, retirement and elimination of Series B Preferred Shares. 2. Dividends. The holders of record of Series B Preferred Shares shall be entitled to receive, when and as declared by the Board of Directors out of funds legally available therefore, cumulative preferential cash dividends in the amount per share of $80.00 per annum payable quarterly, in arrears, on the last business day of March, June, September, and December commencing June 30, 1995. Dividends payable for any partial dividend period shall be computed on the basis of a 360-day year of twelve 30-day months. Dividends not declared and paid shall cumulate and accrue an a daily basis and interest shall accrue on such accrued dividends at the rate of eight percent (8%) per annum. Any and all such accrued dividends and interest thereon shall be paid as provided in Sections 3 and 5 hereof. 3. Liquidation Preference. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the company (a "Liquidation Event"), the holders of Series B Preferred Shares shall be entitled to receive before any payment or declaration and setting apart for payment of any amount shall be made in respect of any of the Company's shares of capital stock (other than the Company's outstanding Series A Preferred Stock, to which the Series B Preferred Shares are junior) $1,000 (as adjusted to reflect any share split, combination, reclassification or similar event involving the Series B Preferred Shares) for each Series B Preferred Share outstanding, plus all accrued and unpaid dividends thereon to and including the date full payment shall be tendered to the holders of the Series B Preferred Shares with respect to such Liquidation Event (the "Liquidation Value"). If, after the holders of the Company's Series A Preferred Shares have been paid, the assets of the Company are insufficient to permit the payment in full to the holders of the Series B Preferred Shares of the amounts thus distributable, then the remaining assets of the Company available for such distribution shall be distributed ratably among the holders of the Series B Preferred Shares based upon the aggregate liquidation preference of the Series B Preferred Shares held by each such holder and the aggregate -6- 10 liquidation preference of all Series B Preferred Shares. After such payment shall have been made in full to the holders of the Series B Preferred Shares, or funds necessary for such payment shall have been set aside by the Company in trust for the account of holders of the Series B Preferred Shares so as to be available for such payment, the holders of Series A Preferred Shares shall have no further rights with respect to any remaining assets of the company legally available for distribution to the holders of its capital stock. A reorganization, consolidation or merger of the Company or a sale or other disposition of all or substantially all of the assets of the Corporation shall not be treated as a Liquidation Event. The Corporation shall not make distributions to the holders of common stock upon the sale or other disposition of all or substantially all of the assets of the Company unless the Company shall have paid the Liquidation Value or set aside funds equal to the Liquidation Value for each of the outstanding Series A Preferred Shares and Series B Preferred Shares. 4. Voting Rights. Except as specifically required by law, the holders of Series B Preferred Shares shall not have. any right or power to vote on any question or in any proceeding or to be represented at, or to receive notice of, any meeting of the Company's shareholders. 5. Redemption of Series B Preferred Shares. (a) The Company may redeem, at any time from time to time, any and all of the outstanding Series B Preferred Shares at a price per share of $1,000 plus all accrued but unpaid cumulative dividends in 100 share increments (the "Redemption Price"). The Series B Preferred Shares to be redeemed shall be selected pro rata in accordance with the ratio the number of Series B Preferred Shares hold by each respective holder bears to the total number of Series B Preferred Shares then issued and outstanding. Each date on which Series B Preferred Shares are redeemed shall be referred to as a "Redemption Date." (b) At least 30 days prior to a Redemption Date, the Company shall mail written notice of such redemption (the "Redemption Notice") to each holder of record of the Series B Preferred Shares that are to be redeemed, at its address shown on the records of the Company. The Redemption Notice shall state the Redemption Date and the Redemption Price, the number of Series B Preferred Shares to be redeemed, and the place where such holders of Series B Preferred Shares shall deliver certificates representing the Series B Preferred Shares to be redeemed. (c) Each holder of Series B Preferred Shares to be redeemed shall surrender the certificate or certificates representing such Series B Preferred Shares to the Company, in proper form for transfer, and thereupon the applicable Redemption Price for such Series B Preferred Shares shall be paid to such holder. Each surrendered certificate shall be cancelled and retired and new certificates representing any Series B Preferred Shares not redeemed shall be issued to such holder. From and after the date on which the Redemption Price for Series B Preferred Shares shall have been paid to the holders of the -7- 11 Series B Preferred Shares or funds or other property necessary for such payment shall have been set aside by the Company in trust for the benefit of the holders of the Series B Preferred Shares so as to be available for such payment, the Series B Preferred Shares so redeemed shall no longer be deemed to be outstanding. 6. Transfer Restrictions. No holder of Series B Preferred Shares may transfer, assign, sell, pledge, encumber or otherwise dispose of any Series B Preferred Shares other than as approved in writing by the Board of Directors of the Company. All certificates representing Series B Preferred Shares shall bear a legend reflecting these transfer restrictions and all other restrictions required by law. 7. No Other Rights, Preferences or Privileges. Unless otherwise required by law, the Series B Preferred Shares shall not have any rights, preferences or privileges other than those expressly set forth herein. B. That in lieu of a meeting and vote of stockholders, the sole stockholder has given written consent to such amendment in accordance with the provisions of Section 228 of the General Corporation Law of the State of Delaware. C. That no part of the capital of said corporation having been paid, this certificate is filed pursuant to Section 241 of Title 8 of the Delaware Code, as amended. IN WITNESS WHEREOF, the undersigned do make this Certificate of Amendment, hereby declaring and certifying under penalties of perjury that this is their act and deed and the facts stated herein are true, and accordingly have hereunto set their hands this 9th day of February, 1995. /s/ James M. Petras ------------------------------------ James M. Petras /s/ James D. Ireland, III ------------------------------------ James D. Ireland, III -8- 12 EXHIBIT A TO PREFERRED STOCK TERMS ---------------------------------- PROMISSORY NOTE --------------- $ ____________, ____ -------------------------- Cleveland, Ohio FOR VALUE RECEIVED, SIMCALA, INC., a Delaware corporation ("Maker"), promises to pay in lawful money of the United States to [holder of Preferred Shares] ("Payee"), with offices at _____________________________, at such offices or at such other place as Payee may from time to time designate in writing, the principal sum of ____________________________________($____________). No interest shall be charged thereon. (This Note shall be repaid in the amounts and at the times that shares of the Series A Preferred Stock of Maker was to be redeemed under the terms thereof.) This Note may be prepaid, in whole or in part by Payor at any time prior to maturity without penalty or premium. The indebtedness evidenced by this Note is subordinated to all current and future secured indebtedness of Maker. This Note is given in exchange for shares of Series A Preferred Stock of Maker pursuant to the provisions of Section 5 of the terms of such stock. Neither this Note nor any rights under this Note may be sold, transferred, pledged, assigned or otherwise disposed of by Payee without the prior written consent of Maker. This Note shall be governed by and construed in accordance with the laws of the State of Ohio. IN WITNESS WHEREOF, Maker has caused this Note to be executed as of the day and year first above written. SIMCALA, INC. By: ------------------------------------ Name: 13 CERTIFICATE OF AMENDMENT OF THE CERTIFICATE OF INCORPORATION OF SIMETAL CORP. The undersigned, being all of the Directors of SiMetal Corp. (the "Corporation"), a corporation organized and existing under the General Corporation Law of the State of Delaware, DO HEREBY CERTIFY: A. That a resolution was adopted by a Consent of the Board of Directors Without a Meeting dated September 7, 1994 proposing and declaring advisable the following amendment to the Certificate of Incorporation of the Corporation: FIRST: The name of the Corporation shall be SIMCALA, Inc. B. The Corporation has not received any payment for any of its stock. C. That such amendment bas been duly adopted in accordance with the provisions of Section 241 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, the undersigned do make this Certificate of Amendment, hereby declaring and certifying under penalty of perjury that this is their act and deed and the facts stated herein are true, and accordingly have hereunto set their hands this 7th day of September, 1994. /s/ James M. Petras --------------------------------------- James M. Petras /s/ James D. Ireland --------------------------------------- James D. Ireland EX-3.2 7 BYLAWS OF THE COMPANY 1 EXHIBIT 3.2 SIMCALA, INC. BY-LAWS 2 SIMCALA, INC. BY-LAWS Table of Contents
Page ---- ARTICLE I - MEETINGS OF STOCKHOLDERS Section 1. Time and Place of Meetings.......................................... 1 Section 2. Annual Meeting ..................................................... 1 Section 3. Special Meetings ................................................... 1 Section 4. Notice of Meetings ................................................. 2 Section 5. Quorum ............................................................. 2 Section 6. Voting ............................................................. 2 ARTICLE II - DIRECTORS Section 1. Powers ............................................................. 3 Section 2. Number and Term of Office .......................................... 3 Section 3. Vacancies and New Directorships..................................... 4 Section 4. Regular Meetings ................................................... 4 Section 5. Special Meetings ................................................... 4 Section 6. Quorum.............................................................. 4 Section 7. Written Action ..................................................... 4 Section 8. Participation in Meetings by Conference Telephone .................. 5 Section 9. Committees ......................................................... 5 Section 10. Compensation ....................................................... 6 Section 11. Rules .............................................................. 6 ARTICLE III - NOTICES Section 1. Generally........................................................... 6 Section 2. Waivers............................................................. 6 ARTICLE IV - OFFICERS Section 1. Generally .......................................................... 7 Section 2. Compensation ....................................................... 7 Section 3. Succession ......................................................... 7 Section 4. Authority and Duties ............................................... 7 Section 5. President .......................................................... 7 Section 6. Execution of Documents and Action with Respect to Securities of Other Corporations ........................ 7
3 Section 7. Vice President ..................................................... 8 Section 8. Secretary and Assistant Secretaries ................................ 8 Section 9. Treasurer and Assistant Treasurers ................................. 9 ARTICLE V - STOCK Section 1. Certificates ....................................................... 9 Section 2. Transfer ........................................................... 10 Section 3. Lost, Stolen or Destroyed Certificates ............................. 10 Section 4. Record Date ........................................................ 10 ARTICLE VI - GENERAL PROVISIONS Section 1. Fiscal Year ........................................................ 12 Section 2. Corporate Seal ..................................................... 12 Section 3. Reliance upon Books, Reports and Records............................ 12 Section 4. Time Periods........................................................ 12 Section 5. Dividends........................................................... 12 ARTICLE VII - AMENDMENTS Section 1. Amendments ......................................................... 13
- ii - 4 SIMCALA, INC. BY-LAWS ARTICLE I MEETINGS OF STOCKHOLDERS Section 1. Time and Place of Meetings. All meetings of the stockholders for the election of directors or for any other purpose shall be held at such time and place, within or without the State of Delaware, as may be designated by the Board of Directors, or by the Chairman of the Board,, the President or the Secretary in the absence of a designation by the Board of Directors, and stated in the notice of the meeting or in a duly executed waiver of notice thereof. Section 2. Annual Meeting. An annual meeting of the stockholders, commencing with the year 1995, shall be held on the first Monday in April if not a legal holiday, and if a legal holiday, then on the next business day following, at 10:00 a.m., or at such other date and time as shall be designated from time to time by the Board of Directors, at which meeting the stockholders shall elect by a plurality vote the directors to succeed those whose terms expire and shall transact such other business as may properly be brought before the meeting. Section 3. Special Meetings. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by law or by Certificate of Incorporation, may be called by the Board of Directors, the Chairman of the Board or the President, and shall be called by the President or the secretary at the request in writing of stockholders owning a majority in interest of the entire capital stock of the Corporation issued and outstanding and entitled to vote. Such request shall be sent to the President and the secretary and shall state the purpose or purposes of the proposed meeting. 5 Section 4. Notice of Meeting. Written notice of every meeting of the stockholders, stating the place, date and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be given not less than ten nor more than sixty days before the date of the meeting to each stockholder entitled to vote at such meeting, except as otherwise provided herein or by law. When a meeting is adjourned to another place, date or time, written notice need not be given of the adjourned meeting if the place, date and time thereof are announced at the meeting at which the adjournment is taken; provided, however, that if the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, written notice of the place, date and time of the adjourned meeting shall be given in conformity herewith. At any adjourned meeting, any business may be transacted which might have been transacted at the original meeting. Section 5. Quorum. The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by law or by the Certificate of Incorporation. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. Section 6. Voting. Except as otherwise provided by law or by the Certificate of Incorporation, each stockholder shall be entitled at every meeting of the stockholders to one vote for each share of stock having voting power standing in the name of such stockholder on the books of the Corporation on the record date for the meeting and such votes may be cast either in person or by written proxy. Every proxy must be duly executed and filed with the Secretary of the Corporation. A stockholder may revoke any - 2 - 6 proxy which is not irrevocable by attending the meeting and voting in person or by filing an instrument in writing revoking the proxy or another duly executed proxy bearing a later date with the Secretary of the Corporation. The vote upon any question brought before a meeting of the stockholders may be by voice vote, unless the holders of a majority of the outstanding shares of all classes of stock entitled to vote thereon present in person or by proxy at such meeting shall so determine. Every vote taken by written ballot shall be counted by one or more inspectors of election appointed by the Board of Directors. When a quorum is present at any meeting, the vote of the holders of a majority of the stock which has voting power present in person or represented by proxy and which has actually voted shall decide any question properly brought before such meeting, unless the question is one upon which by express provision of law, the Certificate of Incorporation or these by-laws, a different vote is required, in which case such express provision shall govern and control the decision of such question. ARTICLE II DIRECTORS Section 1. Powers. The business and affairs of the Corporation shall be managed by or under the direction of its Board of Directors, which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by law or by the Certificate of Incorporation directed or required to be exercised or done by the stockholders. Section 2. Number and Term of Office. The Board of Directors shall consist of one or more members. The number of directors shall be fixed by resolution of the Board of Directors or by the stockholders at the annual meeting or a special meeting. The directors shall be elected at the annual meeting of the stockholders, except as provided in Section 3 of this Article, and each director elected shall hold office until his successor is elected and qualified, except as required by law. Any decrease in the authorized number - 3 - 7 of directors shall not be effective until the expiration of the term of the directors then in office, unless, at the time of such decrease, there shall be vacancies on the Board which are being eliminated by such decrease. Section 3. Vacancies and Key Directorships. Vacancies and newly created directorships resulting from any increase in the authorized number of directors which occur between annual meetings of the stockholders may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director, and the directors so elected shall hold office until the next annual meeting of the stockholders and until their successors are elected and qualified, except as required by law. Section 4. Regular Meetings. Regular meetings of the Board of Directors may be held without notice immediately after the annual meeting of the stockholders and at such other time and place as shall from time to time be determined by the Board of Directors. Section 5. Special Meetings. Special meetings of the Board of Directors may be called by the Chairman of the Board or the President on one day's written notice to each director by whom such notice is not waived, given either personally or by mail or telegram, and shall be called by the President or the Secretary in like manner and on like notice on the written request of any two directors. Section 6. Quorum. At all meetings of the Board of Directors, a majority of the total number of directors then in office shall constitute a quorum for the transaction of business, and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time to another place, time or date, without notice other than announcement at the meeting, until a quorum shall be present. Section 7. Written Action. Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a - 4 - 8 meeting if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes or proceedings of the Board or Committee. Section 8. Participation in Meetings by Conference Telephone. Members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, or any such committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. Section 9. Committees. The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more of the directors of the Corporation and each to have such lawfully delegable powers and duties as the Board may confer. Each such committee shall serve at the pleasure of the Board of Directors. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Except as otherwise provided by law, any such committee, to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it. Any committee or committees so designated by the Board shall have such name or names as may be determined from time to tine by resolution adopted by the Board of Directors. Unless otherwise prescribed by the Board of Directors, a majority of the members of the committee shall constitute a quorum for the transaction of business, and the act of a majority of the members present at a meeting at which there is a quorum shall be the act of such committee. Each committee shall prescribe its own rules for calling and holding - 5 - 9 meetings and its method of procedure, subject to any rules prescribed by the Board of Directors, and shall keep a written record of all actions taken by it. Section 10. Compensation. The Board of Directors may establish such compensation for, and reimbursement of the expenses of, directors for attendance at meetings of the Board of Directors or committees, or for other services by directors to the Corporation, as the Board of Directors may determine. Section 11. Rules. The Board of Directors may adopt such special rules and regulations for the conduct of their meetings and the management of the affairs of the Corporation as they may deem proper, not inconsistent with law or these by-laws. ARTICLE III NOTICES Section 1. Generally. Whenever by law or under the provisions of the Certificate of Incorporation or these by-laws, notice is required to be given to any director or stockholder, it shall not be construed to mean personal notice, but such notice may be given in writing, by mail, addressed to such director or stockholder, at his address as it appears on the records of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Notice to directors may also be given by telegram or telephone. Section 2. Waivers. Whenever any notice is required to be given by law or under the provisions of the Certificate of Incorporation or these by-laws, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time of the event for which notice is to be given, shall be deemed equivalent to such notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. - 6 - 10 ARTICLE IV OFFICERS Section 1. Generally. The officers of the Corporation shall be elected by the Board of Directors and shall consist of a President, a Secretary and a Treasurer. The Board of Directors may also choose any or all of the following: a Chairman of the Board of Directors, one or more Vice Presidents, and one or more Assistant Secretaries and Assistant Treasurers. Any number of offices may be held by the same person. Section 2. Compensation. The compensation of all officers and agents of the Corporation who are also directors of the Corporation shall be fixed by the Board of Directors. The Board of Directors may delegate the power to fix the compensation of other officers and agents of the Corporation to an officer of the Corporation. Section 3. Succession. The officers of the Corporation shall hold office until their successors are elected and qualified. Any officer elected or appointed by the Board of Directors may be removed at any time by the affirmative vote of a majority of the directors. Any vacancy occurring in any office of the Corporation may be filled by the Board of Directors. Section 4. Authority and Duties. Each of the officers of the Corporation shall have such authority and shall perform such duties as are customarily incident to their respective offices, or as may be specified from time to time by the Board of Directors in a resolution which is not inconsistent with these by-laws. Section 5. President. The President shall be responsible for the active management and direction of the business and affairs of the Corporation. Section 6. Execution of Documents and Action with Respect to Securities of Other Corporations. The President shall have and is hereby given, full power and authority, except as otherwise required by law or directed by the Board of Directors, (a) to execute, on behalf of the Corporation, all duly authorized contracts, agreements, - 7 - 11 deeds, conveyances or other obligations of the Corporation, applications, consents, proxies and other powers of attorney, and other documents and instruments, and (b) to vote and otherwise act on behalf of the Corporation, in person or by proxy, at any meeting of stockholders (or with respect to any action of such stockholders) of any other corporation in which the Corporation may hold securities and otherwise to exercise any and all rights and powers which the Corporation may possess by reason of its ownership of securities of such other corporation. In addition, the President may delegate to other officers, employees and agents of the Corporation the power and authority to take any action which the President is authorized to take under this Section 6, with such limitations as the President may specify; such authority so delegated by the President shall not be re-delegated by the person to whom such execution authority has been delegated. Section 7. Vice President. Each Vice President, however titled, shall perform such duties and services and shall have such authority and responsibilities as shall be assigned to or required from time to time by the Board of Directors or the President. Section 8. Secretary and Assistant Secretaries. (a) The Secretary shall attend all meetings of the stockholders and all meetings of the Board of Directors and record all proceedings of the meetings of the stockholders and of the Board of Directors and shall perform like duties for the standing committees when requested by the Board of Directors or the President. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and meetings of the Board of Directors. The Secretary shall perform such duties as may be prescribed by the Board of Directors or the President. The Secretary shall have charge of the seal of the Corporation and authority to affix the seal to any instrument. The Secretary or any Assistant Secretary may attest to the corporate seal by handwritten or facsimile signature. The Secretary shall keep and account for all books, documents, papers and records of the Corporation except those for which some other - 8 - 12 officer or agent has been designated or is otherwise properly accountable. The Secretary shall have authority to sign stock certificates. (b) Assistant Secretaries, in the order of their seniority, shall assist the Secretary and, if the Secretary is unavailable or fails to act, perform the duties and exercise the authorities of the Secretary. Section 9. Treasurer and Assistant Treasurers. (a) The Treasurer shall have the custody of the funds and securities belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Treasurer with the prior approval of the Board of Directors or the President. The Treasurer shall disburse the funds and pledge the credit of the Corporation as may be directed by the Board of Directors and shall render to the Board of Directors and the President, as and when required by them, or any of them, an account of all transactions by the Treasurer. (b) Assistant Treasurers, in the order of their seniority, shall assist the Treasurer and, if the Treasurer is unable or fails to act, perform the duties and exercise the powers of the Treasurer. ARTICLE V STOCK Section 1. Certificates. Certificates representing shares of stock of the Corporation shall be in such form as shall be determined by the Board of Directors, subject to applicable legal requirements. Such certificates shall be numbered and their issuance recorded in the books of the Corporation, and such certificate shall exhibit the holder's name and the number of shares and shall be signed by, or in the name of the Corporation by the President and the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer of the Corporation. Any or all of the signatures and the seal of the Corporation, if any, upon such certificates may be facsimiles, engraved or printed. - 9 - 13 Section 2. Transfer. Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation to issue, or to cause its transfer agent to issue, a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Section 3. Lost, Stolen or Destroyed Certificates. The Secretary may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen or destroyed upon the making of an affidavit of that fact, satisfactory to the Secretary, by the person claiming the certificate of stock to be lost, stolen or destroyed. As a condition precedent to the issuance of a new certificate or certificates the Secretary may require the owner of such lost, stolen or destroyed certificate or certificates to give the Corporation a bond in such sum and with such surety or sureties as the Secretary may direct as indemnity against any claims that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed or the issuance of the new certificate. Section 4. Record Date. (a) In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than sixty nor less than ten days before the date of such meeting. If no record is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the - 10 - 14 meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. (b) In order that the Corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which date shall not be more than ten days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. If no record date has been fixed by the Board of Directors, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation by delivery to its registered office in Delaware, its principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to a Corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action. (c) In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than - 11 - 15 sixty days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. ARTICLE VI GENERAL PROVISIONS Section 1. Fiscal Year. The fiscal year of the Corporation shall be fixed from time to time by the Board of Directors. Section 2. Corporate Seal. The Board of Directors may adopt a corporate seal and use the same by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. Section 3. Reliance upon Books, Reports and Records. Each director, each member of a committee designated by the Board of Directors, and each officer of the Corporation shall, in the performance of his or her duties, be fully protected in relying in good faith upon the records of the Corporation and upon such information, opinions, reports or statements presented to the Corporation by any of the Corporation's officers or employees, or committees of the Board of Directors, or by any other person as to matters the director, committee member or officer believes are within such other person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation. Section 4. Time Periods. In applying any provision of these by-laws which requires that an act be done or not be done a specified number of days prior to an event or that an act be done during a period of a specified number of days prior to an event, calendar days shall be used, the day of the doing of the act shall be excluded and the day of the event shall be included. Section 5. Dividends. The Board of Directors may from time to time declare and the corporation may pay dividends upon its outstanding shares of capital stock, in the - 12 - 16 manner and upon the terms and conditions provided by law and the Certificate of Incorporation. ARTICLE VII AMENDMENTS Section 1. Amendments. These by-laws may be altered, amended or repealed, or new by-laws may be adopted, by the stockholders or by the Board of Directors. - 13 - EX-4.1 8 SAC ACQUISITION CORP AS AQUIROR OF SIMCALA INC 1 EXHIBIT 4.1 - -------------------------------------------------------------------------------- SAC ACQUISITION CORP. AS ACQUIROR OF SIMCALA, INC. ---------------------------------------------- SERIES A AND SERIES B 9 5/8% SENIOR NOTES DUE 2006 ------------------------------ INDENTURE ------------------------------ Dated as of March 31, 1998 ------------------------------ IBJ Schroder Bank & Trust Company Trustee - -------------------------------------------------------------------------------- 2 TABLE OF CONTENTS
PAGE ---- ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE.............................................................1 SECTION 1.01. DEFINITIONS......................................................................................1 SECTION 1.02. OTHER DEFINITIONS...............................................................................14 SECTION 1.03..................................................................................................14 SECTION 1.04. RULES OF CONSTRUCTION...........................................................................15 ARTICLE 2. THE NOTES.............................................................................................15 SECTION 2.01. FORM AND DATING.................................................................................15 SECTION 2.02. EXECUTION AND AUTHENTICATION....................................................................17 SECTION 2.03. REGISTRAR AND PAYING AGENT......................................................................17 SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST.............................................................18 SECTION 2.05. HOLDER LISTS....................................................................................18 SECTION 2.06. TRANSFER AND EXCHANGE...........................................................................18 SECTION 2.07. REPLACEMENT NOTES...............................................................................30 SECTION 2.08. OUTSTANDING NOTES...............................................................................31 SECTION 2.09. TREASURY NOTES..................................................................................31 SECTION 2.10. TEMPORARY NOTES.................................................................................31 SECTION 2.11. CANCELLATION....................................................................................31 SECTION 2.12. DEFAULTED INTEREST..............................................................................32 ARTICLE 3. REDEMPTION AND PREPAYMENT.............................................................................32 SECTION 3.01. NOTICES TO TRUSTEE..............................................................................32 SECTION 3.02. SELECTION OF NOTES TO BE REDEEMED...............................................................32 SECTION 3.03. NOTICE OF REDEMPTION............................................................................33 SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION..................................................................33
-i- 3 SECTION 3.05. DEPOSIT OF REDEMPTION PRICE.....................................................................33 SECTION 3.06. NOTES REDEEMED IN PART..........................................................................34 SECTION 3.07. OPTIONAL REDEMPTION.............................................................................34 SECTION 3.08. MANDATORY REDEMPTION............................................................................35 SECTION 3.09. OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS.............................................35 ARTICLE 4. COVENANTS.............................................................................................36 SECTION 4.01. PAYMENT OF NOTES................................................................................36 SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY.................................................................37 SECTION 4.03. REPORTS.........................................................................................37 SECTION 4.04. COMPLIANCE CERTIFICATE..........................................................................38 SECTION 4.05. TAXES...........................................................................................38 SECTION 4.06. STAY, EXTENSION AND USURY LAWS..................................................................38 SECTION 4.07. RESTRICTED PAYMENTS.............................................................................39 SECTION 4.08. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES..................................41 SECTION 4.09. INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK......................................42 SECTION 4.10. ASSET SALES.....................................................................................44 SECTION 4.11. TRANSACTIONS WITH AFFILIATES....................................................................45 SECTION 4.12. LIENS...........................................................................................45 SECTION 4.13. CORPORATE EXISTENCE.............................................................................45 SECTION 4.14. OFFER TO REPURCHASE UPON CHANGE OF CONTROL......................................................46 SECTION 4.15. LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK OF WHOLLY OWNED SUBSIDIARIES.................47 SECTION 4.16. LIMITATION ON ISSUANCES OF GUARANTEES OF INDEBTEDNESS...........................................47 SECTION 4.17. PAYMENTS FOR CONSENT............................................................................47 ARTICLE 5. SUCCESSORS............................................................................................47 SECTION 5.01. MERGER, CONSOLIDATION, OR SALE OF ASSETS........................................................47 SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED...............................................................48
-ii- 4 ARTICLE 6. DEFAULTS AND REMEDIES.................................................................................48 SECTION 6.01. EVENTS OF DEFAULT...............................................................................48 SECTION 6.02. ACCELERATION....................................................................................50 SECTION 6.03. OTHER REMEDIES..................................................................................51 SECTION 6.04. WAIVER OF PAST DEFAULTS.........................................................................51 SECTION 6.05. CONTROL BY MAJORITY.............................................................................51 SECTION 6.06. LIMITATION ON SUITS.............................................................................51 SECTION 6.07. RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT...................................................52 SECTION 6.08. COLLECTION SUIT BY TRUSTEE......................................................................52 SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM................................................................52 SECTION 6.10. PRIORITIES......................................................................................53 SECTION 6.11. UNDERTAKING FOR COSTS...........................................................................53 ARTICLE 7. TRUSTEE...............................................................................................53 SECTION 7.01. DUTIES OF TRUSTEE...............................................................................53 SECTION 7.02. RIGHTS OF TRUSTEE...............................................................................54 SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE....................................................................55 SECTION 7.04. TRUSTEE'S DISCLAIMER............................................................................55 SECTION 7.05. NOTICE OF DEFAULTS..............................................................................55 SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES......................................................55 SECTION 7.07. COMPENSATION AND INDEMNITY......................................................................56 SECTION 7.08. REPLACEMENT OF TRUSTEE..........................................................................56 SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC................................................................57 SECTION 7.10. ELIGIBILITY; DISQUALIFICATION...................................................................58 SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY...............................................58 ARTICLE 8. LEGAL DEFEASANCE AND COVENANT DEFEASANCE..............................................................58 SECTION 8.01. OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE........................................58
-iii- 5 SECTION 8.02. LEGAL DEFEASANCE AND DISCHARGE..................................................................58 SECTION 8.03. COVENANT DEFEASANCE.............................................................................59 SECTION 8.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE......................................................59 SECTION 8.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS...60 SECTION 8.06. REPAYMENT TO COMPANY............................................................................61 SECTION 8.07. REINSTATEMENT...................................................................................61 ARTICLE 9. AMENDMENT, SUPPLEMENT AND WAIVER......................................................................61 SECTION 9.01. WITHOUT CONSENT OF HOLDERS OF NOTES.............................................................61 SECTION 9.02. WITH CONSENT OF HOLDERS OF NOTES................................................................62 SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT.............................................................63 SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS...............................................................63 SECTION 9.05. NOTATION ON OR EXCHANGE OF NOTES................................................................64 SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC.................................................................64 ARTICLE 10. MISCELLANEOUS........................................................................................64 SECTION 10.01. TRUST INDENTURE ACT CONTROLS...................................................................64 SECTION 10.02. NOTICES........................................................................................64 SECTION 10.03. COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF NOTES..................................66 SECTION 10.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.............................................66 SECTION 10.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION..................................................66 SECTION 10.06. RULES BY TRUSTEE AND AGENTS....................................................................66 SECTION 10.07. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS.......................67 SECTION 10.08. GOVERNING LAW..................................................................................67 SECTION 10.09. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS..................................................67 SECTION 10.10. SUCCESSORS.....................................................................................67 SECTION 10.11. SEVERABILITY...................................................................................67 SECTION 10.12. COUNTERPART ORIGINALS..........................................................................67
-iv- 6 SECTION 10.13. TABLE OF CONTENTS, HEADINGS, ETC...............................................................67 SECTION 10.14. ERISA RELATED RESTRICTIONS.....................................................................68
EXHIBITS EXHIBIT A-1 FORM OF GLOBAL NOTE EXHIBIT A-2 FORM OF REGULATION S TEMPORARY GLOBAL NOTE EXHIBIT B FORM OF CERTIFICATE OF TRANSFER EXHIBIT C FORM OF CERTIFICATE OF EXCHANGE EXHIBIT D FORM OF CERTIFICATE OF ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR EXHIBIT E FORM OF SUPPLEMENTAL INDENTURE -v- 7 INDENTURE, dated as of March 31, 1998 between SAC Acquisition Corp., a Georgia corporation (the "Company"), and IBJ Schroder Bank & Trust Company, a New York Banking Corporation, as trustee (the "Trustee"). The Company and the Trustee agree as follows for the benefit of each other and for the equal and ratable benefit of the Holders of the 9 5/8% Series A Senior Notes due 2006 (the "Series A Notes") and the Series B Notes (as defined): ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01. DEFINITIONS. "144A Global Note" means a global note in the form of Exhibit A-1 hereto bearing the Global Note Legend and the Private Placement Legend and deposited with or on behalf of, and registered in the name of, the Depositary or its nominee that will be issued in a denomination equal to the outstanding principal amount of the Notes sold in reliance on Rule 144A. "Acquired Debt" means, with respect to any specified Person, (i) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person, including, without limitation, Indebtedness incurred in connection with, or in contemplation of, such other Person merging with or into or becoming a Subsidiary of such specified Person and (ii) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided,, that beneficial ownership of 10% or more of the Voting Stock of a Person shall be deemed to be control. "Agent" means any Registrar, Paying Agent or co-registrar. "Applicable Procedures" means, with respect to any transfer or exchange of or for beneficial interests in any Global Note, the rules and procedures of the Depositary, Euroclear and Cedel that apply to such transfer or exchange. "Asset Sale" means (i) the sale, lease, conveyance or other disposition of any assets or rights (including, without limitation, by way of a sale and leaseback) other than sales of inventory or obsolete or excess equipment or equipment that is not longer useable, in each case, in the ordinary course of business (provided that the sale, lease, conveyance or other disposition of all or substantially all of the assets of the Company and its Subsidiaries taken as a whole will be governed by Section 4.14 and/or Section 5.01 hereof and not by Section 4.10 hereof), and (ii) the issue or sale by the Company or any of its Subsidiaries of Equity Interests of any of the Company's Subsidiaries, in the case of either clause (i) or (ii), whether in a single transaction or a series of related transactions (a) that have a fair market value in excess of $1.0 million or (b) for net proceeds in excess of $1.0 million. Notwithstanding the foregoing, the following items shall not be deemed to be Asset Sales: (i) a transfer of assets by the Company to a Wholly Owned Subsidiary or by a Wholly Owned Subsidiary to the Company or to another Wholly Owned 8 Subsidiary, (ii) an issuance of Equity Interests by a Wholly Owned Subsidiary to the Company or to another Wholly Owned Subsidiary, and (iii) a Restricted Payment that is permitted by Section 4.07 hereof. "Bankruptcy Law" means Title 11, U.S. Code or any similar federal or state law for the relief of debtors. "Board of Directors" means the Board of Directors of the Company, or any authorized committee of the Board of Directors. "Business Day" means any day other than a Legal Holiday. "Capital Lease Obligation" means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be required to be capitalized on a balance sheet in accordance with GAAP. "Capital Stock" means (i) in the case of a corporation, corporate stock, (ii) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, (iii) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited) and (iv) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. "Cash Equivalents" means (i) United States dollars, (ii) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof (provided that the full faith and credit of the United States is pledged in support thereof) having maturities of not more than six months from the date of acquisition, (iii) certificates of deposit and eurodollar time deposits with maturities of six months or less from the date of acquisition, bankers' acceptances with maturities not exceeding six months and overnight bank deposits, in each case with any lender party to the New Credit Facility or with any domestic commercial bank having capital and surplus in excess of $500,000,000 and a Thompson Bank Watch Rating of "B" or better, (iv) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (ii) and (iii) above entered into with any financial institution meeting the qualifications specified in clause (iii) above, (v) commercial paper having the highest rating obtainable from Moody's Investors Service, Inc. or Standard & Poor's Corporation and in each case maturing within six months after the date of acquisition and (vi) money market funds at least 95% of the assets of which constitute Cash Equivalents of the kinds described in clauses (i)-(v) of this definition. "Cedel" means Cedel Bank, Societe Anonyme. "Change of Control" means the occurrence of any of the following: (i) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of the Company and its Subsidiaries taken as a whole to any "person" (as such term is used in Section 13(d)(3) of the Exchange Act); (ii) the adoption of a plan relating to the liquidation or dissolution of the Company; (iii) the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any "person" (as defined above) becomes the "beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that a person shall be deemed to have "beneficial ownership" of all securities that such person has the right to acquire, whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition), directly or indirectly, of more than 50% of -2- 9 the Voting Stock of the Company (measured by voting power rather than number of shares); (iv) the first day on which a majority of the members of the Board of Directors of the Company are not Continuing Directors or; (v) the Company consolidates with, or merges with or into, any Person, or any Person consolidates with, or merges with or into, the Company, in any such event pursuant to a transaction in which any of the outstanding Voting Stock of the Company is converted into or exchanged for cash, securities or other property, other than any such transaction where the Voting Stock of the Company outstanding immediately prior to such transaction is converted into or exchanged for Voting Stock (other than Disqualified Stock) of the surviving or transferee Person constituting a majority of the outstanding shares of such Voting Stock of such surviving or transferee Person (immediately after giving effect to such issuance). "Company" means SAC Acquisition Corp., a Georgia corporation, and any and all successors thereto. "Consolidated Cash Flow" means, with respect to any Person for any period, the Consolidated Net Income of such Person for such period plus (i) an amount equal to any extraordinary loss plus any net loss realized in connection with an Asset Sale (to the extent such losses were deducted in computing such Consolidated Net Income), plus (ii) provision for taxes based on income or profits of such Person and its Subsidiaries for such period, to the extent that such provision for taxes was included in computing such Consolidated Net Income, plus (iii) consolidated interest expense of such Person and its Subsidiaries for such period, whether paid or accrued and whether or not capitalized (including, without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net payments (if any) pursuant to Hedging Obligations), to the extent that any such expense was deducted in computing such Consolidated Net Income, plus (iv) depreciation, amortization (including amortization of transaction fees, goodwill and other intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) and other non-cash expenses (excluding any such non-cash expense to the extent that it represents an accrual of or reserve for cash expenses in any future period or amortization of a prepaid cash expense that was paid in a prior period) of such Person and its Subsidiaries for such period to the extent that such depreciation, amortization and other non-cash expenses were deducted in computing such Consolidated Net Income, minus (v) non-cash items increasing such Consolidated Net Income for such period, in each case, on a consolidated basis and determined in accordance with GAAP. Notwithstanding the foregoing, the provision for taxes on the income or profits of, and the depreciation and amortization and other non-cash expenses of, a Subsidiary of the referent Person shall be added to Consolidated Net Income to compute Consolidated Cash Flow only to the extent that a corresponding amount would be permitted at the date of determination to be dividended to the Company by such Subsidiary without prior governmental approval (that has not been obtained), and without direct or indirect restriction pursuant to the terms of its charter and all agreements, instruments, judgments, decrees, orders, statutes, rules and governmental regulations applicable to that Subsidiary or its stockholders. "Consolidated Net Income" means, with respect to any Person for any period, the aggregate of the Net Income of such Person and its Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that (i) the Net Income (but not loss) of any Person that is not a Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid in cash to the referent Person or a Wholly Owned Subsidiary thereof that is a guarantor, (ii) the Net Income of any Subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Subsidiary of that Net Income -3- 10 is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary or its stockholders, (iii) the Net Income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded and (iv) the cumulative effect of a change in accounting principles shall be excluded. "Consolidated Net Worth" means, with respect to any Person as of any date, the sum of (i) the consolidated equity of the common stockholders of such Person and its consolidated Subsidiaries as of such date plus (ii) the respective amounts reported on such Person's balance sheet as of such date with respect to any series of preferred stock (other than Disqualified Stock) that by its terms is not entitled to the payment of dividends unless such dividends may be declared and paid only out of net earnings in respect of the year of such declaration and payment, but only to the extent of any cash received by such Person upon issuance of such preferred stock, less (x) all write-ups (other than write-ups resulting from foreign currency translations and write-ups of tangible assets of a going concern business made within 12 months after the acquisition of such business) subsequent to the date of this Indenture in the book value of any asset owned by such Person or a consolidated Subsidiary of such Person, (y) all investments as of such date in unconsolidated Subsidiaries and in Persons that are not Subsidiaries (except, in each case, Permitted Investments), and (z) all unamortized debt discount and expense and unamortized deferred charges as of such date, all of the foregoing determined in accordance with GAAP. "Continuing Directors" means, as of any date of determination, any member of the Board of Directors of the Company who (i) was a member of such Board of Directors on the date of this Indenture or (ii) was nominated for election or elected to such Board of Directors with the approval of a majority of the Continuing Directors who were members of such Board at the time of such nomination or election. "Corporate Trust Office of the Trustee" shall be at the address of the Trustee specified in Section 10.02 hereof or such other address as to which the Trustee may give notice to the Company. "Credit Facilities" means, with respect to the Company, one or more debt facilities (including, without limitation, the New Credit Facility) or commercial paper facilities with banks or other institutional lenders providing for revolving credit loans, term loans, receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables) or letters of credit, in each case, as amended, restated, modified, renewed, refunded, replaced or refinanced in whole or in part from time to time. Indebtedness under Credit Facilities outstanding on the date on which Notes are first issued and authenticated under this Indenture shall be deemed to have been incurred on such date in reliance on the exception provided by clause (i) or (ii) of the definition of Permitted Debt. "Custodian" means the Trustee, as custodian with respect to the Notes in global form, or any successor entity thereto. "Default" means any event that is or with the passage of time or the giving of notice or both would be an Event of Default. "Definitive Note" means a certificated Note registered in the name of the Holder thereof and issued in accordance with Section 2.06 hereof, in the form of Exhibit A-1 hereto except that such Note shall not bear the Global Note Legend and shall not have the "Schedule of Exchanges of Interests in the Global Note" attached thereto. -4- 11 "Depositary" means, with respect to the Notes issuable or issued in whole or in part in global form, the Person specified in Section 2.03 hereof as the Depositary with respect to the Notes, and any and all successors thereto appointed as depositary hereunder and having become such pursuant to the applicable provision of this Indenture. "Disqualified Stock" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible, or for which it is exchangeable, at the option of the holder thereof), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder thereof, in whole or in part, on or prior to the date that is 91 days after the date on which the Notes mature; provided, however, that any Capital Stock that would constitute Disqualified Stock solely because the holders thereof have the right to require the Company to repurchase such Capital Stock upon the occurrence of a Change of Control or an Asset Sale shall not constitute Disqualified Stock if the terms of such Capital Stock provide that the Company may not repurchase or redeem any such Capital Stock pursuant to such provisions unless such repurchase or redemption complies with Section 4.07 hereof. "Domestic Subsidiary" means any Subsidiary of the Company that either (a) is organized within any state of the United States of America, or (b) has guaranteed any Indebtedness of the Company or any other Domestic Subsidiary. "Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "Euroclear" means Morgan Guaranty Trust Company of New York, Brussels office, as operator of the Euroclear system. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exchange Offer" has the meaning set forth in the Registration Rights Agreement. "Exchange Offer Registration Statement" has the meaning set forth in the Registration Rights Agreement. "Existing Indebtedness" means up to $6.1 million in aggregate principal amount of Indebtedness of the Company and its Subsidiaries (other than Indebtedness under the New Credit Facility) in existence on the date hereof, until such amounts are repaid. "Fixed Charges" means, with respect to any Person for any period, the sum, without duplication, of (i) the consolidated interest expense of such Person and its Subsidiaries for such period, whether paid or accrued (including, without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net payments (if any) pursuant to Hedging Obligations) and (ii) the consolidated interest of such Person and its Subsidiaries that was capitalized during such period, and (iii) any interest expense on Indebtedness of another Person that is Guaranteed by such Person or one of its Subsidiaries or secured by a Lien on assets of such Person or one of its Subsidiaries (whether or not such Guarantee or Lien is called upon) and (iv) the product of (a) all dividend payments, whether or not in cash, on any series of preferred stock of such Person or any of its Subsidiaries, other than dividend payments on Equity Interests payable solely in -5- 12 Equity Interests of the Company (other than Disqualified Stock) or to the Company or a Subsidiary of the Company, times (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory tax rate of such Person, expressed as a decimal, in each case, on a consolidated basis and in accordance with GAAP. "Fixed Charge Coverage Ratio" means with respect to any Person for any period, the ratio of the Consolidated Cash Flow of such Person for such period to the Fixed Charges of such Person for such period. In the event that the referrent Person or any of its Subsidiaries incurs, assumes, Guarantees or redeems any Indebtedness (other than revolving credit borrowings) or issues or redeems preferred stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated but prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to such incurrence, assumption, Guarantee or redemption of Indebtedness, or such issuance or redemption of preferred stock, as if the same had occurred at the beginning of the applicable four-quarter reference period. In addition, for purposes of making the computation referred to above, (i) acquisitions that have been made by the Company or any of its Subsidiaries, including through mergers or consolidations and including any related financing transactions, during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date shall be deemed to have occurred on the first day of the four-quarter reference period and Consolidated Cash Flow for such reference period shall be calculated without giving effect to clause (iii) of the proviso set forth in the definition of Consolidated Net Income, and (iii) the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded, and (iv) the Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded, but only to the extent that the obligations giving rise to such Fixed Charges will not be obligations of the referent Person or any of its Subsidiaries following the Calculation Date. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect on the date of this Indenture. "Global Notes" means, individually and collectively, each of the Restricted Global Notes and the Unrestricted Global Notes, in the form of Exhibit A-1 hereto issued in accordance with Section 2.01, 2.06(b)(iv), 2.06(d)(ii) or 2.06(f) hereof. "Global Note Legend" means the legend set forth in Section 2.06(g)(ii), which is required to be placed on all Global Notes issued under this Indenture. "Government Securities" means direct obligations of, or obligations guaranteed by, the United States of America, and the payment for which the United States pledges its full faith and credit. "Guarantee" means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including, without limitation, by way of a pledge of assets or through letters of credit or reimbursement agreements in respect thereof), of all or any part of any Indebtedness. -6- 13 "Guarantor" means any Subsidiary that executes a Subsidiary Guarantee in accordance with the provisions of this Indenture, and its respective successors and assigns. "Hedging Obligations" means, with respect to any Person, the obligations of such Person under (i) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements and (ii) other agreements or arrangements designed to protect such Person against fluctuations in interest rates. "Holder" means a Person in whose name a Note is registered. "Holdings" means SIMCALA Holdings, Inc., a Georgia corporation. "IAI Global Note" means the global Note in the form of Exhibit A-1 hereto bearing the Global Note Legend and the Private Placement Legend and deposited with or on behalf of and registered in the name of the Depositary or its nominee that will be issued in a denomination equal to the outstanding principal amount of the Notes sold to Institutional Accredited Investors. "Indebtedness" means, with respect to any Person, any indebtedness of such Person, whether or not contingent, in respect of borrowed money or evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof) or banker's acceptances or representing Capital Lease Obligations or the balance deferred and unpaid of the purchase price of any property or representing any Hedging Obligations, except any such balance that constitutes an accrued expense or trade payable, if and to the extent any of the foregoing (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP, as well as all Indebtedness of others secured by a Lien on any asset of such Person (whether or not such Indebtedness is assumed by such Person) and, to the extent not otherwise included, the Guarantee by such Person of any indebtedness of any other Person. The amount of any Indebtedness outstanding as of any date shall be (i) the accreted value thereof, in the case of any Indebtedness issued with original issue discount, and (ii) the principal amount thereof, together with any interest thereon that is more than 30 days past due, in the case of any other Indebtedness. "Indenture" means this Indenture, as amended or supplemented from time to time. "Indirect Participant" means a Person who holds a beneficial interest in a Global Note through a Participant. "Institutional Accredited Investor" means an institution that is an "accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act, who are not also QIBs. "Investment Banking Fee" means $1.35 million to be paid by the Company to CGW Southeast Management III, L.L.C. or its designees on the Closing Date. "Investments" means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the forms of direct or indirect loans (including guarantees of Indebtedness or other obligations), advances or capital contributions (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. If the Company or any Subsidiary of the Company sells or otherwise disposes of any Equity Interests of any direct or indirect Subsidiary of the Company such that, after giving effect to any such sale or disposition, such Person is no longer a Subsidiary of the Company, the Company shall be deemed to have made an Investment on the date -7- 14 of any such sale or disposition equal to the fair market value of the Equity Interests of such Subsidiary not sold or disposed of in an amount determined as provided in the final paragraph of Section 4.07 hereof. "Legal Holiday" means a Saturday, a Sunday or a day on which banking institutions in the City of New York or at a place of payment are authorized by law, regulation or executive order to remain closed. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue on such payment for the intervening period. "Letter of Transmittal" means the letter of transmittal to be prepared by the Company and sent to all Holders of the Notes for use by such Holders in connection with the Exchange Offer. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction). "Liquidated Damages" means all liquidated damages then owing pursuant to Section 5 of the Registration Rights Agreement. "Management Fee" means management and consulting service fees in an amount not to exceed $680,000 annually payable by the Company to CGW Southeast III, L.L.C. or its designees. "Net Income" means, with respect to any Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however, (i) any gain (but not loss), together with any related provision for taxes on such gain (but not loss), realized in connection with (a) any Asset Sale (including, without limitation, dispositions pursuant to sale and leaseback transactions), or (b) the disposition of any securities by such Person or any of its Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Subsidiaries, and (ii) any extraordinary gain (but not loss), together with any related provision for taxes on such extraordinary gain (but not loss). "Net Proceeds" means the aggregate cash proceeds received by the Company or any of its Subsidiaries in respect of any Asset Sale (including, without limitation, any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale), net of the direct costs relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees, and sales commissions) and any relocation expenses incurred as a result thereof, taxes paid or payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements), amounts required to be applied to the repayment of Indebtedness secured by a Lien on the asset or assets that were the subject of such Asset Sale and any reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP. "New Credit Facility" means that certain Credit Agreement, by and among the Company, the lenders named therein and NationsBank, N.A., as Agent, providing for up to $15.0 million of revolving credit borrowings and letter of credit issuances, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, and in each case as amended, modified, renewed, refunded, replaced or refinanced, in whole or in part, from time to time. -8- 15 "Non-Recourse Debt" means Indebtedness (i) as to which neither the Company nor any of its Subsidiaries (a) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness), (b) is directly or indirectly liable (as a guarantor or otherwise), or (c) constitutes the lender; and (ii) no default with respect to which (including any rights that the holders thereof may have to take enforcement action against a Subsidiary) would permit (upon notice, lapse of time or both) any holder of any other Indebtedness of the Company or any of its Subsidiaries to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity; and (iii) as to which the lenders have been notified in writing that they will not have any recourse to the stock or assets of the Company or any of its Subsidiaries. "Non-U.S. Person" means a Person who is not a U.S. Person. "Notes" means the Series A Notes and the Series B Notes. "Obligations" means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "Offering" means the offering of the Notes by the Company. "Officer" means, with respect to any Person, the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the Secretary, any Assistant Secretary or any Vice-President of such Person. "Officers' Certificate" means a certificate signed on behalf of the Company by two Officers of the Company, one of whom must be the principal executive officer, the principal financial officer, the treasurer or the principal accounting officer of the Company, that meets the requirements of Section 10.05 hereof. "Opinion of Counsel" means an opinion from legal counsel who is reasonably acceptable to the Trustee, that meets the requirements of Section 10.05 hereof. The counsel may be an employee of or counsel to the Company, any Subsidiary of the Company or the Trustee. "Participant" means, with respect to the Depositary, Euroclear or Cedel, a Person who has an account with the Depositary, Euroclear or Cedel, respectively (and, with respect to The Depository Trust Company, shall include Euroclear and Cedel). "Participating Broker-Dealer" has the meaning set forth in the Registration Rights Agreement. "Paying Agent" has the meaning set forth in Section 2.03. "Permitted Business" means any business that manufactures and/or sells silicon metal or microsilica, or any business that is reasonably similar thereto or a reasonable extension, development or expansion thereof or ancillary thereto. "Permitted Investments" means (a) any Investment in the Company or in a Subsidiary of the Company that is a guarantor (or, if such Subsidiary is a foreign Subsidiary, 65% of the capital stock of which has been pledged to the Trustee pursuant to a pledge agreement, in form and substance reasonably -9- 16 satisfactory to the Trustee, securing the payment in full of all Obligations with respect to the Notes); (b) any Investment in Cash Equivalents; (c) any Investment by the Company or any Subsidiary of the Company in a Person, if as a result of such Investment (i) such Person becomes a Subsidiary of the Company and a guarantor or (ii) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or a Subsidiary of the Company that is a guarantor; (d) any Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with Section 4.10 hereof; (e) any acquisition of assets solely in exchange for the issuance of Equity Interests (other than Disqualified Stock) of the Company; and (f) other Investments in any Person having an aggregate fair market value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (f) that are at the time outstanding, not to exceed $5.0 million. "Permitted Liens" means (i) Liens on assets of the Company or any of its Subsidiaries securing obligations under any Credit Facility that were permitted by the terms of this Indenture to be incurred; (ii) Liens in favor of the Company; (iii) Liens on property of a Person existing at the time such Person is merged into or consolidated with the Company or any Subsidiary of the Company; provided that such Liens were in existence prior to the contemplation of such merger or consolidation and do not extend to any assets other than those of the Person merged into or consolidated with the Company; (iv) Liens on property existing at the time of acquisition thereof by the Company or any Subsidiary of the Company, provided that such Liens were in existence prior to the contemplation of such acquisition; (v) Liens to secure the performance of statutory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business; (v) Liens to secure Indebtedness (including Capital Lease Obligations) permitted by clause (iv) of the second paragraph of Section 4.09 hereof covering only the assets acquired with such Indebtedness; (vi) Liens existing on the date hereof and replacement, refinancing or renewals thereof, in whole or in part; (vii) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded, provided that any reserve or other appropriate provision as shall be required in conformity with GAAP shall have been made therefor; (viii) Liens to secure Indebtedness permitted by clause (v) or (vii) of the second paragraph of Section 4.09 hereof and (ix) other Liens with respect to obligations that do not exceed $5.0 million at any one time outstanding. "Permitted Refinancing Indebtedness" means any Indebtedness of the Company or any of its Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other Indebtedness of the Company or any of its Subsidiaries (other than intercompany Indebtedness); provided that: (i) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount of (or accreted value, if applicable), plus accrued interest on, the Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded (plus the amount of reasonable expenses incurred in connection therewith); (ii) such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the Notes, such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and is subordinated in right of payment to, the Notes on terms at least as favorable to the holders of Notes as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; and (iv) such Indebtedness is incurred either by the Company or -10- 17 by the Subsidiary who is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded. "Person" means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization or government or agency or political subdivision thereof (including any subdivision or ongoing business of any such entity or substantially all of the assets of any such entity, subdivision or business). "Private Placement Legend" means the legend set forth in Section 2.06(g)(i) to be placed on all Notes issued under this Indenture except where otherwise permitted by the provisions of this Indenture. "QIB" means a "qualified institutional buyer" as defined in Rule 144A. "Registrar" has the meaning set forth in Section 2.03. "Registration Rights Agreement" means the Registration Rights Agreement, dated as of March 31, 1998, between the Company and NationsBanc Mongomery Securities LLC, as such agreement may be amended, modified or supplemented from time to time. "Regulation S" means Regulation S under the Securities Act. "Regulation S Global Note" means a Regulation S Temporary Global Note or Regulation S Permanent Global Note, as appropriate. "Regulation S Permanent Global Note" means a permanent global Note in the form of Exhibit A-1 hereto bearing the Global Note Legend and the Private Placement Legend and deposited with or on behalf of and registered in the name of the Depositary or its nominee, issued in a denomination equal to the outstanding principal amount of the Regulation S Temporary Global Note upon expiration of the Restricted Period. "Regulation S Temporary Global Note" means a temporary global Note in the form of Exhibit A-2 hereto bearing the Private Placement Legend and deposited with or on behalf of and registered in the name of the Depositary or its nominee, issued in a denomination equal to the outstanding principal amount of the Notes initially sold in reliance on Rule 903 of Regulation S. "Responsible Officer, " when used with respect to the Trustee, means any officer within the Corporate Trust Administration of the Trustee (or any successor group of the Trustee) or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "Restricted Definitive Note" means a Definitive Note bearing the Private Placement Legend. "Restricted Global Note" means a Global Note bearing the Private Placement Legend. "Restricted Investment" means any Investment other than a Permitted Investment. -11- 18 "Restricted Period" means the 40-day restricted period imposed pursuant to Rule 901(c)(3) (ii) under the Securities Act. "Rule 144" means Rule 144 under the Securities Act. "Rule 144A" means Rule 144A under the Securities Act. "Rule 903" means Rule 903 under the Securities Act. "Rule 904" means Rule 904 the Securities Act. "SEC" or the "Commission" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. "Series B Notes" means the 9 5/8% Series B Senior Notes due 2006 issued in the Exchange Offer pursuant to Section 2.06(f) hereof. "Shelf Registration Statement" means the Shelf Registration Statement as defined in the Registration Rights Agreement. "Significant Subsidiary" means any Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the date of this Indenture. "Stated Maturity" means, with respect to any installment of interest or principal on any series of Indebtedness, the date on which such payment of interest or principal was scheduled to be paid in the original documentation governing such Indebtedness, and shall not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof. "Subsidiary" means, with respect to any Person, (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of such Person (or a combination thereof) and (ii) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are such Person or of one or more Subsidiaries of such Person (or any combination thereof). "Subsidiary Guarantee" means the Guarantee by each Guarantor of the Company's payment obligations under this Indenture and the Notes, executed pursuant to Section 4.16. "TIA" means the Trust Indenture Act of 1939 (15 U.S.C.ss.ss. 77aaa-77bbbb) as in effect on the date on which this Indenture is qualified under the TIA. "Trading Day" with respect to a securities exchange or automated quotation system, means a day on which such exchange or system is open for a full day of trading. -12- 19 "Trustee" means the party named as such above until a successor replaces it in accordance with the applicable provisions of this Indenture and thereafter means the successor serving hereunder. "Unrestricted Global Note" means a permanent global Note in the form of Exhibit A-1 attached hereto that bears the Global Note Legend and that has the "Schedule of Exchanges of Interests in the Global Note" attached thereto, and that is deposited with or on behalf of and registered in the name of the Depositary, representing a series of Notes that do not bear the Private Placement Legend. "Unrestricted Definitive Note" means one or more Definitive Notes that do not bear and are not required to bear the Private Placement Legend. "U.S. Person" means a U.S. person as defined in Rule 902(o) under the Securities Act. "Voting Stock" of any Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (a) the sum of the products obtained by multiplying (x) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (y) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by (b) the then outstanding principal amount of such Indebtedness. "Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned by such Person or by one or more Wholly Owned Subsidiaries of such Person or by such Person and one or more Wholly Owned Subsidiaries of such Person. SECTION 1.02. OTHER DEFINITIONS.
Defined in Term Section "Affiliate Transaction"......................................................4.11 "Asset Sale".................................................................4.10 "Asset Sale Offer"...........................................................3.09 "Authentication Order".......................................................2.02 "Bankruptcy Law".............................................................4.01 "Change of Control Offer"....................................................4.15 "Change of Control Payment"..................................................4.15 "Change of Control Payment Date" ............................................4.15 "Covenant Defeasance"........................................................8.03 "Event of Default"...........................................................6.01 "Excess Proceeds"............................................................4.10 "incur"......................................................................4.09 "Legal Defeasance" ..........................................................8.02 "Offer Amount"...............................................................3.09 "Offer Period"...............................................................3.09 "Paying Agent"...............................................................2.03 "Permitted Debt".............................................................4.09 "Purchase Date"..............................................................3.09 "Registrar"..................................................................2.03 "Restricted Payments"........................................................4.07
-13- 20 SECTION 1.03. Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "indenture securities" means the Notes; "indenture security Holder" means a Holder of a Note; "indenture to be qualified" means this Indenture; "indenture trustee" or "institutional trustee" means the Trustee; and "obligor" on the Notes and the Subsidiary Guarantees means the Company and the Guarantors, respectively, and any successor obligor upon the Notes and the Subsidiary Guarantees, respectively. All other terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule under the TIA have the meanings so assigned to them. SECTION 1.04. RULES OF CONSTRUCTION. Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (3) "or" is not exclusive; (4) words in the singular include the plural, and in the plural include the singular; (5) provisions apply to successive events and transactions; and (6) references to sections of or rules under the Securities Act shall be deemed to include substitute, replacement of successor sections or rules adopted by the SEC from time to time. -14- 21 ARTICLE 2. THE NOTES SECTION 2.01. FORM AND DATING. (a) General. The Notes and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A-1 hereto. The Notes may have notations, legends or endorsements required by law, stock exchange rule or usage. Each Note shall be dated the date of its authentication. The Notes shall be in denominations of $1,000 and integral multiples thereof. The terms and provisions contained in the Notes shall constitute, and are hereby expressly made, a part of this Indenture and the Company and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. However, to the extent any provision of any Note conflicts with the express provisions of this Indenture, the provisions of this Indenture shall govern and be controlling. (b) Global Notes. Notes issued in global form shall be substantially in the form of Exhibits A-1 or A-2 attached hereto (including the Global Note Legend thereon and the "Schedule of Exchanges of Interests in the Global Note" attached thereto). Notes issued in definitive form shall be substantially in the form of Exhibit A-1 attached hereto (but without the Global Note Legend thereon and without the "Schedule of Exchanges of Interests in the Global Note" attached thereto). Each Global Note shall represent such of the outstanding Notes as shall be specified therein and each shall provide that it shall represent the aggregate principal amount of outstanding Notes from time to time endorsed thereon and that the aggregate principal amount of outstanding Notes represented thereby may from time to time be reduced or increased, as appropriate, to reflect exchanges and redemptions. Any endorsement of a Global Note to reflect the amount of any increase or decrease in the aggregate principal amount of outstanding Notes represented thereby shall be made by the Trustee or the Note Custodian, at the direction of the Trustee, in accordance with instructions given by the Holder thereof as required by Section 2.06 hereof. (c) Temporary Global Notes. Notes offered and sold in reliance on Regulation S shall be issued initially in the form of the Regulation S Temporary Global Note, which shall be deposited on behalf of the purchasers of the Notes represented thereby with the Trustee, at its New York office, as custodian for the Depositary, and registered in the name of the Depositary or the nominee of the Depositary for the accounts of designated agents holding on behalf of Euroclear or Cedel Bank, duly executed by the Company and authenticated by the Trustee as hereinafter provided. The Restricted Period shall be terminated upon the receipt by the Trustee of (i) a written certificate from the Depositary, together with copies of certificates from Euroclear and Cedel Bank certifying that they have received certification of non-United States beneficial ownership of 100% of the aggregate principal amount of the Regulation S Temporary Global Note (except to the extent of any beneficial owners thereof who acquired an interest therein during the Restricted Period pursuant to another exemption from registration under the Securities Act and who will take delivery of a beneficial ownership interest in a 144A Global Note or an IAI Global Note bearing a Private Placement Legend, all as contemplated by Section 2.06(a)(ii) hereof), and (ii) an Officers' Certificate from the Company. Following the termination of the Restricted Period, beneficial interests in the Regulation S Temporary Global Note shall be exchanged for beneficial interests in Regulation S Permanent Global Notes pursuant to the Applicable Procedures. Simultaneously with the authentication of Regulation S Permanent Global Notes, the Trustee shall cancel the Regulation S Temporary Global Note. The aggregate principal amount of the Regulation S Temporary Global Note and the Regulation S Permanent Global Notes may from time to time be increased or decreased by adjustments made on the records of the Trustee and the Depositary or its nominee, as the case may be, in connection with transfers of interest as hereinafter provided. -15- 22 (d) Euroclear and Cedel Procedures Applicable. The provisions of the "Operating Procedures of the Euroclear System" and "Terms and Conditions Governing Use of Euroclear" and the "General Terms and Conditions of Cedel Bank" and "Customer Handbook" of Cedel Bank shall be applicable to transfers of beneficial interests in the Regulation S Temporary Global Note and the Regulation S Permanent Global Notes that are held by Participants through Euroclear or Cedel Bank. SECTION 2.02. EXECUTION AND AUTHENTICATION. One Officer shall sign the Notes for the Company by manual or facsimile signature. The Company's seal may be reproduced on the Notes and may be in facsimile form. If an Officer whose signature is on a Note no longer holds that office at the time a Note is authenticated, the Note shall nevertheless be valid. A Note shall not be valid until authenticated by the manual signature of the Trustee. The signature shall be conclusive evidence that the Note has been authenticated under this Indenture. The Trustee shall, upon a written order of the Company signed by one Officer (an "Authentication Order"), authenticate Notes for original issue up to the aggregate principal amount stated in paragraph 4 of the Notes. The aggregate principal amount of Notes outstanding at any time may not exceed such amount except as provided in Section 2.07 hereof. The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Notes. An authenticating agent may authenticate Notes whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with Holders or an Affiliate of the Company. SECTION 2.03. REGISTRAR AND PAYING AGENT. The Company shall maintain an office or agency where Notes may be presented for registration of transfer or for exchange ("Registrar") and an office or agency where Notes may be presented for payment ("Paying Agent"). The Registrar shall keep a register of the Notes and of their transfer and exchange. The Company may appoint one or more co-registrars and one or more additional paying agents. The term "Registrar" includes any co-registrar and the term "Paying Agent" includes any additional paying agent. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company shall notify the Trustee in writing of the name and address of any Agent not a party to this Indenture. If the Company fails to appoint or maintain another entity as Registrar or Paying Agent, the Trustee shall act as such. The Company or any of its Subsidiaries may act as Paying Agent or Registrar. The Company initially appoints The Depository Trust Company ("DTC") to act as Depositary with respect to the Global Notes. The Company initially appoints the Trustee to act as the Registrar and Paying Agent and to act as Note Custodian with respect to the Global Notes. SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST. The Company shall require each Paying Agent other than the Trustee to agree in writing that the Paying Agent will hold in trust for the benefit of Holders or the Trustee all money held by the -16- 23 Paying Agent for the payment of principal, premium or Liquidated Damages, if any, or interest on the Notes, and will notify the Trustee of any default by the Company in making any such payment. While any such default continues, the Trustee may require a Paying Agent to pay all money held by it to the Trustee. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the Company or a Subsidiary) shall have no further liability for the money. If the Company or a Subsidiary acts as Paying Agent, it shall segregate and hold in a separate trust fund for the benefit of the Holders all money held by it as Paying Agent. Upon any bankruptcy or reorganization proceedings relating to the Company, the Trustee shall serve as Paying Agent for the Notes. SECTION 2.05. HOLDER LISTS. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of all Holders and shall otherwise comply with TIA ss. 312(a). If the Trustee is not the Registrar, the Company shall furnish to the Trustee at least seven Business Days before each interest payment date and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of the Holders of Notes and the Company shall otherwise comply with TIA ss. 312(a). SECTION 2.06. TRANSFER AND EXCHANGE. (a) Transfer and Exchange of Global Notes. A Global Note may not be transferred as a whole except by the Depositary to a nominee of the Depositary, by a nominee of the Depositary to the Depositary or to another nominee of the Depositary, or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. All Global Notes will be exchanged by the Company for Definitive Notes if (i) the Company delivers to the Trustee notice from the Depositary that it is unwilling or unable to continue to act as Depositary or that it is no longer a clearing agency registered under the Exchange Act and, in either case, a successor Depositary is not appointed by the Company within 120 days after the date of such notice from the Depositary or (ii) the Company in its sole discretion determines that the Global Notes (in whole but not in part) should be exchanged for Definitive Notes and delivers a written notice to such effect to the Trustee; provided that in no event shall the Regulation S Temporary Global Note be exchanged by the Company for Definitive Notes prior to (x) the expiration of the Restricted Period and (y) the receipt by the Registrar of any certificates required pursuant to Rule 903(c)(3)(ii)(B) under the Securities Act. Upon the occurrence of either of the preceding events in (i) or (ii) above, Definitive Notes shall be issued in such names as the Depositary shall instruct the Trustee. Global Notes also may be exchanged or replaced, in whole or in part, as provided in Sections 2.07 and 2.10 hereof. Every Note authenticated and delivered in exchange for, or in lieu of, a Global Note or any portion thereof, pursuant to this Section 2.06 or Section 2.07 or 2.10 hereof, shall be authenticated and delivered in the form of, and shall be, a Global Note. A Global Note may not be exchanged for another Note other than as provided in this Section 2.06(a), however, beneficial interests in a Global Note may be transferred and exchanged as provided in Section 2.06(b),(c) or (f) hereof. (b) Transfer and Exchange of Beneficial Interests in the Global Notes. The transfer and exchange of beneficial interests in the Global Notes shall be effected through the Depositary, in accordance with the provisions of this Indenture and the Applicable Procedures. Beneficial interests in the Restricted Global Notes shall be subject to restrictions on transfer comparable to those set forth herein to the extent required by the Securities Act. Transfers of beneficial interests in the Global Notes also shall require compliance with either subparagraph (i) or (ii) below, as applicable, as well as one or more of the other following subparagraphs, as applicable: -17- 24 (i) Transfer of Beneficial Interests in the Same Global Note. Beneficial interests in any Restricted Global Note may be transferred to Persons who take delivery thereof in the form of a beneficial interest in the same Restricted Global Note in accordance with the transfer restrictions set forth in the Private Placement Legend; provided, however, that prior to the expiration of the Restricted Period, transfers of beneficial interests in the Temporary Regulation S Global Note may not be made to a U.S. Person or for the account or benefit of a U.S. Person (other than an Initial Purchaser). Beneficial interests in any Unrestricted Global Note may be transferred to Persons who take delivery thereof in the form of a beneficial interest in an Unrestricted Global Note. No written orders or instructions shall be required to be delivered to the Registrar to effect the transfers described in this Section 2.06(b)(i). (ii) All Other Transfers and Exchanges of Beneficial Interests in Global Notes. In connection with all transfers and exchanges of beneficial interests that are not subject to Section 2.06(b)(i) above, the transferor of such beneficial interest must deliver to the Registrar either (A) (1) a written order from a Participant or an Indirect Participant given to the Depositary in accordance with the Applicable Procedures directing the Depositary to credit or cause to be credited a beneficial interest in another Global Note in an amount equal to the beneficial interest to be transferred or exchanged and (2) instructions given in accordance with the Applicable Procedures containing information regarding the Participant account to be credited with such increase or (B) (1) a written order from a Participant or an Indirect Participant given to the Depositary in accordance with the Applicable Procedures directing the Depositary to cause to be issued a Definitive Note in an amount equal to the beneficial interest to be transferred or exchanged and (2) instructions given by the Depositary to the Registrar containing information regarding the Person in whose name such Definitive Note shall be registered to effect the transfer or exchange referred to in (1) above; provided that in no event shall Definitive Notes be issued upon the transfer or exchange of beneficial interests in the Regulation S Temporary Global Note prior to (x) the expiration of the Restricted Period and (y) the receipt by the Registrar of any certificates required pursuant to Rule 903 under the Securities Act. Upon consummation of an Exchange Offer by the Company in accordance with Section 2.06(f) hereof, the requirements of this Section 2.06(b)(ii) shall be deemed to have been satisfied upon receipt by the Registrar of the instructions contained in the Letter of Transmittal delivered by the Holder of such beneficial interests in the Restricted Global Notes. Upon satisfaction of all of the requirements for transfer or exchange of beneficial interests in Global Notes contained in this Indenture and the Notes or otherwise applicable under the Securities Act, the Trustee shall adjust the principal amount of the relevant Global Note(s) pursuant to Section 2.06(h) hereof. (iii) Transfer of Beneficial Interests to Another Restricted Global Note. A beneficial interest in any Restricted Global Note may be transferred to a Person who takes delivery thereof in the form of a beneficial interest in another Restricted Global Note if the transfer complies with the requirements of Section 2.06(b)(ii) above and the Registrar receives the following: (A) if the transferee will take delivery in the form of a beneficial interest in the 144A Global Note, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (1) thereof; (B) if the transferee will take delivery in the form of a beneficial interest in the Regulation S Temporary Global Note or the Regulation S Global Note, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (2) thereof; and -18- 25 (C) if the transferee will take delivery in the form of a beneficial interest in the IAI Global Note, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certificates and Opinion of Counsel required by item (3) thereof, if applicable. (iv) Transfer and Exchange of Beneficial Interests in a Restricted Global Note for Beneficial Interests in the Unrestricted Global Note. A beneficial interest in any Restricted Global Note may be exchanged by any holder thereof for a beneficial interest in an Unrestricted Global Note or transferred to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note if the exchange or transfer complies with the requirements of Section 2.06(b)(ii) above and: (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the holder of the beneficial interest to be transferred, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (1) a broker-dealer, (2) a Person participating in the distribution of the Series B Notes or (3) a Person who is an affiliate (as defined in Rule 144) of the Company; (B) such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) such transfer is effected by a Participating Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) the Registrar receives the following: (1) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a beneficial interest in an Unrestricted Global Note, a certificate from such holder in the form of Exhibit C hereto, including the certifications in item (1)(a) thereof; or (2) if the holder of such beneficial interest in a Restricted Global Note proposes to transfer such beneficial interest to a Person who shall take delivery thereof in the form of a beneficial interest in an Unrestricted Global Note, a certificate from such holder in the form of Exhibit B hereto, including the certifications in item (4) thereof; and, in each such case set forth in this subparagraph (D), if the Registrar or the Company so requests or if the Applicable Procedures so require, an Opinion of Counsel in form reasonably acceptable to the Registrar and the Company to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act. If any such transfer is effected pursuant to subparagraph (B) or (D) above at a time when an Unrestricted Global Note has not yet been issued, the Company shall issue and, upon receipt of an Authentication Order in accordance with Section 2.02 hereof, the Trustee shall authenticate one or more -19- 26 Unrestricted Global Notes in an aggregate principal amount equal to the aggregate principal amount of beneficial interests transferred pursuant to subparagraph (B) or (D) above. Beneficial interests in an Unrestricted Global Note cannot be exchanged for, or transferred to Persons who take delivery thereof in the form of, a beneficial interest in a Restricted Global Note. (c) Transfer or Exchange of Beneficial Interests for Definitive Notes. (v) Beneficial Interests in Restricted Global Notes to Restricted Definitive Notes. If any holder of a beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a Restricted Definitive Note or to transfer such beneficial interest to a Person who takes delivery thereof in the form of a Restricted Definitive Note, then, upon receipt by the Registrar of the following documentation: (A) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a Restricted Definitive Note, a certificate from such holder in the form of Exhibit C hereto, including the certifications in item (2)(a) thereof; (B) if such beneficial interest is being transferred to a QIB in accordance with Rule 144A under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (1) thereof; (C) if such beneficial interest is being transferred to a Non-U.S. Person in an offshore transaction in accordance with Rule 903 or Rule 904 under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (2) thereof; (D) if such beneficial interest is being transferred pursuant to an exemption from the registration requirements of the Securities Act in accordance with Rule 144 under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(a) thereof; (E) if such beneficial interest is being transferred to an Institutional Accredited Investor in reliance on an exemption from the registration requirements of the Securities Act other than those listed in subparagraphs (B) through (D) above, a certificate to the effect set forth in Exhibit B hereto, including the certifications, certificates and Opinion of Counsel required by item (3) thereof, if applicable; (F) if such beneficial interest is being transferred to the Company or any of its Subsidiaries, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(b) thereof; or (G) if such beneficial interest is being transferred pursuant to an effective registration statement under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(c) thereof, the Trustee shall cause the aggregate principal amount of the applicable Global Note to be reduced accordingly pursuant to Section 2.06(h) hereof, and the Company shall execute and the Trustee shall authenticate and deliver to the Person designated in the instructions a Definitive Note in the -20- 27 appropriate principal amount. Any Definitive Note issued in exchange for a beneficial interest in a Restricted Global Note pursuant to this Section 2.06(c) shall be registered in such name or names and in such authorized denomination or denominations as the holder of such beneficial interest shall instruct the Registrar through instructions from the Depositary and the Participant or Indirect Participant. The Trustee shall deliver such Definitive Notes to the Persons in whose names such Notes are so registered. Any Definitive Note issued in exchange for a beneficial interest in a Restricted Global Note pursuant to this Section 2.06(c)(i) shall bear the Private Placement Legend and shall be subject to all restrictions on transfer contained therein. (ii) Notwithstanding Sections 2.06(c)(i)(A) and (C) hereof, a beneficial interest in the Regulation S Temporary Global Note may not be exchanged for a Definitive Note or transferred to a Person who takes delivery thereof in the form of a Definitive Note prior to (x) the expiration of the Restricted Period and (y) the receipt by the Registrar of any certificates required pursuant to Rule 903(c)(3)(ii)(B) under the Securities Act, except in the case of a transfer pursuant to an exemption from the registration requirements of the Securities Act other than Rule 903 or Rule 904. (vi) Beneficial Interests in Restricted Global Notes to Unrestricted Definitive Notes. A holder of a beneficial interest in a Restricted Global Note may exchange such beneficial interest for an Unrestricted Definitive Note or may transfer such beneficial interest to a Person who takes delivery thereof in the form of an Unrestricted Definitive Note only if: (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the holder of such beneficial interest, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (1) a broker-dealer, (2) a Person participating in the distribution of the Series B Notes or (3) a Person who is an affiliate (as defined in Rule 144) of the Company; (B) such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) such transfer is effected by a Participating Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) the Registrar receives the following: (1) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a Definitive Note that does not bear the Private Placement Legend, a certificate from such holder in the form of Exhibit C hereto, including the certifications in item (1)(b) thereof; or (2) if the holder of such beneficial interest in a Restricted Global Note proposes to transfer such beneficial interest to a Person who shall take delivery thereof in the form of a Definitive Note that does not bear the Private Placement Legend, a certificate from such holder in the form of Exhibit B hereto, including the certifications in item (4) thereof; -21- 28 and, in each such case set forth in this subparagraph (D), if the Registrar so requests or if the Applicable Procedures so require, an Opinion of Counsel in form reasonably acceptable to the Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act. (vii) Beneficial Interests in Unrestricted Global Notes to Unrestricted Definitive Notes. If any holder of a beneficial interest in an Unrestricted Global Note proposes to exchange such beneficial interest for a Definitive Note or to transfer such beneficial interest to a Person who takes delivery thereof in the form of a Definitive Note, then, upon satisfaction of the conditions set forth in Section 2.06(b)(ii) hereof, the Trustee shall cause the aggregate principal amount of the applicable Global Note to be reduced accordingly pursuant to Section 2.06(h) hereof, and the Company shall execute and the Trustee shall authenticate and deliver to the Person designated in the instructions a Definitive Note in the appropriate principal amount. Any Definitive Note issued in exchange for a beneficial interest pursuant to this Section 2.06(c)(iii) shall be registered in such name or names and in such authorized denomination or denominations as the holder of such beneficial interest shall instruct the Registrar through instructions from the Depositary and the Participant or Indirect Participant. The Trustee shall deliver such Definitive Notes to the Persons in whose names such Notes are so registered. Any Definitive Note issued in exchange for a beneficial interest pursuant to this Section 2.06(c)(iii) shall not bear the Private Placement Legend. (D) Transfer and Exchange of Definitive Notes for Beneficial Interests. (viii) Restricted Definitive Notes to Beneficial Interests in Restricted Global Notes. If any Holder of a Restricted Definitive Note proposes to exchange such Note for a beneficial interest in a Restricted Global Note or to transfer such Restricted Definitive Notes to a Person who takes delivery thereof in the form of a beneficial interest in a Restricted Global Note, then, upon receipt by the Registrar of the following documentation: (A) if the Holder of such Restricted Definitive Note proposes to exchange such Note for a beneficial interest in a Restricted Global Note, a certificate from such Holder in the form of Exhibit C hereto, including the certifications in item (2)(b) thereof; (B) if such Restricted Definitive Note is being transferred to a QIB in accordance with Rule 144A under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (1) thereof; (C) if such Restricted Definitive Note is being transferred to a Non-U.S. Person in an offshore transaction in accordance with Rule 903 or Rule 904 under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (2) thereof; (D) if such Restricted Definitive Note is being transferred pursuant to an exemption from the registration requirements of the Securities Act in accordance with Rule 144 under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(a) thereof; -22- 29 (E) if such Restricted Definitive Note is being transferred to an Institutional Accredited Investor in reliance on an exemption from the registration requirements of the Securities Act other than those listed in subparagraphs (B) through (D) above, a certificate to the effect set forth in Exhibit B hereto, including the certifications, certificates and Opinion of Counsel required by item (3) thereof, if applicable; (F) if such Restricted Definitive Note is being transferred to the Company or any of its Subsidiaries, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(b) thereof; or (G) if such Restricted Definitive Note is being transferred pursuant to an effective registration statement under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(c) thereof, the Trustee shall cancel the Restricted Definitive Note, increase or cause to be increased the aggregate principal amount of, in the case of clause (A) above, the appropriate Restricted Global Note, in the case of clause (B) above, the 144A Global Note, in the case of clause (c) above, the Regulation S Global Note, and in all other cases, the IAI Global Note. (ix) Restricted Definitive Notes to Beneficial Interests in Unrestricted Global Notes. A Holder of a Restricted Definitive Note may exchange such Note for a beneficial interest in an Unrestricted Global Note or transfer such Restricted Definitive Note to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note only if: (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the Holder, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (1) a broker-dealer, (2) a Person participating in the distribution of the Series B Notes or (3) a Person who is an affiliate (as defined in Rule 144) of the Company; (B) such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) such transfer is effected by a Participating Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) the Registrar receives the following: (1) if the Holder of such Definitive Notes proposes to exchange such Notes for a beneficial interest in the Unrestricted Global Note, a certificate from such Holder in the form of Exhibit C hereto, including the certifications in item (1)(c) thereof; or (2) if the Holder of such Definitive Notes proposes to transfer such Notes to a Person who shall take delivery thereof in the form of a beneficial interest in the Unrestricted Global Note, a certificate from such Holder in the form of Exhibit B hereto, including the certifications in item (4) thereof; -23- 30 and, in each such case set forth in this subparagraph (D), if the Registrar so requests or if the Applicable Procedures so require, an Opinion of Counsel in form reasonably acceptable to the Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act. Upon satisfaction of the conditions of any of the subparagraphs in this Section 2.06(d)(ii), the Trustee shall cancel the Definitive Notes and increase or cause to be increased the aggregate principal amount of the Unrestricted Global Note. (x) Unrestricted Definitive Notes to Beneficial Interests in Unrestricted Global Notes. A Holder of an Unrestricted Definitive Note may exchange such Note for a beneficial interest in an Unrestricted Global Note or transfer such Definitive Notes to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note at any time. Upon receipt of a request for such an exchange or transfer, the Trustee shall cancel the applicable Unrestricted Definitive Note and increase or cause to be increased the aggregate principal amount of one of the Unrestricted Global Notes. If any such exchange or transfer from a Definitive Note to a beneficial interest is effected pursuant to subparagraphs (ii)(B), (ii)(D) or (iii) above at a time when an Unrestricted Global Note has not yet been issued, the Company shall issue and, upon receipt of an Authentication Order in accordance with Section 2.02 hereof, the Trustee shall authenticate one or more Unrestricted Global Notes in an aggregate principal amount equal to the principal amount of Definitive Notes so transferred. (e) Transfer and Exchange of Definitive Notes for Definitive Notes. Upon request by a Holder of Definitive Notes and such Holder's compliance with the provisions of this Section 2.06(e), the Registrar shall register the transfer or exchange of Definitive Notes. Prior to such registration of transfer or exchange, the requesting Holder shall present or surrender to the Registrar the Definitive Notes duly endorsed or accompanied by a written instruction of transfer in form satisfactory to the Registrar duly executed by such Holder or by his attorney, duly authorized in writing. In addition, the requesting Holder shall provide any additional certifications, documents and information, as applicable, required pursuant to the following provisions of this Section 2.06(e). (i) Restricted Definitive Notes to Restricted Definitive Notes. Any Restricted Definitive Note may be transferred to and registered in the name of Persons who take delivery thereof in the form of a Restricted Definitive Note if the Registrar receives the following: (A) if the transfer will be made pursuant to Rule 144A under the Securities Act, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (1) thereof; (B) if the transfer will be made pursuant to Rule 903 or Rule 904, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (2) thereof; and (C) if the transfer will be made pursuant to any other exemption from the registration requirements of the Securities Act, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications, certificates and Opinion of Counsel required by item (3) thereof, if applicable. -24- 31 (ii) Restricted Definitive Notes to Unrestricted Definitive Notes. Any Restricted Definitive Note may be exchanged by the Holder thereof for an Unrestricted Definitive Note or transferred to a Person or Persons who take delivery thereof in the form of an Unrestricted Definitive Note if: (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the Holder, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (1) a broker-dealer, (2) a Person participating in the distribution of the Series B Notes or (3) a Person who is an affiliate (as defined in Rule 144) of the Company; (B) any such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) any such transfer is effected by a Participating Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) the Registrar receives the following: (1) if the Holder of such Restricted Definitive Notes proposes to exchange such Notes for an Unrestricted Definitive Note, a certificate from such Holder in the form of Exhibit C hereto, including the certifications in item (1)(d) thereof; or (2) if the Holder of such Restricted Definitive Notes proposes to transfer such Notes to a Person who shall take delivery thereof in the form of an Unrestricted Definitive Note, a certificate from such Holder in the form of Exhibit B hereto, including the certifications in item (4) thereof; and, in each such case set forth in this subparagraph (D), if the Company or the Registrar so requests, an Opinion of Counsel in form reasonably acceptable to the Company or the Registrar, as the case may be, to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act. (iii) Unrestricted Definitive Notes to Unrestricted Definitive Notes. A Holder of Unrestricted Definitive Notes may transfer such Notes to a Person who takes delivery thereof in the form of an Unrestricted Definitive Note. Upon receipt of a request to register such a transfer, the Registrar shall register the Unrestricted Definitive Notes pursuant to the instructions from the Holder thereof. (f) Exchange Offer. Upon the occurrence of the Exchange Offer in accordance with the Registration Rights Agreement, the Company shall issue and, upon receipt of an Authentication Order in accordance with Section 2.02, the Trustee shall authenticate (i) one or more Unrestricted Global Notes in an aggregate principal amount equal to the principal amount of the beneficial interests in the Restricted Global Notes tendered for acceptance by Persons that certify in the applicable Letters of Transmittal that (x) they are not broker-dealers, (y) they are not participating in a distribution of the Series B Notes and (z) they are not affiliates (as defined in Rule 144) of the Company, and accepted for exchange in the Exchange Offer and (ii) Definitive Notes in an aggregate principal amount equal to the principal amount of the Restricted Definitive Notes accepted for exchange in the Exchange Offer. Concurrently with the issuance -25- 32 of such Notes, the Trustee shall cause the aggregate principal amount of the applicable Restricted Global Notes to be reduced accordingly, and the Company shall execute and the Trustee shall authenticate and deliver to the Persons designated by the Holders of Definitive Notes so accepted Definitive Notes in the appropriate principal amount. (g) Legends. The following legends shall appear on the face of all Global Notes and Definitive Notes issued under this Indenture unless specifically stated otherwise in the applicable provisions of this Indenture. (i) Private Placement Legend. (A) Except as permitted by subparagraph (B) below, each Global Note and each Definitive Note (and all Notes issued in exchange therefor or substitution thereof) shall bear the legend in substantially the following form: THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND THIS NOTE MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR IN ACCORDANCE WITH AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (SUBJECT TO THE DELIVERY OF SUCH EVIDENCE, IF ANY, REQUIRED UNDER THE INDENTURE PURSUANT TO WHICH THIS NOTE IS ISSUED) AND IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER JURISDICTION. EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER OR ANOTHER EXEMPTION UNDER THE SECURITIES ACT. THE HOLDER OF THE SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT OF SAC ACQUISITION CORP. ("SAC") AND SIMCALA, INC. THAT (A) SUCH SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (1)(a) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (b) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (c) OUTSIDE THE UNITED STATES TO A PERSON THAT IS NOT A U.S. PERSON (WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT OR (d) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL IF THE COMPANY SO REQUESTS), SUBJECT IN CASE OF SUBSECTIONS (c) AND (d) TO THE RECEIPT BY THE REGISTRAR, TRANSFER AGENT, TRUSTEE, SIMCALA, INC. AND SAC OF CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM (2) TO SIMCALA, INC. OR SAC OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE HOLDER WILL AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF -26- 33 THE SECURITY EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (A) ABOVE. (B) Notwithstanding the foregoing, any Global Note or Definitive Note issued pursuant to subparagraphs (b)(iv), (c)(ii), (c)(iii), (d)(ii), (d)(iii), (e)(ii), (e)(iii) or (f) to this Section 2.06 (and all Notes issued in exchange therefor or substitution thereof) shall not bear the Private Placement Legend. (ii) Global Note Legend. Each Global Note shall bear a legend in substantially the following form: "THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.07 OF THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF SIMCALA, INC. OR SAC." (iii) Regulation S Temporary Global Note Legend. The Regulation S Temporary Global Note shall bear a legend in substantially the following form: "THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER NOR THE BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL NOTE SHALL BE ENTITLED TO RECEIVE PAYMENT OF INTEREST HEREON." (h) Cancellation and/or Adjustment of Global Notes.At such time as all beneficial interests in a particular Global Note have been exchanged for Definitive Notes or a particular Global Note has been redeemed, repurchased or canceled in whole and not in part, each such Global Note shall be returned to or retained and canceled by the Trustee in accordance with Section 2.11 hereof. At any time prior to such cancellation, if any beneficial interest in a Global Note is exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Note or for Definitive Notes, the principal amount of Notes represented by such Global Note shall be reduced accordingly and an endorsement shall be made on such Global Note by the Trustee or by the Depositary at the direction of the Trustee to reflect such reduction; and if the beneficial interest is being exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Note, such other Global Note shall be increased accordingly and an endorsement shall be made on such Global Note by the Trustee or by the Depositary at the direction of the Trustee to reflect such increase. (i) General Provisions Relating to Transfers and Exchanges. -27- 34 (i) To permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Global Notes and Definitive Notes upon the Company's order or at the Registrar's request. (ii) No service charge shall be made to a holder of a beneficial interest in a Global Note or to a Holder of a Definitive Note for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or similar governmental charge payable upon exchange or transfer pursuant to Sections 2.10, 3.06, 3.09, 4.10, 4.15 and 9.05 hereof). (iii) The Registrar shall not be required to register the transfer of or exchange any Note selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part. (iv) All Global Notes and Definitive Notes issued upon any registration of transfer or exchange of Global Notes or Definitive Notes shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Global Notes or Definitive Notes surrendered upon such registration of transfer or exchange. (v) The Company shall not be required (A) to issue, to register the transfer of or to exchange any Notes during a period beginning at the opening of business 15 days before the day of any selection of Notes for redemption under Section 3.02 hereof and ending at the close of business on the day of selection, (B) to register the transfer of or to exchange any Note so selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part or (C) to register the transfer of or to exchange a Note between a record date and the next succeeding Interest Payment Date. (vi) Prior to due presentment for the registration of a transfer of any Note, the Trustee, any Agent and the Company may deem and treat the Person in whose name any Note is registered as the absolute owner of such Note for the purpose of receiving payment of principal of and interest on such Notes and for all other purposes, and none of the Trustee, any Agent or the Company shall be affected by notice to the contrary. (vii) The Trustee shall authenticate Global Notes and Definitive Notes in accordance with the provisions of Section 2.02 hereof. (viii) All certifications, certificates and Opinions of Counsel required to be submitted to the Registrar pursuant to this Section 2.06 to effect a registration of transfer or exchange may be submitted by facsimile. SECTION 2.07. REPLACEMENT NOTES. If any mutilated Note is surrendered to the Trustee or the Company and the Trustee receives evidence to its satisfaction of the destruction, loss or theft of any Note, the Company shall issue and the Trustee, upon receipt of an Authentication Order, shall authenticate a replacement Note. If required by the Trustee or the Company, an indemnity bond must be supplied by the Holder that is sufficient in the judgment of the Trustee and the Company to protect the Company, the Trustee, any Agent -28- 35 and any authenticating agent from any loss that any of them may suffer if a Note is replaced. The Company may charge for its expenses in replacing a Note. Every replacement Note is an obligation of the Company which shall replace and extinguish the obligation evidenced by the Note such replacement Note replaces, and such replacement Note shall be entitled to all of the benefits of this Indenture equally and proportionately with all other Notes duly issued hereunder. SECTION 2.08. OUTSTANDING NOTES. The Notes outstanding at any time are all the Notes authenticated by the Trustee except for those canceled by it, those delivered to it for cancellation, those reductions in the interest in a Global Note effected by the Trustee in accordance with the provisions hereof, and those described in this Section as not outstanding. Except as set forth in Section 2.09 hereof, a Note does not cease to be outstanding because the Company or an Affiliate of the Company holds the Note; however, Notes held by the Company or a Subsidiary of the Company shall not be deemed to be outstanding for purposes of Section 3.07(b) hereof. If a Note is replaced pursuant to Section 2.07 hereof, it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Note is held by a bona fide purchaser. If the principal amount of any Note is considered paid under Section 4.01 hereof, it ceases to be outstanding and interest on it ceases to accrue. If the Paying Agent (other than the Company, a Subsidiary or an Affiliate of any thereof) holds, on a redemption date or maturity date, money sufficient to pay Notes payable on that date, then on and after that date such Notes shall be deemed to be no longer outstanding and shall cease to accrue interest. SECTION 2.09. TREASURY NOTES. In determining whether the Holders of the required principal amount of Notes have concurred in any direction, waiver or consent, Notes owned by the Company, or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company, shall be considered as though not outstanding, except that for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Notes that the Trustee knows are so owned shall be so disregarded. SECTION 2.10. TEMPORARY NOTES. Until certificates representing Notes are ready for delivery, the Company may prepare and the Trustee, upon receipt of an Authentication Order, shall authenticate temporary Notes. Temporary Notes shall be substantially in the form of certificated Notes but may have variations that the Company considers appropriate for temporary Notes and as shall be reasonably acceptable to the Trustee. Without unreasonable delay, the Company shall prepare and the Trustee shall authenticate definitive Notes in exchange for temporary Notes. Holders of temporary Notes shall be entitled to all of the benefits of this Indenture. -29- 36 SECTION 2.11. CANCELLATION. The Company at any time may deliver Notes to the Trustee for cancellation. The Registrar and Paying Agent shall forward to the Trustee any Notes surrendered to them for registration of transfer, exchange or payment. The Trustee and no one else shall cancel all Notes surrendered for registration of transfer, exchange, payment, replacement or cancellation and shall destroy canceled Notes (subject to the record retention requirement of the Exchange Act). Certification of the destruction of all canceled Notes shall be delivered to the Company. The Company may not issue new Notes to replace Notes that it has paid or that have been delivered to the Trustee for cancellation. SECTION 2.12. DEFAULTED INTEREST. If the Company defaults in a payment of interest on the Notes, it shall pay the defaulted interest in any lawful manner plus, to the extent lawful, interest payable on the defaulted interest, to the Persons who are Holders on a subsequent special record date, in each case at the rate provided in the Notes and in Section 4.01 hereof. The Company shall notify the Trustee in writing of the amount of defaulted interest proposed to be paid on each Note and the date of the proposed payment. The Company shall fix or cause to be fixed each such special record date and payment date, provided that no such special record date shall be less than 10 days prior to the related payment date for such defaulted interest. At least 15 days before the special record date, the Company (or, upon the written request of the Company, the Trustee in the name and at the expense of the Company) shall mail or cause to be mailed to Holders a notice that states the special record date, the related payment date and the amount of such interest to be paid. ARTICLE 3. REDEMPTION AND PREPAYMENT SECTION 3.01. NOTICES TO TRUSTEE. If the Company elects to redeem Notes pursuant to the optional redemption provisions of Section 3.07 hereof, it shall furnish to the Trustee, at least 45 days but not more than 60 days before a redemption date, an Officers' Certificate setting forth (i) the clause of this Indenture pursuant to which the redemption shall occur, (ii) the redemption date, (iii) the principal amount of Notes to be redeemed and (iv) the redemption price. SECTION 3.02. SELECTION OF NOTES TO BE REDEEMED. If less than all of the Notes are to be redeemed , the Trustee shall select the Notes to be redeemed among the Holders of the Notes in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed or, if the Notes are not so listed, on a pro rata basis, by lot or in accordance with any other method the Trustee considers fair and appropriate. In the event of partial redemption by lot, the particular Notes to be redeemed shall be selected, unless otherwise provided herein, not less than 30 nor more than 60 days prior to the redemption date by the Trustee from the outstanding Notes not previously called for redemption. The Trustee shall promptly notify the Company in writing of the Notes selected for redemption and, in the case of any Note selected for partial redemption, the principal amount thereof to be redeemed. Notes and portions of Notes selected shall be in amounts of $1,000 or whole multiples of $1,000; except that if all of the Notes of a Holder are to be redeemed, the entire outstanding amount of Notes held by such Holder, even if not a multiple of $1,000, shall be redeemed. Except as provided in the -30- 37 preceding sentence, provisions of this Indenture that apply to Notes called for redemption also apply to portions of Notes called for redemption. SECTION 3.03. NOTICE OF REDEMPTION. Subject to the provisions of Section 3.09 hereof, at least 30 days but not more than 60 days before a redemption date, the Company shall mail or cause to be mailed, by first class mail, a notice of redemption to each Holder whose Notes are to be redeemed at its registered address. The notice shall identify the Notes to be redeemed and shall state: (a) the redemption date; (b) the redemption price; (c) if any Note is being redeemed in part, the portion of the principal amount of such Note to be redeemed and that, after the redemption date upon surrender of such Note, a new Note or Notes in principal amount equal to the unredeemed portion shall be issued upon cancellation of the original Note; (d) the name and address of the Paying Agent; (e) that Notes called for redemption must be surrendered to the Paying Agent to collect the redemption price; (f) that, unless the Company defaults in making such redemption payment, interest on Notes called for redemption ceases to accrue on and after the redemption date; (g) the paragraph of the Notes and/or Section of this Indenture pursuant to which the Notes called for redemption are being redeemed; and (h) that no representation is made as to the correctness or accuracy of the CUSIP number, if any, listed in such notice or printed on the Notes. At the Company's request, the Trustee shall give the notice of redemption in the Company's name and at its expense; provided, however, that the Company shall have delivered to the Trustee, at least 45 days prior to the redemption date, an Officers' Certificate requesting that the Trustee give such notice and setting forth the information to be stated in such notice as provided in the preceding paragraph. SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION. Once notice of redemption is mailed in accordance with Section 3.03 hereof, Notes called for redemption become irrevocably due and payable on the redemption date at the redemption price. A notice of redemption may not be conditional. SECTION 3.05. DEPOSIT OF REDEMPTION PRICE. One Business Day prior to the redemption date, the Company shall deposit with the Trustee or with the Paying Agent money sufficient to pay the redemption price of and accrued interest on all Notes to be redeemed on that date. The Trustee or the Paying Agent shall promptly return to the -31- 38 Company any money deposited with the Trustee or the Paying Agent by the Company in excess of the amounts necessary to pay the redemption price of, and accrued interest on, all Notes to be redeemed. If the Company complies with the provisions of the preceding paragraph, on and after the redemption date, interest shall cease to accrue on the Notes or the portions of Notes called for redemption. If a Note is redeemed on or after an interest record date but on or prior to the related interest payment date, then any accrued and unpaid interest shall be paid to the Person in whose name such Note was registered at the close of business on such record date. If any Note called for redemption shall not be so paid upon surrender for redemption because of the failure of the Company to comply with the preceding paragraph, interest shall be paid on the unpaid principal, from the redemption date until such principal is paid, and to the extent lawful on any interest not paid on such unpaid principal, in each case at the rate provided in the Notes and in Section 4.01 hereof. SECTION 3.06. NOTES REDEEMED IN PART. Upon surrender of a Note that is redeemed in part, the Company shall issue and, upon the Company's written request, the Trustee shall authenticate for the Holder at the expense of the Company a new Note equal in principal amount to the unredeemed portion of the Note surrendered. SECTION 3.07. OPTIONAL REDEMPTION. (a) Except as set forth in clause (b) of this Section 3.07, the Company shall not have the option to redeem the Notes pursuant to this Section 3.07 prior to April 15, 2002. Thereafter, the Company shall have the option to redeem the Notes, in whole or in part, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the applicable redemption date, if redeemed during the twelve-month period beginning on April 15 of the years indicated below:
YEAR PERCENTAGE ---- ---------- 2002...................................................................104.8125% 2003...................................................................103.2803% 2004...................................................................101.6042% 2005 and thereafter....................................................100.0000%
(b) Notwithstanding the provisions of clause (a) of this Section 3.07, at any time on or before April 15, 2001, the Company may redeem up to 30% of the aggregate principal amount of the Notes originally issued under this Indenture at a redemption price of 109.6250% of the principal amount thereof, plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the redemption date, with the net proceeds of a public offering of common stock of the Company or Holdings (to the extent the net proceeds thereof are contributed to the Company as common equity); provided that at least 70% of the original aggregate principal amount of the Notes remain outstanding immediately after the occurrence of such redemption (excluding Notes held by the Company and its Subsidiaries); and provided, further, that such redemption shall occur within 60 days of the date of the closing of such public offering. (c) Any redemption pursuant to this Section 3.07 shall be made pursuant to the provisions of Section 3.01 through 3.06 hereof. -32- 39 SECTION 3.08. MANDATORY REDEMPTION. The Company shall not be required to make mandatory redemption payments with respect to the Notes. SECTION 3.09. OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS. In the event that, pursuant to Section 4.10 hereof, the Company shall be required to commence an offer to all Holders to purchase Notes (an "Asset Sale Offer"), it shall follow the procedures specified below. The Asset Sale Offer shall remain open for a period of 20 Business Days following its commencement and no longer, except to the extent that a longer period is required by applicable law (the "Offer Period"). No later than five Business Days after the termination of the Offer Period (the "Purchase Date"), the Company shall purchase the principal amount of Notes required to be purchased pursuant to Section 4.10 hereof (the "Offer Amount") or, if less than the Offer Amount has been tendered, all Notes tendered in response to the Asset Sale Offer. Payment for any Notes so purchased shall be made in the same manner as interest payments are made. If the Purchase Date is on or after an interest record date and on or before the related interest payment date, any accrued and unpaid interest shall be paid to the Person in whose name a Note is registered at the close of business on such record date, and no additional interest shall be payable to Holders who tender Notes pursuant to the Asset Sale Offer. Upon the commencement of an Asset Sale Offer, the Company shall send, by first class mail, a notice to the Trustee and each of the Holders, with a copy to the Trustee. The notice shall contain all instructions and materials necessary to enable such Holders to tender Notes pursuant to the Asset Sale Offer. The Asset Sale Offer shall be made to all Holders. The notice, which shall govern the terms of the Asset Sale Offer, shall state: (a) that the Asset Sale Offer is being made pursuant to this Section 3.09 and Section 4.10 hereof and the length of time the Asset Sale Offer shall remain open; (b) the Offer Amount, the purchase price and the Purchase Date; (c) that any Note not tendered or accepted for payment shall continue to accrete or accrue interest; (j) that, unless the Company defaults in making such payment, any Note accepted for payment pursuant to the Asset Sale Offer shall cease to accrete or accrue interest after the Purchase Date; (d) that Holders electing to have a Note purchased pursuant to an Asset Sale Offer may only elect to have all of such Note purchased and may not elect to have only a portion of such Note purchased; (e) that Holders electing to have a Note purchased pursuant to any Asset Sale Offer shall be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed, or transfer the Note by book-entry transfer, to the Company, a Depositary, if appointed by the Company, or a Paying Agent at the address specified in the notice at least three days before the Purchase Date; -33- 40 (f) that Holders shall be entitled to withdraw their election if the Company, the Depositary or the Paying Agent, as the case may be, receives, not later than the expiration of the Offer Period, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Note the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Note purchased; (g) that, if the aggregate principal amount of Notes surrendered by Holders exceeds the Offer Amount, the Company shall select the Notes to be purchased on a pro rata basis (with such adjustments as may be deemed appropriate by the Company so that only Notes in denominations of $1,000, or integral multiples thereof, shall be purchased); and (h) that Holders whose Notes were purchased only in part shall be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered (or transferred by book-entry transfer). On or before the Purchase Date, the Company shall, to the extent lawful, accept for payment, on a pro rata basis to the extent necessary, the Offer Amount of Notes or portions thereof tendered pursuant to the Asset Sale Offer, or if less than the Offer Amount has been tendered, all Notes tendered, and shall deliver to the Trustee an Officers' Certificate stating that such Notes or portions thereof were accepted for payment by the Company in accordance with the terms of this Section 3.09. The Company, the Depositary or the Paying Agent, as the case may be, shall promptly (but in any case not later than five days after the Purchase Date) mail or deliver to each tendering Holder an amount equal to the purchase price of the Notes tendered by such Holder and accepted by the Company for purchase, and the Company shall promptly issue a new Note, and the Trustee, upon written request from the Company shall authenticate and mail or deliver such new Note to such Holder, in a principal amount equal to any unpurchased portion of the Note surrendered. Any Note not so accepted shall be promptly mailed or delivered by the Company to the Holder thereof. Other than as specifically provided in this Section 3.09, any purchase pursuant to this Section 3.09 shall be made pursuant to the provisions of Sections 3.01 through 3.06 hereof. ARTICLE 4. COVENANTS SECTION 4.01. PAYMENT OF NOTES. The Company shall pay or cause to be paid the principal of, premium, if any, and interest on the Notes on the dates and in the manner provided in the Notes. Principal, premium, if any, and interest shall be considered paid on the date due if the Paying Agent, if other than the Company or a Subsidiary thereof, holds as of 10:00 a.m. Eastern Time on the due date, money deposited by the Company in immediately available funds and designated for and sufficient to pay all principal, premium, if any, and interest then due. The Company shall pay all Liquidated Damages, if any, in the same manner on the dates and in the amounts set forth in the Registration Rights Agreement. The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal at the rate equal to 1% per annum in excess of the then applicable interest rate on the Notes to the extent lawful; it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest and Liquidated Damages (without regard to any applicable grace period) at the same rate to the extent lawful. -34- 41 SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY. The Company shall maintain in the Borough of Manhattan, the City of New York, an office or agency (which may be an office of the Trustee or an affiliate of the Trustee, Registrar or co-registrar) where Notes may be surrendered for registration of transfer or for exchange and where notices and demands to or upon the Company in respect of the Notes and this Indenture may be served. The Company shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee. The Company may also from time to time designate one or more other offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, the City of New York for such purposes. The Company shall give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. The Company hereby designates the Corporate Trust Office of the Trustee as one such office or agency of the Company in accordance with Section 2.03. SECTION 4.03. REPORTS. (a) Whether or not required by the rules and regulations of the SEC, so long as any Notes are outstanding, the Company shall furnish to the Holders of Notes (i) all quarterly and annual financial information that would be required to be contained in a filing with the SEC on Forms 10-Q and 10-K if the Company were required to file such forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" and, with respect to the annual information only, a report thereon by the Company's certified independent accountants and (ii) all current reports that would be required to be filed with the SEC on Form 8-K if the Company were required to file such reports, in each case, within the time periods specified in the SEC's rules and regulations. In addition, following consummation of the Exchange Offer, whether or not required by the rules and regulations of the SEC, the Company shall file a copy of all such information and reports with the SEC for public availability within the time periods specified in the SEC's rules and regulations (unless the SEC will not accept such a filing) and make such information available to securities analysts and prospective investors upon request. The Company shall at all times comply with TIA ss. 314(a). (b) For so long as any Notes remain outstanding, the Company shall furnish to the Holders and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act. SECTION 4.04. COMPLIANCE CERTIFICATE. (a) The Company shall deliver to the Trustee, within 90 days after the end of each fiscal year, an Officers' Certificate stating that a review of the activities of the Company and its Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining whether the Company has kept, observed, performed and fulfilled its obligations under this Indenture, and further stating, as to each such Officer signing such certificate, that to the best of his or her knowledge the Company has kept, observed, performed and fulfilled each and every covenant contained in -35- 42 this Indenture and is not in default in the performance or observance of any of the terms, provisions and conditions of this Indenture (or, if a Default or Event of Default shall have occurred, describing all such Defaults or Events of Default of which he or she may have knowledge and what action the Company is taking or proposes to take with respect thereto) and that to the best of his or her knowledge no event has occurred and remains in existence by reason of which payments on account of the principal of or interest, if any, on the Notes is prohibited or if such event has occurred, a description of the event and what action the Company is taking or proposes to take with respect thereto. (b) So long as not contrary to the then current recommendations of the American Institute of Certified Public Accountants, the year-end financial statements delivered pursuant to Section 4.03(a) above shall be accompanied by a written statement of the Company's independent public accountants (who shall be a firm of established national reputation) that in making the examination necessary for certification of such financial statements, nothing has come to their attention that would lead them to believe that the Company has violated any provisions of Article 4 or Article 5 hereof or, if any such violation has occurred, specifying the nature and period of existence thereof, it being understood that such accountants shall not be liable directly or indirectly to any Person for any failure to obtain knowledge of any such violation. (c) The Company shall, so long as any of the Notes are outstanding, deliver to the Trustee, forthwith upon any Officer becoming aware of any Default or Event of Default, an Officers' Certificate specifying such Default or Event of Default and what action the Company is taking or proposes to take with respect thereto. SECTION 4.05. TAXES. The Company shall pay, and shall cause each of its Subsidiaries to pay, prior to delinquency, all material taxes, assessments, and governmental levies except such as are contested in good faith and by appropriate proceedings or where the failure to effect such payment is not adverse in any material respect to the Holders of the Notes. SECTION 4.06. STAY, EXTENSION AND USURY LAWS. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, that may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it shall not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law has been enacted. SECTION 4.07. RESTRICTED PAYMENTS. The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make any other payment or distribution on account of the Company's or any of its Subsidiaries' Equity Interests (including, without limitation, any payment in connection with any merger or consolidation involving the Company or any of its Subsidiaries) or to the direct or indirect holders of the Company's or any of its Subsidiaries' Equity Interests in their capacity as such (other than dividends or distributions payable in Equity Interests (other than Disqualified Stock) of the Company or to the Company or a Subsidiary of the Company); (ii) purchase, redeem or otherwise acquire or retire for value (including, without limitation, in connection with any merger or consolidation involving -36- 43 the Company) any Equity Interests of the Company or any direct or indirect parent of the Company or other Affiliate of the Company (other than any such Equity Interests owned by the Company or any Wholly Owned Subsidiary of the Company); (iii) make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness that is pari passu with or subordinated to the Notes (other than Notes), except a payment of interest or principal at Stated Maturity; or (iv) make any Restricted Investment (all such payments and other actions set forth in clauses (i) through (iv) above being collectively referred to as "Restricted Payments," unless, at the time of and after giving effect to such Restricted Payment: (a) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; and (b) the Company would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of Section 4.09 hereof; and (c) such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by the Company and its Subsidiaries after the date hereof (excluding Restricted Payments permitted by clauses (ii), (iii) and (iv) of the next succeeding paragraph), is less than the sum, without duplication, of (i) 50% of the Consolidated Net Income of the Company for the period (taken as one accounting period) from the beginning of the first fiscal quarter commencing after the date hereof to the end of the Company's most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, less 100% of such deficit), plus (ii) 100% of the aggregate net cash proceeds received by the Company since the date hereof as a contribution to its common equity capital or from the issue or sale of Equity Interests of the Company (other than Disqualified Stock) or from the issue or sale of Disqualified Stock or debt securities of the Company that have been converted into such Equity Interests (other than Equity Interests (or Disqualified Stock or convertible debt securities) sold to a Subsidiary of the Company), plus (iii) to the extent that any Restricted Investment that was made after the date hereof is sold for cash or otherwise liquidated or repaid for cash, the lesser of (A) the cash return of capital with respect to such Restricted Investment (less the cost of disposition, if any) and (B) the initial amount of such Restricted Investment, plus (iv) $5.0 million. The foregoing provisions shall not prohibit (i) the payment of any dividend within 60 days after the date of declaration thereof, if at said date of declaration such payment would have complied with the provisions of this Indenture; (ii) the redemption, repurchase, retirement, defeasance or other acquisition of any pari passu or subordinated Indebtedness or Equity Interests of the Company in exchange for, or out of the net cash proceeds of the substantially concurrent sale (other than to a Subsidiary of the Company) of, other Equity Interests of the Company (other than any Disqualified Stock); provided that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement, defeasance or other acquisition shall be excluded from clause (c) (ii) of the immediately preceding paragraph; (iii) the defeasance, redemption, repurchase or other acquisition of pari passu or subordinated Indebtedness with the net cash proceeds from an incurrence of Permitted Refinancing Indebtedness; (iv) the payment of any dividend by a Subsidiary of the Company to the holders of its common Equity Interests on a pro rata basis; and (v) the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of the Company or any Subsidiary of the Company held by any member of the Company's (or any of its Subsidiaries') management pursuant to any management equity subscription agreement or stock option agreement in effect as of the date hereof or entered into after the Closing Date with members of the -37- 44 management of any Person acquired after the Closing Date in connection with the acquisition of such Person or the repurchase of Equity Interests of the Company or any Subsidiary of the Company held by employees, former employees, directors or former directors pursuant to the terms of agreements (including employment agreements) approved by the Board of Directors; provided that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests shall not exceed $500,000 in any twelve-month period and no Default or Event of Default shall have occurred and be continuing immediately after any such transaction; (vi) payments to Holdings in an amount not to exceed the amount of the Company's federal and state income tax liability that the Company would owe if it were filing a separate income tax return as a stand alone company (or, if there are any subsidiaries of the Company, the amount of the federal and state income tax liability for which the Company and such subsidiaries would be liable if the Company and such subsidiaries were filing a separate consolidated (or combined) income tax return) plus $100,000; provided, that any such payment shall not exceed the tax liability of Holdings that is actually then due and payable; (vii) loans, advances, dividends or distributions by the Company or any of its Subsidiaries to Holdings to pay for corporate, administrative and operating expenses in the ordinary course of business, including payment of directors' and officers liability insurance premiums, directors' fees, and fees, expenses and indemnities in connection with the Transactions, in an aggregate amount not to exceed $250,000 in any fiscal year; and (viii) (A) loans, advances, dividends or distributions by the Company or any of its Subsidiaries to Holdings not to exceed an amount necessary to permit Holdings to pay (1) its costs (including all professional fees and expenses) incurred to comply with its reporting obligations under federal or state laws or in connection with reporting or other obligations under the New Credit Facility or any related collateral documents or guarantees, (2) its expenses incurred in connection with any public offering of equity securities which has been terminated by the board of directors of Holdings, the net proceeds of which were specifically intended to be received by or contributed or loaned to the Company as evidenced by a resolution of the Board of Directors of Holdings and (B) loans or advances by the Company or any of its Subsidiaries to Holdings not to exceed an amount necessary to permit Holdings to pay its interim expenses incurred in connection with any public offering of equity securities the net proceeds of which are specifically intended to be received by or contributed or loaned to the Company, which, unless such offering shall have been terminated by the board of directors of Holdings shall be repaid to the Company promptly out of the proceeds of such offering; provided, that no Default or Event of Default shall have occurred and be continuing immediately after any of the foregoing payments. The amount of all Restricted Payments (other than cash) shall be the fair market value on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued by the Company or such Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair market value of any non-cash Restricted Payment shall be determined by the Board of Directors whose resolution with respect thereto shall be delivered to the Trustee, such determination to be based upon an opinion or appraisal issued by an accounting, appraisal or investment banking firm of national standing if such fair market value exceeds $1.0 million. Not later than the date of making any Restricted Payment, the Company shall deliver to the Trustee an Officers' Certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the calculations required by this Section 4.07 were computed, together with a copy of any fairness opinion or appraisal required by this Indenture. SECTION 4.08. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES. The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Subsidiary to (a)(i) pay dividends or make any other distributions to the Company or any of its Subsidiaries (A) on its Capital Stock or (B) with respect to any other interest or participation in, or measured by, its profits or (ii) pay any indebtedness owed to the Company or any of its Subsidiaries, (b) -38- 45 make loans or advances to the Company or any of its Subsidiaries or (c) transfer any of its properties or assets to the Company or any of its Subsidiaries. However, the foregoing restrictions will not apply to encumbrances or restrictions existing under or by reason of (i) Existing Indebtedness as in effect on the date hereof, (ii) the New Credit Facility as in effect on the date hereof and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings thereof, provided that such amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements and refinancings are no more restrictive, taken as a whole, with respect to such dividend and other payment restrictions than those contained in the New Credit Facility as in effect on the date hereof, (iii) this Indenture and the Notes, (iv) applicable law, (v) any instrument governing Indebtedness or Capital Stock of a Person acquired by the Company or any of its Subsidiaries as in effect at the time of such acquisition (except to the extent such Indebtedness was incurred in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired, provided that in the case of Indebtedness, such Indebtedness was permitted by the terms of hereof, (vi) customary non-assignment provisions in leases entered into in the ordinary course of business and consistent with past practices, (vii) purchase money obligations for property acquired in the ordinary course of business that impose restrictions of the nature described in clause (c) above on the property so acquired, or (viii) any agreement for the sale of a Subsidiary that restricts distributions by that Subsidiary pending its sale, (ix) Permitted Refinancing Indebtedness, provided that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are no more restrictive, taken as a whole, than those contained in the agreements governing the Indebtedness being refinanced, (x) Liens securing Indebtedness otherwise permitted to be incurred pursuant to the provisions of Section 4.12 hereof that limits the right of the debtor to dispose of the assets securing such Indebtedness, (xi) provisions with respect to the disposition or distribution of assets or property in joint venture agreements and other similar agreements entered into in the ordinary course of business and (xii) restrictions on cash or other deposits or net worth imposed by customers under contracts entered into in the ordinary course of business. SECTION 4.09. INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK. The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "incur") any Indebtedness (including Acquired Debt) and the Company shall not issue any Disqualified Stock and shall not permit any of its Subsidiaries to issue any shares of preferred stock; provided that the Company may incur Indebtedness (including Acquired Debt) or issue shares of Disqualified Stock if the Fixed Charge Coverage Ratio for the Company's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred or such Disqualified Stock is issued would have been (A) on or prior to April 15, 2000, at least 2.0 to 1 and (B) after April 15, 2000, 2.25 to 1; determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness had been incurred, or the Disqualified Stock had been issued, as the case may be, at the beginning of such four-quarter period; The Company shall not incur any Indebtedness that is contractually subordinated in right of payment to any other Indebtedness of the Company unless such Indebtedness is also contractually subordinated in right of payment to the Notes on substantially identical terms; provided that no Indebtedness of the Company shall be deemed to be contractually subordinated in right of payment to any other Indebtedness of the Company solely by virtue of being unsecured. -39- 46 The provisions of the first paragraph of this covenant will not apply to the incurrence of any of the following items of Indebtedness (collectively, "Permitted Debt"): (i) the incurrence by the Company of Indebtedness and letters of credit pursuant to Credit Facilities; provided that the aggregate principal amount of all Indebtedness and letters of credit (with letters of credit being deemed to have a principal amount equal to the maximum potential liability of the Company and its Subsidiaries thereunder) outstanding under all Credit Facilities after giving effect to such incurrence does not exceed an amount equal to $20.0 million less the aggregate amount of all Net Proceeds of Asset Sales applied to repay Indebtedness under a Credit Facility or a credit agreement pursuant to Section 4.10 hereof; (ii) the incurrence by the Company of the Existing Indebtedness; (iii) the incurrence by the Company of Indebtedness represented by the Notes and the Series B Notes; (iv) the incurrence by the Company or any of its Subsidiaries of Indebtedness represented by Capital Lease Obligations, mortgage financings or purchase money obligations, in each case incurred for the purpose of financing all or any part of the purchase price or cost of construction or improvement of property, plant or equipment used in the business of the Company or such Subsidiary, in an aggregate principal amount not to exceed 5% of total assets; (v) the incurrence by the Company or any of its Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to refund, refinance or replace Indebtedness (other than intercompany Indebtedness) that was permitted by this Indenture to be incurred under the first paragraph hereof or clauses (ii), (iii), (iv) or (x) of this paragraph; (vi) the incurrence by the Company or any of its Subsidiaries of intercompany Indebtedness between or among the Company and any of its Wholly Owned Subsidiaries; provided that (i) if the Company is the obligor on such Indebtedness, such Indebtedness is expressly subordinated to the prior payment in full in cash of all Obligations with respect to the Notes and (ii)(A) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than the Company or a Subsidiary thereof and (B) any sale or other transfer of any such Indebtedness to a Person that is not either the Company or a Wholly Owned Subsidiary thereof shall be deemed, in each case, to constitute an incurrence of such Indebtedness by the Company or such Subsidiary, as the case may be, that was not permitted by this clause (vi); (vii) the incurrence by the Company or any of its Subsidiaries of Hedging Obligations that are incurred for the purpose of fixing or hedging interest rate risk with respect to any floating rate Indebtedness that is permitted by the terms of this Indenture to be outstanding; (viii) the guarantee by the Company or any of the Guarantors of Indebtedness of the Company or a Subsidiary of the Company that was permitted to be incurred by another provision of Section 4.09; (ix) Indebtedness of the Company or any of its Subsidiaries represented by letters of credit or guarantees by or for the account of the Company or such Subsidiary as the case may be, in each case, in order to provide security for workers' compensation claims, payment obligations in connection with self-insurance or similar requirements in the ordinary course of business; -40- 47 (x) Acquired Debt of a Subsidiary, which Subsidiary was acquired after the Closing Date and which Acquired Debt was in existence at the time of acquisition of such Subsidiary, and not incurred in contemplation of such acquisition, if such Acquired Indebtedness is Non-Recourse Debt (except with respect to such Subsidiary and its Subsidiaries) and such Acquired Debt does not exceed $5.0 million in the aggregate outstanding at any time; (xi) Indebtedness in the form of holdback notes or deferred purchase price in connection with an acquisition in an amount not to exceed the lesser of $5.0 million or 20% of the purchase price at any time outstanding; (xii) Indebtedness arising from agreements of the Company or a Subsidiary of the Company providing for indemnification, adjustment of purchase price or similar obligations, in each case, incurred in connection with the disposition of any business, assets or subsidiary, other than guarantees of Indebtedness incurred by any Person acquiring all or any portion of such business, assets or subsidiary for the purpose of financing such acquisition; provided that the maximum aggregate liability in respect of all such Indebtedness shall at no time exceed the gross proceeds actually received by the Company in connection with such disposition; (xiii) Obligations in respect of performance bonds and completion guarantees provided by the Company or any Subsidiary of the Company in the ordinary course of business; (xiv) the incurrence by the Company or any of its Subsidiaries of additional Indebtedness in an aggregate principal amount (or accreted value, as applicable) at any time outstanding, including all Permitted Refinancing Indebtedness incurred to refund, refinance or replace any Indebtedness incurred pursuant to this clause (xiv), not to exceed $5.0 million. For purposes of determining compliance with this Section 4.09, in the event that an item of Indebtedness meets the criteria of more than one of the categories of Permitted Debt described in clauses (i) through (xiv) above or is entitled to be incurred pursuant to the first paragraph of this Section 4.09, the Company shall, in its sole discretion, classify such item of Indebtedness in any manner that complies with this Section 4.09. Accrual of interest, accretion or amortization of original issue discount, the payment of interest on any Indebtedness in the form of additional Indebtedness with the same terms, and the payment of dividends on Disqualified Stock in the form of additional shares of the same class of Disqualified Stock will not be deemed to be an incurrence of Indebtedness or an issuance of Disqualified Stock for purposes of this Section 4.07; provided, in each such case, that the amount thereof is included in Fixed Charges of the Company as accrued. SECTION 4.10. ASSET SALES. The Company shall not, and shall not permit any of its Subsidiaries to, consummate an Asset Sale unless (i) the Company (or the Subsidiary, as the case may be) receives consideration at the time of such Asset Sale at least equal to the fair market value (evidenced by a resolution of the Board of Directors (whose determination, if made in good faith, shall be conclusive) set forth in an Officers' Certificate delivered to the Trustee) of the assets or Equity Interests issued or sold or otherwise disposed of and (ii) at least 75% of the consideration therefor received by the Company or such Subsidiary is in the form of cash; provided that the amount of (x) any liabilities (as shown on the Company's or such Subsidiary's most recent balance sheet) of the Company or any Subsidiary (other than contingent liabilities and liabilities that are by their terms subordinated to the Notes) that are assumed by the transferee of any such assets pursuant to a customary novation agreement that releases the Company or such Subsidiary -41- 48 from further liability and (y) any securities, notes or other obligations received by the Company or any such Subsidiary from such transferee that are contemporaneously (subject to ordinary settlement periods) converted by the Company or such Subsidiary into cash (to the extent of the cash received), shall be deemed to be cash for purposes of this provision. Within 270 days after the receipt of any Net Proceeds from an Asset Sale, the Company may apply such Net Proceeds at its option, (a) to permanently reduce, repurchase, repay or redeem any Indebtedness (and other amounts) under the New Credit Facility or any one or more successor or additional Credit Facilities, or (b) to the acquisition of a majority of the assets of, or a majority of the Voting Stock of, another Permitted Business, the making of a capital expenditure or the acquisition of other long-term assets that are used or useful in a Permitted Business. Pending the final application of any such Net Proceeds, the Company may temporarily reduce revolving credit borrowings or otherwise invest such Net Proceeds in any manner that is not prohibited by this Indenture. Any Net Proceeds from Asset Sales that are not applied or invested as provided in the first sentence of this paragraph will be deemed to constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $5.0 million, the Company shall commence a pro rata Asset Sale Offer pursuant to Section 3.09 hereof to purchase the maximum principal amount of Notes and such other Indebtedness that may be purchased out of the Excess Proceeds, at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the date of purchase, in accordance with the procedures set forth in Section 3.09 hereof. To the extent that any Excess Proceeds remain after consummation of an Asset Sale Offer, the Company may use such Excess Proceeds for any purpose not otherwise prohibited by the Indenture. If the aggregate principal amount of Notes and such other Indebtedness tendered into such Asset Sale Offer surrendered by holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select the Notes and such other Indebtedness to be purchased on a pro rata basis. Upon completion of such offer to purchase, the amount of Excess Proceeds shall be reset at zero. SECTION 4.11. TRANSACTIONS WITH AFFILIATES. The Company shall not, and shall not permit any of its Subsidiaries to make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"), unless (a) such Affiliate Transaction is on terms that are no less favorable to the Company or the relevant Subsidiary than those that would have been obtained in a comparable transaction by the Company or such Subsidiary with an unrelated Person and (b) the Company delivers to the Trustee (i) with respect to any Affiliate Transaction or series of related Affiliated Transactions involving aggregate consideration in excess of $1 million, a resolution of the Board of Directors set forth in an Officers' Certificate certifying that such Affiliate Transaction complies with clause (a) above and that such Affiliate Transaction has been approved by a majority of the disinterested members of the Board of Directors and (ii) with respect to any Affiliate Transaction or series of related Affiliated Transactions involving aggregate consideration in excess of $5 million, an opinion as to the fairness to the holders of the Notes of such Affiliate Transaction from a financial point of view issued by an accounting, appraisal or investment banking firm of national standing. Notwithstanding the foregoing, the following shall not be deemed Affiliate Transactions: (i) any employment agreement entered into by the Company or any of its Subsidiaries in the ordinary course of business and consistent with the past practice of the Company or such Subsidiary, (ii) transactions between or among the Company and/or its Subsidiaries, (iii) payment of reasonable directors fees to Persons who are not otherwise Affiliates of the Company, (iv) Restricted Payments that are permitted by Section 4.09, (v) the payment to CGW Southeast Management III, L.L.C. -42- 49 or its designees of the Investment Banking Fee, and (vi) the payment to CGW Southeast III, L.L.C. or its designees of the Management Fee. SECTION 4.12. LIENS. The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly create, incur, assume or suffer to exist any Lien securing Indebtedness and trade payables on any asset now owned or hereafter acquired, or any income or profits therefrom or assign or convey any right to receive income therefrom, except Permitted Liens. SECTION 4.13. CORPORATE EXISTENCE. Subject to Article 5 hereof, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect (i) its corporate existence, and the corporate, partnership or other existence of each of its Subsidiaries, in accordance with the respective organizational documents (as the same may be amended from time to time) of the Company or any such Subsidiary and (ii) the rights (charter and statutory), licenses and franchises of the Company and its Subsidiaries; provided, however, that the Company shall not be required to preserve any such right, license or franchise, or the corporate, partnership or other existence of any of its Subsidiaries, if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Subsidiaries, taken as a whole, and that the loss thereof is not adverse in any material respect to the Holders of the Notes. SECTION 4.14. OFFER TO REPURCHASE UPON CHANGE OF CONTROL. (a) Upon the occurrence of a Change of Control, the Company shall make an offer (a "Change of Control Offer") to each Holder to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of each Holder's Notes at a purchase price equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the date of purchase (the "Change of Control Payment"). Within 10 days following any Change of Control, the Company shall mail a notice to each Holder stating: (1) that the Change of Control Offer is being made pursuant to this Section 4.14 and that all Notes tendered will be accepted for payment; (2) the purchase price and the purchase date, which shall be no later than 30 business days from the date such notice is mailed (the "Change of Control Payment Date"); (3) that any Note not tendered will continue to accrue interest; (4) that, unless the Company defaults in the payment of the Change of Control Payment, all Notes accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest after the Change of Control Payment Date; (5) that Holders electing to have any Notes purchased pursuant to a Change of Control Offer will be required to surrender the Notes, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Notes completed, to the Paying Agent at the address specified in the notice prior to the close of business on the third Business Day preceding the Change of Control Payment Date; (6) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than the close of business on the second Business Day preceding the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of Notes delivered for purchase, and a statement that such Holder is withdrawing his election to have the Notes purchased; and (7) that Holders whose Notes are being purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered, which unpurchased portion must be equal to $1,000 in principal amount or an integral multiple thereof. The Company shall comply with the requirements of Rule 14e-1 under the Exchange Act and any other -43- 50 securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of Notes in connection with a Change of Control. (b) On the Change of Control Payment Date, the Company shall, to the extent lawful, (1) accept for payment all Notes or portions thereof properly tendered pursuant to the Change of Control Offer, (2) deposit with the Paying Agent an amount equal to the Change of Control Payment in respect of all Notes or portions thereof so tendered and (3) deliver or cause to be delivered to the Trustee the Notes so accepted together with an Officers' Certificate stating the aggregate principal amount of Notes or portions thereof being purchased by the Company. The Paying Agent shall promptly mail to each Holder of Notes so tendered the Change of Control Payment for such Notes, and the Trustee shall promptly authenticate and mail (or cause to be transferred by book entry) to each Holder a Series B Note equal in principal amount to any unpurchased portion of the Notes surrendered by such Holder, if any; provided, that each such Series B Note shall be in a principal amount of $1,000 or an integral multiple thereof. The Company shall publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. SECTION 4.15. LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK OF WHOLLY OWNED SUBSIDIARIES. The Company (i) shall not, and shall not permit any Wholly Owned Subsidiary of the Company to, transfer, convey, sell, lease or otherwise dispose of any Capital Stock of any Wholly Owned Subsidiary of the Company to any Person (other than the Company or a Wholly Owned Subsidiary of the Company), unless (a) such transfer, conveyance, sale, lease or other disposition is of all the Equity Interests of such Wholly Owned Subsidiary and (b) the cash Net Proceeds from such transfer, conveyance, sale, lease or other disposition are applied in accordance with Section 4.10 hereof and (ii) will not permit any Wholly Owned Subsidiary of the Company to issue any of its Equity Interests (other than, if necessary, shares of its Capital Stock constituting directors' qualifying shares) to any Person other than to the Company or a Wholly Owned Subsidiary of the Company. SECTION 4.16. LIMITATION ON ISSUANCES OF GUARANTEES OF INDEBTEDNESS. The Company shall not permit any Domestic Subsidiary, directly or indirectly, to Guarantee or pledge any assets to secure the payment of any other Indebtedness of the Company unless such Domestic Subsidiary simultaneously executes and delivers a supplemental indenture to this Indenture in substantially the form of Exhibit E hereto providing for the Guarantee of the payment of the Notes by such Domestic Subsidiary, which Guarantee shall be senior to or pari passu with such Domestic Subsidiary's Guarantee of or pledge to secure such other Indebtedness. Notwithstanding the foregoing, in the event of a sale or other disposition of all of the assets of any such Guarantor by way of merger, consolidation or otherwise, or a sale or other disposition of all of the capital stock of any such Guarantor, then such Guarantor (in the event of a sale or other disposition, by way of such a merger, consolidation or otherwise, of all of the capital stock of such Guarantor) or the corporation acquiring the property (in the event of a sale or other disposition of all of the assets of such Guarantor) will be released and relieved of any obligations under its Subsidiary Guarantee; provided that the Net Proceeds of such sale or other disposition are applied in accordance with Section 4.10 (other than in the case of a sale from such a Guarantor to the Company or a Subsidiary of the Company). -44- 51 SECTION 4.17. PAYMENTS FOR CONSENT. Neither the Company nor any of its Subsidiaries shall, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any Holder of any Notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of the Indenture or the Notes unless such consideration is offered to be paid or is paid to all Holders of the Notes that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement. ARTICLE 5. SUCCESSORS SECTION 5.01. MERGER, CONSOLIDATION, OR SALE OF ASSETS. The Company shall not consolidate or merge with or into (whether or not the Company is the surviving corporation) or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets in one or more related transactions to another corporation, Person or entity unless (i) the Company is the surviving corporation or the entity or the Person formed by or surviving any such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made is a corporation organized or existing under the laws of the United States, any state thereof or the District of Columbia, (ii) the entity or Person formed by or surviving any such consolidation or merger (if other than the Company) or the entity or Person to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made assumes all the obligations of the Company under the Registration Rights Agreement, the Notes and this Indenture pursuant to a supplemental indenture in a form reasonably satisfactory to the Trustee, (iii) immediately after such transaction, no Default or Event of Default exists and (iv) except in the case of a merger of the Company with or into a Wholly Owned Subsidiary of the Company, the Company or the entity or Person formed by or surviving any such consolidation or merger (if other than the Company), or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made (A) shall have Consolidated Net Worth (immediately after the transaction) equal to or greater than the Consolidated Net Worth of the Company immediately preceding the transaction and (B) shall, at the time of such transaction and after giving pro forma effect thereto as if such transaction had occurred at the beginning of the applicable four-quarter period, be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of Section 4.09 hereof; provided, however, that neither this Section 5.01 nor any other provision of this Indenture shall prohibit or otherwise restrict the merger of the Company with and into SIMCALA, Inc., a Delaware corporation ("SIMCALA"), with SIMCALA being the surviving corporation. SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED. Upon any consolidation or merger, or any sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the assets of the Company in accordance with Section 5.01 hereof, the successor corporation formed by such consolidation or into or with which the Company is merged or to which such sale, assignment, transfer, lease, conveyance or other disposition is made shall succeed to, and be substituted for (so that from and after the date of such consolidation, merger, sale, lease, conveyance or other disposition, the provisions of this Indenture referring to the "Company" shall refer instead to the successor corporation and not to the Company), and may exercise every right and power of the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein; provided, however, that the predecessor Company shall not be relieved from the -45- 52 obligation to pay the principal of and interest on the Notes except in the case of a sale of all of the Company's assets that meets the requirements of Section 5.01 hereof. ARTICLE 6. DEFAULTS AND REMEDIES SECTION 6.01. EVENTS OF DEFAULT. An "Event of Default" occurs if: (a) the Company defaults in the payment when due of interest on, or Liquidated Damages with respect to, the Notes and such default continues for a period of 30 days; (b) the Company defaults in the payment when due of principal of or premium, if any, on the Notes when the same becomes due and payable at maturity, upon redemption (including in connection with an offer to purchase) or otherwise; (c) the Company fails to comply with any of the provisions of Section 4.07, 4.09, 4.10 or 5.01 hereof; (c) the Company fails to observe or perform any other covenant, representation, warranty or other agreement in this Indenture or the Notes for 60 days after notice to the Company by the Trustee or the Holders of at least 25% in aggregate principal amount of the Notes then outstanding voting as a single class; (e) a default occurs under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Subsidiaries (or the payment of which is guaranteed by the Company or any of its Subsidiaries), whether such Indebtedness or guarantee now exists, or is created after the date of this Indenture, which default (a) is caused by a failure to pay principal of or premium, if any, or interest on such indebtedness prior to the expiration of the grace period provided in such Indebtedness on the date of such default (a "Payment Default") or (b) results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $5.0 million or more; (f) a final judgment or final judgments for the payment of money are entered by a court or courts of competent jurisdiction against the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary and such judgment or judgments remain unpaid, unbonded or undischarged for a period (during which execution shall not be effectively stayed) of 60 days, provided that the aggregate of all such undischarged judgments not covered by insurance exceeds $5.0 million; (g) the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary pursuant to or within the meaning of Bankruptcy Law: (i) commences a voluntary case, (ii) consents to the entry of an order for relief against it in an involuntary case, -46- 53 (iii) consents to the appointment of a custodian of it or for all or substantially all of its property, or (iv) makes a general assignment for the benefit of its creditors; or (h) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (i) is for relief against the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary in an involuntary case; (ii) appoints a custodian of the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary or for all or substantially all of the property of the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary; or (iii) orders the liquidation of the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary; and the order or decree remains unstayed and in effect for 60 consecutive days; or (i) except as permitted by this Indenture, any Subsidiary Guarantee issued by a Significant Subsidiary is held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor that is a Significant Subsidiary, or any Person acting on behalf of any Guarantor that is a Significant Subsidiary, shall deny or disaffirm its obligations under such Guarantor's Subsidiary Guarantee. SECTION 6.02. ACCELERATION. If any Event of Default (other than an Event of Default specified in clause (g) or (h) of Section 6.01 hereof with respect to the Company, any Significant Subsidiary or any group of Significant Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary) occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately. Notwithstanding the foregoing, if an Event of Default specified in clause (g) or (h) of Section 6.01 hereof occurs with respect to the Company, any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary, all outstanding Notes shall be due and payable immediately without further action or notice. The Holders of a majority in aggregate principal amount of the then outstanding Notes by written notice to the Trustee may on behalf of all of the Holders rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree and if all existing Events of Default (except nonpayment of principal, interest or premium that has become due solely because of the acceleration) have been cured or waived. If an Event of Default occurs on or after April 15, 2002 by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding payment of the premium that the Company would have had to pay if the Company then had elected to redeem the Notes pursuant to Section 3.07 hereof, then, upon acceleration of the Notes, an equivalent premium shall also become and be immediately due and payable, to the extent permitted by law, anything in this Indenture or in the Notes to the contrary notwithstanding. If an Event of Default occurs prior to April 15, 2002 by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the -47- 54 intention of avoiding the prohibition on redemption of the Notes prior to such date, then, upon acceleration of the Notes, an additional premium shall also become and be immediately due and payable in an amount, for each of the years beginning on April 15 of the years set forth below, as set forth below (expressed as a percentage of the amount that would otherwise be due but for the provisions of this paragraph, plus accrued interest, if any, to the date of payment):
YEAR PERCENTAGE ---- ---------- 1998.......................................................................109.6250% 1999.......................................................................108.4219% 2000.......................................................................107.2188% 2001.......................................................................106.0156%
SECTION 6.03. OTHER REMEDIES. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal, premium, if any, and interest on the Notes or to enforce the performance of any provision of the Notes or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder of a Note in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are cumulative to the extent permitted by law. SECTION 6.04. WAIVER OF PAST DEFAULTS. Holders of not less than a majority in aggregate principal amount of the then outstanding Notes by notice to the Trustee may on behalf of the Holders of all of the Notes waive an existing Default or Event of Default and its consequences hereunder, except a continuing Default or Event of Default in the payment of the principal of, premium and Liquidated Damages, if any, or interest on, the Notes (including in connection with an offer to purchase) (provided, however, that the Holders of a majority in aggregate principal amount of the then outstanding Notes may rescind an acceleration and its consequences, including any related payment default that resulted from such acceleration). Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon. SECTION 6.05. CONTROL BY MAJORITY. Holders of a majority in principal amount of the then outstanding Notes may direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee or exercising any trust or power conferred on it. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture that the Trustee determines may be unduly prejudicial to the rights of other Holders of Notes or that may involve the Trustee in personal liability. -48- 55 SECTION 6.06. LIMITATION ON SUITS. No Holder of any Notes shall have any right to initiate a preceeding, judicial or otherwise, with respect to this Indenture or the Notes, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless: (a) such Holder of a Note gives to the Trustee written notice of a continuing Event of Default; (b) the Holders of at least 25% in principal amount of the then outstanding Notes make a written request to the Trustee to pursue the remedy; (c) such Holder of a Note or Holders of Notes offer and, if requested, provide to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense; (d) the Trustee does not comply with the request within 60 days after receipt of the request and the offer and, if requested, the provision of indemnity; and (e) during such 60-day period the Holders of a majority in principal amount of the then outstanding Notes do not give the Trustee a direction inconsistent with the request. A Holder of a Note may not use this Indenture to prejudice the rights of another Holder of a Note or to obtain a preference or priority over another Holder of a Note. SECTION 6.07. RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT. Notwithstanding any other provision of this Indenture, the right of any Holder of a Note to receive payment of principal, premium and Liquidated Damages, if any, and interest on the Note, on or after the respective due dates expressed in the Note (including in connection with an offer to purchase), or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder. SECTION 6.08. COLLECTION SUIT BY TRUSTEE. If an Event of Default specified in Section 6.01(a) or (b) occurs and is continuing, the Trustee is authorized to recover judgment in its own name and as trustee of an express trust against the Company for the whole amount of principal of, premium and Liquidated Damages, if any, and interest remaining unpaid on the Notes and interest on overdue principal and, to the extent lawful, interest and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM. The Trustee is authorized to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Holders of the Notes allowed in any judicial proceedings relative to the Company (or any other obligor upon the Notes), its creditors or its property and shall be entitled and empowered to collect, receive and distribute any money or other property payable or deliverable on any such claims and any custodian in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee, and in -49- 56 the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof. To the extent that the payment of any such compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof out of the estate in any such proceeding, shall be denied for any reason, payment of the same shall be secured by a Lien on, and shall be paid out of, any and all distributions, dividends, money, securities and other properties that the Holders may be entitled to receive in such proceeding whether in liquidation or under any plan of reorganization or arrangement or otherwise. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. SECTION 6.10. PRIORITIES. If the Trustee collects any money pursuant to this Article, it shall pay out the money in the following order: First: to the Trustee, its agents and attorneys for amounts due under Section 7.07 hereof, including payment of all compensation, expense and liabilities incurred, and all advances made, by the Trustee and the costs and expenses of collection; Second: to Holders of Notes for amounts due and unpaid on the Notes for principal, premium and Liquidated Damages, if any, and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for principal, premium and Liquidated Damages, if any and interest, respectively; and Third: to the Company or to such party as a court of competent jurisdiction shall direct. The Trustee may fix a record date and payment date for any payment to Holders of Notes pursuant to this Section 6.10. SECTION 6.11. UNDERTAKING FOR COSTS. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as a Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section does not apply to a suit by the Trustee, a suit by a Holder of a Note pursuant to Section 6.07 hereof, or a suit by Holders of more than 10% in principal amount of the then outstanding Notes. ARTICLE 7. TRUSTEE SECTION 7.01. DUTIES OF TRUSTEE. (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in its exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. -50- 57 (b) Except during the continuance of an Event of Default: (i) the duties of the Trustee shall be determined solely by the express provisions of this Indenture and the Trustee need perform only those duties that are specifically set forth in this Indenture and no others, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (ii) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture. (c) The Trustee may not be relieved from liabilities for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (i) this paragraph does not limit the effect of paragraph (b) of this Section; (ii) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (iii) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05 hereof. (d) Whether or not therein expressly so provided, every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b), and (c) of this Section. (e) No provision of this Indenture shall require the Trustee to expend or risk its own funds or incur any liability. The Trustee shall be under no obligation to exercise any of its rights and powers under this Indenture at the request of any Holders, unless such Holder shall have offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense. (f) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. SECTION 7.02. RIGHTS OF TRUSTEE. (a) The Trustee may conclusively rely upon any document believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in the document. (b) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection from liability in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon. -51- 58 (c) The Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. (d) The Trustee shall not be liable for any action it takes or omits to take in good faith that it believes to be authorized or within the rights or powers conferred upon it by this Indenture. (e) Unless otherwise specifically provided in this Indenture, any demand, request, direction or notice from the Company shall be sufficient if signed by an Officer of the Company. (f) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities that might be incurred by it in compliance with such request or direction. SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE. The Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with the Company or any Affiliate of the Company with the same rights it would have if it were not Trustee. However, in the event that the Trustee acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the SEC for permission to continue as trustee or resign. Any Agent may do the same with like rights and duties. The Trustee is also subject to Sections 7.10 and 7.11 hereof. SECTION 7.04. TRUSTEE'S DISCLAIMER. The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture or the Notes, it shall not be accountable for the Company's use of the proceeds from the Notes or any money paid to the Company or upon the Company's direction under any provision of this Indenture, it shall not be responsible for the use or application of any money received by any Paying Agent other than the Trustee, and it shall not be responsible for any statement or recital herein or any statement in the Notes or any other document in connection with the sale of the Notes or pursuant to this Indenture other than its certificate of authentication. SECTION 7.05. NOTICE OF DEFAULTS. If a Default or Event of Default occurs and is continuing and if it is known to the Trustee, the Trustee shall mail to Holders of Notes a notice of the Default or Event of Default within 90 days after it occurs. Except in the case of a Default or Event of Default in payment of principal of, premium, if any, or interest on any Note, the Trustee may withhold the notice if and so long as a committee of its Responsible Officers in good faith determines that withholding the notice is in the interests of the Holders of the Notes. SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES. Within 60 days after each May 15 beginning with the May 15 following the date of this Indenture, and for so long as Notes remain outstanding, the Trustee shall mail to the Holders of the Notes a brief report dated as of such reporting date that complies with TIA ss. 313(a) (but if no event described in TIA ss. 313(a) has occurred within the twelve months preceding the reporting date, no report need be transmitted). The Trustee also shall comply with TIA ss. 313(b)(2). The Trustee shall also transmit by mail all reports as required by TIA ss. 313(c). -52- 59 A copy of each report at the time of its mailing to the Holders of Notes shall be mailed to the Company and filed with the SEC and each stock exchange on which the Notes are listed in accordance with TIA ss. 313(d). The Company shall promptly notify the Trustee when the Notes are listed on any stock exchange. SECTION 7.07. COMPENSATION AND INDEMNITY. The Company shall pay to the Trustee from time to time reasonable compensation for its acceptance of this Indenture and services hereunder. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee promptly upon request for all reasonable disbursements, advances and expenses incurred or made by it in addition to the compensation for its services. Such expenses shall include the reasonable compensation, disbursements and expenses of the Trustee's agents and counsel. The Company shall indemnify the Trustee against any and all losses, liabilities or expenses incurred by it arising out of or in connection with the acceptance or administration of its duties under this Indenture, including the costs and expenses of enforcing this Indenture against the Company (including this Section 7.07) and defending itself against any claim (whether asserted by the Company or any Holder or any other person) or liability in connection with the exercise or performance of any of its powers or duties hereunder, except to the extent any such loss, liability or expense may be attributable to its negligence or bad faith. The Trustee shall notify the Company promptly of any claim for which it may seek indemnity. Failure by the Trustee to so notify the Company shall not relieve the Company of its obligations hereunder. The Company may, at its option, defend the claim and the Trustee shall cooperate in the defense. If the Company chooses not to defend such claim, the Trustee may have separate counsel and the Company shall pay the reasonable fees and expenses of such counsel. The Company need not pay for any settlement made without its consent, which consent shall not be unreasonably withheld. The obligations of the Company under this Section 7.07 shall survive the satisfaction and discharge of this Indenture. To secure the Company's payment obligations in this Section, the Trustee shall have a Lien prior to the Notes on all money or property held or collected by the Trustee, except that held in trust to pay principal and interest on particular Notes. Such Lien shall survive the satisfaction and discharge of this Indenture. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.01(g) or (h) hereof occurs, the expenses and the compensation for the services (including the fees and expenses of its agents and counsel) are intended to constitute expenses of administration under any Bankruptcy Law. The Trustee shall comply with the provisions of TIA ss. 313(b)(2) to the extent applicable. SECTION 7.08. REPLACEMENT OF TRUSTEE. A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee's acceptance of appointment as provided in this Section. The Trustee may resign in writing at any time and be discharged from the trust hereby created by so notifying the Company. The Holders of Notes of a majority in principal amount of the then outstanding Notes may remove the Trustee by so notifying the Trustee and the Company in writing; -53- 60 provided that each Holder seeking removal of the Trustee has been a bona fide Holder of the aggregate principal amount of the Notes such Holder is voting for removal of the Trustee for at least six months. The Company may remove the Trustee if: (a) the Trustee fails to comply with Section 7.10 hereof; (b) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law; (c) a custodian or public officer takes charge of the Trustee or its property; or (d) the Trustee becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the then outstanding Notes may appoint a successor Trustee to replace the successor Trustee appointed by the Company; provided that the successor Trustee appointed by the Holders is reasonably acceptable to the Company. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company, or the Holders of Notes of at least 10% in principal amount of the then outstanding Notes may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee, after written request by any Holder of a Note who has been a Holder of a Note for at least six months, fails to comply with Section 7.10, such Holder of a Note may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to Holders of the Notes. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, provided all sums owing to the Trustee hereunder have been paid and subject to the Lien provided for in Section 7.07 hereof. Notwithstanding replacement of the Trustee pursuant to this Section 7.08, the Company's obligations under Section 7.07 hereof shall continue for the benefit of the retiring Trustee. SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC. If the Trustee consolidates, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the successor corporation without any further act shall be the successor Trustee. SECTION 7.10. ELIGIBILITY; DISQUALIFICATION. There shall at all times be a Trustee hereunder that is a corporation organized and doing business under the laws of the United States of America or of any state thereof that is authorized under such laws to exercise corporate trustee power, that is subject to supervision or examination by federal or state authorities and that has a combined capital and surplus of at least $100 million as set forth in its most recent published annual report of condition. -54- 61 This Indenture shall always have a Trustee who satisfies the requirements of TIA ss. 310(a)(1), (2) and (5). The Trustee is subject to TIA ss. 310(b). SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY. The Trustee is subject to TIA ss. 311(a), excluding any creditor relationship listed in TIA ss. 311(b). A Trustee who has resigned or been removed shall be subject to TIA ss. 311(a) to the extent indicated therein. ARTICLE 8. LEGAL DEFEASANCE AND COVENANT DEFEASANCE SECTION 8.01. OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE. The Company may, at the option of its Board of Directors evidenced by a resolution set forth in an Officers' Certificate, at any time, elect to have either Section 8.02 or 8.03 hereof be applied to all outstanding Notes upon compliance with the conditions set forth below in this Article Eight. SECTION 8.02. LEGAL DEFEASANCE AND DISCHARGE. Upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.02, the Company shall, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, be deemed to have been discharged from its obligations with respect to all outstanding Notes on the date the conditions set forth below are satisfied (hereinafter, "Legal Defeasance"). For this purpose, Legal Defeasance means that the Company shall be deemed to have paid and discharged the entire Indebtedness represented by the outstanding Notes, which shall thereafter be deemed to be "outstanding" only for the purposes of Section 8.05 hereof and the other Sections of this Indenture referred to in (a) and (b) below, and to have satisfied all its other obligations under such Notes and this Indenture (and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following provisions which shall survive until otherwise terminated or discharged hereunder: (a) the rights of Holders of outstanding Notes to receive solely from the trust fund described in Section 8.04 hereof, and as more fully set forth in such Section, payments in respect of the principal of, premium and Liquidated Damages, if any, and interest on such Notes when such payments are due, (b) the Company's obligations with respect to such Notes under Article 2 and Section 4.02 hereof, (c) the rights, powers, trusts, duties and immunities of the Trustee hereunder and the Company's obligations in connection therewith and (d) this Article Eight. Subject to compliance with this Article Eight, the Company may exercise its option under this Section 8.02 notwithstanding the prior exercise of its option under Section 8.03 hereof. SECTION 8.03. COVENANT DEFEASANCE. Upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.03, the Company shall, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, be released from its obligations under the covenants contained in Sections 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.15, 4.16 and 4.17 hereof with respect to the outstanding Notes on and after the date the conditions set forth in Section 8.04 are satisfied (hereinafter, "Covenant Defeasance"), and the Notes shall thereafter be deemed not "outstanding" for the purposes of any direction, waiver, consent or declaration or act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed "outstanding" for all other purposes hereunder (it being understood that such Notes shall not be deemed outstanding for accounting purposes). For this purpose, Covenant Defeasance means that, with -55- 62 respect to the outstanding Notes, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under Section 6.01 hereof, but, except as specified above, the remainder of this Indenture and such Notes shall be unaffected thereby. In addition, upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.03 hereof, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, Sections 6.01(c) through 6.01(f) hereof shall not constitute Events of Default. SECTION 8.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE. The following shall be the conditions to the application of either Section 8.02 or 8.03 hereof to the outstanding Notes: (a) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders, cash in United States dollars, non-callable Government Securities, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium and Liquidated Damages, if any, and interest on the outstanding Notes on the stated date for payment thereof or on the applicable redemption date, as the case may be; (b) in the case of an election under Section 8.02 hereof, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the date of this Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such election and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (c) in the case of an election under Section 8.03 hereof, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such election and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (d) no Default or Event of Default shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default resulting from the incurrence of Indebtedness all or a portion of the proceeds of which will be used to defease the Notes pursuant to this Article Eight concurrently with such incurrence) or insofar as Sections 6.01(g) or 6.01(h) hereof is concerned, at any time in the period ending on the 91st day after the date of deposit; (e) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under, any material agreement or instrument (other than this Indenture) to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; -56- 63 (f) the Company shall have delivered to the Trustee an Opinion of Counsel (which may be subject to customary exceptions) to the effect that on the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; (g) the Company shall have delivered to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders over any other creditors of the Company or with the intent of defeating, hindering, delaying or defrauding any other creditors of the Company; and (h) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for or relating to the Legal Defeasance or the Covenant Defeasance have been complied with. SECTION 8.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS. Subject to Section 8.06 hereof, all money and non-callable Government Securities (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 8.05, the "Trustee") pursuant to Section 8.04 hereof in respect of the outstanding Notes shall be held in trust and applied by the Trustee, in accordance with the provisions of such Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as Paying Agent) as the Trustee may determine, to the Holders of such Notes of all sums due and to become due thereon in respect of principal, premium, if any, and interest, but such money need not be segregated from other funds except to the extent required by law. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the cash or non-callable Government Securities deposited pursuant to Section 8.04 hereof or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the outstanding Notes. Anything in this Article Eight to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon the request of the Company any money or non-callable Government Securities held by it as provided in Section 8.04 hereof which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee (which may be the opinion delivered under Section 8.04(a) hereof), are in excess of the amount thereof that would then be required to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance. SECTION 8.06. REPAYMENT TO COMPANY. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of, premium, if any, or interest on any Note and remaining unclaimed for two years after such principal, and premium, if any, or interest has become due and payable shall be paid to the Company on its request or (if then held by the Company) shall be discharged from such trust; and the Holder of such Note shall thereafter, as a secured creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the -57- 64 Company cause to be published once, in the New York Times and The Wall Street Journal (national edition), notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such notification or publication, any unclaimed balance of such money then remaining will be repaid to the Company. SECTION 8.07. REINSTATEMENT. If the Trustee or Paying Agent is unable to apply any United States dollars or non-callable Government Securities in accordance with Section 8.02 or 8.03 hereof, as the case may be, by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Company's obligations under this Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.02 or 8.03 hereof until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 8.02 or 8.03 hereof, as the case may be; provided, however, that, if the Company makes any payment of principal of, premium, if any, or interest on any Note following the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money held by the Trustee or Paying Agent. ARTICLE 9. AMENDMENT, SUPPLEMENT AND WAIVER SECTION 9.01. WITHOUT CONSENT OF HOLDERS OF NOTES. Notwithstanding Section 9.02 of this Indenture, the Company, the Guarantors and the Trustee may amend or supplement this Indenture, the Subsidiary Guarantees or the Notes without the consent of any Holder of a Note: (a) to cure any ambiguity, defect or inconsistency; (b) to provide for uncertificated Notes in addition to or in place of certificated Notes or to alter the provisions of Article 2 hereof (including the related definitions) in a manner that does not materially adversely affect any Holder; (c) to provide for the assumption of the Company's obligations to the Holders of the Notes by a successor to the Company pursuant to Article 5 hereof; (d) to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights hereunder of any Holder of the Note; or (e) to comply with requirements of the SEC in order to effect or maintain the qualification of this Indenture under the TIA. Upon the request of the Company accompanied by a resolution of its Board of Directors authorizing the execution of any such amended or supplemental Indenture, and upon receipt by the Trustee of the documents described in Section 7.02 hereof, the Trustee shall join with the Company and each Guarantor, if any, in the execution of any amended or supplemental Indenture authorized or permitted by the terms of this Indenture and to make any further appropriate agreements and stipulations that may be therein contained, but the Trustee shall not be obligated to enter into such amended or supplemental Indenture that affects its own rights, duties or immunities under this Indenture or otherwise. -58- 65 SECTION 9.02. WITH CONSENT OF HOLDERS OF NOTES. Except as provided below in this Section 9.02, the Company and the Trustee may amend or supplement this Indenture (including Section 3.09, 4.10 and 4.15 hereof), and any supplemental indenture pursuant to which a Guarantor provides a Subsidiary Guarantee pursuant to Section 4.16 and the Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the Notes then outstanding voting as a single class (including consents obtained in connection with a tender offer or exchange offer for, or purchase of, the Notes), and, subject to Sections 6.04 and 6.07 hereof, any existing Default or Event of Default (other than a Default or Event of Default in the payment of the principal of, premium, if any, or interest on the Notes, except a payment default resulting from an acceleration that has been rescinded) or compliance with any provision of this Indenture, the Subsidiary Guarantees, if any, or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes voting as a single class (including consents obtained in connection with a tender offer or exchange offer for, or purchase of, the Notes). Upon the request of the Company accompanied by a resolution of its Board of Directors authorizing the execution of any such amended or supplemental Indenture, and upon the filing with the Trustee of evidence satisfactory to the Trustee of the consent of the Holders of Notes as aforesaid, and upon receipt by the Trustee of the documents described in Section 7.02 hereof, the Trustee shall join with the Company in the execution of such amended or supplemental Indenture unless such amended or supplemental Indenture directly affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such amended or supplemental Indenture. It shall not be necessary for the consent of the Holders of Notes under this Section 9.02 to approve the particular form of any proposed amendment or waiver, but it shall be sufficient if such consent approves the substance thereof. After an amendment, supplement or waiver under this Section becomes effective, the Company shall mail to the Holders of Notes affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such amended or supplemental Indenture or waiver. Subject to Sections 6.04 and 6.07 hereof, the Holders of a majority in aggregate principal amount of the Notes then outstanding voting as a single class may waive compliance in a particular instance by the Company with any provision of this Indenture or the Notes. However, without the consent of each Holder affected, an amendment or waiver under this Section 9.02 may not (with respect to any Notes held by a non-consenting Holder): (a) reduce the principal amount of Notes whose Holders must consent to an amendment, supplement or waiver; (b) reduce the principal of or change the fixed maturity of any Note or alter or waive any of the provisions with respect to the redemption of the Notes (other than Section 3.09, 4.10 and 4.14); (c) reduce the rate of or change the time for payment of interest, including default interest, on any Note; (d) waive a Default or Event of Default in the payment of principal of or premium, if any, or interest on the Notes (except a rescission of acceleration of the Notes by the Holders of at least a majority -59- 66 in aggregate principal amount of the then outstanding Notes and a waiver of the payment default that resulted from such acceleration); (e) make any Note payable in money other than that stated in the Notes; (f) make any change in the provisions of this Indenture relating to waivers of past Defaults or the rights of Holders of Notes to receive payments of principal of or premium, if any, or interest on the Notes; or (g) waive a redemption payment with respect to any Note (other than a payment required by Section 3.09, 4.10 or 4.14) or make any change in the foregoing amendment and waiver provisions SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT. Every amendment or supplement to this Indenture or the Notes shall be set forth in a amended or supplemental Indenture that complies with the TIA as then in effect. SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS. Until an amendment, supplement or waiver becomes effective, a consent to it by a Holder of a Note is a continuing consent by the Holder of a Note and every subsequent Holder of a Note or portion of a Note that evidences the same debt as the consenting Holder's Note, even if notation of the consent is not made on any Note. However, any such Holder of a Note or subsequent Holder of a Note may revoke the consent as to its Note if the Trustee receives written notice of revocation before the date the waiver, supplement or amendment becomes effective. An amendment, supplement or waiver becomes effective in accordance with its terms and thereafter binds every Holder. SECTION 9.05. NOTATION ON OR EXCHANGE OF NOTES. The Trustee may place an appropriate notation about an amendment, supplement or waiver on any Note thereafter authenticated. The Company in exchange for all Notes may issue and the Trustee shall, upon receipt of an Authentication Order, authenticate new Notes that reflect the amendment, supplement or waiver. Failure to make the appropriate notation or issue a new Note shall not affect the validity and effect of such amendment, supplement or waiver. SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC. The Trustee shall sign any amended or supplemental Indenture authorized pursuant to this Article Nine if the amendment or supplement does not adversely affect the rights, duties, liabilities or immunities of the Trustee. The Company may not sign an amendment or supplemental Indenture until the Board of Directors approves it. In executing any amended or supplemental indenture, the Trustee shall be entitled to receive and (subject to Section 7.01 hereof) shall be fully protected in relying upon, in addition to the documents required by Section 10.04 hereof, an Officer's Certificate and an Opinion of Counsel stating that the execution of such amended or supplemental indenture is authorized or permitted by this Indenture. -60- 67 ARTICLE 10. MISCELLANEOUS SECTION 10.01. TRUST INDENTURE ACT CONTROLS. If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by TIA ss. 318(c), the imposed duties shall control. SECTION 10.02. NOTICES. Any notice or communication by the Company, any Guarantor or the Trustee to the others is duly given if in writing and delivered in Person or mailed by first class mail (registered or certified, return receipt requested), telex, telecopier or overnight air courier guaranteeing next day delivery, to the others' address If to the Company and/or any Guarantor: SAC Acquisition Corp. c/o CGW Southeast Partners III, L.P. Twelve Piedmont Center Suite 210 Atlanta, Georgia 30305 Attention: William A. Davies With a copy to: Alston & Bird LLP 1201 W. Peachtree Street Atlanta , Georgia 30309-3424 Telecopier No.: (404) 881-7777 Attention: Teri McMahon, Esq. If to the Trustee: IBJ Schroder Bank & Trust Co. 1 State Street Plaza New York, New York 10004 Telecopier No.: (212) 858-2952 Attention: Corporate Trust Administration The Company, any Guarantor or the Trustee, by notice to the others may designate additional or different addresses for subsequent notices or communications. All notices and communications (other than those sent to Holders) shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when answered back, if telexed; when receipt acknowledged, if telecopied; and the next Business Day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery. -61- 68 Any notice or communication to a Holder shall be mailed by first class mail, certified or registered, return receipt requested, or by overnight air courier guaranteeing next day delivery to its address shown on the register kept by the Registrar. Any notice or communication shall also be so mailed to any Person described in TIA ss. 313(c), to the extent required by the TIA. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice or communication is mailed in the manner provided above within the time prescribed, it is duly given, whether or not the addressee receives it. If the Company mails a notice or communication to Holders, it shall mail a copy to the Trustee and each Agent at the same time. SECTION 10.03. COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF NOTES. Holders may communicate pursuant to TIA ss. 312(b) with other Holders with respect to their rights under this Indenture or the Notes. The Company, the Trustee, the Registrar and anyone else shall have the protection of TIA ss. 312(c). SECTION 10.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT. Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall, upon the Trustee's request therefor, furnish to the Trustee: (a) an Officers' Certificate in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 10.05 hereof) stating that, in the opinion of the signers, all conditions precedent and covenants, if any, provided for in this Indenture relating to the proposed action have been satisfied; and (b) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 10.05 hereof) stating that, in the opinion of such counsel, all such conditions precedent and covenants have been satisfied. SECTION 10.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than a certificate provided pursuant to TIA ss. 314(a)(4)) shall comply with the provisions of TIA ss. 314(e) and shall include: (a) a statement that the Person making such certificate or opinion has read such covenant or condition; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (c) a statement that, in the opinion of such Person, he or she has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been satisfied; and (d) a statement as to whether or not, in the opinion of such Person, such condition or covenant has been satisfied. -62- 69 SECTION 10.06. RULES BY TRUSTEE AND AGENTS. The Trustee may make reasonable rules for action by or at a meeting of Holders. The Registrar or Paying Agent may make reasonable rules and set reasonable requirements for its functions. SECTION 10.07. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS. No past, present or future director, officer, employee, incorporator or stockholder of the Company or any Guarantor, as such, shall have any liability for any obligations of the Company or such Guarantor under the Notes, the Subsidiary Guarantees, this Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. SECTION 10.08. GOVERNING LAW. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS INDENTURE, THE NOTES AND THE SUBSIDIARY GUARANTEES, IF ANY, WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. SECTION 10.09. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS. This Indenture may not be used to interpret any other indenture, loan or debt agreement of the Company or its Subsidiaries or of any other Person. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. SECTION 10.10. SUCCESSORS. All agreements of the Company in this Indenture and the Notes shall bind its successors. All agreements of the Trustee in this Indenture shall bind its successors. All obligations and duties of the Holders hereunder and under the Notes and the Registration Rights Agreement shall accrue to the benefit of the Company, the Trustee and their respective successors and assigns. SECTION 10.11. SEVERABILITY. In case any provision in this Indenture or in the Notes shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 10.12. COUNTERPART ORIGINALS. The parties may sign any number of copies or counterparts of this Indenture. Each signed copy or counterparts shall be an original, but all of them together represent the same agreement. -63- 70 SECTION 10.13. TABLE OF CONTENTS, HEADINGS, ETC.. The Table of Contents, Cross-Reference Table and Headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part of this Indenture and shall in no way modify or restrict any of the terms or provisions hereof. SECTION 10.14. ERISA RELATED RESTRICTIONS The Notes may not be sold or transferred to, and each Holder, by its purchase of the Notes hereby represents and covenants that it is not acquiring the Notes for or on behalf of, and will not transfer the Notes to, any pension or welfare plan (as defined in Section 3 of the Employee Retirement Income Security Act of 1974, as amended, "ERISA") or any entity whose assets include assets of such a plan pursuant to 29 C.F.R. Section 2510.3-101 or otherwise (each, a "Plan Entity") except that such a purchase for or on behalf of a Plan Entity shall be permitted: (1) to the extent purchase is made by or on behalf of a bank collective investment fund maintained by the purchaser (provided such Holder is not the bank that maintains the collective investment fund, or an affiliate of such bank) in which no Plan Entity (together with any other plans maintained by the same employer or employee organization) has an interest in excess of 10.0% of the total assets in such collective investment fund and the conditions of Section III of the Prohibited Transaction Class Exemption 91-38 issued by the Department of Labor are satisfied; (2) to the extent such purchase is made by or on behalf of an insurance company pooled separate account maintained by such Holder (provided such Holder is not the insurance company that holds the plan assets in its pooled separate account or any other of its separate accounts, or an affiliate of such insurance company) in which, at any time while the Notes are outstanding, no Plan Entity (together with any other plans maintained by the same employer or employee organization) has an interest in excess of 10.0% of the total of the assets in such pooled separate account and the conditions of Section III of Prohibited Transaction Class Exemption 90-1 issued by the Department of Labor are satisfied; (3) to the extent such purchase is made on behalf of a Plan Entity by (i) an investment advisor registered under the Investment Advisers Act of 1940 that had as of the last day of its most recent fiscal year total assets under its management and control in excess of $50.0 million and had stockholders' or partners equity in excess of $0.75 million, as shown in its most recent balance sheet prepared in accordance with generally accepted accounting principles or (ii) a bank as defined in Section 202(a)(2) of the Investment Advisers Act of 1940 with equity capital in excess of $1.0 million as of the last day of its most recent fiscal year or (iii) an insurance company which is qualified under the laws of more than one state to manage, acquire or dispose of any assets of a Plan Entity, which insurance company had as of the last day of its most recent fiscal year, net worth in excess of $1.0 million and which is subject to supervision and examination by a state authority having supervision over insurance companies and, in any case, such investment advisor, bank or insurance company is otherwise a qualified professional asset manager, as such term is used in Prohibited Transaction Class Exemption 84-14 issued by the Department of Labor, and the assets of such Plan Entity, when combined with the assets of other plans established or -64- 71 maintained by the same employer (or affiliate thereof) or employee organization and managed by such investment advisor, bank or insurance company, do not represent more than 20.0% of the total client assets managed by such investment advisor, bank or insurance company, and the conditions of Part 1 of such exemption are otherwise satisfied; (4) to the extent such purchase is made with funds from an insurance company general account in which the Plan Entity has an interest either as a contract holder or beneficial owner of a contract, if at the time of such purchase, the amount of reserves and liabilities for the general account contracts held by or on behalf of the Plan Entity (as such amount is determined by the National Association of Insurance Commissioners Annual Statement) ("NAIC Annual Statement"), together with the amount of reserves and liabilities for the general account contracts held by or on behalf of any other plans maintained by the same employer (or affiliate thereof) or by the same employee organization (as such amount is determined by the NAIC Annual Statement) in the general account do not exceed 10.0% of the total reserves and liabilities of the general account (exclusive of separate account liabilities) plus surplus (as set forth in the NAIC Annual Statement filed with the insurer's state of domicile), and the conditions of Sections I and IV of Prohibited Transactions Class Exemption 95-60 issued by the Department of Labor are satisfied (For purposes of this subparagraph (4), the amount of reserves and liabilities for the general account contracts held by or on behalf of a Plan Entity shall be determined before reduction for credits on account of any reinsurance ceded on a coinsurance basis); (5) to the extent such Plan Entity is a governmental plan (as defined in Section 3 of ERISA) which is not subject to the provisions of Title I of ERISA or Section 401 of the Internal Revenue Code; or (6) to the extent such purchase is made on behalf of a Plan Entity by an in-house asset manager and the conditions of Part I of the Prohibited Transactions Class Exemption 96-23 issued by the Department of Labor are satisfied. [Signatures on following page] -65- 72 SIGNATURES Dated as of March 31, 1998 SAC ACQUISITION CORP. BY: /s/ William A. Davies ---------------------------- Name: William A. Davies Title: Chairman of the Board -66- 73 IBJ SCHRODER BANK & TRUST COMPANY, AS TRUSTEE BY: /s/ Stephen J. Giurlando ------------------------------- Name: Stephen J. Giurlando Title: Assistant Vice President -67- 74 EXHIBIT A-1 (Face of Note) ================================================================================ CUSIP/CINS ----------------- 9 5/8% [Series A] [Series B] Senior Notes due 2006 No. $ ----- ---------------- SAC ACQUISITION CORP. promises to pay to -------------------------------------------------------------- or registered assigns, the principal sum of --------------------------------------------------- Dollars on April 15, 2006. Interest Payment Dates: April 15 and October 15. Record Dates: April 1 and October 1. DATED: March 31, 1998 SAC ACQUISITION CORP. BY: ----------------------------------------- Name: Title: This is one of the Global Notes referred to in the within-mentioned Indenture: IBJ Schroder Bank & Trust Company as Trustee By: --------------------------------- ================================================================================ A1-1 75 (Back of Note) 9 5/8% [Series A] [Series B] Senior Notes due 2006 THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND THIS NOTE MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR IN ACCORDANCE WITH AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (SUBJECT TO THE DELIVERY OF SUCH EVIDENCE, IF ANY, REQUIRED UNDER THE INDENTURE PURSUANT TO WHICH THIS NOTE IS ISSUED) AND IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER JURISDICTION. EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER OR ANOTHER EXEMPTION UNDER THE SECURITIES ACT. THE HOLDER OF THE SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT OF SAC ACQUISITION CORP. ("SAC") AND SIMCALA, INC. THAT (A) SUCH SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (1)(a) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (b) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (c) OUTSIDE THE UNITED STATES TO A PERSON THAT IS NOT A U.S. PERSON (WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT OR (d) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL IF THE COMPANY SO REQUESTS), SUBJECT IN CASE OF SUBSECTIONS (c) AND (d) TO THE RECEIPT BY THE REGISTRAR, TRANSFER AGENT, TRUSTEE, SIMCALA, INC. AND SAC OF CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM (2) TO SIMCALA, INC. OR SAC OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE HOLDER WILL AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE SECURITY EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (A) ABOVE. THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.07 OF THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE A1-2 76 INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF SIMCALA, INC. OR SAC. Capitalized terms used herein shall have the meanings assigned to them in the Indenture referred to below unless otherwise indicated. 1. INTEREST. SAC Acquisition Corp., a Georgia corporation (the "Company"), promises to pay interest on the principal amount of this Note at 9 5/8% per annum from March 31, 1998 until maturity and shall pay the Liquidated Damages payable pursuant to Section 5 of the Registration Rights Agreement referred to below. The Company will pay interest and Liquidated Damages semi-annually on April 15 and October 15 of each year, or if any such day is not a Business Day, on the next succeeding Business Day (each an "Interest Payment Date"). Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of issuance; provided that if there is no existing Default in the payment of interest, and if this Note is authenticated between a record date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such next succeeding Interest Payment Date; provided, further, that the first Interest Payment Date shall be October 15, 1998. The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal and premium, if any, from time to time on demand at a rate that is 1% per annum in excess of the rate then in effect; it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest and Liquidated Damages (without regard to any applicable grace periods) from time to time on demand at the same rate to the extent lawful. Interest will be computed on the basis of a 360-day year of twelve 30-day months. 2. METHOD OF PAYMENT. The Company will pay interest on the Notes (except defaulted interest) and Liquidated Damages to the Persons who are registered Holders of Notes at the close of business on the April 1 or October 1 next preceding the Interest Payment Date, even if such Notes are canceled after such record date and on or before such Interest Payment Date, except as provided in Section 2.12 of the Indenture with respect to defaulted interest. The Notes will be payable as to principal, premium and Liquidated Damages, if any, and interest at the office or agency of the Company maintained for such purpose within or without the City and State of New York, or, at the option of the Company, payment of interest and Liquidated Damages may be made by check mailed to the Holders at their addresses set forth in the register of Holders, and provided that payment by wire transfer of immediately available funds will be required with respect to principal of and interest, premium and Liquidated Damages on, all Global Notes and all other Notes the Holders of which shall have provided wire transfer instructions to the Company or the Paying Agent. Such payment shall be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. 3. PAYING AGENT AND REGISTRAR. Initially, IBJ Schroder Bank & Trust Company, the Trustee under the Indenture, will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company or any of its Subsidiaries may act in any such capacity. 4. INDENTURE. The Company issued the Notes under an Indenture dated as of March 31, 1998 ("Indenture") between the Company and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code ss.ss. 77aaa-77bbbb). The Notes are subject to all such terms, and Holders A1-3 77 are referred to the Indenture and such Act for a statement of such terms. To the extent any provision of this Note conflicts with the express provisions of the Indenture, the provisions of the indenture shall govern and be controlling. The Notes are obligations of the Company limited to $75.0 million in aggregate principal amount, plus amounts, if any, issued to pay Liquidated Damages on outstanding Notes as set forth in Paragraph 2 hereof. 5. OPTIONAL REDEMPTION. (a) Except as set forth in subparagraph (b) of this Paragraph 5, the Company shall not have the option to redeem the Notes prior to April 15, 2002. Thereafter, the Company shall have the option to redeem the Notes, in whole or in part, upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest and Liquidated Damages thereon to the applicable redemption date, if redeemed during the twelve-month period beginning on April 15 of the years indicated below:
YEAR PERCENTAGE - ---- ---------- 2002........................................................ 104.8125% 2003........................................................ 103.2803% 2004........................................................ 101.6042% 2005 and thereafter......................................... 100.0000%
(b) Notwithstanding the provisions of clause (a) of this Paragraph 5, at any time prior to April 15, 2001, the Company may redeem up to 30% of the aggregate principal amount of the Notes originally issued under the Indenture at a redemption price of 109.6250% of the principal amount thereof, plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the redemption date, with the net proceeds of public offering of its common stock; provided that at least 70% of the original aggregate principal amount of the Notes remain outstanding immediately after the occurrence of such redemption (excluding Notes held by the Company and its Subsidiaries); and provided, further, that such redemption shall occur within 60 days of the date of the closing of such public offering. 6. MANDATORY REDEMPTION. Except as set forth in paragraph 7 below, the Company shall not be required to make mandatory redemption payments with respect to the Notes. 7. REPURCHASE AT OPTION OF HOLDER. (a) If there is a Change of Control, the Company shall be required to make an offer (a "Change of Control Offer") to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of each Holder's Notes at a purchase price equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the date of purchase (in either case, the "Change of Control Payment"). Within 10 days following any Change of Control, the Company shall mail a notice to each Holder setting forth the procedures governing the Change of Control Offer as required by the Indenture. A1-4 78 (b) If the Company or a Subsidiary consummates any Asset Sales, within five days of each date on which the aggregate amount of Excess Proceeds exceeds $5 million, the Company shall commence an offer to all Holders of Notes (as "Asset Sale Offer") pursuant to Sections 3.09 and 4.10 of the Indenture to purchase the maximum principal amount of Notes that may be purchased out of the Excess Proceeds at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the date fixed for the closing of such offer, in accordance with the procedures set forth in the Indenture. To the extent that the aggregate amount of Notes tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company (or such Subsidiary) may use such deficiency for general corporate purposes. If the aggregate principal amount of Notes surrendered by Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select the Notes to be purchased on a pro rata basis. Holders of Notes that are the subject of an offer to purchase will receive an Asset Sale Offer from the Company prior to any related purchase date and may elect to have such Notes purchased by completing the form entitled "Option of Holder to Elect Purchase" on the reverse of the Notes. 8. NOTICE OF REDEMPTION. Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each Holder whose Notes are to be redeemed at its registered address. Notes in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000, unless all of the Notes held by a Holder are to be redeemed. On and after the redemption date interest ceases to accrue on Notes or portions thereof called for redemption. 9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Company need not exchange or register the transfer of any Note or portion of a Note selected for redemption, except for the unredeemed portion of any Note being redeemed in part. Also, the Company need not exchange or register the transfer of any Notes for a period of 15 days before a selection of Notes to be redeemed or during the period between a record date and the corresponding Interest Payment Date. 10. PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated as its owner for all purposes. 11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the Indenture, the Subsidiary Guarantees or the Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the then outstanding Notes voting as a single class, and any existing default or compliance with any provision of the Indenture, the Subsidiary Guarantees or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes if any, voting as a single class. Without the consent of any Holder of a Note, the Indenture, the Subsidiary Guarantees or the Notes may be amended or supplemented to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes, to provide for the assumption of the Company's obligations to Holders of the Notes in case of a merger or consolidation, to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, to comply with the requirements of the Commission in order to effect or maintain the qualification of the Indenture A1-5 79 under the Trust Indenture Act, or to allow any Guarantor to execute a supplemental indenture to the Indenture and/or a Subsidiary Guarantee with respect to the Notes. 12. DEFAULTS AND REMEDIES. Events of Default include: (i) default for 30 days in the payment when due of interest on the Notes; (ii) default in payment when due of principal of or premium, if any, on the Notes when the same becomes due and payable at maturity, upon redemption (including in connection with an offer to purchase) or otherwise, (iii) failure by the Company to comply with Section 4.07, 4.09, 4.10 or 5.01 of the Indenture; (iv) failure by the Company for 60 days after notice to the Company by the Trustee or the Holders of at least 25% in principal amount of the Notes then outstanding voting as a single class to comply with certain other agreements in the Indenture or the Notes; (v) default under certain other agreements relating to Indebtedness of the Company which default results in the acceleration of such Indebtedness prior to its express maturity; (vi) certain final judgments for the payment of money that remain undischarged for a period of 60 days; (vii) certain events of bankruptcy or insolvency with respect to the Company or any of its Significant Subsidiaries; and (viii) except as permitted by the Indenture, any Subsidiary Guarantee issued by a Significant Subsidiary shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor that is a Significant Subsidiary or any Person acting on its behalf shall deny or disaffirm its obligations under such Guarantor's Subsidiary Guarantee. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, all outstanding Notes will become due and payable without further action or notice. Holders may not enforce the Indenture or the Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest. The Holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest on, or the principal of, the Notes. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. 13. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not the Trustee. 14. NO RECOURSE AGAINST OTHERS. A director, officer, employee, incorporator or stockholder, of the Company, as such, shall not have any liability for any obligations of the Company under the Notes or the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. 15. AUTHENTICATION. This Note shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. A1-6 80 16. ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 17. ADDITIONAL RIGHTS OF HOLDERS OF RESTRICTED GLOBAL NOTES AND RESTRICTED DEFINITIVE NOTES. In addition to the rights provided to Holders of Notes under the Indenture, Holders of Restricted Global Notes and Restricted Definitive Notes shall have all the rights set forth in the Registration Rights Agreement dated as of March 31, 1998, between the Company and NationsBanc Montgomery Securities LLC. 18. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. The Company will furnish to any Holder upon written request and without charge a copy of the Indenture and/or the Registration Rights Agreement. Requests may be made to: SAC Acquisition Corp. c/o CGW Southeast Partners III, L.P. Twelve Piedmont Center Suite 210 Atlanta, Georgia 30305 Attention: William A. Davies A1-7 81 ASSIGNMENT FORM To assign this Note, fill in the form below: (I) or (we) assign and transfer this Note to - -------------------------------------------------------------------------------- (Insert assignee's soc. sec. or tax I.D. no.) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Print or type assignee's name, address and zip code) and irrevocably appoint _______________________________________________________ to transfer this Note on the books of the Company. The agent may substitute another to act for him. - -------------------------------------------------------------------------------- Date: ------------------ Your Signature:____________________________ (Sign exactly as your name appears on the face of this Note) - --------------------------- SIGNATURE GUARANTEE* * Signature must be guaranteed by a participant in a recognized signature guaranty medallion program or other signature guarantor acceptable to the Trustee. A1-8 82 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Note purchased by the Company pursuant to Section 4.10 or 4.14 of the Indenture, check the box below: [ ] Section 4.10 [ ] Section 4.14 If you want to elect to have only part of the Note purchased by the Company pursuant to Section 4.10 or Section 4.14 of the Indenture, state the amount you elect to have purchased: $________ Date: Your Signature: ------------- ---------------------------- (Sign exactly as your name appears on the Note) Tax Identification No: --------------------- - --------------------------- Signature Guarantee.* * Signature must be guaranteed by a participant in a recognized signature guaranty medallion program or other signature guarantor acceptable to the Trustee. A1-9 83 SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE The following exchanges of a part of this Global Note for an interest in another Global Note or for a Definitive Note, or exchanges of a part of another Global Note or Definitive Note for an interest in this Global Note, have been made:
Principal Amount of this Global Note Signature of Amount of decrease in Amount of increase in following authorized officer Principal Amount Principal Amount such decrease (or of Trustee or Note Date of Exchange of this Global Note of this Global Note increase) Custodian ---------------- --------------------- --------------------- ------------------- ------------------
A1-10 84 EXHIBIT A-2 (Face of Regulation S Temporary Global Note) ================================================================================ CUSIP/CINS ------------------ 9 5/8% [Series A] [Series B] Senior Notes due 2006 No. $ ----- ---------------- SAC ACQUISITION CORP. promises to pay to or registered assigns, the principal sum of -------------------------------------------------- Dollars on April 15 , 2006. Interest Payment Dates: April 15 and October 15. Record Dates: April 1 and October 1. Dated: March 31, 1998 SAC ACQUISITION CORP. By: ------------------------------- Name: Title: This is one of the Global Notes referred to in the within-mentioned Indenture: IBJ Schroder Bank & Trust Company as Trustee By: ------------------------ ================================================================================ A2-1 85 (Back of Regulation S Temporary Global Note) 9 5/8% [Series A] [Series B] Senior Notes due 2006 THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER NOR THE BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL NOTE SHALL BE ENTITLED TO RECEIVE PAYMENT OF INTEREST HEREON. UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND THIS NOTE MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR IN ACCORDANCE WITH AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (SUBJECT TO THE DELIVERY OF SUCH EVIDENCE, IF ANY, REQUIRED UNDER THE INDENTURE PURSUANT TO WHICH THIS NOTE IS ISSUED) AND IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER JURISDICTION. EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER OR ANOTHER EXEMPTION UNDER THE SECURITIES ACT. THE HOLDER OF THE SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT OF SAC ACQUISITION CORP. ("SAC") AND SIMCALA, INC. THAT (A) SUCH SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (1)(a) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (b) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (c) OUTSIDE THE UNITED STATES TO A PERSON THAT IS NOT A U.S. PERSON (WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT OR (d) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL IF THE COMPANY SO REQUESTS), SUBJECT IN CASE OF SUBSECTIONS (c) AND (d) TO THE RECEIPT BY THE REGISTRAR, TRANSFER AGENT, TRUSTEE, SIMCALA, INC. AND SAC OF CERTIFICATION AND/OR OTHER INFORMATION A2-2 86 SATISFACTORY TO EACH OF THEM (2) TO SIMCALA, INC. OR SAC OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE HOLDER WILL AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE SECURITY EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (A) ABOVE. Until this Regulation S Temporary Global Note is exchanged for one or more Regulation S Permanent Global Notes, the Holder hereof shall not be entitled to receive payments of interest hereon; until so exchanged in full, this Regulation S Temporary Global Note shall in all other respects be entitled to the same benefits as other Senior Subordinated Notes under the Indenture. 1. INTEREST. SAC Acquisition Corp., a Georgia corporation (the "Company"), promises to pay interest on the principal amount of this Note at 9 5/8% per annum from March 31, 1998 until maturity and shall pay the Liquidated Damages payable pursuant to Section 5 of the Registration Rights Agreement referred to below. The Company will pay interest and Liquidated Damages semi-annually on April 15 and October 15 of each year, or if any such day is not a Business Day, on the next succeeding Business Day (each an "Interest Payment Date"). Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of issuance; provided that if there is no existing Default in the payment of interest, and if this Note is authenticated between a record date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such next succeeding Interest Payment Date; provided, further, that the first Interest Payment Date shall be October 15, 1998. The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal and premium, if any, from time to time on demand at a rate that is 1% per annum in excess of the rate then in effect; it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest and Liquidated Damages (without regard to any applicable grace periods) from time to time on demand at the same rate to the extent lawful. Interest will be computed on the basis of a 360-day year of twelve 30-day months. 2. METHOD OF PAYMENT. The Company will pay interest on the Notes (except defaulted interest) and Liquidated Damages to the Persons who are registered Holders of Notes at the close of business on the April 1 or October 1 next preceding the Interest Payment Date, even if such Notes are canceled after such record date and on or before such Interest Payment Date, except as provided in Section 2.12 of the Indenture with respect to defaulted interest. The Notes will be payable as to principal, premium and Liquidated Damages, if any, and interest at the office or agency of the Company maintained for such purpose within or without the City and State of New York, or, at the option of the Company, payment of interest and Liquidated Damages may be made by check mailed to the Holders at their addresses set forth in the register of Holders, and provided that payment by wire transfer of immediately available funds will be required with respect to principal of and interest, premium and Liquidated Damages on, all Global Notes and all other Notes the Holders of which shall have provided wire transfer instructions to the Company or the Paying Agent. Such payment shall be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. 3. PAYING AGENT AND REGISTRAR. Initially, IBJ Schroder Bank & Trust Company, the Trustee under the Indenture, will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company or any of its Subsidiaries may act in any such capacity. A2-3 87 4. INDENTURE. The Company issued the Notes under an Indenture dated as of March 31, 1998 ("Indenture") between the Company and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code ss.ss. 77aaa-77bbbb). The Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. To the extent any provision of this Note conflicts with the express provisions of the Indenture, the provisions of the indenture shall govern and be controlling. The Notes are obligations of the Company limited to $75.0 million in aggregate principal amount, plus amounts, if any, issued to pay Liquidated Damages on outstanding Notes as set forth in Paragraph 2 hereof. 5. OPTIONAL REDEMPTION. (a) Except as set forth in subparagraph (b) of this Paragraph 5, the Company shall not have the option to redeem the Notes prior to April 15, 2002. Thereafter, the Company shall have the option to redeem the Notes, in whole or in part, upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest and Liquidated Damages thereon to the applicable redemption date, if redeemed during the twelve-month period beginning on April 15 of the years indicated below:
YEAR PERCENTAGE - ---- ---------- 2002........................................................ 104.8125% 2003........................................................ 103.2803% 2004........................................................ 101.6042% 2005 and thereafter......................................... 100.0000%
(b) Notwithstanding the provisions of clause (a) of this Paragraph 5, at any time prior to April 15, 2001, the Company may redeem up to 30% of the aggregate principal amount of the Notes originally issued under the Indenture at a redemption price of 109.6250% of the principal amount thereof, plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the redemption date, with the net proceeds of public offering of its common stock; provided that at least 70% of the original aggregate principal amount of the Notes remain outstanding immediately after the occurrence of such redemption (excluding Notes held by the Company and its Subsidiaries); and provided, further, that such redemption shall occur within 60 days of the date of the closing of such public offering. 6. MANDATORY REDEMPTION. Except as set forth in paragraph 7 below, the Company shall not be required to make mandatory redemption payments with respect to the Notes. 7. REPURCHASE AT OPTION OF HOLDER. (a) If there is a Change of Control, the Company shall be required to make an offer (a "Change of Control Offer") to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of each Holder's Notes at a purchase price equal to 101% of the aggregate principal amount thereof plus A2-4 88 accrued and unpaid interest and Liquidated Damages thereon, if any, to the date of purchase (in either case, the "Change of Control Payment"). Within 10 days following any Change of Control, the Company shall mail a notice to each Holder setting forth the procedures governing the Change of Control Offer as required by the Indenture. (b) If the Company or a Subsidiary consummates any Asset Sales, within five days of each date on which the aggregate amount of Excess Proceeds exceeds $5 million, the Company shall commence an offer to all Holders of Notes (as "Asset Sale Offer") pursuant to Sections 3.09 and 4.10 of the Indenture to purchase the maximum principal amount of Notes that may be purchased out of the Excess Proceeds at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the date fixed for the closing of such offer, in accordance with the procedures set forth in the Indenture. To the extent that the aggregate amount of Notes tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company (or such Subsidiary) may use such deficiency for general corporate purposes. If the aggregate principal amount of Notes surrendered by Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select the Notes to be purchased on a pro rata basis. Holders of Notes that are the subject of an offer to purchase will receive an Asset Sale Offer from the Company prior to any related purchase date and may elect to have such Notes purchased by completing the form entitled "Option of Holder to Elect Purchase" on the reverse of the Notes. 8. NOTICE OF REDEMPTION. Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each Holder whose Notes are to be redeemed at its registered address. Notes in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000, unless all of the Notes held by a Holder are to be redeemed. On and after the redemption date interest ceases to accrue on Notes or portions thereof called for redemption. 9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Company need not exchange or register the transfer of any Note or portion of a Note selected for redemption, except for the unredeemed portion of any Note being redeemed in part. Also, the Company need not exchange or register the transfer of any Notes for a period of 15 days before a selection of Notes to be redeemed or during the period between a record date and the corresponding Interest Payment Date. 10. PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated as its owner for all purposes. 11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the Indenture, the Subsidiary Guarantees or the Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the then outstanding Notes voting as a single class, and any existing default or compliance with any provision of the Indenture, the Subsidiary Guarantees or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes if any, voting as a single class. Without the consent of any Holder of a Note, the Indenture, the Subsidiary Guarantees or the Notes may be amended or supplemented to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes, A2-5 89 to provide for the assumption of the Company's obligations to Holders of the Notes in case of a merger or consolidation, to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, to comply with the requirements of the Commission in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act, or to allow any Guarantor to execute a supplemental indenture to the Indenture and/or a Subsidiary Guarantee with respect to the Notes. 12. DEFAULTS AND REMEDIES. Events of Default include: (i) default for 30 days in the payment when due of interest on the Notes; (ii) default in payment when due of principal of or premium, if any, on the Notes when the same becomes due and payable at maturity, upon redemption (including in connection with an offer to purchase) or otherwise, (iii) failure by the Company to comply with Section 4.07, 4.09, 4.10 or 5.01 of the Indenture; (iv) failure by the Company for 60 days after notice to the Company by the Trustee or the Holders of at least 25% in principal amount of the Notes then outstanding voting as a single class to comply with certain other agreements in the Indenture or the Notes; (v) default under certain other agreements relating to Indebtedness of the Company which default results in the acceleration of such Indebtedness prior to its express maturity; (vi) certain final judgments for the payment of money that remain undischarged for a period of 60 days; (vii) certain events of bankruptcy or insolvency with respect to the Company or any of its Significant Subsidiaries; and (viii) except as permitted by the Indenture, any Subsidiary Guarantee issued by a Significant Subsidiary shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor that is a Significant Subsidiary or any Person acting on its behalf shall deny or disaffirm its obligations under such Guarantor's Subsidiary Guarantee. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, all outstanding Notes will become due and payable without further action or notice. Holders may not enforce the Indenture or the Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest. The Holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest on, or the principal of, the Notes. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. 13. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not the Trustee. 14. NO RECOURSE AGAINST OTHERS. A director, officer, employee, incorporator or stockholder, of the Company, as such, shall not have any liability for any obligations of the Company under the Notes or the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. A2-6 90 15. AUTHENTICATION. This Note shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. 16. ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 17. ADDITIONAL RIGHTS OF HOLDERS OF RESTRICTED GLOBAL NOTES AND RESTRICTED DEFINITIVE NOTES. In addition to the rights provided to Holders of Notes under the Indenture, Holders of Restricted Global Notes and Restricted Definitive Notes shall have all the rights set forth in the Registration Rights Agreement dated as of March 31, 1998, between the Company and NationsBanc Montgomery Securities LLC. 18. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. A2-7 91 The Company will furnish to any Holder upon written request and without charge a copy of the Indenture and/or the Registration Rights Agreement. Requests may be made to: SAC Acquisition Corp. c/o CGW Southeast Partners III, L.P. Twelve Piedmont Center Suite 210 Atlanta, Georgia 30305 Attention: William A. Davies A2-8 92 ASSIGNMENT FORM To assign this Note, fill in the form below: (I) or (we) assign and transfer this Note to - -------------------------------------------------------------------------------- (Insert assignee's soc. sec. or tax I.D. no.) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Print or type assignee's name, address and zip code) and irrevocably appoint_________________________________________________________ to transfer this Note on the books of the Company. The agent may substitute another to act for him. - -------------------------------------------------------------------------------- Date: --------------------- Your Signature: -------------------- (Sign exactly as your name appears on the face of this Note) - --------------------------- SIGNATURE GUARANTEE* * Signature must be guaranteed by a participant in a recognized signature guaranty medallion program or other signature guarantor acceptable to the Trustee. A2-9 93 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Note purchased by the Company pursuant to Section 4.10 or 4.14 of the Indenture, check the box below: [ ] Section 4.10 [ ] Section 4.14 If you want to elect to have only part of the Note purchased by the Company pursuant to Section 4.10 or Section 4.14 of the Indenture, state the amount you elect to have purchased: $________ Date: Your Signature: ------------- ----------------------------- (Sign exactly as your name appears on the Note) Tax Identification No: ---------------------- - --------------------------- Signature Guarantee.* * Signature must be guaranteed by a participant in a recognized signature guaranty medallion program or other signature guarantor acceptable to the Trustee. A2-10 94 SCHEDULE OF EXCHANGES OF REGULATION S TEMPORARY GLOBAL NOTE The following exchanges of a part of this Regulation S Temporary Global Note for an interest in another Global Note, or of other Restricted Global Notes for an interest in this Regulation S Temporary Global Note, have been made:
Principal Amount Amount of of this Global Note Signature of decrease in Amount of increase in following such authorized officer Principal Amount Principal Amount decrease (or of Trustee or Note Date of Exchange of this Global Note of this Global Note increase) Custodian ---------------- ------------------- --------------------- ------------------- ------------------
A2-11 95 EXHIBIT B FORM OF CERTIFICATE OF TRANSFER SAC Acquisition Corp. c/o CGW Southeast Partners III, L.P. Twelve Piedmont Center Suite 210 Atlanta, Georgia 30305 IBJ Schroder Bank & Trust Co. One State Street New York, New York 10004 Re: 9 5/8% Senior Notes due 2006 Reference is hereby made to the Indenture, dated as of March 31, 1998 (the "Indenture"), between SAC Acquisition Corp., as issuer (the "Company"), and IBJ Schroder Bank & Trust Co., as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. ______________, (the "Transferor") owns and proposes to transfer the Note[s] or interest in such Note[s] specified in Annex A hereto, in the principal amount of $___________ in such Note[s] or interests (the "Transfer"), to __________ (the "Transferee"), as further specified in Annex A hereto. In connection with the Transfer, the Transferor hereby certifies that: [CHECK ALL THAT APPLY] 1. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE 144A GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO RULE 144A. The Transfer is being effected pursuant to and in accordance with Rule 144A under the United States Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, the Transferor hereby further certifies that the beneficial interest or Definitive Note is being transferred to a Person that the Transferor reasonably believed and believes is purchasing the beneficial interest or Definitive Note for its own account, or for one or more accounts with respect to which such Person exercises sole investment discretion, and such Person and each such account is a "qualified institutional buyer" within the meaning of Rule 144A in a transaction meeting the requirements of Rule 144A and such Transfer is in compliance with any applicable blue sky securities laws of any state of the United States. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the 144A Global Note and/or the Definitive Note and in the Indenture and the Securities Act. 2. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE TEMPORARY REGULATION S GLOBAL NOTE, THE REGULATION S GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO REGULATION S. The Transfer is being effected pursuant to and in accordance with Rule 903 or Rule 904 under the Securities Act and, accordingly, the Transferor hereby further certifies that (i) the Transfer is not being made to a person in the United States and (x) at the time the buy order was originated, the Transferee was outside the United States or such Transferor and any Person acting on its behalf reasonably believed and believes that B-1 96 the Transferee was outside the United States or (y) the transaction was executed in, on or through the facilities of a designated offshore securities market and neither such Transferor nor any Person acting on its behalf knows that the transaction was prearranged with a buyer in the United States, (ii) no directed selling efforts have been made in contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S under the Securities Act (iii) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act and (iv) if the proposed transfer is being made prior to the expiration of the Restricted Period, the transfer is not being made to a U.S. Person or for the account or benefit of a U.S. Person (other than an Initial Purchaser) Upon consummation of the proposed transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will be subject to the restrictions on Transfer enumerated in the Private Placement Legend printed on the Regulation S Global Note, the Temporary Regulation S Global Note and/or the Definitive Note and in the Indenture and the Securities Act. 3. [ ] CHECK AND COMPLETE IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE IAI GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO ANY PROVISION OF THE SECURITIES ACT OTHER THAN RULE 144A OR REGULATION S. The Transfer is being effected in compliance with the transfer restrictions applicable to beneficial interests in Restricted Global Notes and Restricted Definitive Notes and pursuant to and in accordance with the Securities Act and any applicable blue sky securities laws of any state of the United States, and accordingly the Transferor hereby further certifies that (check one): (a) [ ] such Transfer is being effected pursuant to and in accordance with Rule 144 under the Securities Act; or (b) [ ] such Transfer is being effected to the Company or a subsidiary thereof; or (c) [ ] such Transfer is being effected pursuant to an effective registration statement under the Securities Act and in compliance with the prospectus delivery requirements of the Securities Act; or (d) [ ] such Transfer is being effected to an Institutional Accredited Investor and pursuant to an exemption from the registration requirements of the Securities Act other than Rule 144A, Rule 144 or Rule 904, and the Transferor hereby further certifies that it has not engaged in any general solicitation within the meaning of Regulation D under the Securities Act and the Transfer complies with the transfer restrictions applicable to beneficial interests in a Restricted Global Note or Restricted Definitive Notes and the requirements of the exemption claimed, which certification is supported by (1) a certificate executed by the Transferee in the form of Exhibit D to the Indenture and (2) if such Transfer is in respect of a principal amount of Notes at the time of transfer of less than $250,000, an Opinion of Counsel provided by the Transferor or the Transferee (a copy of which the Transferor has attached to this certification), to the effect that such Transfer is in compliance with the Securities Act. Upon consummation of the proposed transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the IAI Global Note and/or the Definitive Notes and in the Indenture and the Securities Act. B-2 97 4. [ ] Check if Transferee will take delivery of a beneficial interest in an Unrestricted Global Note or of an Unrestricted Definitive Note. (a) [ ] CHECK IF TRANSFER IS PURSUANT TO RULE 144. (i) The Transfer is being effected pursuant to and in accordance with Rule 144 under the Securities Act and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any state of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will no longer be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Notes, on Restricted Definitive Notes and in the Indenture. (b) [ ] CHECK IF TRANSFER IS PURSUANT TO REGULATION S. (i) The Transfer is being effected pursuant to and in accordance with Rule 903 or Rule 904 under the Securities Act and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any state of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will no longer be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Notes, on Restricted Definitive Notes and in the Indenture. (c) [ ] CHECK IF TRANSFER IS PURSUANT TO OTHER EXEMPTION. (i) The Transfer is being effected pursuant to and in compliance with an exemption from the registration requirements of the Securities Act other than Rule 144, Rule 903 or Rule 904 and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any State of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will not be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Notes or Restricted Definitive Notes and in the Indenture. This certificate and the statements contained herein are made for your benefit and the benefit of the Company. --------------------------------------- [Insert Name of Transferor] By: ----------------------------------- Name: Title: Dated: , ------------ ---- B-3 98 ANNEX A TO CERTIFICATE OF TRANSFER 1. The Transferor owns and proposes to transfer the following: [CHECK ONE OF (a) OR (b)] (a) [ ] a beneficial interest in the: (i) [ ] 144A Global Note (CUSIP 828595 AA 6), or (ii) [ ] Regulation S Global Note (CUSIP ), or (iii) [ ] IAI Global Note (CUSIP ); or (b) [ ] a Restricted Definitive Note. 2. After the Transfer the Transferee will hold: [CHECK ONE] (a) [ ] a beneficial interest in the: (i) [ ] 144A Global Note (CUSIP ), or (ii) [ ] Regulation S Global Note (CUSIP ), or (iii) [ ] IAI Global Note (CUSIP ); or (iv) [ ] Unrestricted Global Note (CUSIP 828595 AC 2); or (b) [ ] a Restricted Definitive Note; or (c) [ ] an Unrestricted Definitive Note, in accordance with the terms of the Indenture. B-4 99 EXHIBIT C FORM OF CERTIFICATE OF EXCHANGE SAC Acquisition Corp. c/o CGW Southeast Partners III, L.P. Twelve Piedmont Center Suite 210 Atlanta, Georgia 30305 IBJ Schroder Bank & Trust Co. One State Street New York, New York 10004 Re: 9 5/8% Senior Notes due 2006 (CUSIP______________) Reference is hereby made to the Indenture, dated as of March 31, 1998 (the "Indenture"), between SAC Acquisition Corp., as issuer (the "Company"), and IBJ Schroder Bank & Trust Co., as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. ____________, (the "Owner") owns and proposes to exchange the Note[s] or interest in such Note[s] specified herein, in the principal amount of $____________ in such Note[s] or interests (the "Exchange"). In connection with the Exchange, the Owner hereby certifies that: 1. EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN A RESTRICTED GLOBAL NOTE FOR UNRESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN AN UNRESTRICTED GLOBAL NOTE (a) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE TO BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE. In connection with the Exchange of the Owner's beneficial interest in a Restricted Global Note for a beneficial interest in an Unrestricted Global Note in an equal principal amount, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Global Notes and pursuant to and in accordance with the United States Securities Act of 1933, as amended (the "Securities Act"), (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the beneficial interest in an Unrestricted Global Note is being acquired in compliance with any applicable blue sky securities laws of any state of the United States. (b) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE TO UNRESTRICTED DEFINITIVE NOTE. In connection with the Exchange of the Owner's beneficial interest in a Restricted Global Note for an Unrestricted Definitive Note, the Owner hereby certifies (i) the Definitive Note is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Restricted Global Notes and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the C-1 100 Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the Definitive Note is being acquired in compliance with any applicable blue sky securities laws of any state of the United States. (c) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE. In connection with the Owner's Exchange of a Restricted Definitive Note for a beneficial interest in an Unrestricted Global Note, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to Restricted Definitive Notes and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the beneficial interest is being acquired in compliance with any applicable blue sky securities laws of any state of the United States. (d) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO UNRESTRICTED DEFINITIVE NOTE. In connection with the Owner's Exchange of a Restricted Definitive Note for an Unrestricted Definitive Note, the Owner hereby certifies (i) the Unrestricted Definitive Note is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to Restricted Definitive Notes and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the Unrestricted Definitive Note is being acquired in compliance with any applicable blue sky securities laws of any state of the United States. 2. EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN RESTRICTED GLOBAL NOTES FOR RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN RESTRICTED GLOBAL NOTES (a) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE TO RESTRICTED DEFINITIVE NOTE. In connection with the Exchange of the Owner's beneficial interest in a Restricted Global Note for a Restricted Definitive Note with an equal principal amount, the Owner hereby certifies that the Restricted Definitive Note is being acquired for the Owner's own account without transfer. Upon consummation of the proposed Exchange in accordance with the terms of the Indenture, the Restricted Definitive Note issued will continue to be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Definitive Note and in the Indenture and the Securities Act. (b) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE. In connection with the Exchange of the Owner's Restricted Definitive Note for a beneficial interest in the [CHECK ONE] [ ] 144A Global Note, [ ] Regulation S Global Note, [ ] IAI Global Note with an equal principal amount, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner's own account without transfer and (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Restricted Global Notes and pursuant to and in accordance with the Securities Act, and in compliance with any applicable blue sky securities laws of any state of the United States. Upon consummation of the proposed Exchange in accordance with the terms of the Indenture, the beneficial interest issued will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the relevant Restricted Global Note and in the Indenture and the Securities Act. C-2 101 This certificate and the statements contained herein are made for your benefit and the benefit of the Company. ----------------------------------- [Insert Name of Owner] By: -------------------------------- Name: Title: Dated: ________________, ____ C-3 102 EXHIBIT D FORM OF CERTIFICATE FROM ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR SAC Acquisition Corp. c/o CGW Southeast Partners III, L.P. Twelve Piedmont Center Suite 210 Atlanta, Georgia 30305 IBJ Schroder Bank & Trust Co. One State Street New York, New York 10004 Re: 9 5/8% Senior Notes due 2006 Reference is hereby made to the Indenture, dated as of March 31, 1998 (the "Indenture"), between SAC Acquisition Corp., as issuer (the "Company"), and IBJ Schroder Bank & Trust Co., as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. In connection with our proposed purchase of $____________ aggregate principal amount of: (a) [ ] a beneficial interest in a Global Note, or (b) [ ] a Definitive Note, we confirm that: 1. We understand that any subsequent transfer of the Notes or any interest therein is subject to certain restrictions and conditions set forth in the Indenture and the undersigned agrees to be bound by, and not to resell, pledge or otherwise transfer the Notes or any interest therein except in compliance with, such restrictions and conditions and the United States Securities Act of 1933, as amended (the "Securities Act"). 2. We understand that the offer and sale of the Notes have not been registered under the Securities Act, and that the Notes and any interest therein may not be offered or sold except as permitted in the following sentence. We agree, on our own behalf and on behalf of any accounts for which we are acting as hereinafter stated, that if we should sell the Notes or any interest therein, we will do so only (A) to the Company or any subsidiary thereof, (B) in accordance with Rule 144A under the Securities Act to a "qualified institutional buyer" (as defined therein), (c) to an institutional "accredited investor" (as defined below) that, prior to such transfer, furnishes (or has furnished on its behalf by a U.S. broker-dealer) to you and to the Company a signed letter substantially in the form of this letter and, if such D-1 103 transfer is in respect of a principal amount of Notes, at the time of transfer of less than $250,000, an Opinion of Counsel in form reasonably acceptable to the Company to the effect that such transfer is in compliance with the Securities Act, (D) outside the United States in accordance with Rule 904 of Regulation S under the Securities Act, (E) pursuant to the provisions of Rule 144(k) under the Securities Act or (F) pursuant to an effective registration statement under the Securities Act, and we further agree to provide to any person purchasing the Definitive Note or beneficial interest in a Global Note from us in a transaction meeting the requirements of clauses (A) through (E) of this paragraph a notice advising such purchaser that resales thereof are restricted as stated herein. 3. We understand that, on any proposed resale of the Notes or beneficial interest therein, we will be required to furnish to you and the Company such certifications, legal opinions and other information as you and the Company may reasonably require to confirm that the proposed sale complies with the foregoing restrictions. We further understand that the Notes purchased by us will bear a legend to the foregoing effect. 4. We are an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of our investment in the Notes, and we and any accounts for which we are acting are each able to bear the economic risk of our or its investment. 5. We are acquiring the Notes or beneficial interest therein purchased by us for our own account or for one or more accounts (each of which is an institutional "accredited investor") as to each of which we exercise sole investment discretion. You and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. ------------------------------------------ [Insert Name of Accredited Investor] By: -------------------------------------- Name: Title: Dated: __________________, ____ D-2 104 EXHIBIT E FORM OF SUPPLEMENTAL INDENTURE TO BE DELIVERED BY SUBSEQUENT GUARANTORS SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as of ________________, among (a) __________________ (the "Guaranteeing Subsidiary"), a subsidiary of SAC Acquisition Corp., a Georgia corporation (together with its successors, the "Company"), (b) the Company, (c) the other Guarantors (as defined in the Indenture referred to below) that have heretofore issued Guarantees pursuant to Section 4.16 of the indenture referred to below and (d) IBJ Schroder Bank & Trust Company, as trustee under the indenture referred to below (the "Trustee"). W I T N E S S E T H WHEREAS, the Company has heretofore executed and delivered to the Trustee an indenture (the "Indenture"), dated as of March 31, 1998 providing for the issuance of an aggregate principal amount of up to $75.0 million of 9 5/8% Notes due 2006 (the "Notes"); WHEREAS, Section 4.16 of the Indenture provides that under certain circumstances the Guaranteeing Subsidiary shall execute and deliver to the Trustee a supplemental indenture pursuant to which the Guaranteeing Subsidiary shall unconditionally guarantee all of the Company's Obligations under the Notes and the Indenture on the terms and conditions set forth herein (the "Note Guarantee"); and WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is authorized to execute and deliver this Supplemental Indenture. NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Guaranteeing Subsidiary and the Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Notes as follows: 1. CAPITALIZED TERMS. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture. 2. AGREEMENT TO GUARANTEE. The Guaranteeing Subsidiary hereby agrees as follows: (a) To jointly and severally Guarantee with each other Guarantor to each Holder of a Note authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, irrespective of the validity and enforceability of the Indenture, the Notes or the obligations of the Company hereunder or thereunder, that: (i) the principal of and interest on the Notes will be promptly paid in full when due, whether at maturity, by acceleration, redemption or otherwise, and interest on the overdue principal of and interest on the Notes, if any, if lawful, and all other obligations of the Company to the Holders or the E-6 105 Trustee hereunder or thereunder will be promptly paid in full or performed, all in accordance with the terms hereof and thereof; and (ii) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. Failing payment when due of any amount so guaranteed or any performance so guaranteed for whatever reason, the Guarantors shall be jointly and severally obligated to pay the same immediately. (b) The obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Notes or the Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Notes with respect to any provisions hereof or thereof, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor. (c) The following is hereby waived: diligence presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever. (d) This Note Guarantee shall not be discharged except by complete performance of the obligations contained in the Notes and the Indenture. (e) If any Holder or the Trustee is required by any court or otherwise to return to the Company, the Guarantors, or any Custodian, Trustee, liquidator or other similar official acting in relation to either the Company or the Guarantors, any amount paid by either to the Trustee or such Holder, this Note Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect. (f) The Guaranteeing Subsidiary shall not be entitled to any right of subrogation in relation to the Holders in respect of any obligations guaranteed hereby until payment in full of all obligations guaranteed hereby. (g) As between the Guarantors, on the one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the obligations guaranteed hereby may be accelerated as provided in Article 6 of the Indenture for the purposes of this Note Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (y) in the event of any declaration of acceleration of such obligations as provided in Article 6 of the Indenture, such obligations (whether or not due and payable) shall forthwith become due and payable by the Guarantors for the purpose of this Note Guarantee. 106 (h) The Guaranteeing Subsidiary shall have the right to seek contribution from any non-paying Guarantor so long as the exercise of such right does not impair the rights of the Holders under this Note Guarantee. (i) Each party hereto, and each Holder, by its acceptance of the Notes, hereby confirms that it is the intention of all such parties that this Note Guarantee not constitute a fraudulent transfer or conveyance for purposes of Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar federal or state law to the extent applicable to this Note Guarantee. To effectuate the foregoing intention, the Trustee, the Holders and the Guaranteeing Subsidiary hereby irrevocably agree that the obligations of the Guaranteeing Subsidiary under this Note Guarantee shall be limited to the maximum amount as will, after giving effect to such maximum amount and all other contingent and fixed liabilities of the Guaranteeing Subsidiary that are relevant under such laws, and after giving effect to any collections from, rights to receive contribution from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under such other Guarantor's Subsidiary Guarantee and the Indenture, not result in the obligations of the Guaranteeing Subsidiary under this Note Guarantee constituting a fraudulent transfer or conveyance. 3. EXECUTION AND DELIVERY. The Guaranteeing Subsidiary agrees that the Note Guarantees shall remain in full force and effect notwithstanding any failure to endorse on each Note a notation of such Note Guarantee. 4. GUARANTEEING SUBSIDIARY MAY CONSOLIDATE, ETC. ON CERTAIN TERMS. (a) The Guaranteeing Subsidiary may not consolidate with or merge with or into (whether or not the Guaranteeing Subsidiary is the surviving Person) another corporation, Person or entity whether or not affiliated with the Guaranteeing Subsidiary unless: (i) subject to Section 5 hereof, the Person formed by or surviving any such consolidation or merger (if other than the Guaranteeing Subsidiary or the Company) unconditionally assumes all the obligations of the Guaranteeing Subsidiary, pursuant to a supplemental indenture in form and substance reasonably satisfactory to the Trustee, under the Notes, the Indenture and the Registration Rights Agreement on the terms set forth herein or therein; (ii) immediately after giving effect to such transaction, no Default or Event of Default exists; (iii) the Guaranteeing Subsidiary, or any Person formed by or surviving any such consolidation or merger, shall have Consolidated Net Worth (immediately after giving effect to such transaction), equal to or greater than the Consolidated Net Worth of the Guaranteeing Subsidiary immediately preceding the transaction; and (iv) the Company would be permitted by virtue of the Company's pro forma Fixed Charge Coverage Ratio, immediately after giving effect to such transaction, to 107 incur at least $1.00 of additional Indebtedness pursuant to Section 4.09 of the Indenture. (b) In case of any such consolidation, merger, sale or conveyance and upon the assumption by the successor corporation, by supplemental indenture, executed and delivered to the Trustee and satisfactory in form to the Trustee, of the Note Guarantee endorsed upon the Notes and the due and punctual performance of all of the covenants and conditions of the Indenture to be performed by the Guaranteeing Subsidiary, such successor corporation shall succeed to and be substituted for the Guaranteeing Subsidiary with the same effect as if it had been named herein as the Guaranteeing Subsidiary. Such successor corporation thereupon may cause to be signed any or all of the Note Guarantees to be endorsed upon all of the Notes issuable hereunder which theretofore shall not have been signed by the Company and delivered to the Trustee. All the Note Guarantees so issued shall in all respects have the same legal rank and benefit under the Indenture as the Note Guarantees theretofore and thereafter issued in accordance with the terms of the Indenture as though all of such Note Guarantees had been issued at the date of the execution hereof. (c) Notwithstanding clauses (a) and (b) above, nothing contained in the Indenture or in any of the Notes shall prevent any consolidation or merger of the Guaranteeing Subsidiary with or into the Company or another Guarantor or Subsidiary of the Company, or shall prevent any sale or conveyance of the property of the Guaranteeing Subsidiary as an entirety or substantially as an entirety to the Company or another Guarantor or Subsidiary of the Company. 5. RELEASES. In the event of a sale or other disposition of all of the assets of the Guaranteeing Subsidiary, by way of merger, consolidation or otherwise, or a sale or other disposition of all to the capital stock of the Guaranteeing Subsidiary, then the Guaranteeing Subsidiary (in the event of a sale or other disposition, by way of merger, consolidation or otherwise, of all of the capital stock of the Guaranteeing Subsidiary) or the corporation acquiring the property (in the event of a sale or other disposition of all or substantially all of the assets of the Guaranteeing Subsidiary) will be released and relieved of any obligations under its Note Guarantee; provided that the Net Proceeds of such sale or other disposition are applied in accordance with Section 4.10 of the Indenture. Upon delivery by the Company to the Trustee of an Officers' Certificate to the effect that such sale or other disposition was made by the Company in accordance with the provisions hereof, the Trustee shall execute any documents reasonably required in order to evidence the release of the Guaranteeing Subsidiary from its obligations under the Note Guarantee. 6. NO RECOURSE AGAINST OTHERS. No past, present or future director, officer, employee, incorporator, stockholder or agent of the Guaranteeing Subsidiary, as such, shall have any liability for any obligations of the Company or any Guaranteeing Subsidiary under the Notes, any Note Guarantees, the Indenture or this Note Guarantee or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of the Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the Commission that such a waiver is against public policy. 7. NEW YORK LAW TO GOVERN. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS NOTE GUARANTEE BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO 108 THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. 8. COUNTERPARTS. The parties may sign any number of copies or counterparts of this Note Guarantee. Each signed copy or counterparts shall be an original, but all of them together represent the same agreement. 9. EFFECT OF HEADINGS. The Section headings herein are for convenience only and shall not affect the construction hereof. 10. THE TRUSTEE. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Note Guarantee or for or in respect of the recitals contained herein, all of which recitals are made solely by the Guaranteeing Subsidiary and the Company. IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed and attested, all as of the date first above written. Dated: _______________, ____ [Guaranteeing Subsidiary] By: ------------------------------------------ Name: Title: SAC ACQUISITION CORP. (OR ITS PERMITTED SUCCESSOR) By: ------------------------------------------ Name: William A. Davies Title: Chairman of the Board IBJ SCHRODER BANK & TRUST COMPANY, AS TRUSTEE By: ------------------------------------------ Name: Stephen J. Giurlando Title: Assistant Vice President EX-4.2 9 SUPPLEMENTAL INDENTURE 3/31/98 1 EXHIBIT 4.2 SUPPLEMENTAL INDENTURE March 31, 1998 by and between SIMCALA, INC. and IBJ SCHRODER BANK & TRUST COMPANY, INC. 2 SUPPLEMENTAL INDENTURE, dated as of March 31, 1998 (the "Supplemental Indenture") between SIMCALA, Inc., a Delaware corporation (the "Company"), and IBJ Schroder Bank & Trust Company, a New York Banking Corporation, as trustee ("Trustee"). W I T N E S S E T H: WHEREAS, SAC Acquisition Corp., a Georgia corporation ("SAC"), and the Trustee entered into the Indenture, dated as of March 31, 1998 (the "Indenture"), with respect to $75,000,000 aggregate principal amount of SAC's 9 5/8% Senior Notes due 2006 (the "Notes"); WHEREAS, pursuant to the Stock Purchase Agreement, dated February 10, 1998, among SAC, the Company and the selling stockholders named therein, SAC acquired all of the outstanding capital stock of the Company; WHEREAS, pursuant to an Agreement and Plan of Merger, dated as of March 31, 1998, SAC was merged with and into the Company, with the Company being the surviving corporation; WHEREAS, the Company desires to assume all of SAC's rights and obligations under the Indenture; and WHEREAS, the Company and the Trustee desire to execute and deliver this Supplemental Indenture pursuant to, and in accordance with, Section 9.01(d) of the Indenture. NOW THEREFORE, in consideration of good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: SECTION 1. ASSUMPTION OF RIGHTS AND OBLIGATIONS. The Company and the Trustee agree, for the benefit of each other and for the equal and ratable benefit of the Holders of the Notes, that the Company shall assume all of the rights and obligations of SAC under the Indenture. SECTION 2. MISCELLANEOUS. (a) Operative Date. This Supplemental Indenture shall become effective as of the date hereof upon due execution by the Company and the Trustee. (b) Governing Law. The internal law of the State of New York shall govern and be used to construe this Supplemental Indenture. (c) Counterpart Originals. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. 3 SIGNATURES Dated as of March 31, 1998 SIMCALA, INC. By:/s/ C. E. Boardwine --------------------------------- Name: C. Edward Boardwine Title: Chief Executive Officer -2- 4 Dated as of March 31, 1998 IBJ SCHRODER BANK & TRUST COMPANY, AS TRUSTEE By: /s/ Stephen J. Giurlando -------------------------------- Name: Stephen J. Giurlando Title: Assistant Vice President -3- EX-4.3 10 REGISTRATION RIGHTS AGREEMENT 3/31/98 1 EXHIBIT 4.3 REGISTRATION RIGHTS AGREEMENT DATED AS OF MARCH 31, 1998 BY AND AMONG SAC ACQUISITION CORP. AND NATIONSBANC MONTGOMERY SECURITIES LLC 2 This Registration Rights Agreement (this "Agreement") is made and entered into as of March 31, 1998 by and among SAC Acquisition Corp., a Georgia corporation (the "Company"), and NationsBanc Montgomery Securities LLC (the "Initial Purchaser"), who has agreed to purchase the Company's 9_% Series A Senior Notes due 2006 (the "Series A Notes") pursuant to the Purchase Agreement (as defined below). This Agreement is made pursuant to the Purchase Agreement, dated March 24, 1998 (the "Purchase Agreement"), by and between the Company and the Initial Purchaser. In order to induce the Initial Purchaser to purchase the Series A Notes, the Company has agreed to provide the registration rights set forth in this Agreement. In addition, SIMCALA, Inc., a Delaware corporation ("SIMCALA"), will agree, immediately after consummation of the Acquisition, to enter into the Registration Rights Agreement Supplement, in substantially the form attached hereto as Exhibit A, pursuant to which SIMCALA will assume the rights and obligations of the Company hereunder. The execution and delivery of this Agreement is a condition to the obligations of the Initial Purchaser set forth in Section 7 of the Purchase Agreement. The parties hereby agree as follows: SECTION 1. DEFINITIONS As used in this Agreement, the following capitalized terms shall have the following meanings: Acquisition: The acquisition by the Company of SIMCALA to occur on March 31, 1998. Act: The Securities Act of 1933, as amended. Broker-Dealer: Any broker or dealer registered under the Exchange Act. Closing Date: The date of this Agreement. Commission: The Securities and Exchange Commission. Company Indemnified Person: As defined in Section 8(a) hereof. Consummate: A Registered Exchange Offer shall be deemed "Consummated" for purposes of this Agreement upon the occurrence of (i) the filing and effectiveness under the Act of the Exchange Offer Registration Statement relating to the Series B Notes to be issued in the Exchange Offer, (ii) the maintenance of such Registration Statement continuously effective and the keeping of the Exchange Offer open for a period not less than the minimum period required pursuant to Section 3(b) hereof, and (iii) the delivery by the Company to the Registrar under the Indenture of Series B Notes in the same aggregate principal amount as the aggregate principal amount of Series A Notes that were tendered by Holders thereof pursuant to the Exchange Offer. Damages Payment Date: With respect to the Series A Notes, each Interest Payment Date. 3 Effectiveness Target Date: As defined in Section 5. Exchange Act: The Securities Exchange Act of 1934, as amended. Exchange Offer: The registration by the Company under the Act of the Series B Notes pursuant to the Exchange Offer Registration Statement pursuant to which the Company offers (subject to the provisions of Section 4 hereof) the Holders of all outstanding Transfer Restricted Securities the opportunity to exchange all such outstanding Transfer Restricted Securities held by such Holders for Series B Notes in an aggregate principal amount equal to the aggregate principal amount of the Transfer Restricted Securities tendered in such exchange offer by such Holders. Exchange Offer Registration Statement: The Registration Statement relating to the Exchange Offer, including the related Prospectus. Exempt Resales: The transactions in which the Initial Purchaser proposes to sell the Series A Notes (i) to certain "qualified institutional buyers," as such term is defined in Rule 144A under the Act and (ii) to certain institutional "accredited investors," as such term is defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Act ("Accredited Institutions"). Holder: As defined in Section 2(b) hereof. Holder Indemnified Person: As defined in Section 8(b) hereof. Indemnified Holder: As defined in Section 8(a) hereof. Indentures: The Indenture, dated as of March 31, 1998, between the Company and IBJ Schroder Bank & Trust Company, as trustee (the "Trustee"), pursuant to which the Notes are to be issued, and the Supplemental Indenture, dated as of March 31, 1998 (the "Supplemental Indenture"), between SIMCALA and the Trustee, as such Indentures are amended or supplemented from time to time in accordance with the terms thereof. Initial Purchaser: As defined in the preamble hereto. Interest Payment Date: As defined in the Indentures and the Notes. NASD: National Association of Securities Dealers, Inc. Notes: The Series A Notes and the Series B Notes. Person: An individual, partnership, corporation, trust or unincorporated organization, or a government or agency or political subdivision thereof. Prospectus: The prospectus included in a Registration Statement, as amended or supplemented by any prospectus supplement and by all other amendments thereto, including post-effective amendments, and all material incorporated by reference into such Prospectus. -2- 4 Record Holder: With respect to any Damages Payment Date relating to the Notes, each Person who is a Holder of Notes on the record date with respect to the Interest Payment Date on which such Damages Payment Date shall occur. Registration Default: As defined in Section 5 hereof. Registration Statement: Any registration statement of the Company filed with the Commission relating to (a) an offering of Series B Notes pursuant to an Exchange Offer or (b) the registration for resale of Transfer Restricted Securities pursuant to the Shelf Registration Statement, which is filed pursuant to the provisions of this Agreement, in each case, including the Prospectus included therein, all amendments and supplements thereto (including post-effective amendments) and all exhibits and material incorporated by reference therein. Series B Notes: The Company's 9_% Series B Senior Notes due 2006 to be issued pursuant to the Indenture in the Exchange Offer or (b) pursuant to a Shelf Registration Statement in exchange for Series A Notes. Shelf Filing Deadline: As defined in Section 4 hereof. Shelf Registration Statement: As defined in Section 4 hereof. TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-77bbbb) as in effect on the date of the Indenture. Transfer Restricted Securities: Each Note, until the earliest to occur of (a) the date on which such Note is exchanged in the Exchange Offer and entitled to be resold to the public by the Holder thereof without complying with the prospectus delivery requirements of the Act, (b) the date on which such Note has been effectively registered under the Act and disposed of in accordance with a Shelf Registration Statement or (c) the date on which such Note is distributed to the public pursuant to Rule 144 under the Act or by a Broker-Dealer pursuant to the "Plan of Distribution" contemplated by the Exchange Offer Registration Statement (including delivery of the Prospectus contained therein). Underwriter(s): The underwriter(s) in an Underwritten Offering. Underwritten Registration or Underwritten Offering: A registration in which securities of the Company are sold to an underwriter for reoffering to the public pursuant to an effective registration statement filed with the Commission. SECTION 2. SECURITIES SUBJECT TO THIS AGREEMENT (a) Transfer Restricted Securities. The securities entitled to the benefits of this Agreement are the Transfer Restricted Securities. (b) Holders of Transfer Restricted Securities. A Person is deemed to be a holder of Transfer Restricted Securities (each, a "Holder") whenever such Person owns Transfer Restricted Securities. -3- 5 SECTION 3. REGISTERED EXCHANGE OFFER (a) Unless the Exchange Offer shall not be permissible under applicable law or Commission policy (after the procedures set forth in Section 6(a) below have been complied with), the Company shall (i) use all commercially reasonable efforts to cause to be filed with the Commission as soon as practicable after the Closing Date, but in no event later than 60 days after the Closing Date, the Exchange Offer Registration Statement, (ii) use all commercially reasonable efforts to cause such Exchange Offer Registration Statement to be declared effective by the Commission no later than 120 days after the Closing Date, (iii) in connection with the foregoing, file (A) all pre-effective amendments to such Exchange Offer Registration Statement as may be necessary in order to cause such Exchange Offer Registration Statement to be declared effective, (B) if applicable, a post-effective amendment to such Exchange Offer Registration Statement pursuant to Rule 430A under the Act and (C) cause all necessary filings in connection with the registration and qualification of the Series B Notes to be made under the Blue Sky laws of such jurisdictions as are necessary to permit Consummation of the Exchange Offer, and (iv) upon the effectiveness of such Exchange Offer Registration Statement, commence the Exchange Offer. The Exchange Offer shall be on the appropriate form permitting registration of the Series B Notes to be offered in exchange for the Transfer Restricted Securities and to permit resales of Notes held by Broker-Dealers as contemplated by Section 3(c) below. (b) The Company shall use commercially reasonable efforts to cause the Exchange Offer Registration Statement to be effective continuously and shall keep the Exchange Offer open for a period of not less than the minimum period required under applicable federal and state securities laws to Consummate the Exchange Offer; provided, however, that in no event shall such period be less than 20 business days. The Company shall cause the Exchange Offer to comply with all applicable federal and state securities laws. No securities other than the Notes shall be included in the Exchange Offer Registration Statement. The Company shall use commercially reasonable efforts to cause the Exchange Offer to be Consummated no later than 45 business days after the Exchange Offer Registration Statement has been declared effective. (c) The Company shall indicate in a "Plan of Distribution" section contained in the Prospectus contained in the Exchange Offer Registration Statement that any Broker-Dealer who holds Series A Notes that are Transfer Restricted Securities and that were acquired for its own account as a result of market-making activities or other trading activities (other than Transfer Restricted Securities acquired directly from the Company), may exchange such Series A Notes pursuant to the Exchange Offer; however, such Broker-Dealer may be deemed to be an "underwriter" within the meaning of the Act and must, therefore, deliver a prospectus meeting the requirements of the Act in connection with any resales of the Series B Notes received by such Broker-Dealer in the Exchange Offer, which prospectus delivery requirement may be satisfied by the delivery by such Broker-Dealer of the Prospectus contained in the Exchange Offer Registration Statement. Such "Plan of Distribution" section shall also contain all other information with respect to such resales by Broker-Dealers that the Commission may require in order to permit such resales pursuant thereto, but such "Plan of Distribution" shall not name any such Broker-Dealer or disclose the amount of Notes held by any such Broker-Dealer except to the extent required by the Commission as a result of a change in policy after the date of this Agreement. -4- 6 The Company shall use commercially reasonable efforts to keep the Exchange Offer Registration Statement continuously effective, supplemented and amended as required by the provisions of Section 6(c) below to the extent necessary to ensure that it is available for resales of Notes acquired by Broker-Dealers for their own accounts as a result of market-making activities or other trading activities, and to ensure that it conforms with the requirements of this Agreement, the Act and the policies, rules and regulations of the Commission as announced from time to time, for a period of 180 days from the date on which the Exchange Offer Registration Statement is declared effective. The Company shall provide sufficient copies of the latest version of such Prospectus to Broker-Dealers promptly upon reasonable request at any time during such 180 day period in order to facilitate such resales. SECTION 4. SHELF REGISTRATION (a) Shelf Registration. If (i) the Company is not required to file an Exchange Offer Registration Statement or to consummate the Exchange Offer because the Exchange Offer is not permitted by applicable law or Commission policy (after the procedures set forth in Section 6(a) below have been complied with) or (ii) if any Holder of Transfer Restricted Securities shall notify the Company within 20 business days of the Consummation of the Exchange Offer (A) that such Holder is prohibited by applicable law or Commission policy from participating in the Exchange Offer, or (B) that such Holder may not resell the Series B Notes acquired by it in the Exchange Offer to the public without delivering a prospectus and that the Prospectus contained in the Exchange Offer Registration Statement is not appropriate or available for such resales by such Holder, or (C) that such Holder is a Broker-Dealer and holds Series A Notes acquired directly from the Company or one of its affiliates, then the Company shall (x) use commercially reasonable efforts to file a shelf registration statement on the appropriate Commission form available to the Company with the Commission pursuant to Rule 415 under the Act, which may be an amendment to the Exchange Offer Registration Statement (in either event, the "Shelf Registration Statement") on or prior to the earliest to occur of (1) the 60th day after the date on which the Company determines that it is not required to file the Exchange Offer Registration Statement or (2) the 60th day after the date on which the Company receives notice from a Holder of Transfer Restricted Securities as contemplated by clause (ii) above (such earliest date being the "Shelf Filing Deadline"), which Shelf Registration Statement shall provide for resales of all Transfer Restricted Securities the Holders of which shall have provided the information required pursuant to Section 4(b) hereof; and (y) use commercially reasonable efforts to cause such Shelf Registration Statement to be declared effective by the Commission on or before the 105th day after the Shelf Filing Deadline. The Company shall use commercially reasonable efforts to keep such Shelf Registration Statement continuously effective, supplemented and amended as required by the provisions of Sections 6(b) and -5- 7 (c) hereof to the extent necessary to ensure that it is available for resales of Notes by the Holders of Transfer Restricted Securities entitled to the benefit of this Section 4(a), and to ensure that it conforms with the requirements of this Agreement, the Act and the policies, rules and regulations of the Commission as announced from time to time, for a period of at least two years following the Closing Date or such shorter period ending when all Transfer Restricted Securities covered by such Shelf Registration Statement have been sold in the manner set forth and as contemplated by such Shelf Registration Statement. (b) Provision by Holders of Certain Information in Connection with the Shelf Registration Statement. No Holder of Transfer Restricted Securities may include any of its Transfer Restricted Securities in any Shelf Registration Statement pursuant to this Agreement unless and until such Holder furnishes to the Company in writing, within 15 business days after receipt of a request therefor, such information as the Company may reasonably request for use in connection with any Shelf Registration Statement or Prospectus or preliminary Prospectus included therein. No Holder of Transfer Restricted Securities shall be entitled to Liquidated Damages pursuant to Section 5 hereof unless and until such Holder shall have used commercially reasonable efforts to provide all such reasonably requested information. Each Holder as to which any Shelf Registration Statement is being effected agrees to furnish promptly to the Company all information required to be disclosed in order to make the information previously furnished to the Company by such Holder not materially misleading. No Holder of Transfer Restricted Securities shall be entitled to use a Prospectus unless and until such Holder shall have furnished the reasonably requested information required by this Section 4(b), and shall have committed to notify the Company promptly of any change in such information. SECTION 5. LIQUIDATED DAMAGES If (i) any of the Registration Statements required by this Agreement is not filed with the Commission on or prior to the date specified for such filing in this Agreement, (ii) any of such Registration Statements has not been declared effective by the Commission on or prior to the date specified for such effectiveness in this Agreement (the "Effectiveness Target Date"), (iii) the Exchange Offer has not been Consummated within 30 business days after the Effectiveness Target Date with respect to the Exchange Offer Registration Statement or (iv) any Registration Statement required by this Agreement is filed and declared effective but shall thereafter cease to be effective or fail to be usable for its intended purpose without being succeeded immediately by a post-effective amendment to such Registration Statement that cures such failure and that is itself immediately declared effective (each such event referred to in clauses (i) through (iv), a "Registration Default"), the Company hereby agrees to pay liquidated damages to each Holder of Transfer Restricted Securities with respect to the first 90-day period immediately following the occurrence of such Registration Default, in an amount equal to $.05 per week per $1,000 principal amount of Transfer Restricted Securities held by such Holder. The amount of the liquidated damages shall increase by an additional $.05 per week per $1,000 in principal amount of Transfer Restricted Securities with respect to each subsequent 90-day period until all Registration Defaults have been cured, up to a maximum amount of liquidated damages of $.30 per week per $1,000 principal amount of Transfer Restricted Securities. All accrued liquidated damages shall be paid to Record Holders by the Company by wire transfer of immediately available funds or by federal funds check on each Damages Payment Date, as provided in the Indenture. Following the cure of all Registration Defaults relating to any particular Transfer Restricted Securities, the accrual of liquidated damages with respect to such Transfer Restricted Securities will cease. -6- 8 All obligations of the Company set forth in the preceding paragraph that are outstanding with respect to any Transfer Restricted Security at the time such security ceases to be a Transfer Restricted Security shall survive until such time as all such obligations with respect to such security shall have been satisfied in full. SECTION 6. REGISTRATION PROCEDURES (a) Exchange Offer Registration Statement. In connection with the Exchange Offer, the Company shall comply with all of the provisions of Section 6(c) below, shall use commercially reasonable efforts to effect such exchange to permit the sale of Transfer Restricted Securities being sold in accordance with the intended method or methods of distribution thereof, and shall comply with all of the following provisions: (i) If in the reasonable opinion of counsel to the Company there is a question as to whether the Exchange Offer is permitted by applicable law, the Company hereby agrees to seek a no-action letter or other favorable decision from the Commission allowing the Company to Consummate an Exchange Offer for such Series A Notes. The Company hereby agrees to pursue the issuance of such a decision to the Commission staff level but shall not be required to take commercially unreasonable action to effect a change of Commission policy. The Company hereby agrees, however, to (A) participate in telephonic conferences with the Commission, (B) deliver to the Commission staff an analysis prepared by counsel to the Company setting forth the legal bases, if any, upon which such counsel has concluded that such an Exchange Offer should be permitted and (C) diligently pursue a resolution (which need not be favorable) by the Commission staff of such submission. (ii) As a condition to its participation in the Exchange Offer pursuant to the terms of this Agreement, each Holder of Transfer Restricted Securities shall furnish, upon the request of the Company, prior to the Consummation thereof, a written representation to the Company (which may be contained in the letter of transmittal contemplated by the Exchange Offer Registration Statement) to the effect that (A) it is not an affiliate of the Company, (B) it is not engaged in, and does not intend to engage in, and has no arrangement or understanding with any person to participate in, a distribution of the Series B Notes to be issued in the Exchange Offer and (C) it is acquiring the Series B Notes in its ordinary course of business. In addition, all such Holders of Transfer Restricted Securities shall otherwise cooperate in the Company's preparations for the Exchange Offer. Each Holder hereby acknowledges and agrees that any Broker-Dealer and any such Holder using the Exchange Offer to participate in a distribution of the securities to be acquired in the Exchange Offer (1) could not under Commission policy as in effect on the date of this Agreement rely on the position of the Commission enunciated in Morgan Stanley and Co., Inc. (available June 5, 1991) and Exxon Capital Holdings Corporation (available May 13, 1988), as interpreted in the Commission's letter to Shearman & Sterling dated July 2, 1993, and similar no-action letters (including any no-action letter obtained pursuant to clause (i) above), and (2) must comply with the registration and prospectus delivery requirements of the Act in connection with a secondary resale transaction and that such a secondary resale transaction should be covered by an effective registration statement containing the selling security holder information required by -7- 9 Item 507 or 508, as applicable, of Regulation S-K if the resales are of Series B Notes obtained by such Holder in exchange for Series A Notes acquired by such Holder directly from the Company. (iii) Prior to effectiveness of the Exchange Offer Registration Statement, the Company shall provide a supplemental letter to the Commission (A) stating that the Company is registering the Exchange Offer in reliance on the position of the Commission enunciated in Exxon Capital Holdings Corporation (available May 13, 1988), Morgan Stanley and Co., Inc. (available June 5, 1991) and, if applicable, any no-action letter obtained pursuant to clause (i) above and (B) including a representation that the Company has not entered into any arrangement or understanding with any Person to distribute the Series B Notes to be received in the Exchange Offer and that, to the best of the Company's information and belief, each Holder participating in the Exchange Offer is acquiring the Series B Notes in its ordinary course of business and has no arrangement or understanding with any Person to participate in the distribution of the Series B Notes received in the Exchange Offer. (b) Shelf Registration Statement. In connection with the Shelf Registration Statement, the Company shall comply with all the provisions of Section 6(c) below and shall use commercially reasonable efforts to effect such registration to permit the sale of the Transfer Restricted Securities being sold in accordance with the intended method or methods of distribution thereof, and pursuant thereto the Company will as expeditiously as possible prepare and file with the Commission a Registration Statement relating to the registration on any appropriate form under the Act, which form shall be available for the sale of the Transfer Restricted Securities in accordance with the intended method or methods of distribution thereof. (c) General Provisions. In connection with any Registration Statement and any Prospectus required by this Agreement to permit the sale or resale of Transfer Restricted Securities (including, without limitation, any Registration Statement and the related Prospectus required to permit resales of Notes by Broker-Dealers), the Company shall: (i) use commercially reasonable efforts to keep such Registration Statement continuously effective for the period specified in Section 3 or 4 of this Agreement, as applicable; (ii) prepare and file with the Commission such amendments and post-effective amendments to the Registration Statement as may be necessary to keep the Registration Statement effective for the applicable period set forth in Section 3 or 4 hereof, as applicable, or such shorter period as will terminate when all Transfer Restricted Securities covered by such Registration Statement have been sold; cause the Prospectus to be supplemented by any required Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 under the Act, and to comply fully with the applicable provisions of Rules 424 and 430A under the Act in a timely manner; and comply with the provisions of the Act with respect to the disposition of all securities covered by such Registration Statement during the applicable period in accordance with the intended method or methods of distribution by the sellers thereof set forth in such Registration Statement or supplement to the Prospectus; -8- 10 (iii) advise the Underwriter(s), if any, and selling Holders promptly and, if requested by such Persons, to confirm such advice in writing, (A) with respect to any Shelf Registration Statement or any related Prospectus, when the Prospectus or any Prospectus supplement or post-effective amendment has been filed with the Commission, and, with respect to any Shelf Registration Statement or any post-effective amendment thereto, when the same has become effective, (B) with respect to any Shelf Registration Statement or any related Prospectus, of any request by the Commission for amendments to the Shelf Registration Statement or amendments or supplements to the related Prospectus or for additional information relating thereto, (C) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement under the Act or of the suspension by any state securities commission of the qualification of the Transfer Restricted Securities for offering or sale in any jurisdiction, or the initiation of any proceeding for any of the preceding purposes, (D) of the existence of any fact or the happening of any event that makes any statement of a material fact made in the Registration Statement, the Prospectus, any amendment or supplement thereto, or any document incorporated by reference therein untrue, or that requires the making of any additions to or changes in the Registration Statement or the Prospectus with respect to any omission to state a material fact in order to make the statements therein not misleading. If at any time the Commission shall issue any stop order suspending the effectiveness of the Registration Statement, or any state securities commission or other regulatory authority shall issue an order suspending the qualification or exemption from qualification of the Transfer Restricted Securities under state securities or Blue Sky laws, the Company shall use commercially reasonable efforts to obtain the withdrawal or lifting of such order at the earliest possible time; (iv) furnish to each of the selling Holders beneficially owning 15% or more of the aggregate principal amount of the Notes and each of the Underwriter(s), if any, before filing with the Commission, copies of any Shelf Registration Statement or any related Prospectus included therein or any amendments or supplements to any such Shelf Registration Statement or related Prospectus (including all documents incorporated by reference after the initial filing of such Shelf Registration Statement), which documents will be subject to the review of such Holders and Underwriter(s), if any, for a period of at least three business days, and the Company will not file any such Shelf Registration Statement or related Prospectus or any amendment or supplement to any such Shelf Registration Statement or related Prospectus (including all such documents incorporated by reference) to which a selling Holder of Transfer Restricted Securities covered by such Shelf Registration Statement or the Underwriter(s), if any, shall reasonably object within three business days after the receipt thereof. A selling Holder or underwriter, if any, shall be deemed to have reasonably objected to such filing if such Registration Statement, amendment, Prospectus or supplement, as applicable, as proposed to be filed, contains a material misstatement or omission with respect to information regarding such Holder or underwriter or fails to comply with the applicable requirements of the Act; (v) promptly prior to the filing of any document that is to be incorporated by reference into a Shelf Registration Statement or related Prospectus, provide copies of such document to the selling Holders beneficially owning 15% or more of the aggregate principal amount of the Notes and to the Underwriter(s), if any, make the Company's representatives available for discussion of such document and other customary due diligence matters, and -9- 11 include such information in such document prior to the filing thereof as such selling Holders or underwriter(s), if any, reasonably may request; (vi) make available at reasonable times for inspection by the selling Holders, any Underwriter participating in any disposition pursuant to such Shelf Registration Statement, and any attorney or accountant retained by such selling Holders or any of the Underwriter(s), all financial and other records, pertinent corporate documents and properties of the Company and cause the Company's officers, directors and employees to supply all information reasonably requested by any such Holder, underwriter, attorney or accountant in connection with such Shelf Registration Statement subsequent to the filing thereof and prior to its effectiveness; (vii) if requested by any selling Holders beneficially owning 15% or more of the aggregate principal amount of the Notes or the Underwriter(s), if any, promptly incorporate in any Shelf Registration Statement or related Prospectus, pursuant to a supplement or post-effective amendment if necessary, such information as such selling Holders and Underwriter(s), if any, may reasonably request to have included therein, including, without limitation, information relating to the "Plan of Distribution" of the Transfer Restricted Securities, information with respect to the principal amount of Transfer Restricted Securities being sold to such Underwriter(s), the purchase price being paid therefor and any other terms of the offering of the Transfer Restricted Securities to be sold in such offering; and make all required filings of such Prospectus supplement or post-effective amendment as soon as practicable after the Company is notified of the matters to be incorporated in such Prospectus supplement or post-effective amendment; (viii) furnish to each selling Holder and each of the Underwriter(s), if any, without charge, upon request therefrom, at least one copy of the Shelf Registration Statement, as first filed with the Commission, and of each amendment thereto, including all documents incorporated by reference therein and all exhibits (including exhibits incorporated therein by reference); (ix) deliver to each selling Holder and each of the Underwriter(s), if any, without charge, as many copies of the Prospectus (including each preliminary prospectus) included in any Shelf Registration Statement and any amendment or supplement thereto as such Persons reasonably may request; the Company hereby consents to the use of the Prospectus and any amendment or supplement thereto included in any Shelf Registration Statement by each of the selling Holders and each of the Underwriter(s), if any, in connection with the offering and the sale of the Transfer Restricted Securities covered by the Prospectus or any amendment or supplement thereto in the manner described therein; (x) enter into such agreements (including an underwriting agreement), and make such representations and warranties, and take all such other actions in connection therewith in order to expedite or facilitate the disposition of the Transfer Restricted Securities pursuant to any Shelf Registration Statement contemplated by this Agreement, all to such extent as may be reasonably requested by the Initial Purchaser or by any Holder of Transfer Restricted Securities or Underwriter in connection with any sale or resale pursuant to any Shelf Registration Statement contemplated by this Agreement; and whether or not an underwriting -10- 12 agreement is entered into and whether or not the registration is an Underwritten Registration, the Company shall in connection with a Shelf Registration Statement: (A) furnish to each selling Holder and each Underwriter, if any, in such substance and scope as they may reasonably request and as are customarily made by issuers to underwriters in primary underwritten offerings, upon the date of the effectiveness of the Shelf Registration Statement: (1) a certificate, dated the date of effectiveness of the Shelf Registration Statement signed by (y) the President or any Vice President and (z) a principal financial or accounting officer of the Company confirming, as of the date thereof, the matters set forth in paragraphs (c) and (d) of Section 7 of the Purchase Agreement (or stating any exceptions thereto) and such other matters as such parties may reasonably request; (2) an opinion, dated the date of effectiveness of the Shelf Registration Statement of counsel for the Company, covering the matters set forth in paragraph (g) of Section 7 of the Purchase Agreement and such other matters as such parties may reasonably request, and in any event including a statement to the effect that such counsel has participated in conferences with officers and other representatives of the Company and representatives of the independent public accountants for the Company in connection with the preparation of such Registration Statement and the related Prospectus and have considered the matters required to be stated therein and the statements contained therein, and although such counsel has not independently verified the accuracy, completeness or fairness of such statements, on the basis of the foregoing (relying as to materiality to a large extent upon facts provided to such counsel by officers and other representatives of the Company and without independent check or verification), no facts came to such counsel's attention that caused such counsel to believe that the applicable Shelf Registration Statement, at the time such Shelf Registration Statement became effective, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or that the Prospectus contained in such Registration Statement as of its date contained an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. Without limiting the foregoing, such counsel may state further that such counsel assumes no responsibility for, and has not independently verified, the accuracy, completeness or fairness of exhibits, the financial statements, notes and schedules and other financial and statistical data included in any Registration Statement contemplated by this Agreement or the related Prospectus; and (3) a customary comfort letter, dated as of the date of effectiveness of the Shelf Registration Statement, from the Company's independent accountants, in the customary form and covering matters of the type customarily covered in comfort letters by underwriters in connection with primary underwritten -11- 13 offerings, and affirming the matters set forth in the comfort letters delivered pursuant to Section 7(l) of the Purchase Agreement, subject to receipt of appropriate documentation, and only if permitted by Statement of Auditing Standards No. 72; (B) set forth in full or incorporate by reference in the underwriting agreement, if any, the indemnification provisions and procedures of Section 8 hereof with respect to all parties to be indemnified pursuant to said Section; and (C) deliver such other documents and certificates as may be reasonably requested by such parties to evidence compliance with clause (A) above and with any customary conditions contained in the underwriting agreement or other agreement entered into by the Company pursuant to this clause (xi), if any. (xi) prior to any public offering of Transfer Restricted Securities, cooperate with the selling Holders, the Underwriter(s), if any, and their respective counsel in connection with the registration and qualification of the Transfer Restricted Securities under the securities or Blue Sky laws of such jurisdictions within the United States as the selling Holders or Underwriter(s) may reasonably request and do any and all other acts or things reasonably necessary or advisable to enable the disposition in such jurisdictions within the United States of the Transfer Restricted Securities covered by the Shelf Registration Statement; provided, however, that the Company shall not be required to register or qualify as a foreign corporation where it is not now so qualified or to take any action that would subject it to the service of process in suits or to taxation, other than as to matters and transactions relating to the Registration Statement, in any jurisdiction where it is not now so subject; (xii) shall issue, upon the request of any Holder of Series A Notes covered by the Shelf Registration Statement, Series B Notes, having an aggregate principal amount equal to the aggregate principal amount of Series A Notes surrendered to the Company by such Holder being sold by such Holder; such Series B Notes to be registered in the name of the purchaser(s) of such Notes; in return, the Series A Notes held by such Holder shall be surrendered to the Company for cancellation; (xiii) in connection with a Shelf Registration Statement, cooperate with the selling Holders and the Underwriter(s), if any, to facilitate the timely preparation and delivery of certificates representing Transfer Restricted Securities to be sold and not bearing any restrictive legends; and enable such Transfer Restricted Securities to be in such denominations and registered in such names as the Holders or the Underwriter(s), if any, may request at least two business days prior to any sale of Transfer Restricted Securities made by such Underwriter(s); (xiv) use commercially reasonable efforts to cause the Transfer Restricted Securities covered by the Registration Statement to be registered with or approved by such other governmental agencies or authorities within the United States as may be necessary to enable the seller or sellers thereof or the underwriter(s), if any, to consummate the disposition of such Transfer Restricted Securities, subject to the proviso contained in clause (xi) above; -12- 14 (xv) if any fact or event contemplated by clause (c)(iii)(D) above shall exist or have occurred, (A) prepare a supplement or post-effective amendment to the Registration Statement or related Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of Transfer Restricted Securities, the Prospectus will not contain an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading and/or (B) use commercially reasonable efforts to cause such amendment or supplement to be declared effective and such Registration Statement and the related Prospectus to become usable for their intended purpose(s) as soon as practicable thereafter; (xvi) provide a CUSIP number for all Transfer Restricted Securities not later than the effective date of the Registration Statement and provide the Trustee under the Indenture with certificates for the Transfer Restricted Securities which are in a form eligible for deposit with the Depositary Trust Company; (xvii) in connection with a Shelf Registration Statement, cooperate and assist in any filings required to be made with the NASD and in the performance of any due diligence investigation by any Underwriter (including any "qualified independent underwriter") that is required to be retained in accordance with the rules and regulations of the NASD, and use commercially reasonable efforts to cause such Registration Statement to become effective and approved by such governmental agencies or authorities within the United States as may be necessary to enable the Holders selling Transfer Restricted Securities to consummate the disposition of such Transfer Restricted Securities; (xviii) otherwise use commercially reasonable efforts to comply with all applicable rules and regulations of the Commission, and make generally available to its security holders, as soon as practicable, a consolidated earnings statement meeting the requirements of Rule 158 (which need not be audited) for the twelve-month period (A) commencing at the end of any fiscal quarter in which Transfer Restricted Securities are sold to Underwriters in a firm or best efforts Underwritten Offering or (B) if not sold to Underwriters in such an offering, beginning with the first month of the Company's first fiscal quarter commencing after the effective date of the Registration Statement; (xix) cause the Indenture to be qualified under the TIA not later than the effective date of the first Registration Statement required by this Agreement, and, in connection therewith, cooperate with the Trustee and the Holders of Notes to effect such changes to the Indenture as may be required for such Indenture to be so qualified in accordance with the terms of the TIA; and execute and use commercially reasonable efforts to cause the Trustee to execute, all documents that may be required to effect such changes and all other forms and documents required to be filed with the Commission to enable such Indenture to be so qualified in a timely manner; (xx) provide promptly to each Holder upon request each document filed with the Commission pursuant to the requirements of Section 13(a) and Section 15(d) of the Exchange Act. -13- 15 Each Holder agrees by acquisition of a Transfer Restricted Security that, upon receipt of any notice from the Company of the existence of any fact of the kind described in Section 6(c)(iii)(D) hereof, such Holder will forthwith discontinue disposition of Transfer Restricted Securities pursuant to the applicable Registration Statement until such Holder's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 6(c)(xv) hereof, or until it is advised in writing (the "Advice") by the Company that the use of the Prospectus may be resumed, and has received copies of any additional or supplemental filings that are incorporated by reference in the Prospectus. If so directed by the Company, each Holder will deliver to the Company (at the Company's expense) all copies, other than permanent file copies then in such Holder's possession, of the Prospectus covering such Transfer Restricted Securities that was current at the time of receipt of such notice. In the event the Company shall give any such notice, the time period regarding the effectiveness of such Registration Statement set forth in Section 3 or 4 hereof, as applicable, shall be extended by the number of days during the period from and including the date of the giving of such notice pursuant to Section 6(c)(iii)(D) hereof to and including the date when each selling Holder covered by such Registration Statement shall have received the copies of the supplemented or amended Prospectus contemplated by Section 6(c)(xv) hereof or shall have received the Advice. SECTION 7. REGISTRATION EXPENSES (a) All expenses incident to the Company's performance of or compliance with this Agreement will be borne by the Company, regardless of whether a Registration Statement becomes effective, including without limitation: (i) all registration and filing fees and expenses (including filings made by the Initial Purchaser or any Holder with the NASD (and, if applicable, the fees and expenses of any "qualified independent underwriter" and its counsel that may be required by the rules and regulations of the NASD)); (ii) all fees and expenses of compliance with federal securities and state Blue Sky or securities laws; (iii) all expenses of printing (including printing certificates for the Series B Notes to be issued in the Exchange Offer and printing of Prospectuses), messenger and delivery services and telephone; (iv) all fees and disbursements of counsel for the Company and, subject to Section 7(b) below, the Holders of Transfer Restricted Securities; (v) all application and filing fees in connection with listing Notes on a national securities exchange or automated quotation system pursuant to the requirements hereof; and (vi) all fees and disbursements of independent certified public accountants of the Company (including the expenses of any special audit and comfort letters required by or incident to such performance). The Company will bear their internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expenses of any annual audit and the fees and expenses of any Person, including special experts, retained by any Company. Notwithstanding the foregoing or anything in this Agreement to the contrary, each Holder shall pay all underwriting discounts and commissions of any Underwriters with respect to Notes sold by or on behalf of such Holder. (b) In connection with any Registration Statement required by this Agreement (including, without limitation, the Exchange Offer Registration Statement and the Shelf Registration Statement), the Company will reimburse the Initial Purchaser and the Holders of Transfer Restricted -14- 16 Securities being tendered in the Exchange Offer and/or resold pursuant to the "Plan of Distribution" contained in the Exchange Offer Registration Statement or registered pursuant to the Shelf Registration Statement, as applicable, for the reasonable fees and disbursements of not more than one counsel, who shall be Latham & Watkins or such other counsel as may be chosen by the Holders of a majority in aggregate principal amount of the Transfer Restricted Securities for whose benefit such Registration Statement is being prepared. SECTION 8. INDEMNIFICATION (a) The Company agrees to indemnify and hold harmless (i) each Holder and (ii) each person, if any, who controls (within the meaning of Section 15 of the Act or Section 20 of the Exchange Act) any Holder (any of the persons referred to in this clause (ii) being hereinafter referred to as a "controlling person") and (iii) the respective officers, directors, partners, employees, representatives and agents of any Holder or any controlling person (any person referred to in clause (i), (ii) or (iii) may hereinafter be referred to as a "Company Indemnified Person"), to the fullest extent lawful, from and against any and all losses, claims, damages, liabilities, judgments, actions and expenses (including without limitation and as soon as reasonably practicable, reimbursement of all reasonable costs of investigating, preparing, pursuing or defending any claim or action, or any investigation or proceeding by any governmental agency or body, commenced or threatened, including the reasonable fees and expenses of counsel to any Company Indemnified Person) directly or indirectly caused by, related to, based upon, arising out of or in connection with any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement or Prospectus (or any amendment or supplement thereto), or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages, liabilities or expenses are caused by an untrue statement or omission or alleged untrue statement or omission that is made in reliance upon and in conformity with information relating to any of the Holders furnished in writing to the Company by any of the Holders expressly for use therein; provided, however, that the Company shall not be liable pursuant to this subsection (a) with respect to any preliminary prospectus to the extent that any such loss, claim, damage, liability, judgment, action or expense arises solely from the fact that a Company Indemnified Person sold Notes to a person to whom there was not sent or given, on or prior to the written confirmation of such sale, a copy of the final Prospectus, as amended and supplemented, provided that the Company had previously furnished copies thereof to such Company Indemnified Person in accordance with this Agreement and the final Prospectus, as amended and supplemented, would have corrected any such untrue statement or omission and that the Company Indemnified Person failed to deliver such final Prospectus. In case any action or proceeding (including any governmental or regulatory investigation or proceeding) shall be brought or asserted against any of the Company Indemnified Persons with respect to which indemnity may be sought against the Company, such Company Indemnified Persons (or the Company Indemnified Persons controlled by such controlling person) shall promptly notify the Company in writing (provided, that the failure to give such notice (i) will not relieve the Company from liability under paragraph (a) above unless and to the extent it did not otherwise learn of such action and such failure materially prejudices the substantial rights and defenses of the Company and (ii) will not, in any event, relieve the indemnifying party from any obligations to any indemnified party other than the indemnification obligation provided in paragraph (a) above). The indemnifying party shall be entitled to appoint counsel of the indemnifying party's choice at the -15- 17 indemnifying party's expense to represent the Company Indemnified Persons in any action for which indemnification is sought (in which case the indemnifying party shall not thereafter be responsible for the fees and expenses of any separate counsel retained by the Company Indemnified Persons or parties except as set forth below); provided, however that such counsel shall be reasonably satisfactory to the Company Indemnified Persons. Notwithstanding the indemnifying party's election to appoint counsel to represent the Company Indemnified Persons in an action, the Company Indemnified Persons shall have the right to employ separate counsel (including local counsel), and the indemnifying party shall bear the reasonable fees, costs and expenses of such separate counsel if (i) the use of counsel chosen by the indemnifying party to represent the Company Indemnified Persons would, in the opinion of legal counsel to the Company Indemnified Persons, present such counsel with a conflict of interest, (ii) the actual or potential defendants in, or targets of, any such action include both the Company Indemnified Persons and the indemnifying party and the Company Indemnified Persons shall have been informed in writing by legal counsel that there may be legal defenses available to it and/or other Company Indemnified Persons which are different from or additional to those available to the indemnifying party, (iii) the indemnifying party shall not have employed counsel reasonably satisfactory to the Company Indemnified Persons to represent the Company Indemnified Persons within a reasonable time after notice of the institution of such action or (iv) the indemnifying party shall authorize the Company Indemnified Persons to employ separate counsel at the expense of the indemnifying party. The Company shall not, in connection with any one such action or proceeding or separate but substantially similar or related actions or proceedings in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of more than one separate firm of attorneys (in addition to any local counsel) at any time for such Company Indemnified Persons, which firm shall be designated by the Holders. The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the Company Indemnified Persons from and against any loss or liability by reason of such settlement or judgment. The Company shall not, without the prior written consent of each Company Indemnified Persons, settle or compromise or consent to the entry of judgment in or otherwise seek to terminate any pending or threatened action, claim, litigation or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not any Company Indemnified Persons is a party thereto), unless such settlement, compromise, consent or termination includes an unconditional release of each Company Indemnified Person from all liability arising out of such action, claim, litigation or proceeding. (b) Each Holder of Transfer Restricted Securities agrees, severally and not jointly, to indemnify and hold harmless (i) the Company, (ii) each controlling person, if any, with respect to the Company and (iii) their respective directors, officers, and any controlling person with respect to the foregoing persons (and persons referred to in clause (i), (ii) or (iii) may be referred to as a"Holder Indemnified Person"), to the same extent as the foregoing indemnity from the Company to each of the Company Indemnified Persons, but only with respect to information relating to such Holder furnished in writing by such Holder expressly for use in any Registration Statement. In case any action or proceeding shall be brought against any Holder Indemnified Person in respect of which indemnity may be sought against a Holder of Transfer Restricted Securities, such Holder shall have the rights and duties given the Company and the Holder Indemnified Person shall have the rights and duties given to each Company Indemnified Person by the preceding paragraph. In no event shall the liability of any selling Holder hereunder be greater in amount than the dollar amount of the proceeds received by such -16- 18 Holder upon the sale of the Transfer Restricted Securities giving rise to such indemnification obligation. (c) In order to provide for contribution in circumstances in which the indemnification provided for in Sections 8(a) and 8(b) hereof is for any reason held to be unavailable from the Company or is insufficient to hold harmless a party indemnified hereunder, the Company, on the one hand, and each Holder, on the other hand, shall contribute to the aggregate losses, claims, damages, liabilities and expenses of the nature contemplated by such indemnification provision (including any investigation, legal and other expenses incurred in connection with, and any amount paid in settlement of, any action, suit or proceeding or any claims asserted, but after deducting in the case of losses, claims damages, liabilities and expenses suffered by the Company any contribution received by the Company from persons, other than the Holders, who may also be liable for contribution, including controlling persons with respect to the Company) to which the Company and such Holder may be subject, in such proportion as is appropriate to reflect the relative benefits received by the Company, on one hand, and such Holder, on the other hand, or if such allocation is not permitted by applicable law or indemnification is not available as a result of the indemnifying party not having received notice as provided in this Section 8, in such proportion as is appropriate to reflect not only the relative benefits referred to above but also the relative fault of the Company, on the one hand, and such Holder, on the other hand, in connection with the statements or omissions which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative benefits received by the Company, on one hand, and each Holder, on the other hand, shall be deemed to be in the same proportion as (i) the total proceeds from the offering of the Notes (net of discounts but before deducting expenses) received by the Company and (ii) the total proceeds received by such Holder upon the sale of the Notes giving rise to such indemnification obligation. The relative fault of the Company, on the one hand, and of each Holder, on the other hand, shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or such holder and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Holders agree that it would not be just and equitable if contribution pursuant to this Section 8(c) were determined by pro rata allocation or by another method of allocation which does not take into account the equitable considerations referred to above. Notwithstanding the provisions of this Section 8(c), (i) in no case shall any Holder be required to contribute any amount in excess of the dollar amount by which the proceeds received by such Holder upon the sale of the Notes exceeds the amount of any damages which such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission and (ii) no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 8(c), (A) each controlling person, if any, with respect to any Holder and (B) the respective officers, directors, partners, employees, representatives and agents of each Holder or any controlling person shall have the same rights to contribution as such Holder, and each controlling person, if any, with respect to the Company and the respective officers, directors, partners, employees, representatives and agents of the Company and any controlling person shall have the same rights to contribution as the Company, subject in each case to clauses (i) and (ii) of this Section 8(c). Any party entitled to contribution will, promptly after receipt of notice of commencement of any action, suit or proceeding against such party in respect of which a claim for -17- 19 contribution may be made against another party or parties under this Section 8(c), notify such party or parties from whom contribution may be sought, but the failure to so notify such party or parties shall not relieve the party or parties from whom contribution may be sought from any obligation it or they may have under this Section 8(c) or otherwise. No party shall be liable for contribution with respect to any action or claim settled without its prior written consent; provided, however, that such written consent was not unreasonably withheld. SECTION 9. RULE 144A The Company hereby agrees with each Holder, for so long as any Transfer Restricted Securities remain outstanding, to make available to any Holder or beneficial owner of Transfer Restricted Securities in connection with any sale thereof and any prospective purchaser of such Transfer Restricted Securities from such Holder or beneficial owner, the information required by Rule 144A(d)(4) under the Act in order to permit resales of such Transfer Restricted Securities pursuant to Rule 144A. SECTION 10. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS No Holder may participate in any Underwritten Registration hereunder unless such Holder (a) agrees to sell such Holder's Transfer Restricted Securities on the basis provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements and (b) completes and executes all reasonable questionnaires, powers of attorney, indemnities, underwriting agreements, lock-up letters and other documents required under the terms of such underwriting arrangements. The Company shall not be obligated to engage in more than one Underwritten Registration hereunder. SECTION 11. SELECTION OF UNDERWRITERS The Holders of Transfer Restricted Securities covered by the Shelf Registration Statement who desire to do so may sell such Transfer Restricted Securities in an Underwritten Offering. In any such Underwritten Offering, the investment banker or investment bankers and manager or managers that will administer the offering will be selected by the Holders of a majority in aggregate principal amount of the Transfer Restricted Securities included in such offering; provided, that such investment bankers and managers must be reasonably satisfactory to the Company. SECTION 12. MISCELLANEOUS (a) Remedies. The Company agrees that monetary damages (including the liquidated damages contemplated hereby) would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Agreement and hereby agree to waive the defense in any action for specific performance that a remedy at law would be adequate. (b) No Inconsistent Agreements. The Company will not, on or after the date of this Agreement, enter into any agreement with respect to its securities that is inconsistent with the -18- 20 rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof. The Company has not previously entered into any agreement granting any registration rights with respect to the Notes to any Person. The rights granted to the Holders hereunder do not in any way conflict with and are not inconsistent with the rights granted to the holders of the Company's securities under any agreement in effect on the date hereof other than the Purchase Agreement and the Purchase Agreement Supplement with the Initial Purchaser. (c) Adjustments Affecting the Notes. The Company will not take any action with respect to the Notes that would materially and adversely affect the ability of the Holders to Consummate any Exchange Offer. (d) Amendments and Waivers. The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to or departures from the provisions hereof may not be given unless the Company has obtained the written consent of Holders of a majority of the outstanding principal amount of Transfer Restricted Securities. Notwithstanding the foregoing, a waiver or consent to departure from the provisions hereof that relates exclusively to the rights of Holders whose securities are being tendered pursuant to the Exchange Offer and that does not affect directly or indirectly the rights of other Holders whose securities are not being tendered pursuant to such Exchange Offer may be given by the Holders of a majority of the outstanding principal amount of Transfer Restricted Securities being tendered or registered. (e) Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand-delivery, first-class mail (registered or certified, return receipt requested), telecopier, or air courier guaranteeing overnight delivery: (i) if to a Holder, at the address set forth on the records of the Registrar under the Indenture, with a copy to the Registrar under the Indenture; and (ii) if to the Company: SAC Acquisition Corp. c/o CGW Southeast Partners III, L.P. Twelve Piedmont Center Suite 210 Atlanta, GA 30305 Attention: William A. Davies All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five business days after being deposited in the mail, postage prepaid, if mailed; when receipt acknowledged, if telecopied; and on the next business day, if timely delivered to an air courier guaranteeing overnight delivery. Copies of all such notices, demands or other communications shall be concurrently delivered by the Person giving the same to the Trustee at the address specified in the Indenture. (f) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties, including without limitation and without -19- 21 the need for an express assignment, subsequent Holders of Transfer Restricted Securities; provided, however, that this Agreement shall not inure to the benefit of or be binding upon a successor or assign of a Holder unless and to the extent such successor or assign acquired Transfer Restricted Securities from such Holder. (g) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (h) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE CONFLICT OF LAW RULES THEREOF. (j) Severability. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. (k) Entire Agreement. This Agreement together with the other Operative Documents (as defined in the Purchase Agreement) is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein with respect to the registration rights granted by the Company with respect to the Transfer Restricted Securities. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. -20- 22 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. SAC ACQUISITION CORP. By: /s/ William A. Davies ----------------------------- Name: William A. Davies Title: Chairman of the Board -21- 23 The foregoing Registration Rights Agreement is hereby confirmed, accepted and agreed as of the date first above written. NATIONSBANC MONTGOMERY SECURITIES LLC By: /s/ Mark Wilson -------------------------------- Name: Mark Wilson Title: Managing Director -22- EX-4.4 11 REGISTRATION RIGHTS AGREEMENT 3/31/98 1 EXHIBIT 4.4 REGISTRATION RIGHTS AGREEMENT SUPPLEMENT THIS REGISTRATION RIGHTS AGREEMENT SUPPLEMENT is a supplement to that certain Registration Rights Agreement, dated as of March 31, 1998 (the "Registration Rights Agreement"), between SAC Acquisition Corp., a Georgia corporation ("SAC"), and NationsBanc Montgomery Securities LLC (the "Initial Purchaser"). Unless otherwise defined herein, defined terms are used herein as defined in the Registration Rights Agreement. As a result of the consummation of the Merger (as defined in the Purchase Agreement, dated March 24, 1998, between SAC and the Initial Purchaser), SAC was merged with and into SIMCALA, Inc., a Delaware corporation (the "Company"), with the Company being the surviving corporation. The Company and the Initial Purchaser agree as follows: (a) the Company hereby (i) assumes the obligations, and makes the agreements, of SAC under the Registration Rights Agreement and (ii) makes the representations and warranties of SAC to the Initial Purchaser contained therein; (b) the Initial Purchaser hereby (i) reaffirms its obligations and agreements under the Registration Rights Agreement and (ii) reaffirms to the Company its representations and warranties contained therein; and (c) the obligation of each Holder to SAC under the Registration Rights Agreement shall be an obligation owing to the Company. For purposes of Section 12(e) of the Registration Rights Agreement, the address of the Company shall be the address of the Company set forth in the Final Memorandum, Attention: C. Edward Boardwine, with copies to: (i) CGW Southeast Partners III, L.P., Twelve Piedmont Center, Suite 210, Atlanta Georgia 30305, Attention: William A. Davies; and (ii) Alston & Bird LLP, 1201 West Peachtree Street, Atlanta, Georgia 30309-3424, Attention: Terri McMahon, Esq. This Registration Rights Agreement Supplement does not cancel or extinguish any right or obligation of the parties to the Registration Rights Agreement. The parties hereto agree that the Registration Rights Agreement shall be supplemented only with respect to the matters referred to herein and the provisions of the Registration Rights Agreement are otherwise in full force and effect. This Registration Rights Agreement Supplement may be executed in one or more counterparts and, if executed in more than one counterpart, the executed counterparts shall each be deemed to be an original and all such counterparts shall together constitute one and the same instrument. THIS REGISTRATION RIGHTS AGREEMENT SUPPLEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF NEW YORK, WITHOUT REGARD TO THE CONFLICT OF LAW RULES THEREOF. 2 IN WITNESS WHEREOF, the undersigned has executed this Registration Rights Agreement Supplement as of March 31, 1998. SIMCALA, INC. BY: /s/ C. E. Boardwine ------------------------------- NAME: C. EDWARD BOARDWINE TITLE: CHIEF EXECUTIVE OFFICER -2- 3 The foregoing Agreement is hereby confirmed and accepted as of the date first above written. NATIONSBANC MONTGOMERY SECURITIES LLC By: /s/ Mark Wilson -------------------------------- Name: Mark Wilson Title: Managing Director -3- EX-10.1 12 AGREEMENT FOR INVESTMENT BANKING SERVICES 3/31/98 1 EXHIBIT 10.1 AGREEMENT FOR INVESTMENT BANKING SERVICES THIS AGREEMENT is entered into this March 31, 1998, by and between SIMCALA, INC., a Delaware corporation (the "Corporation"), and CGW SOUTHEAST MANAGEMENT III, L.L.C., a Delaware limited liability company ("CGW"). BACKGROUND The Corporation desires to engage CGW to provide investment banking services to the Company in connection with the transactions contemplated by that certain Stock Purchase Agreement, dated February 10, 1998, among the Corporation, SAC Acquisition Corp. and the shareholders of the Corporation (the "Stock Purchase Agreement"), and in connection with structuring and negotiating certain senior credit facilities and the terms of the issuance and sale by the Corporation of senior subordinated notes and in arranging for contributions to the equity capital of the Corporation (collectively, the "Financings"). AGREEMENT For and in consideration of the above premises and the mutual covenants and agreements hereinafter set forth, and other good and valuable consideration, the receipt and sufficiency of which are acknowledged, the parties hereto agree as follows: 1. SCOPE OF CONSULTING SERVICES. CGW has provided and agrees to continue to provide to the Corporation investment banking and advisory services in connection with the structuring and negotiation of the transactions contemplated by the Stock Purchase Agreement and the Financings and the consummation of such transactions. 2. COMPENSATION. For the services rendered by CGW as herein described, upon consummation of the transactions provided for in the Stock Purchase Agreement and the Financings the Corporation shall pay to CGW One Million Three Hundred and Fifty Thousand Dollars ($1,350,000.00) (the "Fee"). The Fee shall be paid at the time of the consummation of such transactions by wire transfer of immediately available funds. 3. EXPENSES. The Corporation shall reimburse CGW for all of CGW's costs and expenses (other than ordinary overhead) reasonably incurred in connection with providing the investment banking services hereunder. Such reimbursements shall be paid to CGW upon submission by CGW of all documentation ordinarily required by the Corporation's policy on reimbursement of expenses. 4. INDEPENDENT CONTRACTOR. CGW is and shall be an independent contractor, and no employment or agency relationship between the Corporation and CGW is intended to be created hereby. 2 5. INDEMNIFICATION. (a) The Corporation shall indemnify and hold harmless CGW and its affiliates, their respective officers, directors, controlling persons (within the meaning of Section 15 of the Securities Act of 1933 or Section 20(a) of the Securities Exchange Act of 1934), if any, employees and agents of CGW or any of CGW's affiliates (each such person being an "Indemnified Person") from and against any losses, claims, damages or liabilities related to, arising out of or in connection with CGW's engagement hereunder. (b) The Corporation shall reimburse each Indemnified Person for all reasonable expenses (including fees and expenses of counsel) as they are incurred in connection with investigating, preparing, pursuing or defending any action, claim, suit, investigation or proceeding related to, arising out of or in connection with CGW's engagement hereunder, whether or not pending or threatened and whether or not any Indemnified Person is a party; provided however, that if a final judicial determination is made that any losses, claims, damages or liabilities (or expenses related thereto) have resulted from the bad faith or gross negligence of any Indemnified Person, then each Indemnified Person will remit to the Corporation any amounts reimbursed under this subparagraph 5(b). (c) The Corporation will not be responsible for any losses, claims, damages or liabilities (or expenses related thereto) that are finally judicially determined to have resulted from the bad faith or gross negligence of any Indemnified Person. The Corporation further agrees that no Indemnified Person shall have any liability (whether direct or indirect, in contract or tort or otherwise) to the Corporation or to any person claiming through the Corporation (including, without limitation, equity holders and creditors of the Corporation) for or in connection with CGW's engagement hereunder except for any such liability for losses, claims, damages or liabilities incurred by the Corporation that are finally judicially determined to have resulted from the bad faith or gross negligence of such Indemnified Person. If multiple claims are brought against CGW in an arbitration, with respect to at least one of which indemnification is permitted under applicable law and provided for under this Agreement, the Corporation agrees that any arbitration award shall be conclusively deemed to be based on claims as to which indemnification is permitted and provided for, except to the extent the arbitration award expressly states that the award, or any portion thereof, is based solely on a claim as to which indemnification is not available. -2- 3 (d) The Corporation agrees that each Indemnified Person is entitled to retain separate counsel of its choice in connection with any of the matters to which the indemnification and reimbursement commitments set forth in subparagraphs 5(a) and 5(b) above relate. (e) No Indemnified Person seeking indemnification, reimbursement or contribution under this Agreement will, without the Corporation's prior written consent, settle, compromise, consent to the entry of any judgment in or otherwise seek to terminate any action, claim, suit, investigation or proceeding referred to in this subparagraph 5(a) above. (f) The foregoing rights to indemnity and contribution shall be in addition to any rights that CGW and/or any other Indemnified Person may have at common law or otherwise and shall remain in full force and effect following the completion or any termination of CGW's engagement. The Corporation hereby consents to personal jurisdiction and to service and venue in any court in which any claim which is subject to this Agreement is brought against CGW or any other Indemnified Person. (g) The Corporation and CGW agree that if any indemnification or reimbursement sought pursuant to this Section 5 is finally judicially determined to be unavailable (except by reason of the gross negligence or bad faith of any Indemnified Person), then, whether or not CGW is the person entitled to indemnification or reimbursement, the Corporation and CGW shall contribute to the losses, claims, damages, liabilities and expenses for which such indemnification or reimbursement is held unavailable in such proportion as is appropriate to reflect the relative benefits to the Corporation on the one hand, and CGW on the other, in connection with the transaction to which such indemnification or reimbursement relates, and other equitable considerations; provided however, that in no event shall the amount to be contributed by CGW exceed the amount of the fee actually received by CGW hereunder. 6. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Georgia. -3- 4 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year first above written. SIMCALA, INC. By: /s/ C. Edward Boardwine -------------------------------- Name: ------------------------------- Title: ------------------------------ CGW SOUTHEAST MANAGEMENT III, L.L.C. By: /s/ William A. Davies -------------------------------- Name: ------------------------------- Managing Director -4- EX-10.2 13 AGREEMENT FOR CONSULTING SERVICES 1 EXHIBIT 10.2 AGREEMENT FOR CONSULTING SERVICES THIS AGREEMENT FOR CONSULTING SERVICES is entered into this March 31, 1998, by and between SIMCALA, INC., a Delaware corporation (the "Corporation"), and CGW SOUTHEAST III, L.L.C., a Delaware limited liability company ("CGW"). BACKGROUND A. The Corporation desires to engage CGW for the purpose of providing financial and management consulting services to the Corporation. B. CGW is willing to accept such engagement upon the terms and conditions set forth herein. AGREEMENT For and in consideration of the above premises and the mutual covenants and agreements hereinafter set forth, and other good and valuable consideration, the receipt and sufficiency of which are acknowledged, the parties hereto agree as follows: 1. SCOPE OF CONSULTING SERVICES. The Corporation retains CGW, and CGW accepts engagement by the Corporation, to provide financial advisory and management consulting services to the Corporation and its affiliates. In such capacity, CGW will assist the Corporation and its affiliates in financial and strategic planning and analysis. Such consulting services shall include having a representative of CGW in attendance at all meetings of the Board of Directors of the Corporation, evaluation of and negotiations with potential candidates for acquisition by the Corporation, assisting the Corporation in relations with its lenders, and providing advice to the Corporation on its capital needs and structure, including general advice and assistance regarding refinancings or public offerings or sale of the Corporation. CGW agrees to be available to the Corporation as needed and to cause such services to be provided by persons employed or retained by or affiliated with CGW or its general partner. Unless required by reason of the nature of the particular consulting service, such services may be performed at the offices of CGW. 2. TERM. The term (the "Term") of this Agreement shall commence on the date hereof and end on the fifth anniversary of the date hereof. This Agreement may be terminated prior to the expiration of the Term only (i) by mutual agreement of CGW and the Corporation, (ii) as provided in Section 5 below, or (iii) by the Corporation upon the willful failure of CGW to provide consulting services hereunder if such failure is not remedied within thirty (30) days after receipt by CGW of written notice by the Corporation to CGW. Upon any termination of this Agreement for any reason other than as provided in Section 5 below, CGW's right to receive compensation pursuant to Section 3 hereof shall cease and terminate. 2 3. COMPENSATION. (a) For the services rendered by CGW hereunder, the Corporation shall pay to CGW (i) a monthly fee of $15,000 on the first day of each calendar month occurring during the Term, (ii) a fee with respect to each fiscal year of the Corporation that ends during the Term in an amount equal to the bonus paid to the Chief Executive Officer of the Corporation with respect to such fiscal year, such additional fee to be paid at the same time as such bonus is paid to the Chief Executive Officer, and (iii) a fee with respect to the portion of the fiscal year of the Corporation in which this Agreement begins or ends and during which this Agreement is in effect in an amount equal to the portion of the bonus paid to the chief executive officer of the Corporation with respect to such fiscal year pro rated based upon the number of days during such fiscal year this Agreement is in effect. The amount payable under this Section 3(a) is herein referred to as the "Retainer Fee." (b) In addition to the Retainer Fee, the Corporation shall pay to CGW fees in such amounts as shall be mutually agreed upon in advance for any services provided by CGW with respect to services provided to the Corporation by CGW at the request of the Corporation or any of its affiliates which fall outside the scope of services generally contemplated by Section 1 of this Agreement. (c) Upon termination of this Agreement as provided in Section 5 below, the Corporation shall pay to CGW an amount equal to the aggregate Retainer Fee that would have been paid over the remaining Term had such termination not occurred. For purposes of determining such amount the bonus deemed to be paid to the Chief Executive Officer of the Corporation for any fiscal year of the Corporation ending after any such termination shall be the average of the annual bonus paid to such officer for the full fiscal years of the Corporation ended after the date hereof and prior to such termination, and if no full fiscal years have ended during such period, then the bonus deemed to be paid to the chief executive officer for each fiscal year of the Corporation ending after such termination of this Agreement shall be $153,750. 4. EXPENSES. The Corporation shall reimburse CGW for all of CGW's costs and expenses (other than ordinary overhead) reasonably incurred in connection with (i) attendance at meetings with the Corporation or any affiliate, and (ii) provision of its services hereunder. Such reimbursements shall be paid to CGW in a timely manner in accordance with the regular expense reimbursement policy of the Corporation and upon submission by CGW of all documentation ordinarily required by the Corporation's policy on reimbursement of expenses. 5. CHANGE OF CONTROL. This Agreement shall terminate upon the occurrence of a Change in Control with respect to the Corporation. As used herein, a "Change in Control" shall be deemed to have occurred with respect to the Corporation upon (i) the consummation of any merger, share exchange or consolidation (other than with an affiliate -2- 3 of the Corporation) of the Corporation in which the shareholders of the Corporation immediately prior to such merger, share exchange or consolidation shall not following such merger, share exchange or consolidation, own, directly or indirectly, at least fifty percent (50%) of the aggregate voting power of the outstanding securities of the continuing or surviving entity, (ii) any issuance or sale by the Corporation in a single transaction or series of related transactions of shares of the Corporation's capital stock which constitute after such issuance and sale fifty percent (50%) or more of the aggregate voting power of the outstanding securities of the Corporation, other than the issuance and sale of capital stock in a public offering of such securities or in connection with the exercise of options to purchase such voting securities granted to its employees or lenders, (iii) any other transaction or series of transactions in which the current holders of the Corporation's common stock cease to own, directly or indirectly, fifty percent (50%) or more of the aggregate voting power of the outstanding securities of the Corporation, other than through a public offering of the voting securities of the Corporation or other than in connection with the exercise of options to purchase voting securities of the Corporation granted to employees or lenders of the Corporation, or (iv) any sale in a single transaction or a series of related transactions of all or substantially all of the assets of the Corporation. The Corporation agrees to notify CGW promptly of any Change in Control of the Corporation by mailing to CGW written notice of such Change in Control, it being the intent of this provision that CGW be informed at all times concerning the ownership of the Corporation. 6. ENTIRE AGREEMENT. This Agreement embodies the entire agreement of the parties hereto with respect to the services to be provided by CGW hereunder. No amendment or modification of this Agreement shall be valid or binding upon the Corporation or CGW unless made in writing and signed by the parties hereto. 7. INDEPENDENT CONTRACTOR. CGW is and shall be an independent contractor, and no employment relationship between the Corporation and CGW is intended to be created hereby. 8. INDEMNIFICATION. (a) The Corporation shall indemnify and hold harmless CGW and its affiliates, their respective officers, directors, controlling persons (within the meaning of Section 15 of the Securities Act of 1933 or Section 20(a) of the Securities Exchange Act of 1934), if any, employees and agents of CGW or any of CGW's affiliates (each such person being an "Indemnified Person") from and against any losses, claims, damages or liabilities related to, arising out of or in connection with CGW's engagement hereunder. (b) The Corporation shall reimburse each Indemnified Person for all reasonable expenses (including fees and expenses of counsel) as they are incurred in connection with investigating, preparing, pursuing or defending any action, claim, suit, investigation or proceeding related to, arising out of or in -3- 4 connection with CGW's engagement hereunder, whether or not pending or threatened and whether or not any Indemnified Person is a party; provided however, that if a final judicial determination is made that any losses, claims, damages or liabilities (or expenses related thereto) have resulted from the bad faith or gross negligence of any Indemnified Person, then each Indemnified Person will remit to the Corporation any amounts reimbursed under this subparagraph 8(b). (c) The Corporation will not be responsible for any losses, claims, damages or liabilities (or expenses related thereto) that are finally judicially determined to have resulted from the bad faith or gross negligence of any Indemnified Person. The Corporation further agrees that no Indemnified Person shall have any liability (whether direct or indirect, in contract or tort or otherwise) to the Corporation or to any person claiming through the Corporation (including, without limitation, equity holders and creditors of the Corporation) for or in connection with CGW's engagement hereunder except for any such liability for losses, claims, damages or liabilities incurred by the Corporation that are finally judicially determined to have resulted from the bad faith or gross negligence of such Indemnified Person. If multiple claims are brought against CGW in an arbitration, with respect to at least one of which indemnification is permitted under applicable law and provided for under this Agreement, the Corporation agrees that any arbitration award shall be conclusively deemed to be based on claims as to which indemnification is permitted and provided for, except to the extent the arbitration award expressly states that the award, or any portion thereof, is based solely on a claim as to which indemnification is not available. (d) The Corporation agrees that each Indemnified Person is entitled to retain separate counsel of its choice in connection with any of the matters to which the indemnification and reimbursement commitments set forth in subparagraphs 8(a) and 8(b) above relate. (e) No Indemnified Person seeking indemnification, reimbursement or contribution under this Agreement will, without the Corporation's prior written consent, settle, compromise, consent to the entry of any judgment in or otherwise seek to terminate any action, claim, suit, investigation or proceeding referred to in this subparagraph 8(a) above. (f) The foregoing rights to indemnity and contribution shall be in addition to any rights that CGW and/or any other Indemnified Person may have at common law or otherwise and shall remain in full force and effect following the completion or any termination of CGW's engagement. The Corporation hereby consents to personal jurisdiction and to service and -4- 5 venue in any court in which any claim which is subject to this Agreement is brought against CGW or any other Indemnified Person. (g) The Corporation and CGW agree that if any indemnification or reimbursement sought pursuant to this Section 8 is finally judicially determined to be unavailable (except by reason of the gross negligence or bad faith of any Indemnified Person), then, whether or not CGW is the person entitled to indemnification or reimbursement, the Corporation and CGW shall contribute to the losses, claims, damages, liabilities and expenses for which such indemnification or reimbursement is held unavailable in such proportion as is appropriate to reflect the relative benefits to the Corporation on the one hand, and CGW on the other, in connection with the transaction to which such indemnification or reimbursement relates, and other equitable considerations; provided however, that in no event shall the amount to be contributed by CGW exceed the amount of the fee actually received by CGW hereunder. 9. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Georgia. 10. DELEGATION. CGW hereby delegates to CGW Southeast Management III, L.L.C. ("Management") the performance of all duties of CGW hereunder, and directs the Corporation to make payment of the Retainer Fee and all other amounts due CGW hereunder to Management. The Corporation hereby consents to the delegation of the performance of CGW's duties hereunder to Management, and agrees to make payment of the Retainer Fee and such other amounts as so directed. CGW may terminate the delegation of its duties hereunder to Management by a written notice to the Corporation which shall be effective upon receipt by the Corporation. From and after the receipt of such written notice, all amounts payable hereunder to CGW shall be paid to CGW rather than to Management. Management agrees to accept the delegation of the duties hereunder from CGW until such delegation is terminated by CGW, and agrees to provide the consulting services herein described in accordance with the terms hereof. [Signatures on Next Page] -5- 6 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year first above written. SIMCALA, INC. By: /s/ C. Edward Boardwine ------------------------------- Name: ------------------------------ Title: ----------------------------- CGW SOUTHEAST III, L.L.C. By: CGW, Inc., its Manager By: /s/ William A. Davies ------------------------------- William A. Davies Managing Director CGW SOUTHEAST MANAGEMENT III, L.L.C. By: /s/ William A. Davies ------------------------------- William A. Davies Managing Director -6- EX-10.3 14 CREDIT AGREEMENT 3/31/98 1 EXHIBIT 10.3 CREDIT AGREEMENT Dated as of March 31, 1998 among SIMCALA, INC., as Borrower, SIMCALA HOLDINGS, INC., AND CERTAIN SUBSIDIARIES OF THE PARENT FROM TIME TO TIME PARTY HERETO, as Guarantors, THE SEVERAL LENDERS FROM TIME TO TIME PARTY HERETO AND NATIONSBANK, N. A., as Agent 2 TABLE OF CONTENTS SECTION 1 DEFINITIONS............................................................................................ 1 1.1 Definitions...................................................................................... 1 1.2 Computation of Time Periods......................................................................23 1.3 Accounting Terms.................................................................................23 SECTION 2 CREDIT FACILITIES......................................................................................24 2.1 Loans............................................................................................24 2.2 Letter of Credit Subfacility.....................................................................26 SECTION 3 OTHER PROVISIONS RELATING TO CREDIT FACILITIES.........................................................31 3.1 Default Rate.....................................................................................31 3.2 Extension and Conversion.........................................................................31 3.3 Prepayments......................................................................................32 3.4 Termination and Reduction of Committed Amount....................................................33 3.5 Fees.............................................................................................33 3.6 Capital Adequacy.................................................................................34 3.7 Limitation on Eurodollar Loans...................................................................35 3.8 Illegality.......................................................................................35 3.9 Requirements of Law..............................................................................36 3.10 Treatment of Affected Loans......................................................................37 3.11 Taxes............................................................................................37 3.12 Compensation.....................................................................................39 3.13 Pro Rata Treatment...............................................................................40 3.14 Sharing of Payments..............................................................................41 3.15 Payments, Computations, Etc......................................................................41 3.16 Evidence of Debt.................................................................................43 SECTION 4 GUARANTY...............................................................................................44 4.1 The Guaranty.....................................................................................44 4.2 Obligations Unconditional........................................................................44 4.3 Reinstatement....................................................................................45 4.4 Certain Additional Waivers.......................................................................45 4.5 Remedies.........................................................................................46 4.6 Rights of Contribution...........................................................................46 4.7 Guarantee of Payment; Continuing Guarantee.......................................................47 SECTION 5 CONDITIONS.............................................................................................47 5.1 Closing Conditions...............................................................................47 5.2 Conditions to all Extensions of Credit...........................................................53 SECTION 6 REPRESENTATIONS AND WARRANTIES.........................................................................54 6.1 Financial Condition..............................................................................54 6.2 No Material Change...............................................................................55 6.3 Organization and Good Standing...................................................................55 6.4 Power; Authorization; Enforceable Obligations....................................................55 6.5 No Conflicts.....................................................................................56 6.6 No Default.......................................................................................56 6.7 Ownership........................................................................................57 6.8 Indebtedness.....................................................................................57
i 3 6.9 Litigation.........................................................................................57 6.10 Taxes............................................................................................57 6.11 Compliance with Law..............................................................................57 6.12 ERISA............................................................................................57 6.13 Subsidiaries.....................................................................................59 6.14 Governmental Regulations, Etc....................................................................59 6.15 Purpose of Loans and Letters of Credit...........................................................60 6.16 Environmental Matters............................................................................60 6.17 Intellectual Property............................................................................61 6.18 Solvency.........................................................................................62 6.19 Investments......................................................................................62 6.20 Location of Collateral...........................................................................62 6.21 Disclosure.......................................................................................62 6.22 No Burdensome Restrictions.......................................................................62 6.23 Brokers' Fees....................................................................................62 6.24 Labor Matters....................................................................................62 6.25 Nature of Business...............................................................................63 6.26 Representations and Warranties from Purchase Agreement...........................................63 6.27 Year 2000 Compliance.............................................................................63 SECTION 7 AFFIRMATIVE COVENANTS..................................................................................63 7.1 Information Covenants..............................................................................63 7.2 Preservation of Existence and Franchises...........................................................67 7.3 Books and Records..................................................................................67 7.4 Compliance with Law................................................................................67 7.5 Payment of Taxes and Other Indebtedness............................................................67 7.6 Insurance..........................................................................................67 7.7 Maintenance of Property............................................................................68 7.8 Performance of Obligations.........................................................................68 7.9 Use of Proceeds....................................................................................68 7.10 Audits/Inspections.................................................................................69 7.11 Financial Covenants................................................................................69 7.12 Additional Credit Parties..........................................................................70 7.13 Pledged Assets.....................................................................................70 SECTION 8 NEGATIVE COVENANTS.....................................................................................71 8.1 Indebtedness.......................................................................................71 8.2 Liens..............................................................................................73 8.3 Nature of Business.................................................................................73 8.4 Consolidation, Merger, Dissolution, etc............................................................73 8.5 Asset Dispositions.................................................................................73 8.6 Investments........................................................................................74 8.7 Restricted Payments................................................................................74 8.8 Prepayments of Indebtedness, etc...................................................................75 8.9 Transactions with Affiliates.......................................................................75 8.10 Fiscal Year........................................................................................75 8.11 Limitation on Restricted Actions...................................................................76
ii 4 8.12 Ownership of Subsidiaries; Limitations on Parent.................................................76 8.13 Sale Leasebacks..................................................................................77 8.14 Capital Expenditures.............................................................................77 8.15 No Further Negative Pledges......................................................................77 8.16 Operating Lease Obligations......................................................................77 8.17 No Foreign Subsidiaries..........................................................................77 SECTION 9EVENTS OF DEFAULT.......................................................................................78 9.1 Events of Default..................................................................................78 9.2 Acceleration; Remedies.............................................................................80 SECTION 10AGENCY PROVISIONS......................................................................................81 10.1 Appointment, Powers and Immunities...............................................................81 10.2 Reliance by Agent................................................................................82 10.3 Defaults.........................................................................................82 10.4 Rights as a Lender...............................................................................82 10.5 Indemnification..................................................................................83 10.6 Non-Reliance on Agent and Other Lenders..........................................................83 10.7 Successor Agent..................................................................................83 SECTION 11MISCELLANEOUS..........................................................................................84 11.1 Notices..........................................................................................84 11.2 Right of Set-Off; Adjustments....................................................................85 11.3 Benefit of Agreement.............................................................................85 11.4 No Waiver; Remedies Cumulative...................................................................87 11.5 Expenses; Indemnification........................................................................87 11.6 Amendments, Waivers and Consents.................................................................88 11.7 Counterparts.....................................................................................90 11.8 Headings.........................................................................................90 11.9 Survival.........................................................................................90 11.10 Governing Law; Submission to Jurisdiction; Venue.................................................90 11.11 Severability.....................................................................................91 11.12 Entirety.........................................................................................91 11.13 Binding Effect; Termination......................................................................91 11.14 Confidentiality..................................................................................92 11.15 Source of Funds..................................................................................92 11.16 Conflict.........................................................................................93
iii 5 SCHEDULES ========= Schedule 1.1A Investments Schedule 1.1B Liens Schedule 2.1(a) Lenders Schedule 5.1(c)(i) Form of Legal Opinion (General External Counsel) Schedule 5.1(c)(ii) Form of Legal Opinion (Local Corporate Counsel) Schedule 5.1(c)(iii) Form of Legal Opinion (Local Collateral Counsel) Schedule 6.4 Required Consents, Authorizations, Notices and Filings Schedule 6.9 Litigation Schedule 6.12 ERISA Schedule 6.13 Subsidiaries Schedule 6.16 Environmental Disclosures Schedule 6.17 Intellectual Property Schedule 6.20(a) Mortgaged Properties Schedule 6.20(b) Collateral Locations Schedule 6.20(c) Chief Executive Offices/Principal Places of Business Schedule 7.6 Insurance Schedule 8.1 Indebtedness
EXHIBITS ======== Exhibit 1.1A Form of Pledge Agreement Exhibit 1.1B Form of Security Agreement Exhibit 2.1(b)(i) Form of Notice of Borrowing Exhibit 2.1(e) Form of Note Exhibit 3.2 Form of Notice of Extension/Conversion Exhibit 7.1(c) Form of Officer's Compliance Certificate Exhibit 7.12 Form of Joinder Agreement Exhibit 11.3(b) Form of Assignment and Acceptance
iv 6 CREDIT AGREEMENT THIS CREDIT AGREEMENT, dated as of March 31, 1998 (as amended, modified, restated or supplemented from time to time, the "Credit Agreement"), is by and among SIMCALA, INC., a Delaware corporation (the "Borrower"), SIMCALA HOLDINGS, INC., a Georgia corporation (the "Parent"), the Subsidiary Guarantors (as defined herein), the Lenders (as defined herein) and NATIONSBANK, N. A., as Agent for the Lenders (in such capacity, the "Agent"). W I T N E S S E T H WHEREAS, the Borrower has requested that the Lenders provide a $15 million credit facility for the purposes hereinafter set forth; and WHEREAS, the Lenders have agreed to make the requested credit facility available to the Borrower on the terms and conditions hereinafter set forth; NOW, THEREFORE, IN CONSIDERATION of the premises and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: SECTION 1 DEFINITIONS ----------- 1.1 DEFINITIONS. As used in this Credit Agreement, the following terms shall have the meanings specified below unless the context otherwise requires: "Acquired Debt" means, with respect to any specified Person, (i) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person, including, without limitation, Indebtedness incurred in connection with, or in contemplation of, such other Person merging with or into or becoming a Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person. "Acquisition" means the acquisition by the Parent of all of the capital stock of the Borrower pursuant to the Purchase Agreement. "Additional Credit Party" means each Person that becomes a Subsidiary Guarantor after the Closing Date by execution of a Joinder Agreement. "Adjusted Base Rate" means the Base Rate plus the Applicable Percentage. 1 7 "Adjusted Eurodollar Rate" means the Eurodollar Rate plus the Applicable Percentage. "Affiliate" means, with respect to any Person, any other Person (i) directly or indirectly controlling or controlled by or under direct or indirect common control with such Person or (ii) directly or indirectly owning or holding five percent (5%) or more of the Capital Stock in such Person. For purposes of this definition, "control" when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Agency Services Address" means NationsBank, N. A., NC1-001-15-03, 101 North Tryon Street, Charlotte, North Carolina 28255, Attn: Agency Services, or such other address as may be identified by written notice from the Agent to the Borrower. "Agent" shall have the meaning assigned to such term in the heading hereof, together with any successors or assigns. "Agent's Fee Letter" means that certain letter agreement, dated as of the Closing Date, between the Agent and the Borrower, as amended, modified, restated or supplemented from time to time. "Agent's Fees" shall have the meaning assigned to such term in Section 3.5(d). "Applicable Lending Office" means, for each Lender, the office of such Lender (or of an Affiliate of such Lender) as such Lender may from time to time specify to the Agent and the Borrower by written notice as the office by which its Eurodollar Loans are made and maintained. "Applicable Percentage" means, for purposes of calculating the applicable interest rate for any day for any Loan, the applicable rate of the Unused Fee for any day for purposes of Section 3.5(b), the applicable rate of the Standby Letter of Credit Fee for any day for purposes of Section 3.5(c)(i) or the applicable rate of the Trade Letter of Credit Fee for any day for purposes of Section 3.5(c)(ii), the appropriate applicable percentage corresponding to the Total Leverage Ratio in effect as of the most recent Calculation Date: 2 8
=================================================================================================== APPLICABLE PERCENTAGE APPLICABLE PERCENTAGE PERCENTAGE APPLICABLE FOR PERCENTAGE FOR FOR TRADE FOR TOTAL EURODOLLAR FOR BASE STANDBY LETTER OF COMMITMENT PRICING LEVERAGE RATIO RATE LETTER OF CREDIT FEE FEES LEVEL RATIO LOANS LOANS CREDIT FEE - --------------------------------------------------------------------------------------------------- I > 3.75 to 2.25% 1.25% 2.25% .50% .50% 1.0 - --------------------------------------------------------------------------------------------------- II < 3.75 to 2.00% 1.00% 2.00% .50% .50% 1.0 but > 2.50 to 1.0 - --------------------------------------------------------------------------------------------------- III < 2.50 to 1.75% .75% 1.75% .50% .375% 1.0 ===================================================================================================
The Applicable Percentages shall be determined and adjusted quarterly on the date (each a "Calculation Date") five Business Days after the earlier of (x) the date by which the Borrower is required to provide the officer's certificate in accordance with the provisions of Section 7.1(c) for the most recently ended fiscal quarter of the Credit Parties or (y) the date such officer's certificate is actually delivered to the Agent; provided, however, that (i) the initial Applicable Percentages shall be based on Pricing Level I (as shown above) and shall remain at Pricing Level I until the first Calculation Date subsequent to the March 31, 1999, and, thereafter, the Pricing Level shall be determined by the Total Leverage Ratio as of the last day of the most recently ended fiscal quarter of the Credit Parties preceding the applicable Calculation Date, and (ii) if the Borrower fails to provide the officer's certificate to the Agency Services Address as required by Section 7.1(c) for the last day of the most recently ended fiscal quarter of the Credit Parties preceding the applicable Calculation Date, the Applicable Percentage from such Calculation Date shall be based on Pricing Level I until such time as an appropriate officer's certificate is provided, whereupon the Pricing Level shall be determined by the Total Leverage Ratio as of the last day of the most recently ended fiscal quarter of the Credit Parties preceding such Calculation Date. Except as provided above, each Applicable Percentage shall be effective from one Calculation Date until the next Calculation Date. Any adjustment in the Applicable Percentages shall be applicable to all existing Loans and Letters of Credit as well as any new Loans and Letters of Credit made or issued. "Application Period", in respect of any Asset Disposition, shall have the meaning assigned to such term in Section 8.5. "Asset Disposition" means the disposition of any or all of the assets (including without limitation the Capital Stock of a Subsidiary) of any Credit Party whether by sale, lease, transfer or otherwise. The term "Asset Disposition" (i) shall not include (a) the sale of inventory in the ordinary course of business for fair consideration, (b) the sale or 3 9 disposition of machinery and equipment no longer used or useful in the conduct of such Person's business, (c) any sale of assets having a net book value of less $100,000 or (d) any Equity Issuance and (ii) shall include a casualty loss or condemnation to the extent that the Net Cash Proceeds received by the affected Credit Party from the insurer or condemning authority, as applicable, are required by the terms of Section 7.6 to be applied to the Credit Party Obligations. "Asset Disposition Prepayment Event" means, with respect to any Asset Disposition other than an Excluded Asset Disposition, the failure of the Borrower to apply (or cause to be applied) the Net Cash Proceeds of such Asset Disposition to the purchase, acquisition or construction of Eligible Assets during the Application Period for such Asset Disposition. "Bankruptcy Code" means the Bankruptcy Code in Title 11 of the United States Code, as amended, modified, succeeded or replaced from time to time. "Bankruptcy Event" means, with respect to any Person, the occurrence of any of the following with respect to such Person: (i) a court or governmental agency having jurisdiction in the premises shall enter a decree or order for relief in respect of such Person in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of such Person or for any substantial part of its Property or ordering the winding up or liquidation of its affairs; or (ii) there shall be commenced against such Person an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or any case, proceeding or other action for the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of such Person or for any substantial part of its Property or for the winding up or liquidation of its affairs, and such involuntary case or other case, proceeding or other action shall remain undismissed, undischarged or unbonded for a period of sixty (60) consecutive days; or (iii) such Person shall commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or consent to the entry of an order for relief in an involuntary case under any such law, or consent to the appointment or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of such Person or for any substantial part of its Property or make any general assignment for the benefit of creditors; or (iv) such Person shall be unable to, or shall admit in writing its inability to, pay its debts generally as they become due. "Base Rate" means, for any day, the rate per annum equal to the higher of (a) the Federal Funds Rate for such day plus one-half of one percent (0.5%) and (b) the Prime Rate for such day. Any change in the Base Rate due to a change in the Prime Rate or the Federal Funds Rate shall be effective on the effective date of such change in the Prime Rate or Federal Funds Rate. 4 10 "Base Rate Loan" means any Loan bearing interest at a rate determined by reference to the Base Rate. "Borrower" means the Person identified as such in the heading hereof, together with any permitted successors and assigns. "Business Day" means a day other than a Saturday, Sunday or other day on which commercial banks in Charlotte, North Carolina or New York, New York are authorized or required by law to close, except that, when used in connection with a Eurodollar Loan, such day shall also be a day on which dealings between banks are carried on in U.S. dollar deposits in London, England. "Calculation Date" has the meaning set forth in the definition of "Applicable Percentage" set forth in this Section 1.1. "Capital Lease" means, as applied to any Person, any lease of any Property (whether real, personal or mixed) by that Person as lessee which, in accordance with GAAP, is or should be accounted for as a capital lease on the balance sheet of that Person. "Capital Stock" means (i) in the case of a corporation, capital stock, (ii) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of capital stock, (iii) in the case of a partnership, partnership interests (whether general or limited), (iv) in the case of a limited liability company, membership interests and (v) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. "Cash Equivalents" means (a) securities issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof (provided that the full faith and credit of the United States of America is pledged in support thereof) having maturities of not more than twelve months from the date of acquisition, (b) U.S. dollar denominated time deposits and certificates of deposit of (i) any Lender, (ii) any domestic commercial bank of recognized standing having capital and surplus in excess of $500,000,000 or (iii) any bank whose short-term commercial paper rating from S&P is at least A-1 or the equivalent thereof or from Moody's is at least P-1 or the equivalent thereof (any such bank being an "Approved Bank"), in each case with maturities of not more than 270 days from the date of acquisition, (c) commercial paper and variable or fixed rate notes issued by any Approved Bank (or by the parent company thereof) or any variable rate notes issued by, or guaranteed by, any domestic corporation rated A-1 (or the equivalent thereof) or better by S&P or P-1 (or the equivalent thereof) or better by Moody's and maturing within six months of the date of acquisition, (d) repurchase agreements entered into by any Person with a bank or trust company (including any of the Lenders) or recognized securities dealer having capital and surplus in excess of $500,000,000 for direct obligations issued by or fully guaranteed by the United States of America in which such Person shall have a perfected first priority security interest (subject 5 11 to no other Liens) and having, on the date of purchase thereof, a fair market value of at least 100% of the amount of the repurchase obligations and (e) Investments, classified in accordance with GAAP as current assets, in money market investment programs registered under the Investment Company Act of 1940, as amended, which are administered by reputable financial institutions having capital of at least $500,000,000 and the portfolios of which are limited to Investments of the character described in the foregoing subdivisions (a) through (d). "CGW" means CGW III, any Affiliates of CGW III, any limited partners of CGW III and any Affiliates of such limited partners. "CGW III" means CGW Southeast Partners III, L.P., a Delaware limited partnership. "Change of Control" means any of the following events: (a) the failure of the Parent to own all of the Capital Stock of the Borrower, (b) the failure of CGW to own at least 51% of the Capital Stock of the Parent, (d) during any period of up to 24 consecutive months, commencing after the Closing Date, individuals who at the beginning of such 24 month period were directors of the Parent (together with any new director whose election by the Parent's Board of Directors or whose nomination for election by the Parent's shareholders was approved by a vote of at least a majority of the directors then still in office who either were directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the directors of the Parent then in office or (e) the occurrence of a "Change of Control" under and as defined in either the Senior Note Agreement. As used herein, "beneficial ownership" shall have the meaning provided in Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934. "Closing Date" means the date hereof. "Code" means the Internal Revenue Code of 1986, as amended, and any successor statute thereto, as interpreted by the rules and regulations issued thereunder, in each case as in effect from time to time. References to sections of the Code shall be construed also to refer to any successor sections. "Collateral" means a collective reference to the collateral which is identified in, and at any time will be covered by, the Collateral Documents. "Collateral Documents" means a collective reference to the Security Agreement, the Pledge Agreement, the Mortgage Instruments and such other documents executed and delivered in connection with the attachment and perfection of the Agent's security interests and liens arising thereunder, including without limitation, UCC financing statements and patent and trademark filings. 6 12 "Commitment" means (i) with respect to each Lender, the Revolving Commitment of such Lender and (ii) with respect to the Issuing Lender, the LOC Commitment. "Commitment Percentage" means, for any Lender, the percentage identified as its Commitment Percentage on Schedule 2.1(a), as such percentage may be modified in connection with any assignment made in accordance with the provisions of Section 11.3. "Committed Amount" shall have the meaning assigned to such term in Section 2.1(a). "Consolidated Capital Expenditures" means, for any period, all capital expenditures of the Credit Parties on a consolidated basis for such period, as determined in accordance with GAAP. "Consolidated EBITDA" means, for any period, the sum of (i) Consolidated Net Income for such period, plus (ii) an amount which, in the determination of Consolidated Net Income for such period, has been deducted for (A) Consolidated Interest Expense, (B) total federal, state, local and foreign income, value added and similar taxes, (C) depreciation and amortization expense and (D) extraordinary or non-recurring losses and (E) losses on the sale or other disposition of assets, minus (iii) an amount which, in the determination of Consolidated Net Income for such period, has been included for (A) extraordinary or non-recurring gains and (E) gains on the sale or other disposition of assets, all as determined in accordance with GAAP. "Consolidated Interest Expense" means, for any period, interest expense (including the amortization of debt discount and premium, the interest component under Capital Leases and the implied interest component under Synthetic Leases) of the Credit Parties on a consolidated basis for such period, as determined in accordance with GAAP. "Consolidated Net Income" means, for any period, net income (excluding extraordinary items) after taxes for such period of the Credit Parties on a consolidated basis, as determined in accordance with GAAP. "Consolidated Net Worth" means, as of any date, shareholders' equity or net worth of the Credit Parties on a consolidated basis, as determined in accordance with GAAP. "Consolidated Scheduled Funded Debt Payments" means, as of the end of each fiscal quarter of the Credit Parties, for the Credit Parties on a consolidated basis, the sum of all scheduled payments of principal on Funded Indebtedness (other than Funded Indebtedness retired in connection with the Acquisition) for the applicable period ending on such date (including the principal component of payments due on Capital Leases during the applicable period ending on such date); it being understood that Scheduled Funded Debt Payments shall not include voluntary prepayments or the mandatory prepayments required pursuant to Section 3.3. 7 13 "Consulting Agreement " means that certain Agreement for Consulting Services dated March 31, 1998 by and between the Parent and CGW III, as amended, modified, extended, renewed or replaced from time to time. "Continue", "Continuation", and "Continued" shall refer to the continuation pursuant to Section 3.2 hereof of a Eurodollar Loan from one Interest Period to the next Interest Period. "Convert", "Conversion", and "Converted" shall refer to a conversion pursuant to Section 3.2 or Sections 3.7 through 3.12, inclusive, of a Base Rate Loan into a Eurodollar Loan. "Credit Documents" means a collective reference to this Credit Agreement, the Notes, the LOC Documents, each Joinder Agreement, the Agent's Fee Letter, the Collateral Documents and all other related agreements and documents issued or delivered hereunder or thereunder or pursuant hereto or thereto (in each case as the same may be amended, modified, restated, supplemented, extended, renewed or replaced from time to time), and "Credit Document" means any one of them. "Credit Parties" means a collective reference to the Borrower and the Guarantors, and "Credit Party" means any one of them. "Credit Party Obligations" means, without duplication, (i) all of the obligations of the Credit Parties to the Lenders (including the Issuing Lender) and the Agent, whenever arising, under this Credit Agreement, the Notes, the Collateral Documents or any of the other Credit Documents (including, but not limited to, any interest accruing after the occurrence of a Bankruptcy Event with respect to any Credit Party, regardless of whether such interest is an allowed claim under the Bankruptcy Code) and (ii) all liabilities and obligations, whenever arising, owing from the Borrower to any Lender, or any Affiliate of a Lender, arising under any Hedging Agreement. "Default" means any event, act or condition which with notice or lapse of time, or both, would constitute an Event of Default. "Defaulting Lender" means, at any time, any Lender that (a) has failed to make a Loan or purchase a Participation Interest required pursuant to the term of this Credit Agreement within one Business Day of when due, (b) other than as set forth in (a) above, has failed to pay to the Agent or any Lender an amount owed by such Lender pursuant to the terms of this Credit Agreement within one Business Day of when due, unless such amount is subject to a good faith dispute or (c) has been deemed insolvent or has become subject to a bankruptcy or insolvency proceeding or with respect to which (or with respect to any of assets of which) a receiver, trustee or similar official has been appointed. "Dollars" and "$" means dollars in lawful currency of the United States of America. 8 14 "Eligible Assets" means any long-term assets useful in the same or a similar line of business as the Credit Parties were engaged in on the Closing Date or any reasonable extensions or expansions thereof. "Eligible Assignee" means (i) a Lender; (ii) an Affiliate of a Lender; and (iii) any other Person approved by the Agent and, unless an Event of Default has occurred and is continuing at the time any assignment is effected in accordance with Section 11.3, the Borrower (such approval not to be unreasonably withheld or delayed by the Borrower and such approval to be deemed given by the Borrower if no objection is received by the assigning Lender and the Agent from the Borrower within two Business Days after notice of such proposed assignment has been provided by the assigning Lender to the Borrower); provided, however, that neither the Borrower nor an Affiliate of the Borrower shall qualify as an Eligible Assignee. "Environmental Laws" means any and all lawful and applicable Federal, state, local and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or other governmental restrictions relating to the environment or to emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes into the environment including, without limitation, ambient air, surface water, ground water, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes. "Equity Issuance" means any issuance by any Credit Party to any Person which is not a Credit Party of (a) shares of its Capital Stock, (b) any shares of its Capital Stock pursuant to the exercise of options or warrants or (c) any shares of its Capital Stock pursuant to the conversion of any debt securities to equity. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and any successor statute thereto, as interpreted by the rules and regulations thereunder, all as the same may be in effect from time to time. References to sections of ERISA shall be construed also to refer to any successor sections. "ERISA Affiliate" means an entity which is under common control with any Credit Party within the meaning of Section 4001(a)(14) of ERISA, or is a member of a group which includes any Credit Party and which is treated as a single employer under Sections 414(b) or (c) of the Code. "ERISA Event" means (i) with respect to any Plan, the occurrence of a Reportable Event or the substantial cessation of operations (within the meaning of Section 4062(e) of ERISA); (ii) the withdrawal by any Credit Party or any ERISA Affiliate from a Multiple Employer Plan during a plan year in which it was a substantial employer (as such term is defined in Section 4001(a)(2) of ERISA), or the termination of a Multiple Employer Plan; 9 15 (iii) the distribution of a notice of intent to terminate or the actual termination of a Plan pursuant to Section 4041(a)(2) or 4041A of ERISA; (iv) the institution of proceedings to terminate or the actual termination of a Plan by the PBGC under Section 4042 of ERISA; (v) any event or condition which could reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan; (vi) the complete or partial withdrawal of any Credit Party or any ERISA Affiliate from a Multiemployer Plan; (vii) the conditions for imposition of a lien under Section 302(f) of ERISA exist with respect to any Plan; or (vii) the adoption of an amendment to any Plan requiring the provision of security to such Plan pursuant to Section 307 of ERISA. "Eurodollar Loan" means any Loan that bears interest at a rate based upon the Eurodollar Rate. "Eurodollar Rate" means, for any Eurodollar Loan for any Interest Period therefor, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) determined by the Agent to be equal to the quotient obtained by dividing (a) the Interbank Offered Rate for such Eurodollar Loan for such Interest Period by (b) 1 minus the Eurodollar Reserve Requirement for such Eurodollar Loan for such Interest Period. "Eurodollar Reserve Requirement" means, at any time, the maximum rate at which reserves (including, without limitation, any marginal, special, supplemental, or emergency reserves) are required to be maintained under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) by member banks of the Federal Reserve System against "Eurocurrency liabilities" (as such term is used in Regulation D). Without limiting the effect of the foregoing, the Eurodollar Reserve Requirement shall reflect any other reserves required to be maintained by such member banks with respect to (i) any category of liabilities which includes deposits by reference to which the Adjusted Eurodollar Rate is to be determined, or (ii) any category of extensions of credit or other assets which include Eurodollar Loans. The Adjusted Eurodollar Rate shall be adjusted automatically on and as of the effective date of any change in the Eurodollar Reserve Requirement. "Event of Default" shall have the meaning as defined in Section 9.1. "Excluded Asset Disposition" means any Asset Disposition by any Credit Party to any Credit Party other than the Parent if (a) the Credit Parties shall cause to be executed and delivered such documents, instruments and certificates as the Agent may request so as to cause the Credit Parties to be in compliance with the terms of Section 7.13 after giving effect to such Asset Disposition and (b) after giving effect such Asset Disposition, no Default or Event of Default exists. "Executive Officer" of any Person means any of the chief executive officer, chief operating officer, president, vice president, chief financial officer or treasurer of such Person. 10 16 "Exempt Affiliate Transactions" means (a) transactions between or among the Borrower and/or its Wholly Owned Subsidiaries, (b) advances to officers of any Credit Party in the ordinary course of business to provide for the payment of reasonable expenses incurred by such persons in the performance of their responsibilities to the relevant Credit Party or in connection with any relocation, (c) fees and compensation paid to and indemnity provided on behalf of directors, officers or employees of any Credit Party in the ordinary course of business, (d) any employment agreement that is in effect on the Closing Date and any such agreement entered into by any Credit Party after the Closing Date in the ordinary course of business of such Credit Party, (e) any Restricted Payment that is not prohibited by Section 8.7, (f) payments to the General Partner or its designee of management and consulting fees in an amount in any fiscal year not to exceed $680,000 and (g) the delegation by the General Partner of its rights and obligations under the Consulting Agreement to the Management Company and (h) payment on the Closing Date to the the General Partner or its designee of an investment banking fee in an amount not to exceed $1,350,000. "Fees" means all fees payable pursuant to Section 3.5. "Federal Funds Rate" means, for any day, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day; provided that (a) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate charged to the Agent (in its individual capacity) on such day on such transactions as determined by the Agent. "Foreign Subsidiary" means, with respect to any Person, any Subsidiary of such Person which is not incorporated or organized under the laws of any State of the United States or the District of Columbia. "Funded Indebtedness" means, with respect to any Person, without duplication, (a) all Indebtedness of such Person other than Indebtedness of the types referred to in clause (e), (f), (g), (i), (l), (k) (to the extent that the related preferred Capital Stock issued by such Person, by the terms thereof, could not be (at the request of the holders thereof or otherwise) subject to mandatory sinking fund payments, redemption or other acceleration prior to the date 124 days after the Maturity Date) and (m) of the definition of "Indebtedness" set forth in this Section 1.1, (b) all Indebtedness of another Person of the type referred to in clause (a) above secured by (or for which the holder of such Funded Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on, or payable out of the proceeds of production from, Property owned or acquired by such Person, whether or not the obligations secured thereby have been assumed, (c) all 11 17 Guaranty Obligations of such Person with respect to Indebtedness of the type referred to in clause (a) above of another Person and (d) Indebtedness of the type referred to in clause (a) above of any partnership or unincorporated joint venture in which such Person is a general partner or is otherwise obligated thereunder. "GAAP" means generally accepted accounting principles in the United States applied on a consistent basis and subject to the terms of Section 1.3. "General Partner" means CGW Southeast III, L.L.C., a Delaware limited liability company and general partner of CGW III. "Governmental Authority" means any Federal, state, local or foreign court or governmental agency, authority, instrumentality or regulatory body. "Guarantors" means a collective reference to the Parent and each of the Subsidiary Guarantors, together with their successors and permitted assigns, and "Guarantor " means any one of them. "Guaranty Obligations" means, with respect to any Person, without duplication, any obligations of such Person (other than endorsements in the ordinary course of business of negotiable instruments for deposit or collection) guaranteeing or intended to guarantee any Indebtedness of any other Person in any manner, whether direct or indirect, and including without limitation any obligation, whether or not contingent, (i) to purchase any such Indebtedness or any Property constituting security therefor, (ii) to advance or provide funds or other support for the payment or purchase of any such Indebtedness or to maintain working capital, solvency or other balance sheet condition of such other Person (including without limitation keep well agreements, maintenance agreements, comfort letters or similar agreements or arrangements) for the benefit of any holder of Indebtedness of such other Person, (iii) to lease or purchase Property, securities or services primarily for the purpose of assuring the holder of such Indebtedness (but excluding any obligations of such Person as lessee under any Operating Lease), or (iv) to otherwise assure or hold harmless the holder of such Indebtedness against loss in respect thereof. The amount of any Guaranty Obligation hereunder shall (subject to any limitations set forth therein) be deemed to be an amount equal to the outstanding principal amount (or maximum principal amount, if larger) of the Indebtedness in respect of which such Guaranty Obligation is made. "Hedging Agreements" means any interest rate protection agreement or foreign currency exchange agreement between any Credit Party and any Lender, or any Affiliate of a Lender. "IDB Authority" means the Industrial Development Board of the City of Montgomery, Alabama. 12 18 "Indebtedness" means, with respect to any Person, without duplication, (a) all obligations of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, or upon which interest payments are customarily made, (c) all obligations of such Person under conditional sale or other title retention agreements relating to Property purchased by such Person (other than customary reservations or retentions of title under agreements with suppliers entered into in the ordinary course of business), (d) all obligations of such Person issued or assumed as the deferred purchase price of Property or services purchased by such Person (other than trade debt incurred in the ordinary course of business and due within six months of the incurrence thereof) which would appear as liabilities on a balance sheet of such Person, (e) all obligations of such Person under take-or-pay or similar arrangements or under commodities agreements, (f) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on, or payable out of the proceeds of production from, Property owned or acquired by such Person, whether or not the obligations secured thereby have been assumed, (g) all Guaranty Obligations of such Person, (h) the principal portion of all obligations of such Person under Capital Leases, (i) all obligations of such Person under Hedging Agreements, (j) the maximum amount of all standby letters of credit issued or bankers' acceptances facilities created for the account of such Person and, without duplication, all drafts drawn thereunder (to the extent unreimbursed), (k) all preferred Capital Stock issued by such Person and which by the terms thereof could be (at the request of the holders thereof or otherwise) subject to mandatory sinking fund payments, redemption or other acceleration prior to the date 124 days after the Maturity Date, (l) the principal portion of all obligations of such Person under Synthetic Leases and (m) the Indebtedness of any partnership or unincorporated joint venture in which such Person is a general partner or is otherwise obligated thereunder. "Interbank Offered Rate" means, for any Eurodollar Loan for any Interest Period therefor, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Telerate Page 3750 (or any successor page) as the London interbank offered rate for deposits in Dollars at approximately 11:00 A.M. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period. If for any reason such rate is not available, the term "Interbank Offered Rate" shall mean, for any Eurodollar Loan for any Interest Period therefor, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Reuters Screen LIBO Page as the London interbank offered rate for deposits in Dollars at approximately 11:00 A.M. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period; provided, however, if more than one rate is specified on Reuters Screen LIBO Page, the applicable rate shall be the arithmetic mean of all such rates (rounded upwards, if necessary, to the nearest 1/100 of 1%). "Interest Coverage Ratio" means, with respect to the Credit Parties on a consolidated basis for the twelve month period ending on the last day of any fiscal quarter of the Credit Parties, the ratio of (a) Consolidated EBITDA for such period to (b) Consolidated Interest Expense for such period. 13 19 "Interest Payment Date" means (a) as to Base Rate Loans, the last day of each fiscal quarter of the Borrower and the Maturity Date, and (b) as to Eurodollar Loans, the last day of each applicable Interest Period and the Maturity Date, and in addition where the applicable Interest Period for a Eurodollar Loan is greater than three months, then also the date three months from the beginning of the Interest Period and each three months thereafter. "Interest Period" means, as to Eurodollar Loans, a period of one, two, three or six months' duration, as the Borrower may elect, commencing, in each case, on the date of the borrowing (including continuations and conversions thereof); provided, however, (a) if any Interest Period would end on a day which is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day (except that where the next succeeding Business Day falls in the next succeeding calendar month, then on the next preceding Business Day), (b) no Interest Period shall extend beyond the Maturity Date, and (c) where an Interest Period begins on a day for which there is no numerically corresponding day in the calendar month in which the Interest Period is to end, such Interest Period shall end on the last Business Day of such calendar month. "Investment" in any Person means (a) the acquisition (whether for cash, property, services, assumption of Indebtedness, securities or otherwise, but exclusive of the acquisition of inventory, supplies, equipment and other assets used or consumed in the ordinary course of business and capital expenditures not otherwise prohibited hereunder) of assets, Capital Stock, bonds, notes, debentures, partnership, joint ventures or other ownership interests or other securities of such other Person or (b) any deposit with, or advance, loan or other extension of credit to, such Person (other than (i) deposits made in connection with the purchase of equipment or other assets in the ordinary course of business and (ii) deposits of the kinds referred to in clauses (iv) and (xi) of the definition of "Permitted Liens" set forth in this Section 1.1) or (c) any other capital contribution to or investment in such Person, including, without limitation, any Guaranty Obligations (including any support for a letter of credit issued on behalf of such Person) incurred for the benefit of such Person, but excluding any Restricted Payment to such Person; provided that an acquisition of assets, Capital Stock by the Borrower for consideration consisting of common Capital Stock of the Borrower shall not be deemed to be an Investment. The term "Investment" shall not include any transaction of the type described in clause (ii) of the definition of "Restricted Payment" set forth in this Section 1.1. "Issuing Lender" means NationsBank. "Issuing Lender Fees" shall have the meaning assigned to such term in Section 3.5(c)(ii). "Joinder Agreement" means a Joinder Agreement substantially in the form of Exhibit 7.12 hereto, executed and delivered by an Additional Credit Party in accordance with the provisions of Section 7.12. 14 20 "Lender" means any of the Persons identified as a "Lender" on the signature pages hereto, and any Person which may become a Lender by way of assignment in accordance with the terms hereof, together with their successors and permitted assigns. "Letter of Credit" means any letter of credit issued by the Issuing Lender for the account of the Borrower in accordance with the terms of Section 2.2. "Lien" means any mortgage, pledge, hypothecation, assignment, deposit arrangement, security interest, encumbrance, lien (statutory or otherwise), preference, priority or charge of any kind (including any agreement to give any of the foregoing, any conditional sale or other title retention agreement, any financing or similar statement or notice filed under the Uniform Commercial Code as adopted and in effect in the relevant jurisdiction or other similar recording or notice statute, and any lease in the nature thereof). "Loans" shall have the meaning assigned to such term in Section 2.1(a). and shall include a portion of any Loan bearing interest at the Adjusted Base Rate or the Adjusted Eurodollar Rate. "LOC Commitment" means the commitment of the Issuing Lender to issue Letters of Credit in an aggregate face amount at any time outstanding (together with the amounts of any unreimbursed drawings thereon) of up to the Committed Amount. "LOC Documents" means, with respect to any Letter of Credit, such Letter of Credit, any amendments thereto, any documents delivered in connection therewith, any application therefor, and any agreements, instruments, guarantees or other documents (whether general in application or applicable only to such Letter of Credit) governing or providing for (i) the rights and obligations of the parties concerned or at risk or (ii) any collateral security for such obligations. "LOC Obligations" means, at any time, the sum of (i) the maximum amount which is, or at any time thereafter may become, available to be drawn under Letters of Credit then outstanding, assuming compliance with all requirements for drawings referred to in such Letters of Credit plus (ii) the aggregate amount of all drawings under Letters of Credit honored by the Issuing Lender but not theretofore reimbursed by the Borrower. "Management Company" means CGW Southeast Management III, L.L.C., a Georgia limited liability company. "Material Adverse Effect" means a material adverse effect on (i) the condition (financial or otherwise), operations, business, assets, liabilities or prospects of the Credit Parties taken as a whole, (ii) the ability of any Credit Party to perform any material obligation under the Credit Documents to which it is a party or (iii) the material rights and remedies of the Lenders under the Credit Documents. 15 21 "Materials of Environmental Concern" means any gasoline or petroleum (including crude oil or any fraction thereof) or petroleum products or any hazardous or toxic substances, materials or wastes, defined or regulated as such in or under any Environmental Laws, including, without limitation, asbestos, polychlorinated biphenyls and urea-formaldehyde insulation. "Maturity Date" means March 31, 2003. "Moody's" means Moody's Investors Service, Inc., or any successor or assignee of the business of such company in the business of rating securities. "Mortgage Instruments" shall have the meaning assigned such term in Section 5.1(e). "Mortgage Policies" shall have the meaning assigned such term in Section 5.1(e). "Mortgaged Properties" shall have the meaning assigned such term in Section 5.1(e). "Multiemployer Plan" means a Plan which is a multiemployer plan as defined in Sections 3(37) or 4001(a)(3) of ERISA. "Multiple Employer Plan" means a Plan which any Credit Party or any ERISA Affiliate and at least one employer other than the Credit Parties or any ERISA Affiliate are contributing sponsors. "NationsBank" means NationsBank, N. A., in its individual capacity, and its successors. "Net Cash Proceeds" means the aggregate cash proceeds received by the Credit Parties in respect of any Asset Disposition or Equity Issuance, net of (a) direct costs (including, without limitation, legal, accounting and investment banking fees, brokerage fees and sales commissions), (b) taxes paid or payable as a result thereof and (c) in the case of an Asset Disposition, any Indebtedness that is secured by the asset disposed in such transaction and which is repaid in connection with such Asset Disposition; it being understood that "Net Cash Proceeds" shall include, without limitation, any cash received upon the sale or other disposition of any non-cash consideration received by the Credit Parties in any Asset Disposition or Equity Issuance, as applicable. "Net Leverage Ratio" means, with respect to the Credit Parties on a consolidated basis for the twelve month period ending on the last day of any fiscal quarter, the ratio of (a) Funded Indebtedness of the Credit Parties on a consolidated basis on the last day of such period minus cash and Cash Equivalents of the Credit Parties on a consolidated basis on the last day of such period to (b) Consolidated EBITDA for such period. 16 22 "Non-Recourse Debt" means Indebtedness (i) as to which neither the Borrower nor any of its Subsidiaries (a) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness), (b) is directly or indirectly liable (as a guarantor or otherwise), or (c) constitutes the lender; and (ii) no default with respect to which (including any rights that the holders thereof may have to take enforcement action against a Subsidiary) would permit (upon notice, lapse of time or both) any holder of any other Indebtedness of the Borrower or any of its Subsidiaries to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity; and (iii) as to which the lenders have been notified in writing that they will not have any recourse to the stock or assets of the Borrower or any of its Subsidiaries. "Note" or "Notes" means the promissory notes of the Borrower in favor of each of the Lenders evidencing the Loans provided pursuant to Section 2.1(e), individually or collectively, as appropriate, as such promissory notes may be amended, modified, restated, supplemented, extended, renewed or replaced from time to time. "Notice of Borrowing" means a written notice of borrowing in substantially the form of Exhibit 2.1(b)(i), as required by Section 2.1(b)(i). "Notice of Extension/Conversion" means the written notice of extension or conversion in substantially the form of Exhibit 3.2, as required by Section 3.2. "Operating Lease" means, as applied to any Person, any lease (including, without limitation, leases which may be terminated by the lessee at any time) of any Property (whether real, personal or mixed) which is not a Capital Lease other than any such lease in which that Person is the lessor. "Other Taxes" shall have the meaning assigned to such term in Section 3.11. "Parent" means the Person identified as such in the heading hereof, together with any permitted successors and assigns. "Participation Interest" means a purchase by a Lender of a participation in Letters of Credit or LOC Obligations as provided in Section 2.2 or in any Loans as provided in Section 3.14. "PBGC" means the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA and any successor thereof. "Permitted Business" means any business that manufactures and/or sells silicon metal or microsilica, or any business that is reasonably similar thereto or a reasonable extension, development or expansion thereof or ancillary thereto. 17 23 "Permitted Investments" means Investments which are either (i) cash and Cash Equivalents, (ii) accounts receivable created, acquired or made by any Credit Party in the ordinary course of business and payable or dischargeable in accordance with customary trade terms, (iii) Investments consisting of Capital Stock, obligations, securities or other property received by any Credit Party in settlement of accounts receivable (created in the ordinary course of business) from bankrupt obligors, (iv) Investments existing as of the Closing Date and set forth in Schedule 1.1A, (v) Guaranty Obligations permitted by Section 8.1, (vi) transactions permitted by Section 8.9, (vii) advances or loans to directors, officers, employees, agents, customers or suppliers that do not exceed $500,000 in the aggregate at any one time outstanding for all of the Credit Parties, (viii) Investments in any Credit Party other than the Parent, (ix) advances, loans or other extensions of credit described in clause (b) of the definition of "Exempt Affiliate Transactions" set forth in this Section 1.1, (x) any Investment paid for solely with the Capital Stock of the Parent, (xi) any other Investment by any Credit Party made solely with proceeds of capital contributions in the Parent or with the Net Cash Proceeds of an Equity Issuance by the Parent and (xii) other Investments having an aggregate fair market value (measured on the date any such Investment is made and without giving effect to subsequent changes in value) that, when taken together with all other Investments made pursuant to this clause (xii) that at the time outstanding, not to exceed $5,000,000. "Permitted Liens" means: (i) Liens in favor of the Agent to secure the Credit Party Obligations; (ii) Liens (other than Liens created or imposed under ERISA) for taxes, assessments or governmental charges or levies not yet due or Liens for taxes being contested in good faith by appropriate proceedings for which adequate reserves determined in accordance with GAAP have been established (and as to which the Property subject to any such Lien is not yet subject to foreclosure, sale or loss on account thereof); (iii) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, materialmen and suppliers and other Liens imposed by law or pursuant to customary reservations or retentions of title arising in the ordinary course of business, provided that such Liens secure only amounts not yet due and payable or, if due and payable, are unfiled and no other action has been taken to enforce the same or are being contested in good faith by appropriate proceedings for which adequate reserves determined in accordance with GAAP have been established (and as to which the Property subject to any such Lien is not yet subject to foreclosure, sale or loss on account thereof); (iv) Liens (other than Liens created or imposed under ERISA) incurred or deposits made by any Credit Party in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, or to secure the performance of tenders, statutory obligations, bids, leases, government contracts, performance and return-of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money); 18 24 (v) Liens in connection with attachments or judgments (including judgment or appeal bonds) provided that the judgments secured shall, within 30 days after the entry thereof, have been discharged or execution thereof stayed pending appeal, or shall have been discharged within 30 days after the expiration of any such stay; (vi) easements, rights-of-way, restrictions (including zoning restrictions), minor defects or irregularities in title and other similar charges or encumbrances not, in any material respect, impairing the use of the encumbered Property for its intended purposes; (vii) Liens on Property securing purchase money Indebtedness (including Capital Leases and Synthetic Leases) to the extent permitted under Section 8.1(c), provided that any such Lien attaches to such Property concurrently with or within 90 days after the acquisition thereof; (viii) leases or subleases granted to others not interfering in any material respect with the business of any Credit Party; (ix) any interest of title of a lessor under, and Liens arising from UCC financing statements (or equivalent filings, registrations or agreements in foreign jurisdictions) relating to, leases permitted by this Credit Agreement; (x) Liens deemed to exist in connection with Investments in repurchase agreements permitted under Section 8.6; (xi) normal and customary rights of setoff upon deposits of cash in favor of banks or other depository institutions; (xii) Liens securing Indebtedness not to exceed $1,000,000 in an aggregate principal amount outstanding at any time; and (xiii) Liens existing as of the Closing Date and set forth on Schedule 1.1B; provided that (a) no such Lien shall at any time be extended to or cover any Property other than the Property subject thereto on the Closing Date and (b) the principal amount of the Indebtedness secured by such Liens shall not be extended, renewed, refunded or refinanced. "Permitted Refinancing Indebtedness" means any Indebtedness of the Borrower or any of its Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other Indebtedness of the Borrower or any of its Subsidiaries (other than intercompany Indebtedness); provided that: (i) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount of (or accreted value, if applicable), plus accrued interest on, the Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded (plus the amount of reasonable expenses incurred in connection 19 25 therewith); (ii) such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the Senior Notes, such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and is subordinated in right of payment to, the Credit Party Obligations on terms at least as favorable to the Lenders as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; and (iv) such Indebtedness is incurred either by the Borrower or by the Subsidiary who is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded. "Person" means any individual, partnership, joint venture, firm, corporation, limited liability company, association, trust or other enterprise (whether or not incorporated) or any Governmental Authority. "Plan" means any employee benefit plan (as defined in Section 3(3) of ERISA) which is covered by ERISA and with respect to which any Credit Party or any ERISA Affiliate is (or, if such plan were terminated at such time, would under Section 4069 of ERISA be deemed to be) an "employer" within the meaning of Section 3(5) of ERISA. "Pledge Agreement" means the pledge agreement dated as of the Closing Date in the form of Exhibit 1.1A to be executed in favor of the Agent by each of the Credit Parties, as amended, modified, restated or supplemented from time to time. "Prime Rate" means the per annum rate of interest established from time to time by NationsBank as its prime rate, which rate may not be the lowest rate of interest charged by NationsBank to its customers. "Principal Office" means the principal office of NationsBank, presently located at Charlotte, North Carolina. "Property" means any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible. "Purchase Agreement" means (i) the Stock Purchase Agreement by and among Simcala, Inc., a Delaware corporation, the individuals and entities listed under the heading "Sellers" on the signature pages thereto, as sellers, and SAC Acquisition Corp., a Georgia corporation, as buyer, dated as of February 10, 1998, as it may be amended on or prior to the Closing Date, and (ii) the Escrow Agreement by and among SAC Acquisition Corp., a Georgia corporation, as buyer, the individuals and entities listed under the heading "Sellers" on the signature pages thereto, as sellers, and SunTrust Bank, Atlanta, a Georgia banking corporation, dated as of March 31, 1998, as it may be amended on or prior to the Closing Date. 20 26 "Register" shall have the meaning given such term in Section 11.3(c). "Regulation G, T, U, or X" means Regulation G, T, U or X, respectively, of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof. "Release" means any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping or disposing into the environment (including the abandonment or discarding of barrels, containers and other closed receptacles) of any Materials of Environmental Concern. "Reportable Event" means any of the events set forth in Section 4043(c) of ERISA, other than those events as to which the notice requirement has been waived by regulation. "Required Financial Information" means, with respect to the applicable Calculation Date, (i) the financial statements of the Credit Parties required to be delivered pursuant to Section 7.1(a) or (b) for the fiscal period or quarter ending as of such Calculation Date, and (ii) the certificate of an Executive Officer of the Borrower required by Section 7.1(c) to be delivered with the financial statements described in clause (i) above. "Required Lenders" means, at any time, Lenders (which are not at such time Defaulting Lenders (as determined by the Agent)) and holding in the aggregate at least 51% (if, at such time, there are more than two Lenders hereunder) or 66 2/3% (if, at such time, there are two Lenders only) of (i) the Commitments (and Participation Interests therein) or (ii) if the Commitments have been terminated, the outstanding Loans and Participation Interests (including the Participation Interests of the Issuing Lender in any Letters of Credit). "Requirement of Law" means, as to any Person, the certificate of incorporation and by-laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation or final, non-appealable determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or to which any of its material property is subject. "Restricted Payment" means (i) any dividend or other distribution, direct or indirect, on account of any shares of any class of Capital Stock of any Credit Party, now or hereafter outstanding, (ii) any redemption, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any shares of any class of Capital Stock of any Credit Party, now or hereafter outstanding, (iii) any payment made to retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire shares of any class of Capital Stock of any Credit Party, now or hereafter outstanding and (iv) any loan, advance or other distribution to the Parent. 21 27 "Revolving Commitment" means, with respect to each Lender, the commitment of such Lender in an aggregate principal amount at any time outstanding of up to such Lender's Commitment Percentage of the Committed Amount, (i) to make Loans in accordance with the provisions of Section 2.1(a) and (ii) to purchase Participation Interests in Letters of Credit in accordance with the provisions of Section 2.2(c). "S&P" means Standard & Poor's Ratings Group, a division of McGraw Hill, Inc., or any successor or assignee of the business of such division in the business of rating securities. "Sale and Leaseback Transaction" means any direct or indirect arrangement with any Person or to which any such Person is a party, providing for the leasing to any Credit Party of any Property, whether owned by such Credit Party as of the Closing Date or later acquired, which has been or is to be sold or transferred by such Credit Party to such Person or to any other Person from whom funds have been, or are to be, advanced by such Person on the security of such Property. "Security Agreement" means the security agreement dated as of the Closing Date in the form of Exhibit 1.1B to be executed in favor of the Agent by each of the Credit Parties, as amended, modified, restated or supplemented from time to time. "Senior Note" means any one of the __% Senior Notes due 2006, issued by the Borrower pursuant to the Senior Note Agreement, as such Senior Notes may be amended, modified, restated or supplemented and in effect from time to time. "Senior Note Agreement" means the Indenture, dated as of the Closing Date, by and between the Borrower and IBJ Schroeder Bank & Trust Company, as trustee for the Senior Noteholders, as the same may be amended, modified, restated or supplemented and in effect from time to time. "Senior Noteholder" means any one of the holders from time to time of the Senior Notes. "Single Employer Plan" means any Plan which is covered by Title IV of ERISA, but which is not a Multiemployer Plan or a Multiple Employer Plan. "Solvent" or "Solvency" means, with respect to any Person as of a particular date, that on such date (i) such Person is able to realize upon its assets and pay its debts and other liabilities, contingent obligations and other commitments as they mature in the normal course of business, (ii) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person's ability to pay as such debts and liabilities mature in their ordinary course, (iii) such Person is not engaged in a business or a transaction, and is not about to engage in a business or a transaction, for which such Person's Property would constitute unreasonably small capital after giving due consideration to the prevailing practice in the industry in which such Person is engaged or 22 28 is to engage, (iv) the fair value of the Property of such Person is greater than the total amount of liabilities, including, without limitation, contingent liabilities, of such Person and (v) the present fair salable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured. In computing the amount of contingent liabilities at any time, it is intended that such liabilities will be computed at the amount which, in light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability. "Standby Letter of Credit Fee" shall have the meaning assigned to such term in Section 3.5(c)(i). "Subsidiary" means, as to any Person at any time, (a) any corporation more than 50% of whose Capital Stock of any class or classes having by the terms thereof ordinary voting power to elect a majority of the directors of such corporation (irrespective of whether or not at such time, any class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at such time owned by such Person directly or indirectly through Subsidiaries, and (b) any partnership, association, joint venture or other entity of which such Person directly or indirectly through Subsidiaries owns at such time more than 50% of the Capital Stock. "Subsidiary Guarantor" means each of the Persons identified as a "Subsidiary Guarantor" on the signature pages hereto and each Additional Credit Party which may hereafter execute a Joinder Agreement, together with their successors and permitted assigns, and "Subsidiary Guarantor" means any one of them "Synthetic Lease" means any synthetic lease, tax retention operating lease, off-balance sheet loan or similar off-balance sheet financing product where such transaction is considered borrowed money indebtedness for tax purposes but is classified as an Operating Lease. "Taxes" shall have the meaning assigned to such term in Section 3.11. "Total Leverage Ratio" means, with respect to the Credit Parties on a consolidated basis for the twelve month period ending on the last day of any fiscal quarter, the ratio of (a) Funded Indebtedness of the Credit Parties on a consolidated basis on the last day of such period to (b) Consolidated EBITDA for such period. "Trade Letter of Credit Fee" shall have the meaning assigned to such term in Section 3.5(c)(ii). "Unused Fee" shall have the meaning assigned to such term in Section 3.5(b). "Unused Fee Calculation Period" shall have the meaning assigned to such term in Section 3.5(b). "Unused Committed Amount" means, for any period, the amount by which (a) the then applicable Committed Amount exceeds (b) the daily average sum for such period of (i) the outstanding aggregate principal amount of all Loans plus (ii) the outstanding aggregate principal amount of all LOC Obligations. "Upfront Fee" shall have the meaning assigned to such term in Section 3.5(a). 23 29 "Voting Stock" means, with respect to any Person, Capital Stock issued by such Person the holders of which are ordinarily, in the absence of contingencies, entitled to vote for the election of directors (or persons performing similar functions) of such Person, even though the right so to vote has been suspended by the happening of such a contingency. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (i) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof , by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by (ii) the then outstanding principal amount of such Indebtedness. "Wholly Owned Subsidiary" of any Person means any Subsidiary 100% of whose Voting Stock is at the time owned by such Person directly or indirectly through other Wholly Owned Subsidiaries. 1.2 COMPUTATION OF TIME PERIODS. For purposes of computation of periods of time hereunder, the word "from" means "from and including" and the words "to" and "until" each mean "to but excluding." 1.3 ACCOUNTING TERMS. Except as otherwise expressly provided herein, all accounting terms used herein shall be interpreted, and all financial statements and certificates and reports as to financial matters required to be delivered to the Lenders hereunder shall be prepared, in accordance with GAAP applied on a consistent basis. All calculations made for the purposes of determining compliance with this Credit Agreement shall (except as otherwise expressly provided herein) be made by application of GAAP applied on a basis consistent with the most recent annual or quarterly financial statements delivered pursuant to Section 7.1 (or, prior to the delivery of the first financial statements pursuant to Section 7.1, consistent with the financial statements as at December 31, 1997); provided, however, if (a) the Borrower shall object to determining such compliance on such basis at the time of delivery of such financial statements due to any change in GAAP or the rules promulgated with respect thereto or (b) the Agent or the Required Lenders shall so object in writing within 60 days after delivery of such financial statements, then such calculations shall be 24 30 made on a basis consistent with the most recent financial statements delivered by the Borrower to the Lenders as to which no such objection shall have been made. Notwithstanding the above, the parties hereto acknowledge and agree that, for purposes of all calculations made in determining compliance with the financial covenants set forth in Section 7.11 (including without limitation for purposes of the definition of "Applicable Percentage" set forth in Section 1.1), (i)(A) income statement items (whether positive or negative) attributable to the Property disposed of in any Asset Disposition as contemplated by Section 8.5, as applicable, shall be excluded to the extent relating to any period occurring prior to the date of such transaction and (B) Indebtedness which is retired in connection with any such Asset Disposition shall be excluded and deemed to have been retired as of the first day of the applicable period and (ii) income statement items (whether positive or negative) attributable to any Property acquired in any Investment transaction permitted by Section 8.6 shall be included to the extent relating to any period applicable in such calculations occurring after the date of such transaction (and, notwithstanding the foregoing, during the first four fiscal quarters prior to the date of such transaction, shall be included on a pro forma basis). SECTION 2 CREDIT FACILITIES 2.1 LOANS. (a) Revolving Commitment. Subject to the terms and conditions hereof and in reliance upon the representations and warranties set forth herein, each Lender severally agrees to make available to the Borrower such Lender's Commitment Percentage of revolving credit loans requested by the Borrower in Dollars ("Loans") from time to time from the Closing Date until the Maturity Date, or such earlier date as the Revolving Commitments shall have been terminated as provided herein for the purposes hereinafter set forth; provided, however, that the sum of the aggregate principal amount of outstanding Loans shall not exceed FIFTEEN MILLION DOLLARS ($15,000,000) (as such aggregate maximum amount may be reduced from time to time as provided in Section 3.4, the "Committed Amount"); provided, further, (A) with regard to each Lender individually, such Lender's outstanding Loans shall not exceed such Lender's Commitment Percentage of the Committed Amount, and (B) the aggregate principal amount of outstanding Loans plus LOC Obligations outstanding shall not exceed the Committed Amount. Loans may consist of Base Rate Loans or Eurodollar Loans, or a combination thereof, as the Borrower may request; provided, however, that no more than 5 Eurodollar Loans shall be outstanding hereunder at any time. For purposes hereof, Eurodollar Loans with different Interest Periods shall be considered as separate Eurodollar Loans, even if they begin on the same date, although borrowings, extensions and conversions may, in accordance with the provisions hereof, be combined at the end of existing Interest Periods to constitute a new Eurodollar Loan with a single Interest Period. Loans hereunder may be repaid and reborrowed in accordance with the provisions hereof. 25 31 (b) Loan Borrowings. (i) Notice of Borrowing. The Borrower shall request a Loan borrowing by written notice (or telephonic notice promptly confirmed in writing) to the Agent not later than 1:00 P.M. (Charlotte, North Carolina time) on the Business Day prior to the date of the requested borrowing in the case of Base Rate Loans, and on the third Business Day prior to the date of the requested borrowing in the case of Eurodollar Loans. Each such request for borrowing shall be irrevocable and shall specify (A) that a Loan is requested, (B) the date of the requested borrowing (which shall be a Business Day), (C) the aggregate principal amount to be borrowed, and (D) whether the borrowing shall be comprised of Base Rate Loans, Eurodollar Loans or a combination thereof, and if Eurodollar Loans are requested, the Interest Period(s) therefor. If the Borrower shall fail to specify in any such Notice of Borrowing (I) an applicable Interest Period in the case of a Eurodollar Loan, then such notice shall be deemed to be a request for an Interest Period of one month, or (II) the type of Loan requested, then such notice shall be deemed to be a request for a Base Rate Loan hereunder. The Agent shall give notice to each affected Lender promptly upon receipt of each Notice of Borrowing pursuant to this Section 2.1(b)(i), the contents thereof and each such Lender's share of any borrowing to be made pursuant thereto. (ii) Minimum Amounts. Each Eurodollar Loan or Base Rate Loan that is a Loan shall be in a minimum aggregate principal amount of $100,000 and integral multiples of $50,000 in excess thereof (or the remaining amount of the Committed Amount, if less). (iii) Advances. Each Lender will make its Commitment Percentage of each Loan borrowing available to the Agent for the account of the Borrower as specified in Section 3.15(a), or in such other manner as the Agent may specify in writing, by 2:00 P.M. (Charlotte, North Carolina time) on the date specified in the applicable Notice of Borrowing in Dollars and in funds immediately available to the Agent. Such borrowing will then be made available to the Borrower by the Agent by crediting the account of the Borrower on the books of such office with the aggregate of the amounts made available to the Agent by the Lenders and in like funds as received by the Agent. (c) Repayment. The principal amount of all Loans shall be due and payable in full on the Maturity Date, unless accelerated sooner pursuant to Section 9.2. (d) Interest. Subject to the provisions of Section 3.1, (i) Base Rate Loans. During such periods as Loans shall be comprised in whole or in part of Base Rate Loans, such Base Rate Loans shall bear interest at a per annum rate equal to the Adjusted Base Rate. 26 32 (ii) Eurodollar Loans. During such periods as Loans shall be comprised in whole or in part of Eurodollar Loans, such Eurodollar Loans shall bear interest at a per annum rate equal to the Adjusted Eurodollar Rate. Interest on Loans shall be payable in arrears on each applicable Interest Payment Date (or at such other times as may be specified herein). (e) Notes. The Loans made by each Lender shall be evidenced by a duly executed promissory note of the Borrower to such Lender in an original principal amount equal to such Lender's Commitment Percentage of the Committed Amount and in substantially the form of Exhibit 2.1(e). 2.2 LETTER OF CREDIT SUBFACILITY. (a) Issuance. Subject to the terms and conditions hereof and of the LOC Documents, if any, and any other terms and conditions which the Issuing Lender may reasonably require and in reliance upon the representations and warranties set forth herein, the Issuing Lender agrees to issue, and each Lender severally agrees to participate in the issuance by the Issuing Lender of, standby and trade Letters of Credit in Dollars from time to time from the Closing Date until the date five (5) Business Days prior to the Maturity Date as the Borrower may request, in a form acceptable to the Issuing Lender; provided, however, that (i) the LOC Obligations outstanding shall not at any time exceed the Committed Amount and (ii) the sum of the aggregate principal amount of outstanding Loans plus LOC Obligations outstanding shall not at any time exceed the Committed Amount. No Letter of Credit shall (x) have an original expiry date more than one year (or, in the case of any Letter of Credit issued to support reimbursement obligations arising in connection with industrial development bonds, thirteen months) from the date of issuance or (y) as originally issued or as extended, have an expiry date extending beyond the Maturity Date. Each Letter of Credit shall comply with the related LOC Documents. The issuance and expiry dates of each Letter of Credit shall be a Business Day. (b) Notice and Reports. The request for the issuance of a Letter of Credit shall be submitted by the Borrower to the Issuing Lender at least three (3) Business Days prior to the requested date of issuance. The Issuing Lender will, at least quarterly and more frequently upon request, disseminate to each of the Lenders a detailed report specifying the Letters of Credit which are then issued and outstanding and any activity with respect thereto which may have occurred since the date of the prior report, and including therein, among other things, the beneficiary, the face amount and the expiry date, as well as any payment or expirations which may have occurred. (c) Participation. Each Lender, upon issuance of a Letter of Credit, shall be deemed to have purchased without recourse a Participation Interest from the Issuing Lender in such Letter of Credit and the obligations arising thereunder and any collateral relating thereto, in each case in an amount equal to its pro rata share of the obligations 27 33 under such Letter of Credit (based on the respective Commitment Percentages of the Lenders) and shall absolutely, unconditionally and irrevocably assume and be obligated to pay to the Issuing Lender and discharge when due, its pro rata share of the obligations arising under such Letter of Credit. Without limiting the scope and nature of each Lender's Participation Interest in any Letter of Credit, to the extent that the Issuing Lender has not been reimbursed as required hereunder or under any such Letter of Credit, each such Lender shall pay to the Issuing Lender its pro rata share of such unreimbursed drawing in same day funds on the day of notification by the Issuing Lender of an unreimbursed drawing pursuant to the provisions of subsection (d) below. The obligation of each Lender to so reimburse the Issuing Lender shall be absolute and unconditional and shall not be affected by the occurrence of a Default, an Event of Default or any other occurrence or event. Any such reimbursement shall not relieve or otherwise impair the obligation of the Borrower to reimburse the Issuing Lender under any Letter of Credit, together with interest as hereinafter provided. (d) Reimbursement. In the event of any drawing under any Letter of Credit, the Issuing Lender will promptly notify the Borrower. Unless the Borrower shall immediately notify the Issuing Lender that the Borrower intends to otherwise reimburse the Issuing Lender for such drawing, the Borrower shall be deemed to have requested that the Lenders make a Loan in the amount of the drawing as provided in subsection (e) below on the related Letter of Credit, the proceeds of which will be used to satisfy the related reimbursement obligations. The Borrower promises to reimburse the Issuing Lender on the day of drawing under any Letter of Credit (either with the proceeds of a Loan obtained hereunder or otherwise) in same day funds. If the Borrower shall fail to reimburse the Issuing Lender as provided hereinabove, the unreimbursed amount of such drawing shall bear interest at a per annum rate equal to the Adjusted Base Rate plus 2%. The Borrower's reimbursement obligations hereunder shall, subject to gross negligence or willful misconduct on the part of the Issuing Lender, be absolute and unconditional under all circumstances irrespective of any rights of setoff, counterclaim or defense to payment the Borrower may claim or have against the Issuing Lender, the Agent, the Lenders, the beneficiary of the Letter of Credit drawn upon or any other Person, including without limitation any defense based on any failure of the Borrower or any other Credit Party to receive consideration or the legality, validity, regularity or unenforceability of the Letter of Credit. The Issuing Lender will promptly notify the other Lenders of the amount of any unreimbursed drawing and each Lender shall promptly pay to the Agent for the account of the Issuing Lender in Dollars and in immediately available funds, the amount of such Lender's pro rata share of such unreimbursed drawing. Such payment shall be made on the day such notice is received by such Lender from the Issuing Lender if such notice is received at or before 2:00 P.M. (Charlotte, North Carolina time) otherwise such payment shall be made at or before 12:00 Noon (Charlotte, North Carolina time) on the Business Day next succeeding the day such notice is received. If such Lender does not pay such amount to the Issuing Lender in full upon such request, such Lender shall, on demand, pay to the Agent for the account of the Issuing Lender interest on the unpaid amount during the period from the date of such drawing until such Lender pays such amount to the Issuing Lender in full at a rate per annum equal to, if paid within two (2) Business Days of 28 34 the date that such Lender is required to make payments of such amount pursuant to the preceding sentence, the Federal Funds Rate and thereafter at a rate equal to the Base Rate. Each Lender's obligation to make such payment to the Issuing Lender, and the right of the Issuing Lender to receive the same, shall be absolute and unconditional, shall not be affected by any circumstance whatsoever and without regard to the termination of this Credit Agreement or the Commitments hereunder, the existence of a Default or Event of Default or the acceleration of the obligations of the Borrower hereunder and shall be made without any offset, abatement, withholding or reduction whatsoever. Simultaneously with the making of each such payment by a Lender to the Issuing Lender, such Lender shall, automatically and without any further action on the part of the Issuing Lender or such Lender, acquire a Participation Interest in an amount equal to such payment (excluding the portion of such payment constituting interest owing to the Issuing Lender) in the related unreimbursed drawing portion of the LOC Obligation and in the interest thereon and in the related LOC Documents, and shall have a claim against the Borrower with respect thereto. (e) Repayment with Loans. On any day on which the Borrower shall have requested, or been deemed to have requested, a Loan advance to reimburse a drawing under a Letter of Credit, the Agent shall give notice to the Lenders that a Loan has been requested or deemed requested by the Borrower to be made in connection with a drawing under a Letter of Credit, in which case a Loan advance comprised of Base Rate Loans (or Eurodollar Loans to the extent the Borrower has complied with the procedures of Section 2.1(b)(i) with respect thereto) shall be immediately made to the Borrower by all Lenders (notwithstanding any termination of the Commitments pursuant to Section 9.2) pro rata based on the respective Commitment Percentages of the Lenders (determined before giving effect to any termination of the Commitments pursuant to Section 9.2) and the proceeds thereof shall be paid directly to the Issuing Lender for application to the respective LOC Obligations. Each such Lender hereby irrevocably agrees to make its pro rata share of each such Loan immediately upon any such request or deemed request in the amount, in the manner and on the date specified in the preceding sentence notwithstanding (i) the amount of such borrowing may not comply with the minimum amount for advances of Loans otherwise required hereunder, (ii) whether any conditions specified in Section 5.2 are then satisfied, (iii) whether a Default or an Event of Default then exists, (iv) failure for any such request or deemed request for Loan to be made by the time otherwise required hereunder, (v) whether the date of such borrowing is a date on which Loans are otherwise permitted to be made hereunder or (vi) any termination of the Commitments relating thereto immediately prior to or contemporaneously with such borrowing. In the event that any Loan cannot for any reason be made on the date otherwise required above (including, without limitation, as a result of the commencement of a proceeding under the Bankruptcy Code with respect to the Borrower or any Credit Party), then each such Lender hereby agrees that it shall forthwith purchase (as of the date such borrowing would otherwise have occurred, but adjusted for any payments received from the Borrower on or after such date and prior to such purchase) from the Issuing Lender such Participation Interests in the outstanding LOC Obligations as shall be necessary to cause each such Lender to share in such LOC Obligations ratably (based upon the respective Commitment Percentages of the Lenders (determined before giving effect to any termination of the 29 35 Commitments pursuant to Section 9.2)), provided that at the time any purchase of Participation Interests pursuant to this sentence is actually made, the purchasing Lender shall be required to pay to the Issuing Lender, to the extent not paid to the Issuer by the Borrower in accordance with the terms of subsection (d) above, interest on the principal amount of Participation Interests purchased for each day from and including the day upon which such borrowing would otherwise have occurred to but excluding the date of payment for such Participation Interests, at the rate equal to, if paid within two (2) Business Days of the date of the Loan advance, the Federal Funds Rate, and thereafter at a rate equal to the Base Rate. (f) Designation of Credit Parties as Account Parties. Notwithstanding anything to the contrary set forth in this Credit Agreement, including without limitation Section 2.2(a), a Letter of Credit issued hereunder may contain a statement to the effect that such Letter of Credit is issued for the account of a Credit Party other than the Borrower or the Parent, provided that notwithstanding such statement, the Borrower shall be the actual account party for all purposes of this Credit Agreement for such Letter of Credit and such statement shall not affect the Borrower's reimbursement obligations hereunder with respect to such Letter of Credit. (g) Renewal, Extension. The renewal or extension of any Letter of Credit shall, for purposes hereof, be treated in all respects the same as the issuance of a new Letter of Credit hereunder. (h) Uniform Customs and Practices. The Issuing Lender may have the Letters of Credit be subject to The Uniform Customs and Practice for Documentary Credits, as published as of the date of issue by the International Chamber of Commerce (the "UCP"), in which case the UCP may be incorporated therein and deemed in all respects to be a part thereof. (i) Indemnification; Nature of Issuing Lender's Duties. (i) In addition to its other obligations under this Section 2.2, the Borrower hereby agrees to pay, and protect, indemnify and save each Lender harmless from and against, any and all claims, demands, liabilities, damages, losses, costs, charges and expenses (including reasonable attorneys' fees) that such Lender may actually incur or be subject to as a consequence, direct or indirect, of (A) the issuance of any Letter of Credit or (B) the failure of such Lender to honor a drawing under a Letter of Credit as a result of any act or omission, whether rightful or wrongful, of any present or future de jure or de facto government or Governmental Authority (all such acts or omissions, herein called "Government Acts"). (ii) As between the Borrower and the Lenders (including the Issuing 30 36 Lender), the Borrower shall assume all risks of the acts, omissions or misuse of any Letter of Credit by the beneficiary thereof. No Lender (including the Issuing Lender) shall, absent gross negligence or willful misconduct on the part of such Lender, be responsible: (A) for the form, validity, sufficiency, accuracy, genuineness or legal effect of any document submitted by any party in connection with the application for and issuance of any Letter of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (B) for the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign any Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, that may prove to be invalid or ineffective for any reason; (C) for errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise, whether or not they be in cipher; (D) for any loss or delay in the transmission or otherwise of any document required in order to make a drawing under a Letter of Credit or of the proceeds thereof; and (E) for any consequences arising from causes beyond the control of such Lender, including, without limitation, any Government Acts. None of the above shall affect, impair, or prevent the vesting of the Issuing Lender's rights or powers hereunder. (iii) In furtherance and extension and not in limitation of the specific provisions hereinabove set forth, any action taken or omitted by any Lender (including the Issuing Lender), under or in connection with any Letter of Credit or the related certificates, if taken or omitted in good faith and absent gross negligence or willful misconduct on the part of such Lender, shall not put such Lender under any resulting liability to the Borrower or any other Credit Party. It is the intention of the parties that this Credit Agreement shall be construed and applied to protect and indemnify each Lender (including the Issuing Lender) against any and all risks involved in the issuance of the Letters of Credit, all of which risks are hereby assumed by the Borrower (on behalf of itself and each of the other Credit Parties), including, without limitation, any and all Government Acts. No Lender (including the Issuing Lender) shall, in any way, be liable for any failure by such Lender or anyone else to pay any drawing under any Letter of Credit as a result of any Government Acts or any other cause beyond the control of such Lender. (iv) Nothing in this subsection (i) is intended to limit the reimbursement obligations of the Borrower contained in subsection (d) above. The obligations of the Borrower under this subsection (i) shall survive the termination of this Credit Agreement. No act or omission of any current or prior beneficiary of a Letter of Credit shall in any way affect or impair the rights of the Lenders (including the Issuing Lender) to enforce any right, power or benefit under this Credit Agreement. (v) Notwithstanding anything to the contrary contained in this subsection (i), the Borrower shall have no obligation to indemnify any Lender (including the Issuing Lender) in respect of any liability incurred by such Lender (A) arising solely out of the gross negligence or willful misconduct of such Lender, 31 37 as determined by a court of competent jurisdiction, or (B) caused by such Lender's failure to pay under any Letter of Credit after presentation to it of a request strictly complying with the terms and conditions of such Letter of Credit, as determined by a court of competent jurisdiction, unless such payment is prohibited by any law, regulation, court order or decree. (j) Responsibility of Issuing Lender. It is expressly understood and agreed that the obligations of the Issuing Lender hereunder to the Lenders are only those expressly set forth in this Credit Agreement and that the Issuing Lender shall be entitled to assume that the conditions precedent set forth in Section 5.2 have been satisfied unless it shall have acquired actual knowledge that any such condition precedent has not been satisfied; provided, however, that nothing set forth in this Section 2.2 shall be deemed to prejudice the right of any Lender to recover from the Issuing Lender any amounts made available by such Lender to the Issuing Lender pursuant to this Section 2.2 in the event that it is determined by a court of competent jurisdiction that the payment with respect to a Letter of Credit constituted gross negligence or willful misconduct on the part of the Issuing Lender. (k) Conflict with LOC Documents. In the event of any conflict between this Credit Agreement and any LOC Document (including any letter of credit application), this Credit Agreement shall control. SECTION 3 OTHER PROVISIONS RELATING TO CREDIT FACILITIES 3.1 DEFAULT RATE. Upon the occurrence, and during the continuance, of an Event of Default, the principal of and, to the extent permitted by law, interest on the Loans and any other amounts owing hereunder or under the other Credit Documents shall bear interest, payable on demand, at a per annum rate 2% greater than the rate which would otherwise be applicable (or if no rate is applicable, whether in respect of interest, fees or other amounts, then the Adjusted Base Rate plus 2%). 3.2 EXTENSION AND CONVERSION. Subject to the terms of Section 5.2, the Borrower shall have the option, on any Business Day, to extend existing Loans into a subsequent permissible Interest Period or to convert Loans into Loans of another interest rate type; provided, however, that (i) except as provided in Section 3.8, Eurodollar Loans may be converted into Base Rate Loans only on the last day of the Interest Period applicable thereto, (ii) Eurodollar Loans may be extended, and Base Rate Loans may be converted into Eurodollar Loans, only if no Default or Event of Default is in existence on the date of extension or conversion, (iii) Loans extended as, or converted into, Eurodollar Loans shall be subject to the terms of the definition of "Interest Period" set forth in Section 1.1 and shall be in 32 38 such minimum amounts as provided in Section 2.1(b)(ii), (iv) no more than 5 Eurodollar Loans shall be outstanding hereunder at any time (it being understood that, for purposes hereof, Eurodollar Loans with different Interest Periods shall be considered as separate Eurodollar Loans, even if they begin on the same date, although borrowings, extensions and conversions may, in accordance with the provisions hereof, be combined at the end of existing Interest Periods to constitute a new Eurodollar Loan with a single Interest Period) and (v) any request for extension or conversion of a Eurodollar Loan which shall fail to specify an Interest Period shall be deemed to be a request for an Interest Period of one month. Each such extension or conversion shall be effected by the Borrower by giving a Notice of Extension/Conversion (or telephonic notice promptly confirmed in writing) to the office of the Agent specified in Schedule 2.1(a), or at such other office as the Agent may designate in writing, prior to 1:00 P.M. (Charlotte, North Carolina time) on the Business Day of, in the case of the conversion of a Eurodollar Loan into a Base Rate Loan, and on the third Business Day prior to, in the case of the extension of a Eurodollar Loan as, or conversion of a Base Rate Loan into, a Eurodollar Loan, the date of the proposed extension or conversion, specifying the date of the proposed extension or conversion, the Loans to be so extended or converted, the types of Loans into which such Loans are to be converted and, if appropriate, the applicable Interest Periods with respect thereto. Each request for extension or conversion shall be irrevocable and shall constitute a representation and warranty by the Borrower of the matters specified in subsections (b), (c), (d), (e) and (f) of Section 5.2. In the event the Borrower fails to request extension or conversion of any Eurodollar Loan in accordance with this Section, or any such conversion or extension is not permitted or required by this Section, then such Eurodollar Loan shall be automatically converted into a Base Rate Loan at the end of the Interest Period applicable thereto. The Agent shall give each Lender notice as promptly as practicable of any such proposed extension or conversion affecting any Loan. 3.3 PREPAYMENTS. (a) Voluntary Prepayments. The Borrower shall have the right to prepay Loans in whole or in part from time to time; provided, however, that each partial prepayment of Loans shall be in a minimum principal amount of $100,000 and integral multiples of $50,000. Subject to the foregoing terms, amounts prepaid under this Section 3.3(a) shall be applied as the Borrower may elect; provided that if the Borrower fails to specify otherwise in respect of any voluntary prepayment, then such prepayment shall be applied first to Base Rate Loans and then to Eurodollar Loans in direct order of Interest Period maturities. All prepayments under this Section 3.3(a) shall be subject to Section 3.12, but otherwise without premium or penalty, and be accompanied by interest on the principal amount prepaid through the date of prepayment. (b) Mandatory Prepayments. (i) Committed Amount. If at any time, the sum of the aggregate principal amount of outstanding Loans plus LOC Obligations outstanding shall exceed the Committed Amount, the Borrower immediately shall prepay the Loans and (after all Loans have been repaid) cash collateralize the LOC Obligations, in an amount sufficient to eliminate such excess. 33 39 (ii) Asset Dispositions. Immediately upon the occurrence of any Asset Disposition Prepayment Event, the Borrower shall prepay the Loans in an aggregate amount equal to the Net Cash Proceeds of the related Asset Disposition not applied (or caused to be applied) by the Credit Parties during the related Application Period to the purchase, acquisition or construction of Eligible Assets as contemplated by the terms of Section 8.5(e) (such prepayment to be applied as set forth in clause (iii) below). (iii) Application of Mandatory Prepayments. All amounts required to be paid pursuant to this Section 3.3(b) shall be applied as follows: (A) with respect to all amounts prepaid pursuant to Section 3.3(b)(i), to Loans and (after all Loans have been repaid) to a cash collateral account in respect of LOC Obligations, (B) with respect to all amounts prepaid pursuant to Section 3.3(b)(ii), to the Loans and (after all Loans have been repaid) to a cash collateral account in respect of LOC Obligations (with a corresponding reduction in the Committed Amount). Within the parameters of the applications set forth above, prepayments shall be applied first to Base Rate Loans and then to Eurodollar Loans in direct order of Interest Period maturities. All prepayments under this Section 3.3(b) shall be subject to Section 3.12 and be accompanied by interest on the principal amount prepaid through the date of prepayment. 3.4 TERMINATION AND REDUCTION OF COMMITTED AMOUNT. (a) Voluntary Reductions. The Borrower may from time to time permanently reduce or terminate the Committed Amount in whole or in part (in minimum aggregate amounts of $500,000 or in integral multiples of $100,000 in excess thereof (or, if less, the full remaining amount of the then applicable Committed Amount)) upon five Business Days' prior written notice to the Agent; provided, however, no such termination or reduction shall be made which would cause the aggregate principal amount of outstanding Loans plus LOC Obligations outstanding to exceed the Committed Amount, unless, concurrently with such termination or reduction, the Loans are repaid to the extent necessary to eliminate such excess. The Agent shall promptly notify each affected Lender of receipt by the Agent of any notice from the Borrower pursuant to this Section 3.4(a). (b) Mandatory Reductions. On any date that the Loans are required to be prepaid pursuant to the terms of Section 3.3(b)(iii), the Committed Amount automatically shall be permanently reduced by the amount of such required prepayment and/or reduction. (c) Maturity Date. The Revolving Commitments of the Lenders and the LOC Commitment of the Issuing Lender shall automatically terminate on the Maturity Date. (d) General. The Borrower shall pay to the Agent for the account of the Lenders in accordance with the terms of Section 3.5(b), on the date of each termination or 34 40 reduction of the Committed Amount, the Unused Fee accrued through the date of such termination or reduction on the amount of the Committed Amount so terminated or reduced. 3.5 FEES. (a) Upfront Fees. The Borrower agrees to pay to the Agent for the benefit of the Lenders in immediately available funds on or before the Closing Date an upfront fee (the "Upfront Fee") in the amount provided in the Agent's Fee Letter. (b) Unused Fee. In consideration of the Revolving Commitments of the Lenders hereunder, the Borrower agrees to pay to the Agent for the account of each Lender a fee (the "Unused Fee") on the Unused Committed Amount computed at a per annum rate for each day during the applicable Unused Fee Calculation Period (hereinafter defined) at a rate equal to the Applicable Percentage in effect from time to time. The Unused Fee shall commence to accrue on the Closing Date and shall be due and payable in arrears on the last business day of each March, June, September and December (and any date that the Committed Amount is reduced as provided in Section 3.4(a) and the Maturity Date) for the immediately preceding quarter (or portion thereof) (each such quarter or portion thereof for which the Unused Fee is payable hereunder being herein referred to as an "Unused Fee Calculation Period"), beginning with the first of such dates to occur after the Closing Date. (c) Letter of Credit Fees. (i) Standby Letter of Credit Issuance Fee. In consideration of the issuance of standby Letters of Credit hereunder, the Borrower promises to pay to the Agent for the account of each Lender a fee (the "Standby Letter of Credit Fee") on such Lender's Commitment Percentage of the average daily maximum amount available to be drawn under each such standby Letter of Credit computed at a per annum rate for each day from the date of issuance to the date of expiration equal to the Applicable Percentage. The Standby Letter of Credit Fee will be payable quarterly in arrears on the last Business Day of each March, June, September and December for the immediately preceding quarter (or a portion thereof). (ii) Trade Letter of Credit Drawing Fee. In consideration of the issuance of trade Letters of Credit hereunder, the Borrower promises to pay to the Agent for the account of each Lender a fee (the "Trade Letter of Credit Fee") equal to the Applicable Percentage on such Lender's Commitment Percentage of the amount of each drawing under any such trade Letter of Credit. The Trade Letter of Credit Fee will be payable on each date of drawing under a trade Letter of Credit. 35 41 (iii) Issuing Lender Fees. In addition to the Standby Letter of Credit Fee payable pursuant to clause (i) above and the Trade Letter of Credit Fee payable pursuant to clause (ii) above, the Borrower promises to pay to the Issuing Lender for its own account without sharing by the other Lenders a letter of credit fronting fee of one-fourth of one percent (1/4%) per annum on the average daily maximum amount available to be drawn under outstanding Letters of Credit payable quarterly in arrears and such other negotiation fees agreed to by the Borrower and the Issuing Lender from time to time and the customary charges from time to time of the Issuing Lender with respect to the issuance, amendment, transfer, administration, cancellation and conversion of, and drawings under, such Letters of Credit (collectively, the "Issuing Lender Fees"). (d) Administrative Fees. The Borrower agrees to pay to the Agent, for its own account and NationsBanc Montgomery Securities LLC, as applicable, the fees referred to in the Agent's Fee Letter (collectively, the "Agent's Fees"). 3.6 CAPITAL ADEQUACY. If any Lender has reasonably determined, after the date hereof, that the adoption or the becoming effective of, or any change in, or any change by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof in the interpretation or administration of, any applicable law, rule or regulation regarding capital adequacy, or compliance by such Lender with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on such Lender's capital or assets as a consequence of its commitments or obligations hereunder to a level below that which such Lender could have achieved but for such adoption, effectiveness, change or compliance (taking into consideration such Lender's policies with respect to capital adequacy), then, upon notice from such Lender to the Borrower, the Borrower shall be obligated to pay to such Lender such additional amount or amounts as will compensate such Lender on an after-tax basis (after taking into account applicable deductions and credits in respect of the amount indemnified) for such reduction. Notwithstanding the foregoing, if any Lender fails to notify the Borrower of any event that will entitle such Lender to compensation under this Section 3.6 within 90 days after such Lender becomes aware of such event, then such Lender shall not be entitled to any compensation from the Borrower for any reduction in rate of return on capital arising prior to the date that is 90 days before the date on which such Lender notifies the Borrower of such event. Each determination by any such Lender of amounts owing under this Section shall, absent manifest error, be conclusive and binding on the parties hereto. 3.7 LIMITATION ON EURODOLLAR LOANS. If on or prior to the first day of any Interest Period for any Eurodollar Loan: (a) the Agent determines in good faith (which determination shall be conclusive) that by reason of circumstances affecting the relevant market, adequate and 36 42 reasonable means do not exist for ascertaining the Eurodollar Rate for such Interest Period; or (b) the Required Lenders determine in good faith (which determination shall be conclusive) and notify the Agent that the Eurodollar Rate will not adequately and fairly reflect the cost to the Lenders of funding Eurodollar Loans for such Interest Period; then the Agent shall give the Borrower prompt notice thereof (which notice shall be withdrawn whenever such circumstances no longer exist), and so long as such condition remains in effect, the Lenders shall be under no obligation to make additional Eurodollar Loans, Continue Eurodollar Loans, or to Convert Base Rate Loans into Eurodollar Loans and the Borrower shall, on the last day(s) of the then current Interest Period(s) for the outstanding Eurodollar Loans, either prepay such Eurodollar Loans or Convert such Eurodollar Loans into Base Rate Loans in accordance with the terms of this Credit Agreement. 3.8 ILLEGALITY. Notwithstanding any other provision of this Credit Agreement, in the event that it becomes unlawful for any Lender or its Applicable Lending Office to make, maintain, or fund Eurodollar Loans hereunder, then such Lender shall promptly notify the Borrower thereof (which notice shall be withdrawn whenever such circumstances no longer exist) and such Lender's obligation to make or Continue Eurodollar Loans and to Convert Base Rate Loans into Eurodollar Loans shall be suspended until such time as such Lender may again make, maintain, and fund Eurodollar Loans (in which case the provisions of Section 3.10 shall be applicable). 3.9 REQUIREMENTS OF LAW. If, after the date hereof, the adoption of any applicable law, rule, or regulation, or any change in any applicable law, rule, or regulation, or any change in the interpretation or administration thereof by any Governmental Authority, central bank, or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender (or its Applicable Lending Office) with any request or directive (whether or not having the force of law) of any such Governmental Authority, central bank, or comparable agency: (i) shall subject such Lender (or its Applicable Lending Office) to any tax, duty, or other charge with respect to any Eurodollar Loans, its Notes, or its obligation to make Eurodollar Loans, or change the basis of taxation of any amounts payable to such Lender (or its Applicable Lending Office) under this Credit Agreement or its Notes in respect of any Eurodollar Loans (other than taxes imposed on the overall net income of such Lender by the jurisdiction in which such Lender has its principal office or such Applicable Lending Office); (ii) shall impose, modify, or deem applicable any reserve, special deposit, assessment, or similar requirement (other than the Eurodollar Reserve Requirement utilized in the determination of the Adjusted Eurodollar Rate) relating to any 37 43 extensions of credit or other assets of, or any deposits with or other liabilities or commitments of, such Lender (or its Applicable Lending Office), including the Commitment of such Lender hereunder; or (iii) shall impose on such Lender (or its Applicable Lending Office) or on the United States market for certificates of deposit or the London interbank market any other condition affecting this Credit Agreement or its Notes or any of such extensions of credit or liabilities or commitments (excluding any tax of any kind whatsoever); and the result of any of the foregoing is to increase the cost to such Lender (or its Applicable Lending Office) of making, Converting into, Continuing, or maintaining any Eurodollar Loans or to reduce any sum received or receivable by such Lender (or its Applicable Lending Office) under this Credit Agreement or its Notes with respect to any Eurodollar Loans, then the Borrower shall pay to such Lender on demand such amount or amounts as will compensate such Lender on an after-tax basis (after taking into account applicable deductions and credits in respect of the amount indemnified) for such increased cost or reduction. If any Lender requests compensation by the Borrower under this Section 3.9, the Borrower may, by notice to such Lender (with a copy to the Agent), suspend the obligation of such Lender to make or Continue Eurodollar Loans, or to Convert Base Rate Loans into Eurodollar Loans, until the event or condition giving rise to such request ceases to be in effect (in which case the provisions of Section 3.10 shall be applicable); provided that such suspension shall not affect the right of such Lender to receive the compensation so requested. Each Lender shall promptly notify the Borrower and the Agent of any event of which it has knowledge, occurring after the date hereof, which will entitle such Lender to compensation pursuant to this Section 3.9 and will designate a different Applicable Lending Office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the judgment of such Lender, be otherwise disadvantageous to it. Any Lender claiming compensation under this Section 3.9 shall furnish to the Borrower and the Agent a statement setting forth the additional amount or amounts to be paid to it hereunder which shall be conclusive in the absence of manifest error. In determining such amount, such Lender may use any reasonable averaging and attribution methods. Notwithstanding the foregoing, if any Lender fails to notify the Borrower of any event that will entitle such Lender to compensation under this Section 3.9(a) within 180 days after such Lender becomes aware of such event, then such Lender shall not be entitled to any compensation from the Borrower for any such amounts arising prior to the date that is 180 days before the date on which such Lender notifies the Borrower of such event. Such a certificate as to any additional amounts payable pursuant to this Section 3.9(a) submitted by such Lender, through the Agent, to the Borrower shall be conclusive and binding on the parties hereto in the absence of manifest error. 3.10 TREATMENT OF AFFECTED LOANS. If the obligation of any Lender to make any Eurodollar Loan or to Continue, or to Convert Base Rate Loans into, Eurodollar Loans shall be suspended pursuant to Section 3.8 or 3.9 hereof, such Lender's Eurodollar Loans shall be automatically Converted into Base Rate Loans on the last day(s) of the then current Interest Period(s) for such Eurodollar Loans (or, in the case of a Conversion required by Section 3.8 hereof, on such earlier date as such Lender may 38 44 specify to the Borrower with a copy to the Agent) and, unless and until such Lender gives notice as provided below that the circumstances specified in Section 3.8 or 3.9 hereof that gave rise to such Conversion no longer exist: (a) to the extent that such Lender's Eurodollar Loans have been so Converted, all payments and prepayments of principal that would otherwise be applied to such Lender's Eurodollar Loans shall be applied instead to its Base Rate Loans; and (b) all Loans that would otherwise be made or Continued by such Lender as Eurodollar Loans shall be made or Continued instead as Base Rate Loans, and all Base Rate Loans of such Lender that would otherwise be Converted into Eurodollar Loans shall remain as Base Rate Loans. If such Lender gives notice to the Borrower (with a copy to the Agent) that the circumstances specified in Section 3.8 or 3.9 hereof that gave rise to the Conversion of such Lender's Eurodollar Loans pursuant to this Section 3.10 no longer exist (which such Lender agrees to do promptly upon such circumstances ceasing to exist) at a time when Eurodollar Loans made by other Lenders are outstanding, such Lender's Base Rate Loans shall be automatically Converted, on the first day(s) of the next succeeding Interest Period(s) for such outstanding Eurodollar Loans, to the extent necessary so that, after giving effect thereto, all Loans held by the Lenders holding Eurodollar Loans and by such Lender are held pro rata (as to principal amounts, interest rate basis, and Interest Periods) in accordance with their respective Commitments. 3.11 TAXES. (a) Any and all payments by the Borrower to or for the account of any Lender or the Agent hereunder or under any other Credit Document shall be made free and clear of and without deduction for any and all present or future taxes, duties, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Lender and the Agent, taxes imposed on its income, and franchise taxes imposed on it, by the jurisdiction under the laws of which such Lender (or its Applicable Lending Office) or the Agent (as the case may be) is organized or any political subdivision thereof (all such non-excluded taxes, duties, levies, imposts, deductions, charges, withholdings, and liabilities being hereinafter referred to as "Taxes"). If the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable under this Credit Agreement or any other Credit Document to any Lender or the Agent, (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 3.11) such Lender or the Agent receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions, (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law, and (iv) the Borrower shall furnish to the Agent, at its address referred to in Section 11.1, the original or a certified copy of a receipt evidencing payment thereof. 39 45 (b) In addition, the Borrower agrees to pay any and all present or future stamp or documentary taxes and any other excise or property taxes or charges or similar levies which arise from any payment made under this Credit Agreement or any other Credit Document or from the execution or delivery of, or otherwise with respect to, this Credit Agreement or any other Credit Document (hereinafter referred to as "Other Taxes"). (c) The Borrower agrees to indemnify each Lender and the Agent for the full amount of Taxes and Other Taxes (including, without limitation, any Taxes or Other Taxes imposed or asserted by any jurisdiction on amounts payable under this Section 3.11) paid by such Lender or the Agent (as the case may be) and any liability (including penalties, interest, and expenses) arising therefrom or with respect thereto. (d) Each Lender organized under the laws of a jurisdiction outside the United States, on or prior to the date of its execution and delivery of this Credit Agreement in the case of each Lender listed on the signature pages hereof and on or prior to the date on which it becomes a Lender in the case of each other Lender, and from time to time thereafter if requested in writing by the Borrower or the Agent (but only so long as such Lender remains lawfully able to do so), shall provide the Borrower and the Agent with (i) Internal Revenue Service Form 1001 or 4224, as appropriate, or any successor form prescribed by the Internal Revenue Service, certifying that such Lender is entitled to benefits under an income tax treaty to which the United States is a party which reduces the rate of withholding tax on payments of interest or certifying that the income receivable pursuant to this Credit Agreement is effectively connected with the conduct of a trade or business in the United States, (ii) Internal Revenue Service Form W-8 or W-9, as appropriate, or any successor form prescribed by the Internal Revenue Service, and (iii) any other form or certificate required by any taxing authority (including any certificate required by Sections 871(h) and 881(c) of the Internal Revenue Code), certifying that such Lender is entitled to an exemption from or a reduced rate of tax on payments pursuant to this Credit Agreement or any of the other Credit Documents. (e) For any period with respect to which a Lender has failed to provide the Borrower and the Agent with the appropriate form pursuant to Section 3.11(d) (unless such failure is due to a change in treaty, law, or regulation occurring subsequent to the date on which a form originally was required to be provided), such Lender shall not be entitled to indemnification under Section 3.11(a) or 3.11(b) with respect to Taxes imposed by the United States; provided, however, that should a Lender, which is otherwise exempt from or subject to a reduced rate of withholding tax, become subject to Taxes because of its failure to deliver a form required hereunder, the Borrower shall take such steps as such Lender shall reasonably request to assist such Lender to recover such Taxes. (f) If the Borrower is required to pay additional amounts to or for the account of any Lender pursuant to this Section 3.11, then such Lender will agree to use reasonable efforts to change the jurisdiction of its Applicable Lending Office so as to eliminate or reduce any such additional payment which may thereafter accrue if such change, in the judgment of such Lender, is not otherwise disadvantageous to such Lender. 40 46 (g) Within thirty (30) days after the date of any payment of Taxes, the Borrower shall furnish to the Agent the original or a certified copy of a receipt evidencing such payment. (h) Without prejudice to the survival of any other agreement of the Borrower hereunder, the agreements and obligations of the Borrower contained in this Section 3.11 shall survive the repayment of the Loans, LOC Obligations and other obligations under the Credit Documents and the termination of the Commitments hereunder. 3.12 COMPENSATION. Upon the request of any Lender, the Borrower shall pay to such Lender such amount or amounts as shall be sufficient (in the reasonable opinion of such Lender) to compensate it for any loss, cost, or expense (including loss of anticipated profits) incurred by it as a result of: (a) any payment, prepayment, or Conversion of a Eurodollar Loan for any reason (including, without limitation, the acceleration of the Loans pursuant to Section 9.2) on a date other than the last day of the Interest Period for such Loan; or (b) any failure by the Borrower for any reason (including, without limitation, the failure of any condition precedent specified in Section 5 to be satisfied) to borrow, Convert, Continue, or prepay a Eurodollar Loan on the date for such borrowing, Conversion, Continuation, or prepayment specified in the relevant notice of borrowing, prepayment, Continuation, or Conversion under this Credit Agreement. With respect to Eurodollar Loans, such indemnification may include an amount equal to the excess, if any, of (a) the amount of interest which would have accrued on the amount so prepaid, or not so borrowed, converted or continued, for the period from the date of such prepayment or of such failure to borrow, convert or continue to the last day of the applicable Interest Period (or, in the case of a failure to borrow, convert or continue, the Interest Period that would have commenced on the date of such failure) in each case at the applicable rate of interest for such Eurodollar Loans provided for herein (excluding, however, the Applicable Percentage included therein, if any) over (b) the amount of interest (as reasonably determined by such Lender) which would have accrued to such Lender on such amount by placing such amount on deposit for a comparable period with leading banks in the interbank Eurodollar market. The covenants of the Borrower set forth in this Section 3.12 shall survive the repayment of the Loans, LOC Obligations and other obligations under the Credit Documents and the termination of the Commitments hereunder. Notwithstanding the foregoing, any Lender shall be entitled to compensation under this Section 3.12 only for an event occurring during the 180-day period ending on the date such Lender gives notice of such event entitling such Lender to compensation under this Section 3.12. 41 47 3.13 PRO RATA TREATMENT. Except to the extent otherwise provided herein: (a) Loans. Each Loan, each payment or (subject to the terms of Section 3.3) prepayment of principal of any Loan or reimbursement obligations arising from drawings under Letters of Credit, each payment of interest on the Loans or reimbursement obligations arising from drawings under Letters of Credit, each payment of Unused Fees, each payment of the Standby Letter of Credit Fee, each payment of the Trade Letter of Credit Fee, each reduction of the Committed Amount and each conversion or extension of any Loan, shall be allocated pro rata among the Lenders in accordance with the respective principal amounts of their outstanding Loans and Participation Interests. (b) Advances. No Lender shall be responsible for the failure or delay by any other Lender in its obligation to make its ratable share of a borrowing hereunder; provided, however, that the failure of any Lender to fulfill its obligations hereunder shall not relieve any other Lender of its obligations hereunder. Unless the Agent shall have been notified by any Lender prior to the date of any requested borrowing that such Lender does not intend to make available to the Agent its ratable share of such borrowing to be made on such date, the Agent may assume that such Lender has made such amount available to the Agent on the date of such borrowing, and the Agent in reliance upon such assumption, may (in its sole discretion but without any obligation to do so) make available to the Borrower a corresponding amount. If such corresponding amount is not in fact made available to the Agent, the Agent shall be able to recover such corresponding amount from such Lender. If such Lender does not pay such corresponding amount forthwith upon the Agent's demand therefor, the Agent will promptly notify the Borrower, and the Borrower shall immediately pay such corresponding amount to the Agent. The Agent shall also be entitled to recover from the Lender or the Borrower, as the case may be, interest on such corresponding amount in respect of each day from the date such corresponding amount was made available by the Agent to the Borrower to the date such corresponding amount is recovered by the Agent at a per annum rate equal to (i) from the Borrower at the applicable rate for the applicable borrowing pursuant to the Notice of Borrowing and (ii) from a Lender at the Federal Funds Rate. 3.14 SHARING OF PAYMENTS. The Lenders agree among themselves that, in the event that any Lender shall obtain payment in respect of any Loan, LOC Obligations or any other obligation owing to such Lender under this Credit Agreement through the exercise of a right of setoff, banker's lien or counterclaim, or pursuant to a secured claim under Section 506 of Title 11 of the United States Code or other security or interest arising from, or in lieu of, such secured claim, received by such Lender under any applicable bankruptcy, insolvency or other similar law or otherwise, or by any other means, in excess of its pro rata share of such payment as provided for in this Credit Agreement, such Lender shall promptly purchase from the other Lenders a Participation Interest in such Loans, LOC Obligations and other obligations in such amounts, and make such other adjustments from time to time, as shall be equitable to the end that all Lenders share such payment in accordance with their respective ratable shares as provided for in this Credit Agreement. The Lenders further agree among themselves that if payment to a Lender obtained by such Lender 42 48 through the exercise of a right of setoff, banker's lien, counterclaim or other event as aforesaid shall be rescinded or must otherwise be restored, each Lender which shall have shared the benefit of such payment shall, by repurchase of a Participation Interest theretofore sold, return its share of that benefit (together with its share of any accrued interest payable with respect thereto) to each Lender whose payment shall have been rescinded or otherwise restored. The Borrower agrees that any Lender so purchasing such a Participation Interest may, to the fullest extent permitted by law, exercise all rights of payment, including setoff, banker's lien or counterclaim, with respect to such Participation Interest as fully as if such Lender were a holder of such Loan, LOC Obligations or other obligation in the amount of such Participation Interest. Except as otherwise expressly provided in this Credit Agreement, if any Lender or the Agent shall fail to remit to the Agent or any other Lender an amount payable by such Lender or the Agent to the Agent or such other Lender pursuant to this Credit Agreement on the date when such amount is due, such payments shall be made together with interest thereon for each date from the date such amount is due until the date such amount is paid to the Agent or such other Lender at a rate per annum equal to the Federal Funds Rate. If under any applicable bankruptcy, insolvency or other similar law, any Lender receives a secured claim in lieu of a setoff to which this Section 3.14 applies, such Lender shall, to the extent practicable, exercise its rights in respect of such secured claim in a manner consistent with the rights of the Lenders under this Section 3.14 to share in the benefits of any recovery on such secured claim. 3.15 PAYMENTS, COMPUTATIONS, ETC. (a) Except as otherwise specifically provided herein, all payments hereunder shall be made to the Agent in dollars in immediately available funds, without setoff, deduction, counterclaim or withholding of any kind, at the Agent's office specified in Schedule 2.1(a) not later than 2:00 P.M. (Charlotte, North Carolina time) on the date when due. Payments received after such time shall be deemed to have been received on the next succeeding Business Day. The Agent may (but shall not be obligated to) debit the amount of any such payment which is not made by such time to any ordinary deposit account of the Borrower maintained with the Agent (with notice to the Borrower). The Borrower shall, at the time it makes any payment under this Credit Agreement, specify to the Agent the Loans, LOC Obligations, Fees, interest or other amounts payable by the Borrower hereunder to which such payment is to be applied (and in the event that it fails so to specify, or if such application would be inconsistent with the terms hereof, the Agent shall distribute such payment to the Lenders in such manner as the Agent may determine to be appropriate in respect of obligations owing by the Borrower hereunder, subject to the terms of Section 3.13(a)). The Agent will distribute such payments to such Lenders, if any such payment is received prior to 12:00 Noon (Charlotte, North Carolina time) on a Business Day in like funds as received prior to the end of such Business Day and otherwise the Agent will distribute such payment to such Lenders on the next succeeding Business Day. Whenever any payment hereunder shall be stated to be due on a day which is not a Business Day, the due date thereof shall be extended to the next succeeding Business Day (subject to accrual of interest and Fees for the period of such extension), except that in the case of Eurodollar Loans, if the extension would cause the payment to be made in the next following calendar month, then such payment shall instead be made on 43 49 the next preceding Business Day. Except as expressly provided otherwise herein, all computations of interest and fees shall be made on the basis of actual number of days elapsed over a year of 360 days, except with respect to computation of interest on Base Rate Loans shall be calculated based on a year of 365 or 366 days, as appropriate. Interest shall accrue from and include the date of borrowing, but exclude the date of payment. (b) Allocation of Payments After Event of Default. Notwithstanding any other provisions of this Credit Agreement to the contrary, after the occurrence and during the continuance of an Event of Default, all amounts collected or received by the Agent or any Lender on account of the Credit Party Obligations or any other amounts outstanding under any of the Credit Documents or in respect of the Collateral shall be paid over or delivered as follows: FIRST, to the payment of all reasonable out-of-pocket costs and expenses (including without limitation reasonable attorneys' fees) of the Agent in connection with enforcing the rights of the Lenders under the Credit Documents and any protective advances made by the Agent with respect to the Collateral under or pursuant to the terms of the Collateral Documents; SECOND, to payment of any fees owed to the Agent; THIRD, to the payment of all reasonable out-of-pocket costs and expenses (including without limitation, reasonable attorneys' fees) of each of the Lenders in connection with enforcing its rights under the Credit Documents or otherwise with respect to the Credit Party Obligations owing to such Lender; FOURTH, to the payment of all of the Credit Party Obligations consisting of accrued fees and interest; FIFTH, to the payment of the outstanding principal amount of the Credit Party Obligations (including the payment or cash collateralization of the outstanding LOC Obligations); SIXTH, to all other Credit Party Obligations and other obligations which shall have become due and payable under the Credit Documents or otherwise and not repaid pursuant to clauses "FIRST" through "FIFTH" above; and SEVENTH, to the payment of the surplus, if any, to whoever may be lawfully entitled to receive such surplus. In carrying out the foregoing, (i) amounts received shall be applied in the numerical order provided until exhausted prior to application to the next succeeding category; (ii) each of the Lenders shall receive an amount equal to its pro rata share (based on the proportion that the then outstanding Loans and LOC Obligations held by such Lender bears to the 44 50 aggregate then outstanding Loans and LOC Obligations) of amounts available to be applied pursuant to clauses "THIRD", "FOURTH", "FIFTH" and "SIXTH" above; and (iii) to the extent that any amounts available for distribution pursuant to clause "FIFTH" above are attributable to the issued but undrawn amount of outstanding Letters of Credit, such amounts shall be held by the Agent in a cash collateral account and applied (A) first, to reimburse the Issuing Lender from time to time for any drawings under such Letters of Credit and (B) then, following the expiration of all Letters of Credit, to all other obligations of the types described in clauses "FIFTH" and "SIXTH" above in the manner provided in this Section 3.15(b). 3.16 EVIDENCE OF DEBT. (a) Each Lender shall maintain an account or accounts evidencing each Loan made by such Lender to the Borrower from time to time, including the amounts of principal and interest payable and paid to such Lender from time to time under this Credit Agreement. Each Lender will make reasonable efforts to maintain the accuracy of its account or accounts and to promptly update its account or accounts from time to time, as necessary. (b) The Agent shall maintain the Register pursuant to Section 11.3(c), and a subaccount for each Lender, in which Register and subaccounts (taken together) shall be recorded (i) the amount, type and Interest Period of each such Loan hereunder, (ii) the amount of any principal or interest due and payable or to become due and payable to each Lender hereunder and (iii) the amount of any sum received by the Agent hereunder from or for the account of the Borrower and each Lender's share thereof. The Agent will make reasonable efforts to maintain the accuracy of the subaccounts referred to in the preceding sentence and to promptly update such subaccounts from time to time, as necessary. (c) The entries made in the accounts, Register and subaccounts maintained pursuant to subsection (b) of this Section 3.16 (and, if consistent with the entries of the Agent, subsection (a)) shall be prima facie evidence of the existence and amounts of the obligations of the Borrower therein recorded; provided, however, that the failure of any Lender or the Agent to maintain any such account, such Register or such subaccount, as applicable, or any error therein, shall not in any manner affect the obligation of the Borrower to repay the Loans made by such Lender in accordance with the terms hereof. SECTION 4 GUARANTY 4.1 THE GUARANTY. Each of the Guarantors hereby jointly and severally guarantees to each Lender, each Affiliate of a Lender that enters into a Hedging Agreement, and the Agent as hereinafter provided, 45 51 as primary obligor and not as surety, the prompt payment of the Credit Party Obligations in full when due (whether at stated maturity, as a mandatory prepayment, by acceleration, as a mandatory cash collateralization or otherwise) strictly in accordance with the terms thereof. The Guarantors hereby further agree that if any of the Credit Party Obligations are not paid in full when due (whether at stated maturity, as a mandatory prepayment, by acceleration, as a mandatory cash collateralization or otherwise), the Guarantors will, jointly and severally, promptly pay the same, without any demand or notice whatsoever, and that in the case of any extension of time of payment or renewal of any of the Credit Party Obligations, the same will be promptly paid in full when due (whether at extended maturity, as a mandatory prepayment, by acceleration, as a mandatory cash collateralization or otherwise) in accordance with the terms of such extension or renewal. Notwithstanding any provision to the contrary contained herein or in any other of the Credit Documents or Hedging Agreements, the obligations of each Guarantor hereunder shall be limited to an aggregate amount equal to the largest amount that would not render its obligations hereunder subject to avoidance under Section 548 of the Bankruptcy Code or any comparable provisions of any applicable state law. 4.2 OBLIGATIONS UNCONDITIONAL. The obligations of the Guarantors under Section 4.1 are joint and several, absolute and unconditional, irrespective of the value, genuineness, validity, regularity or enforceability of any of the Credit Documents or Hedging Agreements, or any other agreement or instrument referred to therein, or any substitution, release, impairment or exchange of any other guarantee of or security for any of the Credit Party Obligations, and, to the fullest extent permitted by applicable law, irrespective of any other circumstance whatsoever which might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor, it being the intent of this Section 4.2 that the obligations of the Guarantors hereunder shall be absolute and unconditional under any and all circumstances. Each Guarantor agrees that such Guarantor shall have no right of subrogation, indemnity, reimbursement or contribution against the Borrower or any other Guarantor of the Credit Party Obligations for amounts paid under this Section 4 until such time as the Lenders (and any Affiliates of Lenders entering into Hedging Agreements) have been paid in full, all Commitments under this Credit Agreement have been terminated and no Person or Governmental Authority shall have any right to request any return or reimbursement of funds from the Lenders in connection with monies received under the Credit Documents or Hedging Agreements. Without limiting the generality of the foregoing, it is agreed that, to the fullest extent permitted by law, the occurrence of any one or more of the following shall not alter or impair the liability of any Guarantor hereunder which shall remain absolute and unconditional as described above: (a) at any time or from time to time, without notice to any Guarantor, the time for any performance of or compliance with any of the Credit Party Obligations shall be extended, or such performance or compliance shall be waived; 46 52 (b) any of the acts mentioned in any of the provisions of any of the Credit Documents, any Hedging Agreement or any other agreement or instrument referred to in the Credit Documents or Hedging Agreements shall be done or omitted; (c) the maturity of any of the Credit Party Obligations shall be accelerated, or any of the Credit Party Obligations shall be modified, supplemented or amended in any respect, or any right under any of the Credit Documents, any Hedging Agreement or any other agreement or instrument referred to in the Credit Documents or Hedging Agreements shall be waived or any other guarantee of any of the Credit Party Obligations or any security therefor shall be released, impaired or exchanged in whole or in part or otherwise dealt with; (d) any Lien granted to, or in favor of, the Agent or any Lender or Lenders as security for any of the Credit Party Obligations shall fail to attach or be perfected; or (e) any of the Credit Party Obligations shall be determined to be void or voidable (including, without limitation, for the benefit of any creditor of any Guarantor) or shall be subordinated to the claims of any Person (including, without limitation, any creditor of any Guarantor). With respect to its obligations hereunder, each Guarantor hereby expressly waives diligence, presentment, demand of payment, protest and all notices whatsoever, and any requirement that the Agent or any Lender exhaust any right, power or remedy or proceed against any Person under any of the Credit Documents, any Hedging Agreement or any other agreement or instrument referred to in the Credit Documents or Hedging Agreements, or against any other Person under any other guarantee of, or security for, any of the Credit Party Obligations. 4.3 REINSTATEMENT. The obligations of the Guarantors under this Section 4 shall be automatically reinstated if and to the extent that for any reason any payment by or on behalf of any Person in respect of the Credit Party Obligations is rescinded or must be otherwise restored by any holder of any of the Credit Party Obligations, whether as a result of any proceedings in bankruptcy or reorganization or otherwise, and each Guarantor agrees that it will indemnify the Agent and each Lender on demand for all reasonable costs and expenses (including, without limitation, fees and expenses of counsel) incurred by the Agent or such Lender in connection with such rescission or restoration, including any such costs and expenses incurred in defending against any claim alleging that such payment constituted a preference, fraudulent transfer or similar payment under any bankruptcy, insolvency or similar law. 4.4 CERTAIN ADDITIONAL WAIVERS. Without limiting the generality of the provisions of this Section 4, each Guarantor hereby specifically waives the benefits of N.C. Gen. Stat. ss.ss. 26-7 through 26-9, inclusive, to the extent applicable. Each Guarantor further agrees that such Guarantor shall have no right of recourse to 47 53 security for the Credit Party Obligations, except through the exercise of rights of subrogation pursuant to Section 4.2 and through the exercise of rights of contribution pursuant to Section 4.6. 4.5 REMEDIES. The Guarantors agree that, to the fullest extent permitted by law, as between the Guarantors, on the one hand, and the Agent and the Lenders, on the other hand, the Credit Party Obligations may be declared to be forthwith due and payable as provided in Section 9.2 (and shall be deemed to have become automatically due and payable in the circumstances provided in said Section 9.2) for purposes of Section 4.1 notwithstanding any stay, injunction or other prohibition preventing such declaration (or preventing the Credit Party Obligations from becoming automatically due and payable) as against any other Person and that, in the event of such declaration (or the Credit Party Obligations being deemed to have become automatically due and payable), the Credit Party Obligations (whether or not due and payable by any other Person) shall forthwith become due and payable by the Guarantors for purposes of Section 4.1. The Guarantors acknowledge and agree that their obligations hereunder are secured in accordance with the terms of the Security Agreements and the other Collateral Documents and that the Lenders may exercise their remedies thereunder in accordance with the terms thereof. 4.6 RIGHTS OF CONTRIBUTION. The Guarantors hereby agree as among themselves that, if any Guarantor shall make an Excess Payment (as defined below), such Guarantor shall have a right of contribution from each other Guarantor in an amount equal to such other Guarantor's Contribution Share (as defined below) of such Excess Payment. The payment obligations of any Guarantor under this Section 4.6 shall be subordinate and subject in right of payment to the prior payment in full to the Agent and the Lenders of the Guaranteed Obligations, and none of the Guarantors shall exercise any right or remedy under this Section 4.6 against any other Guarantor until payment and satisfaction in full of all of such Guaranteed Obligations. For purposes of this Section 4.6, (a) "Guaranteed Obligations" shall mean any obligations arising under the other provisions of this Section 4; (b) "Excess Payment" shall mean the amount paid by any Guarantor in excess of its Pro Rata Share of any Guaranteed Obligations; (c) "Pro Rata Share" shall mean, for any Guarantor in respect of any payment of Guaranteed Obligations, the ratio (expressed as a percentage) as of the date of such payment of Guaranteed Obligations of (i) the amount by which the aggregate present fair salable value of all of its assets and properties exceeds the amount of all debts and liabilities of such Guarantor (including contingent, subordinated, unmatured, and unliquidated liabilities, but excluding the obligations of such Guarantor hereunder) to (ii) the amount by which the aggregate present fair salable value of all assets and other properties of the Borrower and all of the Guarantors exceeds the amount of all of the debts and liabilities (including contingent, subordinated, unmatured, and unliquidated liabilities, but excluding the obligations of the Borrower and the Guarantors hereunder) of the Borrower and all of the Guarantors; provided, however, that, for purposes of calculating the Pro Rata Shares of the Guarantors in respect of any payment of Guaranteed Obligations, any Guarantor that became a Guarantor subsequent to the date of any such payment shall be deemed to have been a Guarantor on the date of such payment and the financial information for such Guarantor as of the date such Guarantor became a 48 54 Guarantor shall be utilized for such Guarantor in connection with such payment; and (d) "Contribution Share" shall mean, for any Guarantor in respect of any Excess Payment made by any other Guarantor, the ratio (expressed as a percentage) as of the date of such Excess Payment of (i) the amount by which the aggregate present fair salable value of all of its assets and properties exceeds the amount of all debts and liabilities of such Guarantor (including contingent, subordinated, unmatured, and unliquidated liabilities, but excluding the obligations of such Guarantor hereunder) to (ii) the amount by which the aggregate present fair salable value of all assets and other properties of the Borrower and all of the Guarantors other than the maker of such Excess Payment exceeds the amount of all of the debts and liabilities (including contingent, subordinated, unmatured, and unliquidated liabilities, but excluding the obligations of the Borrower and the Guarantors hereunder) of the Borrower and all of the Guarantors other than the maker of such Excess Payment; provided, however, that, for purposes of calculating the Contribution Shares of the Guarantors in respect of any Excess Payment, any Guarantor that became a Guarantor subsequent to the date of any such Excess Payment shall be deemed to have been a Guarantor on the date of such Excess Payment and the financial information for such Guarantor as of the date such Guarantor became a Guarantor shall be utilized for such Guarantor in connection with such Excess Payment. This Section 4.6 shall not be deemed to affect any right of subrogation, indemnity, reimbursement or contribution that any Guarantor may have under applicable law against the Borrower in respect of any payment of Guaranteed Obligations. Notwithstanding the foregoing, all rights of contribution against any Guarantor shall terminate from and after such time, if ever, that such Guarantor shall be relieved of its obligations pursuant to Section 8.4. 4.7 GUARANTEE OF PAYMENT; CONTINUING GUARANTEE. The guarantee in this Section 4 is a guaranty of payment and not of collection, is a continuing guarantee, and shall apply to all Credit Party Obligations whenever arising. SECTION 5 CONDITIONS 5.1 CLOSING CONDITIONS. The obligation of the Lenders to enter into this Credit Agreement and to make the initial Loans or the Issuing Lender to issue the initial Letter of Credit, whichever shall occur first, shall be subject to satisfaction of the following conditions (in form and substance acceptable to the Lenders): (a) Executed Credit Documents. Receipt by the Agent of duly executed copies of: (i) this Credit Agreement, (ii) the Notes, (iii) the Collateral Documents and (iv) all other Credit Documents, each in form and substance acceptable to the Agent in its sole discretion. 49 55 (b) Corporate Documents. Receipt by the Agent of the following: (i) Charter Documents. Copies of the articles or certificates of incorporation or other charter documents of each Credit Party certified to be true and complete as of a recent date by the appropriate Governmental Authority of the state or other jurisdiction of its incorporation and certified by a secretary or assistant secretary of such Credit Party to be true and correct as of the Closing Date. (ii) Bylaws. A copy of the bylaws of each Credit Party certified by a secretary or assistant secretary of such Credit Party to be true and correct as of the Closing Date. (iii) Resolutions. Copies of resolutions of the Board of Directors of each Credit Party approving and adopting the Credit Documents to which it is a party, the transactions contemplated therein and authorizing execution and delivery thereof, certified by a secretary or assistant secretary of such Credit Party to be true and correct and in force and effect as of the Closing Date. (iv) Good Standing. Copies of (A) certificates of good standing, existence or its equivalent with respect to each Credit Party certified as of a recent date by the appropriate Governmental Authorities of the state or other jurisdiction of incorporation and each other jurisdiction in which the failure to so qualify and be in good standing could have a Material Adverse Effect and (B) to the extent available, a certificate indicating payment of all corporate franchise taxes certified as of a recent date by the appropriate governmental taxing authorities. (v) Incumbency. An incumbency certificate of each Credit Party certified by a secretary or assistant secretary to be true and correct as of the Closing Date. (c) Opinions of Counsel. The Agent shall have received, in each case dated as of the Closing Date: (i) a legal opinion of Alston & Bird, LLP, general counsel for the Credit Parties, substantially in the form of Schedule 5.1(c)(i); (ii) a legal opinion of special local counsel for each Credit Party not incorporated in the State of Georgia or Delaware, substantially in the form of Schedule 5.1(c)(ii); and (iii) a legal opinion of special local counsel for the Credit Parties for each State other than Georgia in which any Collateral is located, substantially in the form of Schedule 5.1(c)(iii); 50 56 (d) Personal Property Collateral. The Agent shall have received: (i) searches of Uniform Commercial Code filings in the jurisdiction of the chief executive office of each Credit Party and each jurisdiction where any Collateral is located or where a filing would need to be made in order to perfect the Agent's security interest in the Collateral, copies of the financing statements on file in such jurisdictions and evidence that no Liens exist other than Permitted Liens; (ii) duly executed UCC financing statements for each appropriate jurisdiction as is necessary, in the Agent's sole discretion, to perfect the Agent's security interest in the Collateral; (iii) searches of ownership of intellectual property in the appropriate governmental offices and such patent/trademark/copyright filings as requested by the Agent in order to perfect the Agent's security interest in the Collateral; (iv) all stock certificates evidencing the Capital Stock pledged to the Agent pursuant to the Pledge Agreement, together with duly executed in blank, undated stock powers attached thereto; (v) such patent/trademark/copyright filings as requested by the Agent in order to perfect the Agent's security interest in the Collateral; (vi) all instruments and chattel paper in the possession of any of the Credit Parties, together with allonges or assignments as may be necessary or appropriate to perfect the Agent's security interest in the Collateral; (vii) duly executed consents as are necessary, in the Agent's sole discretion, to perfect the Lenders' security interest in the Collateral; and (viii) in the case of any personal property Collateral located at a premises leased by a Credit Party, such estoppel letters, consents and waivers from the landlords on such real property as may be required by the Agent. (e) Real Property Collateral. The Agent shall have received, in form and substance reasonably satisfactory to the Agent: (i) with respect to the real property described on Schedule 6.20(a) (the "Mortgaged Property"), a fully executed and notarized mortgage (each, as the same may be amended, modified, restated or supplemented from time to time, a "Mortgage Instrument" and collectively the "Mortgage Instruments") encumbering (A) the fee interest of the IDB Authority (which Mortgage Instrument shall include an assignment of all leases, rents and profits in respect of the Mortgaged Property 51 57 and separate assignment of leases, rents and profits from the IDB Authority to the Agent, in recordable form) and (B) the leasehold interest of the Borrower; (ii) a title report obtained by the Credit Parties in respect of each of the Mortgaged Properties; (iii) in the case of each real property leasehold interest of any Credit Party constituting Mortgaged Property, (a) such estoppel letters, consents and waivers from the landlords on such real property as may be required by the Agent, which estoppel letters shall be in the form and substance reasonably satisfactory to the Agent and (b) evidence that the applicable lease, a memorandum of lease with respect thereto, or other evidence of such lease in form and substance reasonably satisfactory to the Agent, has been or will be recorded in all places to the extent necessary or desirable, in the reasonable judgment of the Agent, so as to enable the Mortgage Instrument encumbering such leasehold interest to effectively create a valid and enforceable first priority lien (subject to Permitted Liens) on such leasehold interest in favor of the Agent (or such other Person as may be required or desired under local law) for the benefit of Lenders; (iv) except as otherwise indicated on Schedule 6.20, the Agent shall have received, and the title insurance company issuing the policy referred to in Section 5.1(e)(v) (the "Title Insurance Company") shall have received, maps or plats of an as-built survey of the sites of the real property covered by the Mortgage Instruments certified to the Agent and the Title Insurance Company in a manner reasonably satisfactory to each of the Agent and the Title Insurance Company, dated a date reasonably satisfactory to each of the Agent and the Title Insurance Company by an independent professional licensed land surveyor, which maps or plats and the surveys on which they are based shall be made in accordance with standards that enable the Title Insurance Company to issue the policies referred to in Section 5.1(e)(v) below without exception for "Survey matters", except for matters as are reasonably acceptable to the Agent; (v) ALTA mortgagee title insurance policies issued by Lawyers Title Insurance Corporation (the "Mortgage Policies"), in amounts not less than the respective amounts designated in Schedule 6.20(a) with respect to any particular Mortgaged Property, assuring the Agent that each of the Mortgage Instruments creates a valid and enforceable first priority mortgage lien on the applicable Mortgaged Property, free and clear of all defects and encumbrances except Permitted Liens, which Mortgage Policies shall be in form and substance reasonably satisfactory to the Agent and shall provide for affirmative insurance and such reinsurance as the Agent may reasonably request, all of the foregoing in form and substance reasonably satisfactory to the Agent; (vi) except as otherwise indicated on Schedule 6.20, evidence, which may be in the form of a letter from an insurance broker or a municipal engineer, as 52 58 to whether (a) any Mortgaged Property (a "Flood Hazard Property") is in an area designated by the Federal Emergency Management Agency as having special flood or mud slide hazards and (b) the community in which such Flood Hazard Property is located is participating in the National Flood Insurance Program; (vii) if there are any Flood Hazard Properties, a Credit Party's written acknowledgment of receipt of written notification from the Agent (a) as to the existence of each such Flood Hazard Property and (b) as to whether the community in which each such Flood Hazard Property is located is participating in the National Flood Insurance Program; (viii) except as otherwise indicated on Schedule 6.20, if there are maps or plats of an as-built survey of the sites of the Mortgaged Properties certified to the Agent and the Title Insurance Company in a manner reasonably satisfactory to them, dated a date satisfactory to each of the Agent and the Title Insurance Company by an independent professional licensed land surveyor reasonably satisfactory to each of the Agent and the Title Insurance Company, which maps or plats and the surveys on which they are based shall be sufficient to delete any standard printed survey exception contained in the applicable title policy and be made in accordance with the Minimum Standard Detail Requirements for Land Title Surveys jointly established and adopted by the American Land Title Association and the American Congress on Surveying and Mapping in 1992, and, without limiting the generality of the foregoing, there shall be surveyed and shown on such maps, plats or surveys the following: (A) the locations on such sites of all the buildings, structures and other improvements and the established building setback lines; (B) the lines of streets abutting the sites and width thereof; (C) all access and other easements appurtenant to the sites necessary to use the sites; (D) all roadways, paths, driveways, easements, encroachments and overhanging projections and similar encumbrances affecting the site, whether recorded, apparent from a physical inspection of the sites or otherwise known to the surveyor; (E) any encroachments on any adjoining property by the building structures and improvements on the sites; and (F) if the site is described as being on a filed map, a legend relating the survey to said map; and (ix) evidence satisfactory to the Agent that each of the Mortgaged Properties, and the uses of the Mortgaged Properties, are in compliance in all material respects with all applicable laws, regulations and ordinances. (f) Priority of Liens. The Agent shall have received satisfactory evidence that (i) the Agent, on behalf of the Lenders, holds a perfected, first priority Lien on all Collateral and (ii) none of the Collateral is subject to any other Liens other than Permitted Liens. (g) Evidence of Insurance. Receipt by the Agent of copies of insurance policies or certificates of insurance of the Credit Parties evidencing liability and casualty 53 59 insurance meeting the requirements set forth in the Credit Documents, including, but not limited to, naming the Agent as loss payee on behalf of the Lenders. (h) Equity Investment. Receipt by the Agent of evidence that a cash equity investment of at least $20 million shall have been made in the Parent by CGW (and that immediately thereafter the Parent shall have contributed such amount, net of reasonable expenses payable to third parties, in the Borrower in exchange for common Capital Stock of the Borrower) on terms that are satisfactory to the Agent. (i) Senior Debt. (i) The Borrower shall have entered into the Senior Note Agreement, (ii) the Borrower shall have issued the Senior Notes, (iii) the Agent shall have received a copy, certified by an Executive Officer of the Borrower as true and complete, of the Senior Note Agreement as originally executed and delivered, and no amendment or modification thereof shall have been entered into on or prior to the Closing Date which shall not have been approved by each of the Lenders and (iv) the Borrower shall have received gross proceeds from the sale of Senior Notes in an aggregate principal amount of at least $75 million. (j) Government Consent. Receipt by the Agent of evidence that all governmental, shareholder and material third party consents (including Hart-Scott-Rodino clearance) and approvals necessary or desirable in connection with the Acquisition and the related financings and other transactions contemplated hereby and expiration of all applicable waiting periods without any action being taken by any authority that could restrain, prevent or impose any material adverse conditions on the Acquisition or such other transactions or that could seek or threaten any of the foregoing, and no law or regulation shall be applicable which in the judgment of the Agent could have such effect. (k) Litigation. There shall not exist (i) any order, decree, judgment, ruling or injunction which restrains the consummation of the Acquisition in the manner contemplated by the Purchase Agreement or (ii) any pending or threatened action, suit, investigation or proceeding against a Credit Party that could have a Material Adverse Effect. (l) Other Indebtedness. Receipt by the Agent of evidence that, after giving effect to the Acquisition, the Credit Parties shall have no Funded Indebtedness other than (i) the Indebtedness under the Credit Documents, (ii) the Indebtedness arising under the Senior Note Agreement and the Senior Notes and (iii) Indebtedness described on Schedule 8.1. (m) Purchase Agreement. There shall not have been any material modification, amendment, supplement or waiver to the Purchase Agreement without the prior written consent of the Agent, including, but not limited to, any modification, amendment, supplement or waiver relating to the amount or type of consideration to be paid in connection with the Acquisition and the contents of all disclosure schedules and exhibits, and the Acquisition shall have been consummated in accordance with the terms of the 54 60 Purchase Agreement (without waiver of any conditions precedent to the obligations of the buyer thereunder) and the purchase price (including assumed indebtedness and fees and expenses) payable by the buyer pursuant thereto shall not exceed $87 million. The Agent shall have received a final Purchase Agreement, together with all exhibits and schedules thereto, certified by an Executive Officer of the Borrower. (n) Officer's Certificates. The Agent shall have received a certificate or certificates executed by an Executive Officer of the Borrower as of the Closing Date stating that (A) each Credit Party is in compliance with all existing financial obligations, (B) all governmental, shareholder and third party consents and approvals, if any, with respect to the Credit Documents and the transactions contemplated thereby have been obtained, (C) no action, suit, investigation or proceeding is pending or threatened in any court or before any arbitrator or governmental instrumentality that purports to affect any Credit Party or any transaction contemplated by the Credit Documents, if such action, suit, investigation or proceeding could have a Material Adverse Effect, (D) the transactions contemplated by the Purchase Agreement have been consummated in accordance with the terms thereof and (E) immediately after giving effect to this Credit Agreement, the other Credit Documents and all the transactions contemplated therein to occur on such date, (1) each of the Credit Parties is Solvent, (2) no Default or Event of Default exists, (3) all representations and warranties contained herein and in the other Credit Documents are true and correct in all material respects, and (4) the Credit Parties are in compliance with each of the financial covenants set forth in Section 7.11. (o) Fees and Expenses. Payment by the Credit Parties of all fees and expenses owed by them to the Lenders and the Agent, including, without limitation, payment to the Agent of the fees set forth in the Fee Letter. (p) Other. Receipt by the Lenders of such other documents, instruments, agreements or information as reasonably requested by any Lender, including, but not limited to, information regarding litigation, tax, accounting, labor, insurance, pension liabilities (actual or contingent), real estate leases, material contracts, debt agreements, property ownership and contingent liabilities of the Credit Parties. 5.2 CONDITIONS TO ALL EXTENSIONS OF CREDIT. The obligations of each Lender to make, convert or extend any Loan and of the Issuing Lender to issue or extend any Letter of Credit (including the initial Loans and the initial Letter of Credit) are subject to satisfaction of the following conditions in addition to satisfaction on the Closing Date of the conditions set forth in Section 5.1: (a) The Borrower shall have delivered (i) in the case of any Loan, an appropriate Notice of Borrowing or Notice of Extension/Conversion or (ii) in the case of any Letter of Credit, the Issuing Lender shall have received an appropriate request for issuance in accordance with the provisions of Section 2.2(b); 55 61 (b) The representations and warranties set forth in Section 6 shall, subject to the limitations set forth therein, be true and correct in all material respects as of such date (except for those which expressly relate to an earlier date and except for changes in facts or circumstances that make such representations and warranties untrue but that, in and of themselves, do no constitute, and/or have not resulted in the occurrence of, a Default or Event of Default); (c) There shall not have been commenced against any Credit Party an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or any case, proceeding or other action for the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of such Person or for any substantial part of its Property or for the winding up or liquidation of its affairs, and such involuntary case or other case, proceeding or other action shall remain undismissed, undischarged or unbonded; (d) No Default or Event of Default shall exist and be continuing either prior to or after giving effect thereto; (e) No development or event which has had or could have a Material Adverse Effect shall have occurred since the later of (i) December 31, 1997 and (ii) the date of the most recent audited financial statements delivered to the Agent and the Lenders in accordance with the terms of Section 7.1(a); and (f) Immediately after giving effect to the making of such Loan (and the application of the proceeds thereof) or to the issuance of such Letter of Credit, as the case may be, the sum of the aggregate principal amount of outstanding Loans plus LOC Obligations outstanding shall not exceed the Committed Amount. The delivery of each Notice of Borrowing, each Notice of Extension/Conversion and each request for a Letter of Credit pursuant to Section 2.2(b) shall constitute a representation and warranty by the Borrower of the correctness of the matters specified in subsections (b), (c), (d), (e) and (f) above. SECTION 6 REPRESENTATIONS AND WARRANTIES The Credit Parties hereby represent to the Agent and each Lender that: 6.1 FINANCIAL CONDITION. (a) The audited consolidated and consolidating balance sheet of the Credit Parties as of December 31, 1997 and the audited consolidated and consolidating statements of earnings and statements of cash flows for the years ended December 31, 1995, December 31, 56 62 1996 and December 31, 1997, have heretofore been furnished to each Lender. Such financial statements (including the notes thereto) (i) have been audited by Crowe Chizek, (ii) have been prepared in accordance with GAAP consistently, applied throughout the periods covered thereby and (iii) present fairly (on the basis disclosed in the footnotes to such b financial statements) the consolidated financial condition, results of operations and cash flows of the Credit Parties as of such date and for such periods. The unaudited interim balance sheets of the Credit Parties as at the end of, and the related unaudited interim statements of earnings and of cash flows for, the 2-month period ended February 28, 1998, have heretofore been furnished to each Lender. Such interim financial statements for each such quarterly period, (i) have been prepared in accordance with GAAP consistently applied throughout the periods covered thereby and (ii) present fairly (on the basis disclosed in the footnotes to such financial statements) the consolidated and consolidating financial condition, results of operations and cash flows of the Credit Parties as of such date and for such periods. During the period from December 31, 1997 to and including the Closing Date, there has been no sale, transfer or other disposition by any Credit Party of any material part of the business or property of the Credit Parties, taken as a whole, and no purchase or other acquisition by any of them of any business or property (including any capital stock of any other person) material in relation to the consolidated financial condition of the Credit Parties, taken as a whole, in each case, which, is not reflected in the foregoing financial statements or in the notes thereto and has not otherwise been disclosed in writing to the Lenders on or prior to the Closing Date. (b) The pro forma consolidated balance sheet of the Credit Parties as of the Closing Date giving effect to the Acquisition in accordance with the terms of the Purchase Agreement and reflecting estimated purchase price accounting adjustments, has heretofore been furnished to each Lender. Such pro forma balance sheet is based upon reasonable assumptions made known to the Lenders and upon information not know to be incorrect or misleading in any material respect. (c) The financial statements delivered to the Lenders pursuant to Section 7.1(a) and (b), (i) have been prepared in accordance with GAAP (except as may otherwise be permitted under Section 7.1(a) and (b)) and (ii) present fairly (on the basis disclosed in the footnotes to such financial statements) the consolidated and consolidating financial condition, results of operations and cash flows of the Credit Parties as of such date and for such periods. 6.2 NO MATERIAL CHANGE. Since the later of (i) December 31, 1997 and (ii) the date of the most recent audited financial statements delivered to the Agent and the Lenders in accordance with the terms of Section 7.1(a), (a) there has been no development or event relating to or affecting a Credit Party which has had or would be reasonably likely to have a Material Adverse Effect and (b) except as otherwise permitted under this Credit Agreement, no dividends or other distributions have been declared, paid or made upon the Capital Stock in a Credit Party nor has any of the Capital Stock in a Credit Party been redeemed, retired, purchased or otherwise acquired for value. 57 63 6.3 ORGANIZATION AND GOOD STANDING. Each of the Credit Parties (a) is duly organized, validly existing and is in good standing under the laws of the jurisdiction of its incorporation or organization, (b) has the corporate or other necessary power and authority, and the legal right, to own and operate its property, to lease the property it operates as lessee and to conduct the business in which it is currently engaged and (c) is duly qualified as a foreign entity and in good standing under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification, other than, in the case of clauses (a) and (c) of this Section 6.3, in such jurisdictions where the failure to be so qualified and in good standing would be reasonably likely to have a Material Adverse Effect. 6.4 POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS. Each of the Credit Parties has the corporate or other necessary power and authority, and the legal right, to make, deliver and perform the Credit Documents to which it is a party, and in the case of the Borrower, to obtain extensions of credit hereunder, and has taken all necessary corporate action to authorize the borrowings and other extensions of credit on the terms and conditions of this Credit Agreement and to authorize the execution, delivery and performance of the Credit Documents to which it is a party. No consent or authorization of, filing with, notice to or other similar act by or in respect of, any Governmental Authority or any other Person is required to be obtained or made by or on behalf of any Credit Party in connection with the borrowings or other extensions of credit hereunder or with the execution, delivery, performance, validity or enforceability of the Credit Documents to which such Credit Party is a party, except for (i) consents, authorizations, notices and filings described in Schedule 6.4, all of which have been obtained or made or have the status described in such Schedule 6.4 and (ii) filings to perfect the Liens created by the Collateral Documents. This Credit Agreement has been, and each other Credit Document to which any Credit Party is a party will be, duly executed and delivered on behalf of the Credit Parties. This Credit Agreement constitutes, and each other Credit Document to which any Credit Party is a party when executed and delivered will constitute, a legal, valid and binding obligation of such Credit Party enforceable against such party in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law). 6.5 NO CONFLICTS. Neither the execution and delivery of the Credit Documents, nor the consummation of the transactions contemplated therein, nor performance of and compliance with the terms and provisions thereof by such Credit Party will (a) violate or conflict with any provision of its articles or certificate of incorporation or bylaws or other organizational or governing documents of such Person, (b) violate, contravene or materially conflict with any Requirement of Law or any other law, regulation (including, without limitation, Regulation U or Regulation X), order, writ, 58 64 judgment, injunction, decree or permit applicable to it, (c) violate, contravene or conflict with contractual provisions of, or cause an event of default under, any material indenture, loan agreement, mortgage, deed of trust, contract or other agreement or instrument to which it is a party or by which it may be bound, the violation of which could have a Material Adverse Effect, or (d) result in or require the creation of any Lien (other than those contemplated in or created in connection with the Credit Documents) upon or with respect to its properties. 6.6 NO DEFAULT. No Credit Party is in default in any material respect under any contract, lease, loan agreement, indenture, mortgage, security agreement or other agreement or obligation to which it is a party or by which any of its properties is bound which default could have a Material Adverse Effect. No Default or Event of Default has occurred or exists except as previously disclosed in writing to the Lenders. 6.7 OWNERSHIP. Each Credit Party is the owner of, and has good and marketable title to, all of its respective assets and none of such assets is subject to any Lien other than Permitted Liens. 6.8 INDEBTEDNESS. Except as otherwise permitted under Section 8.1, the Credit Parties have no Indebtedness. 6.9 LITIGATION. Except as disclosed in Schedule 6.9, there are no actions, suits or legal, equitable, arbitration or administrative proceedings, pending or, to the knowledge of any Credit Party, threatened against any Credit Party which would be reasonably likely to have a Material Adverse Effect. 6.10 TAXES. Each Credit Party has filed, or caused to be filed, all material tax returns (federal, state, local and foreign) required to be filed and paid (a) all amounts of taxes shown thereon to be due (including interest and penalties) and (b) all other taxes, fees, assessments and other governmental charges (including mortgage recording taxes, documentary stamp taxes and intangibles taxes) owing by it, except for such taxes (i) which are not yet delinquent or (ii) that are being contested in good faith and by proper proceedings, and against which adequate reserves are being maintained in accordance with GAAP. No Credit Party is aware as of the Closing Date of any proposed tax assessments against it or any other Credit Party. 59 65 6.11 COMPLIANCE WITH LAW. Each Credit Party has complied in all material respects with all applicable Requirements of Law and all other laws, rules, regulations, orders and decrees (including without limitation Environmental Laws) applicable to it, or to its properties, unless such failure to comply would not be reasonably likely to have a Material Adverse Effect. 6.12 ERISA. Except as would not be reasonably likely to have a Material Adverse Effect: (a) During the five-year period prior to the date on which this representation is made or deemed made: (i) no ERISA Event has occurred, and, to the best knowledge of the Credit Parties, no event or condition has occurred or exists as a result of which any ERISA Event could reasonably be expected to occur, with respect to any Plan; (ii) no "accumulated funding deficiency," as such term is defined in Section 302 of ERISA and Section 412 of the Code, whether or not waived, has occurred with respect to any Plan; (iii) each Plan has been maintained, operated, and funded in compliance with its own terms and in material compliance with the provisions of ERISA, the Code, and any other applicable federal or state laws; and (iv) no lien in favor of the PBGC or a Plan has arisen or is reasonably likely to arise on account of any Plan. (b) The actuarial present value of all "benefit liabilities" (as defined in Section 4001(a)(16) of ERISA), whether or not vested, under each Single Employer Plan, as of the last annual valuation date prior to the date on which this representation is made or deemed made (determined, in each case, in accordance with Financial Accounting Standards Board Statement 87, utilizing the actuarial assumptions used in such Plan's most recent actuarial valuation report), did not exceed as of such valuation date the fair market value of the assets of such Plan. (c) Neither any Credit Party nor any ERISA Affiliate has incurred, or, to the best knowledge of the Credit Parties, could be reasonably expected to incur, any withdrawal liability under ERISA to any Multiemployer Plan or Multiple Employer Plan. Neither any Credit Party nor any ERISA Affiliate would become subject to any withdrawal liability under ERISA if any Credit Party or any ERISA Affiliate were to withdraw completely from all Multiemployer Plans and Multiple Employer Plans as of the valuation date most closely preceding the date on which this representation is made or deemed made. Neither any Credit Party nor any ERISA Affiliate has received any notification that any Multiemployer Plan is in reorganization (within the meaning of Section 4241 of ERISA), is insolvent (within the meaning of Section 4245 of ERISA), or has been terminated (within the meaning of Title IV of ERISA), and no Multiemployer Plan is, to the best knowledge of the Credit Parties, reasonably expected to be in reorganization, insolvent, or terminated. (d) No prohibited transaction (within the meaning of Section 406 of ERISA or Section 4975 of the Code) or breach of fiduciary responsibility has occurred with respect to a Plan which has subjected or may subject any Credit Party or any ERISA Affiliate to 60 66 any liability under Sections 406, 409, 502(i), or 502(l) of ERISA or Section 4975 of the Code, or under any agreement or other instrument pursuant to which any Credit Party or any ERISA Affiliate has agreed or is required to indemnify any Person against any such liability. (e) Neither any Credit Party nor any ERISA Affiliates has any material liability with respect to "expected post-retirement benefit obligations" within the meaning of the Financial Accounting Standards Board Statement 106. Each Plan which is a welfare plan (as defined in Section 3(1) of ERISA) to which Sections 601-609 of ERISA and Section 4980B of the Code apply has been administered in compliance in all material respects of such sections. (f) Neither the execution and delivery of this Credit Agreement nor the consummation of the financing transactions contemplated thereunder will involve any transaction which is subject to the prohibitions of Sections 404, 406 or 407 of ERISA or in connection with which a tax could be imposed pursuant to Section 4975 of the Code. The representation by the Credit Parties in the preceding sentence is made in reliance upon and subject to the accuracy of the Lenders' representation in Section 11.15 with respect to their source of funds and is subject, in the event that the source of the funds used by the Lenders in connection with this transaction is an insurance company's general asset account, to the application of Prohibited Transaction Class Exemption 95-60, 60 Fed. Reg. 35,925 (1995), compliance with the regulations issued under Section 401(c)(1)(A) of ERISA, or the issuance of any other prohibited transaction exemption or similar relief, to the effect that assets in an insurance company's general asset account do not constitute assets of an "employee benefit plan" within the meaning of Section 3(3) of ERISA of a "plan" within the meaning of Section 4975(e)(1) of the Code. 6.13 SUBSIDIARIES. Set forth on Schedule 6.13 is a complete and accurate list of all Subsidiaries of each Credit Party as of the Closing Date. Information on Schedule 6.13 includes jurisdiction of incorporation, the number of shares of each class of Capital Stock outstanding, the number and percentage of outstanding shares of each class owned (directly or indirectly) by such Credit Party; and the number and effect, if exercised, of all outstanding options, warrants, rights of conversion or purchase and all other similar rights with respect thereto. The outstanding Capital Stock of all such Subsidiaries is validly issued, fully paid and non-assessable and is owned by each such Credit Party, directly or indirectly, free and clear of all Liens (other than those arising under or contemplated in connection with the Credit Documents). Other than as set forth in Schedule 6.13, no Credit Party has outstanding any securities convertible into or exchangeable for its Capital Stock nor does any such Person have outstanding any rights to subscribe for or to purchase or any options for the purchase of, or any agreements providing for the issuance (contingent or otherwise) of, or any calls, commitments or claims of any character relating to its Capital Stock. Schedule 6.13 may be updated from time to time by the Borrower by giving written notice thereof to the Agent. 61 67 6.14 GOVERNMENTAL REGULATIONS, ETC. (a) No part of the Letters of Credit or proceeds of the Loans will be used, directly or indirectly, for the purpose of purchasing or carrying any "margin stock" within the meaning of Regulation G or Regulation U, or for the purpose of purchasing or carrying or trading in any securities. If requested by any Lender or the Agent, the Borrower will furnish to the Agent and each Lender a statement to the foregoing effect in conformity with the requirements of FR Form U-1 referred to in Regulation U. No indebtedness being reduced or retired out of the proceeds of the Loans was or will be incurred for the purpose of purchasing or carrying any margin stock within the meaning of Regulation U or any "margin security" within the meaning of Regulation T. "Margin stock" within the meaning of Regulation U does not constitute more than 25% of the value of the consolidated assets of the Credit Parties. None of the transactions contemplated by this Credit Agreement (including, without limitation, the direct or indirect use of the proceeds of the Loans) will violate or result in a violation of the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, or regulations issued pursuant thereto, or Regulation G, T, U or X. (b) No Credit Party is subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act or the Investment Company Act of 1940, each as amended. In addition, no Credit Party is (i) an "investment company" registered or required to be registered under the Investment Company Act of 1940, as amended, and is not controlled by such a company, or (ii) a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. (c) No director, executive officer or principal shareholder of any Credit Party is a director, executive officer or principal shareholder of any Lender. For the purposes hereof the terms "director", "executive officer" and "principal shareholder" (when used with reference to any Lender) have the respective meanings assigned thereto in Regulation O issued by the Board of Governors of the Federal Reserve System. (d) Each Credit Party has obtained and holds in full force and effect, all franchises, licenses, permits, certificates, authorizations, qualifications, accreditations, easements, rights of way and other rights, consents and approvals which are necessary for the ownership of its respective Property and to the conduct of its respective businesses as presently conducted, except where the failure to hold the same would not be reasonably likely to have a Material Adverse Effect. (e) No Credit Party is in violation of any applicable statute, regulation or ordinance of the United States of America, or of any state, city, town, municipality, county or any other jurisdiction, or of any agency thereof (including without limitation, environmental laws and regulations), which violation could have a Material Adverse Effect. 62 68 (f) Each Credit Party is current with all material reports and documents, if any, required to be filed with any state or federal securities commission or similar agency and is in full compliance in all material respects with all applicable rules and regulations of such commissions, except where the failure to comply would not be reasonably likely to have a Material Adverse Effect. 6.15 PURPOSE OF LOANS AND LETTERS OF CREDIT. The proceeds of the Loans hereunder shall be used solely by the Borrower to provide for ongoing general corporate purposes of the Borrower and its Subsidiaries. The Letters of Credit shall be used only for or in connection with appeal bonds, reimbursement obligations arising in connection with surety, reclamation and industrial development bonds, reinsurance, domestic or international trade transactions and obligations not otherwise aforementioned relating to transactions entered into by the applicable account party in the ordinary course of business. 6.16 ENVIRONMENTAL MATTERS. Except as disclosed and described in Schedule 6.16 attached hereto and except as to matters which are not reasonably likely to have a Material Adverse Effect: (a) Each of the facilities and properties owned, leased or operated by the Credit Parties (the "Properties") and all operations at the Properties are in material compliance with all applicable Environmental Laws, and there is no material violation of any Environmental Law with respect to the Properties or the businesses operated by the Credit Parties (the "Businesses"), and there are no conditions relating to the Businesses or Properties that are reasonably likely give rise to liability under any applicable Environmental Laws. (b) None of the Properties contains, or, to best knowledge of the Credit Parties, has contained prior to such time as a Credit Party first became an owner, lessee or operator thereof, any Materials of Environmental Concern at, on or under the Properties in amounts or concentrations that constitute or constituted a material violation of, or could give rise to material liability under, any applicable Environmental Law. (c) No Credit Party has received any written notice of or from any Governmental Authority regarding, any material violation, alleged violation, non-compliance, liability or potential liability regarding environmental matters or compliance with applicable Environmental Laws with regard to any of the Properties or the Businesses, nor does any Credit Party have knowledge or reason to believe that any such notice will be received or is being threatened. (d) Materials of Environmental Concern have not been transported or disposed of from the Properties, or generated, treated, stored or disposed of at, on or under any of the Properties or any other location, in each case by or on behalf of any Credit Party in 63 69 violation of, or in a manner that is reasonably likely to give rise to liability under, any applicable Environmental Law. (e) No judicial proceeding or governmental or administrative action is pending or, to the best knowledge of any Credit Party, threatened, under any Environmental Law to which any Credit Party is or will be named as a party, nor are there any consent decrees or other decrees, consent orders, administrative orders or other orders, or other administrative or judicial requirements outstanding under any applicable Environmental Law with respect to the Credit Parties, the Properties or the Businesses. (f) There has been no release, or threat of release, of Materials of Environmental Concern at or from the Properties, or arising from or related to the operations (including, without limitation, disposal) of any Credit Party in connection with the Properties or otherwise in connection with the Businesses, in material violation of or in amounts or in a manner that could give rise to liability under Environmental Laws. 6.17 INTELLECTUAL PROPERTY. Each Credit Party owns, or has the legal right to use, all trademarks, tradenames, copyrights, technology, know-how and processes (the "Intellectual Property") necessary for each of them to conduct its business as currently conducted except for those the failure to own or have such legal right to use could not have a Material Adverse Effect. Set forth on Schedule 6.17 is a list of all Intellectual Property owned by each Credit Party or that any Credit Party has the right to use. Except as provided on Schedule 6.17, no claim has been asserted and is pending by any Person challenging or questioning the use of any such Intellectual Property or the validity or effectiveness of any such Intellectual Property, nor does any Credit Party know of any such claim, and to the Credit Parties' knowledge the use of such Intellectual Property by any Credit Party does not infringe on the rights of any Person, except for such claims and infringements that, in the aggregate, could not have a Material Adverse Effect. 6.18 SOLVENCY. Each Credit Party is and, after consummation of the transactions contemplated by this Credit Agreement (including without limitation the Acquisition), will be Solvent. 6.19 INVESTMENTS. All Investments of each Credit Party are Permitted Investments. 6.20 LOCATION OF COLLATERAL. Set forth on Schedule 6.20(a) is a list of all Mortgaged Properties as of the Closing Date with street address, county and state where located. Set forth on Schedule 6.20(b) is a list of all locations as of the Closing Date where any tangible personal property of a Credit Party is located, including county and state where located. Set forth on Schedule 6.20(c) is a list of all locations as 64 70 of the Closing Date where any Credit Party maintains its chief executive office and/or principal place of business. 6.21 DISCLOSURE. Neither this Credit Agreement nor any financial statements delivered to the Lenders nor any other document, certificate or statement furnished to the Lenders by or on behalf of any Credit Party in connection with the transactions contemplated hereby contained at the time furnished any untrue statement of a material fact or omitted at the time furnished to state a material fact necessary in order to make the statements contained therein or herein not misleading. 6.22 NO BURDENSOME RESTRICTIONS. No Credit Party is a party to any agreement or instrument or subject to any other obligation or any charter or corporate restriction or any provision of any applicable law, rule or regulation which, individually or in the aggregate, could have a Material Adverse Effect. 6.23 BROKERS' FEES. No Credit Party has any obligation to any Person in respect of any finder's, broker's, investment banking or other similar fee in connection with any of the transactions contemplated under the Credit Documents. 6.24 LABOR MATTERS. Except for that Basic Labor Agreement dated as of August 8, 1995, there are no collective bargaining agreements or Multiemployer Plans covering the employees of a Credit Party as of the Closing Date and none of the Credit Parties has suffered any strikes, walkouts, work stoppages or other material labor difficulty within the last five years. 6.25 NATURE OF BUSINESS. As of the Closing Date, the Credit Parties are engaged in the business of manufacturing and sellng silicon metals products, microsilica, silicon dross and silicon scrap. 6.26 REPRESENTATIONS AND WARRANTIES FROM PURCHASE AGREEMENT. As of the Closing Date, each of the representations and warranties made in the Purchase Agreement by each of the parties thereto is true and correct in all material respects, except for matters that, in the aggregate, could not have a Material Adverse Effect. 6.27 YEAR 2000 COMPLIANCE. Each of the Credit Parties has conducted a review and assessment of its computer applications with respect to the "year 2000 problem" (that is, the risk that computer applications 65 71 may not be able to properly perform date-sensitive functions after December 31, 1999) and, based on that review and inquiry, the Credit Parties believe that the year 2000 problem will not result in a material adverse change in its business condition (financial or otherwise), operations, business, assets, liabilities or prospects of the Credit Parties taken as a whole, or on the ability of any Credit Party to perform any material obligation under the Credit Documents to which it is a party. SECTION 7 AFFIRMATIVE COVENANTS Each Credit Party hereby covenants and agrees that, so long as this Credit Agreement is in effect or any amounts payable hereunder or under any other Credit Document shall remain outstanding, and until all of the Commitments hereunder shall have terminated: 7.1 INFORMATION COVENANTS. The Borrower will furnish, or cause to be furnished, to the Agent and each of the Lenders: (a) Annual Financial Statements. As soon as available, and in any event within 90 days after the close of each fiscal year of the Credit Parties (other than the fourth fiscal quarter, in which case 90 days after the end thereof), a consolidated balance sheet and income statement of the Credit Parties, as of the end of such fiscal year, together with related consolidated statements of operations and retained earnings and of cash flows for such fiscal year, setting forth in comparative form consolidated figures for the preceding fiscal year, all such financial information described above to be in a form satisfying the Securities and Exchange Commission requirements for a 10-K filing or otherwise in reasonable form and detail and audited by independent certified public accountants of recognized national standing reasonably acceptable to the Agent and whose opinion shall be to the effect that such financial statements have been prepared in accordance with GAAP (except for changes with which such accountants concur) and shall not be limited as to the scope of the audit or qualified as to the status of the Credit Parties as a going concern. (b) Quarterly Financial Statements. As soon as available, and in any event within 45 days after the end of each fiscal quarter of the Credit Parties, a consolidated balance sheet and income statement of the Credit Parties as of the end of such fiscal quarter, together with related consolidated statements of operations and retained earnings and of cash flows for such fiscal quarter, in each case setting forth in comparative form consolidated figures for the corresponding period of the preceding fiscal year, all such financial information described above to be in a form satisfying the Securities and Exchange Commission requirements for a 10-Q filing or otherwise in reasonable form and detail and reasonably acceptable to the Agent, and accompanied by a certificate of an Executive Officer of the Borrower to the effect that such quarterly financial statements fairly present in all material respects the financial condition of the Credit Parties and have 66 72 been prepared in accordance with GAAP, subject to changes resulting from audit, normal year-end audit adjustments and the absence of notes. (c) Officer's Certificate. At the time of delivery of the financial statements provided for in Sections 7.1(a) and 7.1(b) above, a certificate of an Executive Officer of the Borrower substantially in the form of Exhibit 7.1(c), (i) demonstrating compliance with the financial covenants contained in Section 7.11 by calculation thereof as of the end of each such fiscal period and (ii) stating that, to his knowledge, no Default or Event of Default exists, or if any Default or Event of Default does exist, specifying the nature and extent thereof and what action the Credit Parties propose to take with respect thereto. (d) Annual Business Plan and Budgets. At least 30 days prior to the end of each fiscal year of the Borrower, beginning with the fiscal year ending December 31, 1998, an annual business plan and budget of the Credit Parties containing, among other things, pro forma financial statements for the next fiscal year. (e) Compliance With Certain Provisions of the Credit Agreement. Within 90 days after the end of each fiscal year of the Borrower, a certificate containing information regarding the amount of all Asset Dispositions that were made during the prior fiscal year. (f) Accountant's Certificate. Within the period for delivery of the annual financial statements provided in Section 7.1(a), a certificate of the accountants conducting the annual audit stating that they have reviewed this Credit Agreement and stating further whether, in the course of their audit, they have become aware of any Default or Event of Default and, if any such Default or Event of Default exists, specifying the nature and extent thereof. (g) Auditor's Reports. Promptly upon receipt thereof, a copy of any other report or "management letter" submitted by independent accountants to any Credit Party in connection with any annual, interim or special audit of the books of such Person. (h) Reports. Promptly upon transmission or receipt thereof, (i) copies of any filings and registrations with, and reports to or from, the Securities and Exchange Commission, or any successor agency, and copies of all financial statements, proxy statements, notices and reports as any Credit Party shall send to its shareholders or to a holder of any Indebtedness owed by any Credit Party in its capacity as such a holder and (ii) upon the request of the Agent, all reports and written information to and from the United States Environmental Protection Agency, or any state or local agency responsible for environmental matters, the United States Occupational Health and Safety Administration, or any state or local agency responsible for health and safety matters, or any successor agencies or authorities concerning a violation which is reasonably likely to have a Material Adverse Effect. (i) Notices. Upon obtaining knowledge thereof, the Borrower will give written notice to the Agent immediately of (i) the occurrence of an event or condition 67 73 consisting of a Default or Event of Default, specifying the nature and existence thereof and what action the Credit Parties propose to take with respect thereto, and (ii) the occurrence of any of the following with respect to any Credit Party (A) the pendency or commencement of any litigation, arbitral or governmental proceeding against such Person which if adversely determined is reasonably likely to have a Material Adverse Effect, (B) the institution of any proceedings against such Person with respect to, or the receipt of notice by such Person of potential liability or responsibility for violation, or alleged violation of any applicable federal, state or local law, rule or regulation, including but not limited to, Environmental Laws, the violation of which is reasonably likely to have a Material Adverse Effect, or (C) any notice or determination concerning the imposition of any withdrawal liability by a Multiemployer Plan against such Person or any ERISA Affiliate, the determination that a Multiemployer Plan is, or is expected to be, in reorganization within the meaning of Title IV of ERISA or the termination of any Plan. (j) ERISA. Upon obtaining knowledge thereof, the Borrower will give written notice to the Agent promptly (and in any event within five Business Days) of: (i) of any event or condition, including, but not limited to, any Reportable Event, that constitutes, or might reasonably lead to, an ERISA Event which ERISA Event would have or would be reasonably expected to have a Material Adverse Effect; (ii) with respect to any Multiemployer Plan, the receipt of notice as prescribed in ERISA or otherwise of any withdrawal liability assessed against the Borrower or any of its ERISA Affiliates, or of a determination that any Multiemployer Plan is in reorganization or insolvent (both within the meaning of Title IV of ERISA) which in either case would have or would be reasonably expected to have a Material Adverse Effect; (iii) the failure to make full payment on or before the due date (including extensions) thereof of all amounts which any Credit Party or any ERISA Affiliate is required to contribute to each Plan pursuant to its terms and as required to meet the minimum funding standard set forth in ERISA and the Code with respect thereto which would have or would be reasonably expected to have a Material Adverse Effect; or (iv) any event has occurred or failed to occur with respect to a Single Employer Plan, Multiemployer Plan or Multiple Employer Plan sponsored, maintained or contributed to by an ERISA Affiliate of any Credit Party which would have or would be reasonably expected to have a Material Adverse Effect; or (v) any change in the funding status of any Plan that would have or would be reasonably expected to have a Material Adverse Effect, together with a description of any such event or condition or a copy of any such notice and a statement by an Executive Officer of the Borrower briefly setting forth the details regarding such event, condition, or notice, and the action, if any, which has been or is being taken or is proposed to be taken by the Credit Parties with respect thereto. Promptly upon request, the Credit Parties shall furnish the Agent and the Lenders with such additional information concerning any Plan as may be reasonably requested, including, but not limited to, copies of each annual report/return (Form 5500 series), as well as all schedules and attachments thereto required to be filed with the Department of Labor and/or the Internal Revenue Service pursuant to ERISA and the Code, respectively, for each "plan year" (within the meaning of Section 3(39) of ERISA). 68 74 (k) Environmental. (i) Upon the reasonable written request of the Agent from time to time whenever the Agent shall have reason to believe that the nature or extent of the presence of any Materials of Environmental Concern shall have materially and adversely changed since the later of (i) the Closing Date or (ii) the most recent report delivered pursuant to this Section 7.1(k) (in any event not to be given more frequently than once during any single calendar year), the Credit Parties will furnish or cause to be furnished to the Agent, at the Borrower's expense, a report of an environmental assessment of reasonable scope, form and depth, (including, where appropriate, invasive soil or groundwater sampling) by a consultant reasonably acceptable to the Agent and the Borrower as to the nature and extent of the presence of any Materials of Environmental Concern on any Properties (as defined in Section 6.16) and as to the compliance by any Credit Party with Environmental Laws at such Properties; provided, however, that the Agent shall consult with the Borrower as to the appropriated type of assessment prior to the request of the Agent. If the Credit Parties fail to deliver such an environmental report within seventy-five (75) days after receipt of such written request then the Agent may arrange for same, and the Credit Parties hereby grant to the Agent and their representatives access to the Properties to reasonably undertake such an assessment (including, where appropriate, invasive soil or groundwater sampling). The reasonable cost of any assessment arranged for by the Agent pursuant to this provision will be payable by the Borrower on demand and added to the obligations secured by the Collateral Documents. (ii) The Credit Parties will conduct and complete in all material respects all investigations, studies, sampling, and testing and all remedial, removal, and other actions necessary to address all Materials of Environmental Concern on, from or affecting any of the Properties to the extent necessary to be in compliance with all applicable Environmental Laws and with the validly issued orders and directives of all Governmental Authorities with jurisdiction over such Properties to the extent any failure is reasonably likely to have a Material Adverse Effect. (l) Additional Patents and Trademarks. At the time of delivery of the financial statements and reports provided for in Section 7.1(a), a report signed by an Executive Officer or treasurer of the Borrower setting forth (i) a list of registration numbers for all patents, trademarks, service marks, tradenames and copyrights awarded to any Credit Party since the last day of the immediately preceding fiscal year and (ii) a list of all patent applications, trademark applications, service mark applications, trade name applications and copyright applications submitted by any Credit Party since the last day of the immediately preceding fiscal year and the status of each such application, all in such form as shall be reasonably satisfactory to the Agent. 69 75 (m) Other Information. With reasonable promptness upon any such request, such other information regarding the business, properties or financial condition of any Credit Party as the Agent or the Required Lenders may reasonably request. 7.2 PRESERVATION OF EXISTENCE AND FRANCHISES. Except as a result of or in connection with a dissolution, merger or disposition of a Subsidiary permitted under Section 8.4 or Section 8.5, each Credit Party will, and will cause each of its Subsidiaries to, do all things necessary to preserve and keep in full force and effect its existence, rights, franchises and authority. 7.3 BOOKS AND RECORDS. Each Credit Party will, and will cause each of its Subsidiaries to, keep complete and accurate books and records of its transactions in accordance with good accounting practices on the basis of GAAP (including the establishment and maintenance of appropriate reserves). 7.4 COMPLIANCE WITH LAW. Each Credit Party will, and will cause each of its Subsidiaries to, comply with all applicable laws, rules, regulations and orders, and all applicable restrictions imposed by all Governmental Authorities, applicable to it and its Property if noncompliance with any such law, rule, regulation, order or restriction is reasonably likely to have a Material Adverse Effect. 7.5 PAYMENT OF TAXES AND OTHER INDEBTEDNESS. Each Credit Party will, and will cause each of its Subsidiaries to, pay and discharge (a) all taxes, assessments and governmental charges or levies imposed upon it, or upon its income or profits, or upon any of its properties, before they shall become delinquent, (b) all lawful claims (including claims for labor, materials and supplies) which, if unpaid, might give rise to a Lien upon any of its properties, and (c) except as prohibited hereunder, all of its other Indebtedness as it shall become due; provided, however, that no Credit Party shall be required to pay any such tax, assessment, charge, levy, claim or Indebtedness which is being contested in good faith by appropriate proceedings and as to which adequate reserves therefor have been established in accordance with GAAP, unless the failure to make any such payment (i) could give rise to an immediate right to foreclose on a Lien securing such amounts or (ii) could have a Material Adverse Effect. 7.6 INSURANCE. (a) Each Credit Party will, and will cause each of its Subsidiaries to, at all times maintain in full force and effect insurance (including worker's compensation insurance, liability insurance, casualty insurance and business interruption insurance) in such amounts, covering such risks and liabilities and with such deductibles or self-insurance retentions as are in accordance with normal industry practice (or as otherwise 7- 76 required by the Collateral Documents). The Agent shall be named as loss payee or mortgagee, as its interest may appear, and/or additional insured with respect to any such insurance providing coverage in respect of any Collateral, and each provider of any such insurance shall agree, by endorsement upon the policy or policies issued by it or by independent instruments furnished to the Agent, that it will give the Agent thirty (30) days prior written notice before any such policy or policies shall be altered or canceled, and that no act or default of any Credit Party or any other Person shall affect the rights of the Agent or the Lenders under such policy or policies. The present insurance coverage of the Credit Parties is outlined as to carrier, policy number, expiration date, type and amount on Schedule 7.6, and the Agent and the Lenders hereby acknowledge that, as of the Closing Date, such insurance coverage is acceptable. (b) In case of any loss, damage to or destruction of the Collateral of any Credit Party or any part thereof in respect of which a Credit Party shall receive any proceeds of such insurance in a net amount in excess of $10,000,000, such Credit Party shall promptly give written notice thereof to the Agent generally describing the nature and extent of such damage or destruction. In case of any loss, damage to or destruction of the Collateral of any Credit Party or any part thereof, such Credit Party, at such Credit Party's cost and expense, will promptly repair or replace the Collateral of such Credit Party so lost, damaged or destroyed in a manner reasonably satisfactory to the Agent. 7.7 MAINTENANCE OF PROPERTY. Each Credit Party will, and will cause each of its Subsidiaries to, maintain and preserve its properties and equipment material to the conduct of its business in good repair, working order and condition, normal wear and tear and casualty and condemnation excepted, and will make, or cause to be made, in such properties and equipment from time to time all repairs, renewals, replacements, extensions, additions, betterments and improvements thereto as may be needed or proper, to the extent and in the manner customary for companies in similar businesses. 7.8 PERFORMANCE OF OBLIGATIONS. Each Credit Party will, and will cause each of its Subsidiaries to, perform in all material respects all of its obligations under the terms of all material agreements, indentures, mortgages, security agreements or other debt instruments to which it is a party or by which it is bound if the failure to so perform would cause or be reasonably expected to cause a Material Adverse Effect . 7.9 USE OF PROCEEDS. The Borrower will use the proceeds of the Loans and will use the Letters of Credit solely for the purposes set forth in Section 6.15. 71 77 7.10 AUDITS/INSPECTIONS. Upon reasonable written notice and during normal business hours, each Credit Party will permit representatives appointed by the Agent, including, without limitation, independent accountants, agents, attorneys, and appraisers to visit and inspect its property, including its books and records, its accounts receivable and inventory, its facilities and its other business assets, and to make photocopies or photographs thereof and to write down and record any information such representative obtains and shall permit the Agent or its representatives to investigate and verify the accuracy of information provided to the Lenders and to discuss all such matters with the officers, employees and representatives of such Person. The Agent shall notify the Lenders prior to any visit, inspection, investigation or discussion with accountants pursuant to this Section 7.10, and the Credit Parties agree that any Lender shall be entitled to accompany the Agent (or its duly appointed representative(s)) in connection with any such visit, inspection, investigation or discussion with accountants. The Credit Parties agree that the Agent, and its representatives, may conduct an annual audit of the Collateral, at the expense of the Borrower. 7.11 FINANCIAL COVENANTS. (a) Interest Coverage Ratio. The Interest Coverage Ratio, as of the last day of each fiscal quarter of the Credit Parties, shall be greater than or equal to: (i) for the period from June 30, 1998 to and including December 30, 2001, 1.50 to 1.00; (ii) for the period from December 31, 2001 and at all times thereafter, 2.25 to 1.00. (b) Net Leverage Ratio. The Credit Parties shall cause the Net Leverage Ratio, as of the last day of each fiscal quarter of the Credit Parties, to be less than or equal to: (i) for the period from June 30, 1998 to and including December 30, 1998, 5.50 to 1.00; (ii) for the period from December 31, 1998 to and including December 30, 2001, 6.00 to 1.00; (iii) for the period from December 31, 2001 to and including December 30, 2002, 3.50 to 1.00; and (iv) for the period from December 31, 2002 and at all times thereafter, 3.00 to 1.00. (c) Consolidated Net Worth. At all times the Consolidated Net Worth of the Borrower shall be greater than or equal to the sum of $18,000,000, increased on a cumulative basis as of the end of each fiscal quarter of the Credit Parties, commencing 72 78 with the fiscal quarter ending June 30, 1998 by an amount equal to 50% of Consolidated Net Income (to the extent positive) for the fiscal quarter then ended. 7.12 ADDITIONAL CREDIT PARTIES. As soon as practicable and in any event within 30 days after any Person becomes a Subsidiary of any Credit Party, the Borrower shall provide the Agent with written notice thereof setting forth information in reasonable detail describing all of the assets of such Person and shall (a) cause such Person to execute a Joinder Agreement in substantially the same form as Exhibit 7.12, (b) cause 100% of the Capital Stock of such Person to be delivered to the Agent (together with undated stock powers signed in blank) and pledged to the Agent pursuant to an appropriate pledge agreement(s) in substantially the form of the Pledge Agreement and otherwise in form acceptable to the Agent and (c) cause such Person to (i) if such Person owns or leases any real property located in the United States of America or deemed to be material by the Agent or the Required Lenders in its or their sole reasonable discretion, deliver to the Agent with respect to such real property documents, instruments and other items of the types required to be delivered pursuant to Section 5.1(e) all in form, content and scope reasonably satisfactory to the Agent and (ii) deliver such other documentation as the Agent may reasonably request in connection with the foregoing, including, without limitation, appropriate UCC-1 financing statements, real estate title insurance policies, environmental reports, landlord's waivers, certified resolutions and other organizational and authorizing documents of such Person, favorable opinions of counsel to such Person (which shall cover, among other things, the legality, validity, binding effect and enforceability of the documentation referred to above and the perfection of the Agent's liens thereunder) and other items of the types required to be delivered pursuant to Section 5.1(b), (c), (d) and (e), all in form, content and scope reasonably satisfactory to the Agent. 7.13 PLEDGED ASSETS. Each Credit Party will, and will cause each of its Subsidiaries to, cause (i) all of its owned real and personal property located in the United States, (ii) to the extent deemed to be material by the Agent or the Required Lenders in its or their sole reasonable discretion, all of its other owned real and personal property and (iii) all of its leased real property located in the United States to be subject at all times to first priority, perfected and, in the case of real property (whether leased or owned), title insured Liens in favor of the Agent pursuant to the terms and conditions of the Collateral Documents or, with respect to any such property acquired subsequent to the Closing Date, such other additional security documents as the Agent shall reasonably request. With respect to any real property (whether leased or owned) located in the United States of America acquired by any direct or indirect Subsidiary of the Borrower subsequent to the Closing Date, such Person will cause to be delivered to the Agent with respect to such real property documents, instruments and other items of the types required to be delivered pursuant to Section 5.1(e) in form acceptable to the Agent. Without limiting the generality of the above, the Credit Parties will cause 100% of the Capital Stock in the Borrower and each of the other direct or indirect Subsidiaries of the Parent to be subject at all times to a first priority, perfected Lien in favor of the Agent pursuant to the terms and conditions of the Collateral Documents or such other security documents as the Agent shall reasonably request. 73 79 If, subsequent to the Closing Date, a Credit Party shall (a) acquire any intellectual property, securities, instruments, chattel paper or other personal property required to be delivered to the Agent as Collateral hereunder or under any of the Collateral Documents or (b) acquire or lease any real property, the Borrower shall promptly (and in any event within three (3) Business Days) after any Executive Officer of a Credit Party acquires knowledge of same notify the Agent of same. Each Credit Party shall, and shall cause each of its Subsidiaries to, take such action (including but not limited to the actions set forth in Sections 5.1(d) and (e)) at its own expense as requested by the Agent to ensure that the Agent has a first priority perfected Lien to secure the Credit Party Obligations in (i) all owned real property and personal property of the Credit Parties located in the United States, (ii) to the extent deemed to be material by the Agent or the Required Lenders in its or their sole reasonable discretion, all other owned real and personal property of the Credit Parties and (iii) all leased real property located in the United States, subject in each case only to Permitted Liens. Each Credit Party shall, and shall cause each of its Subsidiaries to, adhere to the covenants regarding the location of personal property as set forth in the Security Agreements. SECTION 8 NEGATIVE COVENANTS Each Credit Party hereby covenants and agrees that, so long as this Credit Agreement is in effect or any amounts payable hereunder or under any other Credit Document shall remain outstanding, and until all of the Commitments hereunder shall have terminated: 8.1 INDEBTEDNESS. The Credit Parties will not permit any Credit Party to contract, create, incur, assume or permit to exist any Indebtedness, except: (a) Indebtedness arising under this Credit Agreement and the other Credit Documents; (b) Indebtedness of the Borrower set forth in Schedule 8.1, Indebtedness arising under the Senior Note Agreement and the Senior Notes (and renewals, refinancings and extensions thereof, provided that the principal amount of such Indebtedness as so renewed, refinanced or extended shall not exceed in principal amount the principal balance outstanding thereon at the time of such renewal, refinancing or extension); (c) purchase money Indebtedness (including Capital Leases or Synthetic Leases) hereafter incurred by the Borrower to finance the purchase of fixed assets provided that (i) the total of all such Indebtedness shall not exceed 74 80 an aggregate principal amount of $5,000,000 at any one time outstanding (including any such Indebtedness referred to in subsection (b) above); (ii) such Indebtedness when incurred shall not exceed the purchase price of the asset(s) financed; and (iii) no such Indebtedness shall be refinanced for a principal amount in excess of the principal balance outstanding thereon at the time of such refinancing; (d) obligations of the Borrower in respect of Hedging Agreements entered into in order to manage existing or anticipated interest rate or exchange rate risks and not for speculative purposes; (e) the incurrence by the Borrower or any of its Subsidiaries of intercompany Indebtedness between or among the Borrower and any of its Wholly Owned Subsidiaries; provided that (i) if the Borrower is the obligor on such Indebtedness, such Indebtedness is expressly subordinated to the prior payment in full in cash of all of the Credit Party Obligations with respect to this Credit Agreement and (ii)(A) any subsequent issuance or transfer of Capital Stock that results in any such Indebtedness being held by a Person other than the Borrower or a Subsidiary thereof and (B) any sale or other transfer of any such Indebtedness to a Person that is not either the Borrower or a Wholly Owned Subsidiary thereof shall be deemed, in each case, to constitute an incurrence of such Indebtedness by the Borrower or such Subsidiary, as the case may be, that was not permitted by this clause (e); (f) the guarantee by the Borrower or a Subsidiary of the Borrower of Indebtedness of the Borrower or a Subsidiary of the Borrower that was permitted to be incurred by another provision of this Section 8.1; (g) Acquired Debt of a Subsidiary of the Borrower, which Subsidiary was acquired after the Closing Date and which Acquired Debt was in existence at the time of acquisition by the Borrower of such Subsidiary, and not incurred in contemplation of such acquisition, if such Acquired Debt is Non-Recourse Debt (except with respect to such Subsidiary and its Subsidiaries) and such Acquired Debt for all such Persons does not exceed an aggregate principal amount of $5,000,000 at any one time outstanding; (h) Indebtedness of the Borrower in the form of holdback notes or deferred purchase price in connection with an in an amount not to exceed an aggregate principal amount equal to the lesser of $5,000,000 or 20% of the purchase price paid by the Borrower and its Subsidiaries for such acquisition; (i) obligations in respect of performance bonds and completion guarantees provided by the Borrower or any Subsidiary of the Borrower in the ordinary course of business; and (j) other Indebtedness in an aggregate principal amount (or accreted value, as applicable) at any time outstanding, including all Permitted Refinancing Indebtedness incurred to refund, refinance or replace any Indebtedness incurred pursuant to this clause (j), not to exceed an aggregate principal amount of $5,000,000 at any one time outstanding. 75 81 8.2 LIENS. The Credit Parties will not permit any Credit Party to contract, create, incur, assume or permit to exist any Lien with respect to any of its Property, whether now owned or after acquired, except for Permitted Liens. 8.3 NATURE OF BUSINESS. The Credit Parties will not permit any Credit Party to engage in any business other a Permitted Business. 8.4 CONSOLIDATION, MERGER, DISSOLUTION, ETC. Except in connection with an Asset Disposition permitted by the terms of Section 8.5, the Credit Parties will not permit any Credit Party to enter into any transaction of merger or consolidation or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution); provided that, notwithstanding the foregoing provisions of this Section 8.4, (a) the Borrower may merge or consolidate with any of its Subsidiaries provided that the Borrower shall be the continuing or surviving corporation, (b) any Credit Party other than the Parent or the Borrower may merge or consolidate with any other Credit Party other than the Parent or the Borrower and (c) any Wholly-Owned Subsidiary of the Borrower may dissolve, liquidate or wind up its affairs at any time. 8.5 ASSET DISPOSITIONS. The Credit Parties will not permit any Credit Party to make any Asset Disposition (including, without limitation, any Sale and Leaseback Transaction) other than Excluded Asset Dispositions unless (a) the consideration paid in connection therewith is cash or Cash Equivalents, (b) if such transaction is a Sale and Leaseback Transaction, such transaction is permitted by the terms of Section 8.13, (c) such transaction does not involve the sale or other disposition of a minority equity interest in any Credit Party, (d) the aggregate net book value of all of the assets sold or otherwise disposed of by the Credit Parties in all such transactions after the Closing Date shall not exceed $10,000,000 and (e) no later than 5 days prior to such Asset Disposition, the Agent and the Lenders shall have received a certificate of an Executive Officer of the Borrower specifying the anticipated or actual date of such Asset Disposition, briefly describing the assets to be sold or otherwise disposed of and setting forth the net book value of such assets, the aggregate consideration and the Net Cash Proceeds to be received for such assets in connection with such Asset Disposition, and thereafter the Borrower shall, within the 6-month period beginning 3 months prior to the consummation of such Asset Disposition (with respect to any such Asset Disposition, the "Application Period"), apply (or cause to be applied) an amount equal to the Net Cash Proceeds of such Asset Disposition to (i) the purchase, acquisition or, in the case of improvements to real property, construction of Eligible Assets or (ii) to the prepayment of the Loans in accordance with the terms of Section 3.3(b)(iii). 76 82 Upon a sale of assets or the sale of Capital Stock of a Credit Party permitted by this Section 8.5, the Agent shall (to the extent applicable) deliver to the Borrower, upon the Borrower's request and at the Borrower's expense, such documentation as is reasonably necessary to evidence the release of the Agent's security interest, if any, in such assets or Capital Stock, including, without limitation, amendments or terminations of UCC financing statements, if any, the return of stock certificates, if any, and the release of such Credit Party from all of its obligations, if any, under the Credit Documents. 8.6 INVESTMENTS. The Credit Parties will not permit any Credit Party to make Investments in or to any Person, except for Permitted Investments. 8.7 RESTRICTED PAYMENTS. The Credit Parties will not permit any Credit Party to, directly or indirectly, declare, order, make or set apart any sum for or pay any Restricted Payment, except (i) to make dividends payable solely in the same class of Capital Stock of such Person, (ii) to make dividends or other distributions payable to any Credit Party other than the Parent, (iii) as permitted by Section 8.8 or Section 8.9, (iv) payments to the Parent pursuant to a tax sharing agreement under which the Borrower is allocated its proportionate share of the tax liability of the affiliated group of corporations that file consolidated federal income tax returns (or that file state or local income tax returns on a consolidated basis), (v) to make distributions by the Borrower to enable the Parent to make any payment which would constitute an "Exempt Affiliate Transaction" under clause (b), (c), (d), (f) or (h) of the definition of such term set forth in Section 1.1 and (vi) provided that no Default or Event of Default exists either before or after giving effect thereto, (A) the repurchase, redemption or other acquisition or retirement for value of any Capital Stock of the Borrower or any Subsidiary of the Borrower held by any member of the Borrower's (or any of its Subsidiaries') management pursuant to any management equity subscription agreement or stock option agreement in effect as of the date of this Credit Agreement or entered into after the Closing Date with members of the management of any Person acquired after the Closing Date in connection with the acquisition of such Person or the repurchase of Capital Stock of the Borrower or any Subsidiary of the Borrower held by employees, former employees, directors or former directors pursuant to the terms of agreements (including employment agreements) approved by the Parent's Board of Directors; provided that the aggregate price paid for all such repurchased, redeemed, acquired or retired Capital Stock shall not exceed $500,000 in any twelve-month period, (B) payments to the Parent in an amount not to exceed the amount of the Borrower's federal and state income tax liability that the Borrower would owe if it were filing a separate income tax return as a stand alone company (or, if there are any Subsidiaries of the Borrower, the amount of the federal and state income tax liability for which the Borrower and such Subsidiaries would be liable if the Borrower and such subsidiaries were filing a separate consolidated (or combined) income tax return) plus $100,000; provided, that any such payment shall not exceed the tax liability of the Parent that is actually then due and payable, (C) loans, advances, dividends or distributions by the Borrower or any of its Subsidiaries to the Parent to pay for corporate, administrative and operating expenses in the ordinary course of business, including payment of directors' and officers' 77 83 liability insurance premiums, directors' fees, and fees, expenses and indemnities in connection with the Transactions, in an aggregate amount not to exceed $250,000 in any fiscal year and (D)(1) loans, advances, dividends or distributions by the Borrower or any of its Subsidiaries to the Parent not to exceed an amount necessary to permit the Parent to pay (I) its costs (including all professional fees and expenses) incurred to comply with its reporting obligations under federal or state laws or in connection with reporting or other obligations hereunder or under the other Credit Documents, (II) its expenses incurred in connection with any public offering of equity securities which has been terminated by the Parent's Board of Directors, the net proceeds of which were specifically intended to be received by or contributed or loaned to the Borrower as evidenced by a resolution of the Parent's Board of Directors and (2) loans or advances by the Borrower or any of its Subsidiaries to the Parent not to exceed an amount necessary to permit the Parent to pay its interim expenses incurred in connection with any public offering of equity securities the net proceeds of which are specifically intended to be received by or contributed or loaned to the Borrower, which, unless such offering shall have been terminated by the Parent's Board of Directors shall be repaid to the Borrower promptly out of the proceeds of such offering. 8.8 PREPAYMENTS OF INDEBTEDNESS, ETC. The Credit Parties will not permit any Credit Party to (a) after the issuance thereof, amend or modify (or permit the amendment or modification of) any of the terms of any Indebtedness if such amendment or modification, taken together with other amendments or modifications in respect of such Indebtedness taken as a whole, would add or change any terms in a manner adverse to the issuer of such Indebtedness, or shorten the final maturity or average life to maturity or require any payment to be made sooner than originally scheduled or increase the interest rate applicable thereto or change any subordination provision thereof, or (b) if any Default or Event of Default has occurred and is continuing or would be directly or indirectly caused as a result thereof, make (or give any notice with respect thereto) any voluntary or optional payment or prepayment or redemption or acquisition for value of (including without limitation, by way of depositing money or securities with the trustee with respect thereto before due for the purpose of paying when due), refund, refinance or exchange of any other Indebtedness (including without limitation any Indebtedness arising under the Senior Note Agreement and the Senior Notes). 8.9 TRANSACTIONS WITH AFFILIATES. The Credit Parties will not permit any Credit Party to enter into or permit to exist any transaction or series of transactions with any officer, director, shareholder, Subsidiary or Affiliate of such Person other than (a) Exempt Affiliate Transactions, (b) advances of working capital to any Credit Party other than the Parent, (c) transfers of cash and assets to any Credit Party other than the Parent, (d) transactions permitted by Section 8.4, Section 8.5, Section 8.6, Section 8.7 or Section 8.8, (e) normal compensation and reimbursement of expenses of officers and directors and (f) except as otherwise specifically limited in this Credit Agreement, other transactions which are entered into in the ordinary course of such Person's business on terms and conditions substantially as favorable to such Person as would be obtainable by it in a comparable arms-length transaction with a Person other than an officer, director, shareholder, Subsidiary or Affiliate. 78 84 8.10 FISCAL YEAR. The Credit Parties will not permit any Credit Party to change its fiscal year without the prior written consent of the Required Lenders. 8.11 LIMITATION ON RESTRICTED ACTIONS. The Credit Parties will not permit any Credit Party to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any such Person to (a) pay dividends or make any other distributions to any Credit Party on its Capital Stock or with respect to any other interest or participation in, or measured by, its profits, (b) pay any Indebtedness or other obligation owed to any Credit Party, (c) make loans or advances to any Credit Party, (d) sell, lease or transfer any of its properties or assets to any Credit Party, or (e) act as a Guarantor and pledge its assets pursuant to the Credit Documents or any renewals, refinancings, exchanges, refundings or extension thereof, except (in respect of any of the matters referred to in clauses (a)-(d) above) for such encumbrances or restrictions existing under or by reason of (i) this Credit Agreement and the other Credit Documents, (ii) the Senior Note Agreement, as in effect as of the Closing Date (and any renewals, refinancings and extensions thereof, that do not contain any such encumbrances or restrictions that are materially more adverse to the Credit Parties than the corresponding provisions of the Senior Note Agreement); (iii) applicable law, (iv) any document or instrument governing Indebtedness incurred pursuant to Section 8.1(c), (g) or (j), provided that, in the case of any Indebtedness incurred pursuant to Section 8.1(c), any such restriction shall relate only to the asset or assets constructed or acquired in connection therewith or (v) any Permitted Lien or any document or instrument governing any Permitted Lien, provided that any such restriction contained therein relates only to the asset or assets subject to such Permitted Lien. 8.12 OWNERSHIP OF SUBSIDIARIES; LIMITATIONS ON PARENT. Notwithstanding any other provisions of this Credit Agreement to the contrary: (a) Except for Permitted Investments, the Credit Parties will not permit any Credit Party to (i) permit any Person (other than the Borrower or any Wholly-Owned Subsidiary of the Borrower) to own any Capital Stock of any Subsidiary of the Borrower, (ii) permit any Subsidiary of the Borrower to issue Capital Stock (except to the Borrower or to a Wholly-Owned Subsidiary of the Borrower), (iii) permit, create, incur, assume or suffer to exist any Lien thereon, in each case except (A) as a result of or in connection with a dissolution, merger or disposition of a Subsidiary permitted under Section 8.4 or Section 8.5 or (B) for Permitted Liens and (iv) notwithstanding anything to the contrary contained in clause (ii) above, permit any Subsidiary of the Borrower to issue any shares of preferred Capital Stock. (b) The Parent shall not (i) hold any assets other than the Capital Stock of the Borrower, (ii) have any liabilities other than (A) the liabilities under the Credit Documents, (B) tax liabilities in the ordinary course of business, (C) loans, advances and other 79 85 obligations permitted under Section 8.9 and (D) corporate, administrative and operating expenses in the ordinary course of business and (iii) engage in any business other than (A) owning the Capital Stock of the Borrower and activities incidental or related thereto, (B) acting as a Guarantor hereunder and pledging its assets to the Agent, for the benefit of the Lenders, pursuant to the Collateral Documents to which it is a party and (C) acting as a guarantor in respect of the Indebtedness arising under the Senior Notes. 8.13 SALE LEASEBACKS. The Credit Parties will not permit any Credit Party to, directly or indirectly, become or remain liable as lessee or as guarantor or other surety with respect to any lease, whether an Operating Lease or a Capital Lease, of any Property (whether real, personal or mixed), whether now owned or hereafter acquired, (a) which such Credit Party has sold or transferred or is to sell or transfer to a Person which is not a Credit Party or (b) which such Credit Party intends to use for substantially the same purpose as any other Property which has been sold or is to be sold or transferred by such Credit Party to another Person which is not a Credit Party in connection with such lease. 8.14 CAPITAL EXPENDITURES. The Credit Party will not permit Consolidated Capital Expenditures for any fiscal year for to exceed (i) for fiscal year 1998, $12,500,000, (ii) for fiscal year 1999, $17,500,000 plus the unused portion of permitted Consolidated Capital Expenditures for fiscal year 1998, (iii) for fiscal year 2000, $12,500,000 plus the unused portion of permitted Consolidated Capital Expenditures for fiscal year 1999 (including any carry forward available in fiscal year 1999 in respect of any unused portion of permitted Consolidated Capital Expenditures for fiscal year 1998), (iv) for fiscal year 2001, $5,000,000 plus the unused portion of permitted Consolidated Capital Expenditures for fiscal year 2000 (including any carry forward available in fiscal year 2000 in respect of any unused portion of permitted Consolidated Capital Expenditures for fiscal years 1998 and 1999) or (iv) for any fiscal year thereafter, $5,000,000 (without any carry forward from a prior fiscal year). 8.15 NO FURTHER NEGATIVE PLEDGES. The Credit Parties will not permit any Credit Party to enter into, assume or become subject to any agreement prohibiting or otherwise restricting the creation or assumption of any Lien upon its properties or assets, whether now owned or hereafter acquired, or requiring the grant of any security for such obligation if security is given for some other obligation unless such agreement expressly permits that the obligations of the Credit Parties hereunder may be secured to the extent contemplated hereby and by the other Credit Documents. 80 86 8.16 OPERATING LEASE OBLIGATIONS. The Credit Parties will not permit any Credit Party to enter into, assume or permit to exist any obligations for the payment of rental under Operating Leases which in the aggregate for all such Persons would exceed $5,000,000 in any fiscal year. 8.17 NO FOREIGN SUBSIDIARIES. None of the Credit Parties will create, acquire or permit to exist any direct or indirect Foreign Subsidiary. SECTION 9 EVENTS OF DEFAULT 9.1 EVENTS OF DEFAULT. An Event of Default shall exist upon the occurrence of any of the following specified events (each an "Event of Default"): (a) Payment. Any Credit Party shall (i) default in the payment when due of any principal of any of the Loans or of any reimbursement obligations arising from drawings under Letters of Credit, or (ii) default, and such default shall continue for three (3) or more Business Days, in the payment when due of any interest on the Loans or on any reimbursement obligations arising from drawings under Letters of Credit, or of any Fees or other amounts owing hereunder, under any of the other Credit Documents or in connection herewith or therewith; or (b) Representations. Any representation, warranty or statement made or deemed to be made by any Credit Party herein, in any of the other Credit Documents, or in any statement or certificate delivered or required to be delivered pursuant hereto or thereto shall prove untrue in any material respect on the date as of which it was deemed to have been made; or (c) Covenants. Any Credit Party shall (i) default in the due performance or observance of any term, covenant or agreement contained in Sections 7.2, 7.9, 7.11, 7.12, 7.13 or 8.1 through 8.17, inclusive; 81 87 (ii) default in the due performance or observance of any term, covenant or agreement contained in Sections 7.1(a), (b) (c) or (d) and such default shall continue unremedied for a period of at least 5 days after the earlier of an Executive Officer of a Credit Party becoming aware of such default or notice thereof by the Agent; or (iii) default in the due performance or observance by it of any term, covenant or agreement (other than those referred to in subsections (a), (b), (c)(i) or (c)(ii) of this Section 9.1) contained in this Credit Agreement and such default shall continue unremedied for a period of at least 30 days after the earlier of an Executive Officer of a Credit Party becoming aware of such default or notice thereof by the Agent; or (d) Other Credit Documents. (i) Any Credit Party shall default in the due performance or observance of any term, covenant or agreement in any of the other Credit Documents (subject to applicable grace or cure periods, if any), or (ii) except as a result of or in connection with a dissolution, merger or disposition of a Subsidiary permitted under Section 8.4 or Section 8.5, any Credit Document shall fail to be in full force and effect or to give the Agent and/or the Lenders the Liens, rights, powers and privileges purported to be created thereby, or any Credit Party shall so state in writing; or (e) Guaranties. Except as the result of or in connection with a dissolution, merger or disposition of a Subsidiary permitted under Section 8.4 or Section 8.5, the guaranty given by any Guarantor hereunder (including any Additional Credit Party) or any provision thereof shall cease to be in full force and effect, or any Guarantor (including any Additional Credit Party) hereunder or any Person acting by or on behalf of such Guarantor shall deny or disaffirm such Guarantor's obligations under such guaranty, or any Guarantor shall default in the due performance or observance of any term, covenant or agreement on its part to be performed or observed pursuant to any guaranty; or (f) Bankruptcy, etc. Any Bankruptcy Event shall occur with respect to any Credit Party; or (g) Defaults under Other Agreements. (i) Any Credit Party shall default in the performance or observance (beyond the applicable grace period with respect thereto, if any) or any material obligation or condition of any contract or lease material to the Credit Parties, taken as a whole; or (ii) With respect to any Indebtedness (other than Indebtedness outstanding under this Credit Agreement) in excess of $1,00,000 in the aggregate for the Credit Parties taken as a whole, (A) any Credit Party shall (1) default in any payment (beyond the applicable grace period with respect thereto, if any) with respect to any such Indebtedness, or (2) the occurrence and continuance of a 82 88 default in the observance or performance relating to such Indebtedness or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event or condition shall occur or condition exist, the effect of which default or other event or condition is to cause, or permit, the holder or holders of such Indebtedness (or trustee or agent on behalf of such holders) to cause (determined without regard to whether any notice or lapse of time is required), any such Indebtedness to become due prior to its stated maturity; or (B) any such Indebtedness shall be declared due and payable, or required to be prepaid other than by a regularly scheduled required prepayment, prior to the stated maturity thereof; or (h) Judgments. One or more judgments or decrees shall be entered against one or more of the Credit Parties involving a liability of $1,00,000 or more in the aggregate (to the extent not paid or fully covered by insurance provided by a carrier who has acknowledged coverage and has the ability to perform) and any such judgments or decrees shall not have been vacated, discharged or stayed or bonded pending appeal within 30 days from the entry thereof; or (i) ERISA. Any of the following events or conditions, if such event or condition would cause or be reasonably expected to cause a Material Adverse Effect: (i) any "accumulated funding deficiency," as such term is defined in Section 302 of ERISA and Section 412 of the Code, whether or not waived, shall exist with respect to any Plan, or any lien shall arise on the assets of any Credit Party or any ERISA Affiliate in favor of the PBGC or a Plan; (ii) an ERISA Event shall occur with respect to a Single Employer Plan, which is, in the reasonable opinion of the Agent, likely to result in the termination of such Plan for purposes of Title IV of ERISA; (iii) an ERISA Event shall occur with respect to a Multiemployer Plan or Multiple Employer Plan, which is, in the reasonable opinion of the Agent, likely to result in (A) the termination of such Plan for purposes of Title IV of ERISA, or (B) any Credit Party or any ERISA Affiliate incurring any liability in connection with a withdrawal from, reorganization of (within the meaning of Section 4241 of ERISA), or insolvency or (within the meaning of Section 4245 of ERISA) such Plan; or (iv) any prohibited transaction (within the meaning of Section 406 of ERISA or Section 4975 of the Code) or breach of fiduciary responsibility shall occur which may subject any Credit Party or any ERISA Affiliate to any liability under Sections 406, 409, 502(i), or 502(l) of ERISA or Section 4975 of the Code, or under any agreement or other instrument pursuant to which any Credit Party or any ERISA Affiliate has agreed or is required to indemnify any person against any such liability; or (j) Senior Note Agreement. There shall occur and be continuing any Event of Default under and as defined in the Senior Note Agreement; or (k) Ownership. There shall occur a Change of Control. 83 89 9.2 ACCELERATION; REMEDIES. Upon the occurrence of an Event of Default, and at any time thereafter unless and until such Event of Default has been waived by the requisite Lenders (pursuant to the voting requirements of Section 11.6) or cured to the satisfaction of the requisite Lenders (pursuant to the voting procedures in Section 11.6), the Agent shall, upon the request and direction of the Required Lenders, by written notice to the Credit Parties take any of the following actions: (a) Termination of Commitments. Declare the Commitments terminated whereupon the Commitments shall be immediately terminated. (b) Acceleration. Declare the unpaid principal of and any accrued interest in respect of all Loans, any reimbursement obligations arising from drawings under Letters of Credit and any and all other indebtedness or obligations of any and every kind owing by the Borrower to the Agent and/or any of the Lenders hereunder to be due whereupon the same shall be immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower. (c) Cash Collateral. Direct the Borrower to pay (and the Borrower agrees that upon receipt of such notice, or upon the occurrence of an Event of Default under Section 9.1(f), it will immediately pay) to the Agent additional cash, to be held by the Agent, for the benefit of the Lenders, in a cash collateral account as additional security for the LOC Obligations in respect of subsequent drawings under all then outstanding Letters of Credit in an amount equal to the maximum aggregate amount which may be drawn under all Letters of Credits then outstanding. (d) Enforcement of Rights. Enforce any and all rights and interests created and existing under the Credit Documents including, without limitation, all rights and remedies existing under the Collateral Documents, all rights and remedies against a Guarantor and all rights of set-off. Notwithstanding the foregoing, if an Event of Default specified in Section 9.1(f) shall occur, then the Commitments shall automatically terminate and all Loans, all reimbursement obligations arising from drawings under Letters of Credit, all accrued interest in respect thereof, all accrued and unpaid Fees and other indebtedness or obligations owing to the Agent and/or any of the Lenders hereunder automatically shall immediately become due and payable without the giving of any notice or other action by the Agent or the Lenders. SECTION 10 AGENCY PROVISIONS 10.1 APPOINTMENT, POWERS AND IMMUNITIES. Each Lender hereby irrevocably appoints and authorizes the Agent to act as its agent under this Credit Agreement and the other Credit Documents with such powers and discretion as 84 90 are specifically delegated to the Agent by the terms of this Credit Agreement and the other Credit Documents, together with such other powers as are reasonably incidental thereto. The Agent (which term as used in this sentence and in Section 10.5 and the first sentence of Section 10.6 hereof shall include its Affiliates and its own and its Affiliates' officers, directors, employees, and agents): (a) shall not have any duties or responsibilities except those expressly set forth in this Credit Agreement and shall not be a trustee or fiduciary for any Lender; (b) shall not be responsible to the Lenders for any recital, statement, representation, or warranty (whether written or oral) made in or in connection with any Credit Document or any certificate or other document referred to or provided for in, or received by any of them under, any Credit Document, or for the value, validity, effectiveness, genuineness, enforceability, or sufficiency of any Credit Document, or any other document referred to or provided for therein or for any failure by any Credit Party or any other Person to perform any of its obligations thereunder; (c) shall not be responsible for or have any duty to ascertain, inquire into, or verify the performance or observance of any covenants or agreements by any Credit Party or the satisfaction of any condition or to inspect the property (including the books and records) of any Credit Party or any of its Subsidiaries or Affiliates; (d) shall not be required to initiate or conduct any litigation or collection proceedings under any Credit Document; and (e) shall not be responsible for any action taken or omitted to be taken by it under or in connection with any Credit Document, except for its own gross negligence or willful misconduct. The Agent 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. 10.2 RELIANCE BY AGENT. The Agent shall be entitled to rely upon any certification, notice, instrument, writing, or other communication (including, without limitation, any thereof by telephone or telecopy) 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 (including counsel for any Credit Party), independent accountants, and other experts selected by the Agent. The Agent may deem and treat the payee of any Note as the holder thereof for all purposes hereof unless and until the Agent receives and accepts an Assignment and Acceptance executed in accordance with Section 11.3(b) hereof. As to any matters not expressly provided for by this Credit Agreement, the Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Required Lenders, and such instructions shall be binding on all of the Lenders; provided, however, that the Agent shall not be required to take any action that exposes the Agent to personal liability or that is contrary to any Credit Document or applicable law or unless it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking any such action. 10.3 DEFAULTS. The Agent shall not be deemed to have knowledge or notice of the occurrence of a Default or Event of Default unless the Agent has received written notice from a Lender or the Borrower specifying such Default or Event of Default and stating that such notice is a "Notice of 85 91 Default". In the event that the Agent receives such a notice of the occurrence of a Default or Event of Default, the Agent shall give prompt notice thereof to the Lenders. The Agent shall (subject to Section 10.2 hereof) take such action with respect to such Default or Event of Default as shall reasonably be directed by the Required Lenders, provided that, unless and until the Agent shall have received such directions, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interest of the Lenders. 10.4 RIGHTS AS A LENDER. With respect to its Commitment and the Loans made by it, NationsBank (and any successor acting as Agent) in its capacity as a Lender hereunder shall have the same rights and powers hereunder as any other Lender and may exercise the same as though it were not acting as the Agent, and the term "Lender" or "Lenders" shall, unless the context otherwise indicates, include the Agent in its individual capacity. NationsBank (and any successor acting as Agent) and its Affiliates may (without having to account therefor to any Lender) accept deposits from, lend money to, make investments in, provide services to, and generally engage in any kind of lending, trust, or other business with any Credit Party or any of its Subsidiaries or Affiliates as if it were not acting as Agent, and NationsBank (and any successor acting as Agent) and its Affiliates may accept fees and other consideration from any Credit Party or any of its Subsidiaries or Affiliates for services in connection with this Credit Agreement or otherwise without having to account for the same to the Lenders. 10.5 INDEMNIFICATION. The Lenders agree to indemnify the Agent (to the extent not reimbursed under Section 11.5 hereof, but without limiting the obligations of the Borrower under such Section) ratably in accordance with their respective Commitments, for any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including attorneys' fees), or disbursements of any kind and nature whatsoever that may be imposed on, incurred by or asserted against the Agent (including by any Lender) in any way relating to or arising out of any Credit Document or the transactions contemplated thereby or any action taken or omitted by the Agent under any Credit Document; provided that no Lender shall be liable for any of the foregoing to the extent they arise from the gross negligence or willful misconduct of the Person to be indemnified. Without limitation of the foregoing, each Lender agrees to reimburse the Agent promptly upon demand for its ratable share of any costs or expenses payable by the Borrower under Section 11.5, to the extent that the Agent is not promptly reimbursed for such costs and expenses by the Borrower. The agreements in this Section 10.5 shall survive the repayment of the Loans, LOC Obligations and other obligations under the Credit Documents and the termination of the Commitments hereunder. 10.6 NON-RELIANCE ON AGENT AND OTHER LENDERS. Each Lender agrees that it has, independently and without reliance on the Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made 86 92 its own credit analysis of the Credit Parties and their Subsidiaries and decision to enter into this Credit Agreement and that it will, independently and without reliance upon the Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under the Credit Documents. Except for notices, reports, and other documents and information expressly required to be furnished to the Lenders by the Agent hereunder, the Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the affairs, financial condition, or business of any Credit Party or any of its Subsidiaries or Affiliates that may come into the possession of the Agent or any of its Affiliates. 10.7 SUCCESSOR AGENT. The Agent may resign at any time by giving notice thereof to the Lenders and the Borrower. Upon any such resignation, the Required Lenders shall have the right to appoint a successor Agent. If no successor Agent shall have been so appointed by the Required Lenders and shall have accepted such appointment within thirty (30) days after the retiring Agent's giving of notice of resignation, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent which shall be a commercial bank organized under the laws of the United States of America having combined capital and surplus of at least $100,000,000. Notwithstanding the terms of the two immediately preceding sentences, unless a Default or Event of Default has occurred and is continuing, no successor Agent shall be appointed by the Required Lenders or the Agent without the prior consent of the Borrower (which consent shall not be unreasonably withheld). Upon the acceptance of any appointment as Agent hereunder by a successor, such successor shall thereupon succeed to and become vested with all the rights, powers, discretion, privileges, and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. After any retiring Agent's resignation hereunder as Agent, the provisions of this Section 10 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. SECTION 11 MISCELLANEOUS 11.1 NOTICES. Except as otherwise expressly provided herein, all notices and other communications shall have been duly given and shall be effective (a) when delivered, (b) when transmitted via telecopy (or other facsimile device) to the number set out below, (c) the Business Day following the day on which the same has been delivered prepaid to a reputable national overnight air courier service, or (d) the third Business Day following the day on which the same is sent by certified or registered mail, postage prepaid, in each case to the respective parties at the address, in the case of the Borrower, Guarantors and the Agent, set forth below, and, in the case of the Lenders, set forth on Schedule 2.1(a), or at such other address as such party may specify by written notice to the other parties hereto: 87 93 if to the Borrower or the Guarantors: Simcala, Inc. P. O Box 68 Mt. Meigs, Alabama 36057-0068 Attn: Chief Financial Officer Telephone: (334) 215-7560 Telecopy: (334) 215-8232 with a copy to: CGW Southeast Partners III, L. P. Suite 210 Twelve Piedmont Center Atlanta, Georgia 30305 Attn: Bill Davies Telephone: (404) 816-3255 Telecopy: (404) 816-3258 if to the Agent: NationsBank, N. A. Independence Center, 15th Floor NC1-001-15-04 101 North Tryon Street Charlotte, North Carolina 28255 Attn: Agency Services/Tim Pacitto Telephone: (704) 388-1340 Telecopy: (704) 386-0456 with a copy to: NationsBank, N. A. NationsBank Corporate Center, 13th Floor NC1-007-13-06 100 N. Tryon Street Charlotte, NC 28255 Attn: Curt Lueker Telephone: (704) 388-7353 Telecopy: (704) 386-9607 -88- 94 11.2 RIGHT OF SET-OFF; ADJUSTMENTS. Upon the occurrence and during the continuance of any Event of Default, each Lender (and each of its Affiliates) is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender (or any of its Affiliates) to or for the credit or the account of any Credit Party against any and all of the obligations of such Person now or hereafter existing under this Credit Agreement, under the Notes, under any other Credit Document or otherwise, irrespective of whether such Lender shall have made any demand hereunder or thereunder and although such obligations may be unmatured. Each Lender agrees promptly to notify any affected Credit Party after any such set-off and application made by such Lender; provided, however, that the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Lender under this Section 11.2 are in addition to other rights and remedies (including, without limitation, other rights of set-off) that such Lender may have. 11.3 BENEFIT OF AGREEMENT. (a) This Credit Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto; provided that none of the Credit Parties may assign or transfer any of its interests and obligations without prior written consent of the Lenders; provided further that the rights of each Lender to transfer, assign or grant participations in its rights and/or obligations hereunder shall be limited as set forth in this Section 11.3. (b) Each Lender may assign to one or more Eligible Assignees all or a portion of its rights and obligations under this Credit Agreement (including, without limitation, all or a portion of its Loans, its Notes, and its Commitment); provided, however, that (i) each such assignment shall be to an Eligible Assignee; (ii) except in the case of an assignment to another Lender or an assignment of all of a Lender's rights and obligations under this Credit Agreement, any such partial assignment shall be in an amount at least equal to $5,000,000 (or, if less, the remaining amount of the Commitment being assigned by such Lender) or an integral multiple of $1,000,000 in excess thereof; (iii) each such assignment by a Lender shall be of a constant, and not varying, percentage of all of its rights and obligations under this Credit Agreement and the Notes; and (iv) the parties to such assignment shall execute and deliver to the Agent for its acceptance an Assignment and Acceptance in the form of Exhibit 11.3(b) hereto, together with any Note subject to such assignment and a processing fee of $3,500. 89 95 Upon execution, delivery, and acceptance of such Assignment and Acceptance, the assignee thereunder shall be a party hereto and, to the extent of such assignment, have the obligations, rights, and benefits of a Lender hereunder and the assigning Lender shall, to the extent of such assignment, relinquish its rights and be released from its obligations under this Credit Agreement. Upon the consummation of any assignment pursuant to this Section 11.3(b), the assignor, the Agent and the Borrower shall make appropriate arrangements so that, if required, new Notes are issued to the assignor and the assignee. If the assignee is not incorporated under the laws of the United States of America or a state thereof, it shall deliver to the Borrower and the Agent certification as to exemption from deduction or withholding of Taxes in accordance with Section 3.11. (c) The Agent shall maintain at its address referred to in Section 11.1 a copy of each Assignment and Acceptance delivered to and accepted by it and a register for the recordation of the names and addresses of the Lenders and the Commitment of, and principal amount of the Loans owing to, each Lender from time to time (the "Register"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrower, the Agent and the Lenders may treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of this Credit Agreement. The Register shall be available for inspection by the Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice. (d) Upon its receipt of an Assignment and Acceptance executed by the parties thereto, together with any Note subject to such assignment and payment of the processing fee, the Agent shall, if such Assignment and Acceptance has been completed and is in substantially the form of Exhibit 11.3(b) hereto, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the parties thereto. (e) Each Lender may sell participations to one or more Persons in all or a portion of its rights, obligations or rights and obligations under this Credit Agreement (including all or a portion of its Commitment or its Loans); provided, however, that (i) such Lender's obligations under this Credit Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) the participant shall be entitled to the benefit of the yield protection provisions contained in Sections 3.7 through 3.12, inclusive, and the right of set-off contained in Section 11.2, and (iv) the Borrower shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Credit Agreement, and such Lender shall retain the sole right to enforce the obligations of the Borrower relating to its Loans and its Notes and to approve any amendment, modification, or waiver of any provision of this Credit Agreement (other than amendments, modifications, or waivers decreasing the amount of principal of or the rate at which interest is payable on such Loans or Notes, extending any scheduled principal payment date or date fixed for the payment of interest on such Loans or Notes, or extending its Commitment). 90 96 (f) Notwithstanding any other provision set forth in this Credit Agreement, any Lender may at any time assign and pledge all or any portion of its Loans and its Notes to any Federal Reserve Bank as collateral security pursuant to Regulation A and any Operating Circular issued by such Federal Reserve Bank. No such assignment shall release the assigning Lender from its obligations hereunder. (g) Any Lender may furnish any information concerning the Borrower or any of its Subsidiaries in the possession of such Lender from time to time to assignees and participants (including prospective assignees and participants), subject, however, to the provisions of Section 11.14 hereof. 11.4 NO WAIVER; REMEDIES CUMULATIVE. No failure or delay on the part of the Agent or any Lender in exercising any right, power or privilege hereunder or under any other Credit Document and no course of dealing between the Agent or any Lender and any of the Credit Parties shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or under any other Credit Document preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder or thereunder. The rights and remedies provided herein are cumulative and not exclusive of any rights or remedies which the Agent or any Lender would otherwise have. No notice to or demand on any Credit Party in any case shall entitle the Borrower or any other Credit Party to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of the Agent or the Lenders to any other or further action in any circumstances without notice or demand. 11.5 EXPENSES; INDEMNIFICATION. (a) The Borrower agrees to pay on demand all costs and expenses of the Agent in connection with the syndication, preparation, execution, delivery, administration, modification, and amendment of this Credit Agreement, the other Credit Documents, and the other documents to be delivered hereunder, including, without limitation, the reasonable fees and expenses of counsel for the Agent (including the cost of internal counsel) with respect thereto and with respect to advising the Agent as to its rights and responsibilities under the Credit Documents. The Borrower further agrees to pay on demand all costs and expenses of the Agent and the Lenders, if any (including, without limitation, reasonable attorneys' fees and expenses and the cost of internal counsel), in connection with the enforcement (whether through negotiations, legal proceedings, or otherwise) of the Credit Documents and the other documents to be delivered hereunder. (b) The Borrower agrees to indemnify and hold harmless the Agent and each Lender and each of their Affiliates and their respective officers, directors, employees, agents, and advisors (each, an "Indemnified Party") from and against any and all claims, damages, losses, liabilities, costs, and expenses (including, without limitation, reasonable attorneys' fees) that may be incurred by or asserted or awarded against any Indemnified Party, in each case arising out of or in connection with or by reason of (including, without limitation, in connection with any 91 97 investigation, litigation, or proceeding or preparation of defense in connection therewith) the Credit Documents, any of the transactions contemplated herein or the actual or proposed use of the proceeds of the Loans, except to the extent such claim, damage, loss, liability, cost, or expense is found in a final, non-appealable judgment by a court of competent jurisdiction to have resulted from such Indemnified Party's gross negligence or willful misconduct. In the case of an investigation, litigation or other proceeding to which the indemnity in this Section 11.5 applies, such indemnity shall be effective whether or not such investigation, litigation or proceeding is brought by the Borrower, its directors, shareholders or creditors or an Indemnified Party or any other Person or any Indemnified Party is otherwise a party thereto and whether or not the transactions contemplated hereby are consummated. The Borrower agrees not to assert any claim against the Agent, any Lender, any of their Affiliates, or any of their respective directors, officers, employees, attorneys, agents, and advisers, on any theory of liability, for special, indirect, consequential, or punitive damages arising out of or otherwise relating to the Credit Documents, any of the transactions contemplated herein or the actual or proposed use of the proceeds of the Loans. (c) Without prejudice to the survival of any other agreement of the Borrower hereunder, the agreements and obligations of the Borrower contained in this Section 11.5 shall survive the repayment of the Loans, LOC Obligations and other obligations under the Credit Documents and the termination of the Commitments hereunder. 11.6 AMENDMENTS, WAIVERS AND CONSENTS. Neither this Credit Agreement nor any other Credit Document nor any of the terms hereof or thereof may be amended, changed, waived, discharged or terminated unless such amendment, change, waiver, discharge or termination is in writing entered into by, or approved in writing by, the Required Lenders and the Borrower, provided, however, that: (i) without the consent of each Lender affected thereby, neither this Credit Agreement nor any other Credit Document may be amended to (a) extend the final maturity of any Loan or of any reimbursement obligation, or any portion thereof, arising from drawings under Letters of Credit, (b) reduce the rate or extend the time of payment of interest (other than as a result of waiving the applicability of any post-default increase in interest rates) thereon or Fees hereunder, (c) reduce or waive the principal amount of any Loan or of any reimbursement obligation, or any portion thereof, arising from drawings under Letters of Credit, (d) increase the Commitment of a Lender over the amount thereof in effect (it being understood and agreed that a waiver of any Default or Event of 92 98 Default or mandatory reduction in the Commitments shall not constitute a change in the terms of any Commitment of any Lender), (e) except as the result of or in connection with an Asset Disposition permitted by Section 8.5, release all or substantially all of the Collateral, (f) except as the result of or in connection with a dissolution, merger or disposition of a Credit Party permitted under Section 8.4, release the Borrower or substantially all of the other Credit Parties from its or their obligations under the Credit Documents, (g) except amend, modify or waive any provision of this Section 11.6 or Section 3.6, 3.7, 3.8, 3.9, 3.10, 3.11, 3.12, 3.13, 3.14, 3.15, 9.1(a), 11.2, 11.3, 11.5 or 11.9, (h) reduce any percentage specified in, or otherwise modify, the definition of Required Lenders, or (i) consent to the assignment or transfer by the Borrower or all or substantially all of the other Credit Parties of any of its or their rights and obligations under (or in respect of) the Credit Documents except as permitted thereby; (ii) without the consent of the Agent, no provision of Section 10 may be amended; (iii) without the consent of the Issuing Lender, no provision of Section 2.2 may be amended. Notwithstanding the fact that the consent of all the Lenders is required in certain circumstances as set forth above, (x) each Lender is entitled to vote as such Lender sees fit on any bankruptcy reorganization plan that affects the Loans, and each Lender acknowledges that the provisions of Section 1126(c) of the Bankruptcy Code supersedes the unanimous consent provisions set forth herein and (y) the Required Lenders may consent to allow a Credit Party to use cash collateral in the context of a bankruptcy or insolvency proceeding. 11.7 COUNTERPARTS. This Credit Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but all of which shall constitute one and the same instrument. It shall not be necessary in making proof of this Credit Agreement to produce or account for more than one such counterpart for each of the parties hereto. Delivery by facsimile by any of the parties hereto of an executed counterpart of this Credit Agreement shall be 93 99 as effective as an original executed counterpart hereof and shall be deemed a representation that an original executed counterpart hereof will be delivered. 11.8 HEADINGS. The headings of the sections and subsections hereof are provided for convenience only and shall not in any way affect the meaning or construction of any provision of this Credit Agreement. 11.9 SURVIVAL. All indemnities set forth herein, including, without limitation, in Section 2.2(i), 3.11, 3.12, 10.5 or 11.5 shall survive the execution and delivery of this Credit Agreement, the making of the Loans, the issuance of the Letters of Credit, the repayment of the Loans, LOC Obligations and other obligations under the Credit Documents and the termination of the Commitments hereunder, and all representations and warranties made by the Credit Parties herein shall survive delivery of the Notes and the making of the Loans hereunder. 11.10 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE. (a) THIS CREDIT AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH CAROLINA. Any legal action or proceeding with respect to this Credit Agreement or any other Credit Document may be brought in the courts of the State of North Carolina in Mecklenburg County, or of the United States for the Western District of North Carolina, and, by execution and delivery of this Credit Agreement, each of the Credit Parties hereby irrevocably accepts for itself and in respect of its property, generally and unconditionally, the nonexclusive jurisdiction of such courts. Each of the Credit Parties further irrevocably consents to the service of process out of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to it at the address set out for notices pursuant to Section 11.1, such service to become effective three (3) days after such mailing. Nothing herein shall affect the right of the Agent or any Lender to serve process in any other manner permitted by law or to commence legal proceedings or to otherwise proceed against any Credit Party in any other jurisdiction. (b) Each of the Credit Parties hereby irrevocably waives any objection which it may now or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection with this Credit Agreement or any other Credit Document brought in the courts referred to in subsection (a) above and hereby further irrevocably waives and agrees not to plead or claim in any such court that any such action or proceeding brought in any such court has been brought in an inconvenient forum. 94 100 (c) TO THE EXTENT PERMITTED BY LAW, EACH OF THE AGENT, THE LENDERS, THE BORROWER AND THE CREDIT PARTIES HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS CREDIT AGREEMENT, ANY OF THE OTHER CREDIT DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY. 11.11 SEVERABILITY. If any provision of any of the Credit Documents is determined to be illegal, invalid or unenforceable, such provision shall be fully severable and the remaining provisions shall remain in full force and effect and shall be construed without giving effect to the illegal, invalid or unenforceable provisions. 11.12 ENTIRETY. This Credit Agreement together with the other Credit Documents represent the entire agreement of the parties hereto and thereto, and supersede all prior agreements and understandings, oral or written, if any, including any commitment letters or correspondence relating to the Credit Documents or the transactions contemplated herein and therein. 11.13 BINDING EFFECT; TERMINATION. (a) This Credit Agreement shall become effective at such time on or after the Closing Date when it shall have been executed by the Borrower, the Guarantors and the Agent, and the Agent shall have received copies hereof (telefaxed or otherwise) which, when taken together, bear the signatures of each Lender, and thereafter this Credit Agreement shall be binding upon and inure to the benefit of the Borrower, the Guarantors, the Agent and each Lender and their respective successors and assigns. (b) The term of this Credit Agreement shall be until no Loans, LOC Obligations or any other amounts payable hereunder or under any of the other Credit Documents shall remain outstanding, no Letters of Credit shall be outstanding, all of the Credit Party Obligations have been irrevocably satisfied in full and all of the Commitments hereunder shall have expired or been terminated. 11.14 CONFIDENTIALITY. Each Lender agrees that it will use its reasonable best efforts to keep confidential and to cause any representative designated under Section 7.10 to keep confidential any non-public information from time to time supplied to it under any Credit Document; provided, however, that nothing herein shall affect the disclosure of any such information to (i) the extent such Lender in good faith believes is required by statute, rule, regulation or judicial process, (ii) counsel for such Lender or to its accountants, (iii) bank examiners or auditors or comparable Persons, (iv) any affiliate of such Lender, (v) any other Lender, or any assignee, transferee or participant, or any 95 101 potential assignee, transferee or participant, of all or any portion of any Lender's rights under this Credit Agreement who is notified of the confidential nature of the information and agrees to be bound by this provision or provisions reasonably comparable hereto, or (vi) any other Person in connection with any litigation to which any one or more of the Lenders is a party; and provided further that no Lender shall have any obligation under this Section 11.14 to the extent any such information becomes available on a non-confidential basis from a source other than a Credit Party or that any information becomes publicly available other than by a breach of this Section 11.14. Each Lender agrees it will use all confidential information exclusively for the purpose of evaluating, monitoring, selling, protecting or enforcing its Loans and other rights under the Credit Documents. Without affecting any other rights of the Borrower and the Credit Parties, each Lender acknowledges that the Borrower shall be entitled to seek the remedies of injunction, specific performance and other equitable relief for any breach of the provisions of this Section 11.14. 11.15 SOURCE OF FUNDS. Each of the Lenders hereby represents and warrants to the Borrower that at least one of the following statements is an accurate representation as to the source of funds to be used by such Lender in connection with the financing hereunder: (a) no part of such funds constitutes assets allocated to any separate account maintained by such Lender in which any employee benefit plan (or its related trust) has any interest; (b) to the extent that any part of such funds constitutes assets allocated to any separate account maintained by such Lender, such Lender has disclosed to the Borrower the name of each employee benefit plan whose assets in such account exceed 10% of the total assets of such account as of the date of such purchase (and, for purposes of this subsection (b), all employee benefit plans maintained by the same employer or employee organization are deemed to be a single plan); (c) to the extent that any part of such funds constitutes assets of an insurance company's general account, such insurance company has complied with all of the requirements of the regulations issued under Section 401(c)(1)(A) of ERISA; or (d) such funds constitute assets of one or more specific benefit plans which such Lender has identified in writing to the Borrower. As used in this Section 11.15, the terms "employee benefit plan" and "separate account" shall have the respective meanings assigned to such terms in Section 3 of ERISA. 96 102 11.16 CONFLICT. To the extent that there is a conflict or inconsistency between any provision hereof, on the one hand, and any provision of any Credit Document, on the other hand, this Credit Agreement shall control. [Signature Page to Follow] 103 IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Credit Agreement to be duly executed and delivered as of the date first above written. BORROWER: SIMCALA, INC., - --------- a Delaware corporation By: /s/ C. E. Boardwine ------------------------------------- Name: C. E. Boardwine Title: President and Chief Executive Officer PARENT: SIMCALA HOLDINGS, INC., - ------- a Georgia corporation By: /s/ William A. Davies ------------------------------------- Name: William A. Davies Title: Secretary/Treasurer 104 LENDERS: NATIONSBANK, N. A., - -------- individually in its capacity as a Lender and in its capacity as Agent By: /s/ Michael D. McKay ------------------------------------- Name: Michael D. McKay Title: Senior Vice President 2 EX-10.4 15 PLEDGE AGREEMENT 1 EXHIBIT 10.4 PLEDGE AGREEMENT THIS PLEDGE AGREEMENT (this "Pledge Agreement") is entered into as of March 31, 1998 among SIMCALA, INC., a Delaware corporation (the "Borrower"), SIMCALA HOLDINGS, INC., a Georgia corporation, and certain Subsidiaries of the Borrower (individually a "Guarantor", and collectively the "Guarantors"; together with the Borrower, individually a "Pledgor", and collectively the "Pledgors") and NATIONSBANK, N.A., in its capacity as agent (in such capacity, the "Agent") for the lenders from time to time party to the Credit Agreement described below (the "Lenders"). RECITALS WHEREAS, pursuant to that certain Credit Agreement dated as of the date hereof (as amended, modified, extended, renewed or replaced from time to time, the "Credit Agreement") among the Borrower, the Guarantors, the Lenders and the Agent, the Lenders have agreed to make Loans and issue Letters of Credit upon the terms and subject to the conditions set forth therein; and WHEREAS, it is a condition precedent to the effectiveness of the Credit Agreement and the obligations of the Lenders to make their respective Loans and to issue Letters of Credit under the Credit Agreement that the Pledgors shall have executed and delivered this Pledge Agreement to the Agent for the ratable benefit of the Lenders. NOW, THEREFORE, in consideration of these premises and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. Definitions. Unless otherwise defined herein, capitalized terms used herein shall have the meanings ascribed to such terms in the Credit Agreement. For purposes of this Pledge Agreement, the term "Lender" shall include any Affiliate of any Lender which has entered into a Hedging Agreement with the Borrower. 2. Pledge and Grant of Security Interest. To secure the prompt payment and performance in full when due, whether by lapse of time or otherwise, of the Pledgor Obligations (as defined in Section 3 hereof), each Pledgor hereby pledges and assigns to the Agent, for the benefit of the Lenders, and grants to the Agent, for the benefit of the Lenders, a continuing security interest in any and all right, title and interest of such Pledgor in and to the following, whether now owned or existing or owned, acquired, or arising hereafter (collectively, the "Pledged Collateral"): (a) Pledged Shares. 100% (or, if less, the full amount owned by such Pledgor) of the issued and outstanding shares of capital stock owned by such Pledgor of each Subsidiary of such Pledgor set forth on Schedule 2(a) attached hereto, in each case together with the certificates (or other agreements or instruments), if any, representing 2 such shares, and all options and other rights, contractual or otherwise, with respect thereto (collectively, together with the shares of capital stock described in Section 2(b) and 2(c) below, the "Pledged Shares"), including, but not limited to, the following: (y) all shares or securities representing a dividend on any of the Pledged Shares, or representing a distribution or return of capital upon or in respect of the Pledged Shares, or resulting from a stock split, revision, reclassification or other exchange therefor, and any subscriptions, warrants, rights or options issued to the holder of, or otherwise in respect of, the Pledged Shares; and (z) without affecting the obligations of the Pledgors under any provision prohibiting such action hereunder or under the Credit Agreement, in the event of any consolidation or merger involving the issuer of any Pledged Shares and in which such issuer is not the surviving corporation, all shares of each class of the capital stock of the successor corporation formed by or resulting from such consolidation or merger. (b) Additional Shares. 100% (or, if less, the full amount owned by such Pledgor) of the issued and outstanding shares of capital stock owned by such Pledgor of any Person which hereafter becomes a Subsidiary of such Pledgor, including, without limitation, the certificates representing such shares. (c) Other Equity Interests. Any and all other Capital Stock in each Pledgor in any Subsidiary of such Pledgor. (d) Proceeds. All proceeds and products of the foregoing, however and whenever acquired and in whatever form. Without limiting the generality of the foregoing, it is hereby specifically understood and agreed that a Pledgor may from time to time hereafter deliver additional shares of stock to the Agent as collateral security for the Pledgor Obligations. Upon delivery to the Agent, such additional shares of stock shall be deemed to be part of the Pledged Collateral of such Pledgor and shall be subject to the terms of this Pledge Agreement whether or not Schedule 2(a) is amended to refer to such additional shares. 3. Security for Pledgor Obligations. The security interest created hereby in the Pledged Collateral of each Pledgor constitutes continuing collateral security for all of the following, whether now existing or hereafter incurred (the "Pledgor Obligations"): (a) In the case of the Borrower, the prompt performance and observance by the Borrower of all obligations of the Borrower under the Credit Agreement, the Notes, this Pledge Agreement and the other Credit Documents to which the Borrower is a party; - 2 - 3 (b) In the case of the Guarantors, the prompt performance and observance by such Guarantor of all obligations of such Guarantor under the Credit Agreement, this Pledge Agreement and the other Credit Documents to which such Guarantor is a party, including, without limitation, its guaranty obligations arising under Section 4 of the Credit Agreement; and (c) All other indebtedness, liabilities and obligations of any kind or nature, now existing or hereafter arising, owing from any Pledgor to any Lender or the Agent, howsoever evidenced, created, incurred or acquired, whether primary, secondary, direct, contingent, or joint and several, including, without limitation, all liabilities arising under Hedging Agreements and all obligations and liabilities incurred in connection with collecting and enforcing the Pledgor Obligations. 4. Delivery of the Pledged Collateral. Each Pledgor hereby agrees that: (a) Each Pledgor shall deliver to the Agent (i) simultaneously with or prior to the execution and delivery of this Pledge Agreement, all certificates representing the Pledged Shares of such Pledgor and (ii) within a reasonable time upon the receipt thereof by or on behalf of a Pledgor, all other certificates and instruments constituting Pledged Collateral of a Pledgor. Prior to delivery to the Agent, all such certificates and instruments constituting Pledged Collateral of a Pledgor shall be held in trust by such Pledgor for the benefit of the Agent pursuant hereto. All such certificates shall be delivered in suitable form for transfer by delivery or shall be accompanied by duly executed instruments of transfer or assignment in blank, substantially in the form provided in Exhibit 4(a) attached hereto. (b) Additional Securities. If such Pledgor shall receive by virtue of its being or having been the owner of any Pledged Collateral, any (i) stock certificate, including without limitation, any certificate representing a stock dividend or distribution in connection with any increase or reduction of capital, reclassification, merger, consolidation, sale of assets, combination of shares, stock splits, spin-off or split-off, promissory notes or other instrument; (ii) option or right, whether as an addition to, substitution for, or an exchange for, any Pledged Collateral or otherwise; (iii) dividends payable in securities; or (iv) distributions of securities in connection with a partial or total liquidation, dissolution or reduction of capital, capital surplus or paid-in surplus, then such Pledgor shall receive such stock certificate, instrument, option, right or distribution in trust for the benefit of the Agent, shall segregate it from such Pledgor's other property and shall deliver it forthwith to the Agent in the exact form received together with any necessary endorsement and/or appropriate stock power duly executed in blank, substantially in the form provided in Exhibit 4(a), to be held by the Agent as Pledged Collateral and as further collateral security for the Pledgor Obligations. (c) Financing Statements. Each Pledgor shall execute and deliver to the Agent such UCC or other applicable financing statements as may be reasonably requested by - 3 - 4 the Agent in order to perfect and protect the security interest created hereby in the Pledged Collateral of such Pledgor. 5. Representations and Warranties. Each Pledgor hereby represents and warrants to the Agent, for the benefit of the Lenders, that so long as any of the Pledgor Obligations remain outstanding or any Credit Document or Hedging Agreement is in effect or any Letter of Credit shall remain outstanding, and until all of the Commitments shall have been terminated: (a) Authorization of Pledged Shares. The Pledged Shares are duly authorized and validly issued, are fully paid and nonassessable and are not subject to the preemptive rights of any Person. All other shares of stock constituting Pledged Collateral will be duly authorized and validly issued, fully paid and nonassessable and not subject to the preemptive rights of any Person. (b) Title. Each Pledgor has good and indefeasible title to the Pledged Collateral of such Pledgor and will at all times be the legal and beneficial owner of such Pledged Collateral free and clear of any Lien, other than Permitted Liens. There exists no "adverse claim" within the meaning of Section 8-302 of the Uniform Commercial Code as in effect in the State of North Carolina (the "UCC") with respect to the Pledged Shares of such Pledgor. (c) Exercising of Rights. The exercise by the Agent of its rights and remedies hereunder will not violate any law or governmental regulation or any material contractual restriction binding on or affecting a Pledgor or any of its property. (d) Pledgor's Authority. No authorization, approval or action by, and no notice or filing with any Governmental Authority or with the issuer of any Pledged Stock is required either (i) for the pledge made by a Pledgor or for the granting of the security interest by a Pledgor pursuant to this Pledge Agreement or (ii) for the exercise by the Agent or the Lenders of their rights and remedies hereunder (except as may be required by laws affecting the offering and sale of securities). (e) Security Interest/Priority. This Pledge Agreement creates a valid security interest in favor of the Agent for the benefit of the Lenders, in the Pledged Collateral. The taking possession by the Agent of the certificates representing the Pledged Shares and all other certificates and instruments constituting Pledged Collateral will perfect and establish the first priority of the Agent's security interest in the Pledged Shares and, when properly perfected by filing or registration, in all other Pledged Collateral represented by such Pledged Shares and instruments securing the Pledgor Obligations. Except as set forth in this Section 5(e), no action is necessary to perfect or otherwise protect such security interest. (f) No Other Shares. No Pledgor owns any shares of stock other than as set forth on Schedule 2(a) attached hereto. - 4 - 5 6. Covenants. Each Pledgor hereby covenants, that so long as any of the Pledgor Obligations remain outstanding or any Credit Document or Hedging Agreement is in effect or any Letter of Credit shall remain outstanding, and until all of the Commitments shall have been terminated, such Pledgor shall: (a) Books and Records. Mark its books and records (and shall cause the issuer of the Pledged Shares of such Pledgor to mark its books and records) to reflect the security interest granted to the Agent, for the benefit of the Lenders, pursuant to this Pledge Agreement. (b) Defense of Title. Warrant and defend title to and ownership of the Pledged Collateral of such Pledgor at its own expense against the claims and demands of all other parties claiming an interest therein, keep the Pledged Collateral free from all Liens, except for Permitted Liens, and not sell, exchange, transfer, assign, lease or otherwise dispose of Pledged Collateral of such Pledgor or any interest therein, except as permitted under the Credit Agreement and the other Credit Documents. (c) Further Assurances. Promptly execute and deliver at its expense all further instruments and documents and take all further action that may be necessary and desirable or that the Agent may reasonably request in order to (i) perfect and protect the security interest created hereby in the Pledged Collateral of such Pledgor (including without limitation any and all action necessary to satisfy the Agent that the Agent has obtained a first priority perfected security interest in any capital stock); (ii) enable the Agent to exercise and enforce its rights and remedies hereunder in respect of the Pledged Collateral of such Pledgor; and (iii) otherwise effect the purposes of this Pledge Agreement, including, without limitation and if requested by the Agent, delivering to the Agent irrevocable proxies in respect of the Pledged Collateral of such Pledgor. (d) Amendments. Not allow to exist any restriction with respect to any of the Pledged Collateral of such Pledgor other than pursuant hereto or as may be permitted under the Credit Agreement. (e) Compliance with Securities Laws. File all reports and other information now or hereafter required to be filed by such Pledgor with the United States Securities and Exchange Commission and any other state, federal or foreign agency in connection with the ownership of the Pledged Collateral of such Pledgor. 7. Advances by Lenders. On failure of any Pledgor to perform any of the covenants and agreements contained herein, the Agent may, at its sole option and in its sole discretion, perform the same and in so doing may expend such sums as the Agent may reasonably deem advisable in the performance thereof, including, without limitation, the payment of any insurance premiums, the payment of any taxes, a payment to obtain a release of a Lien or potential Lien, expenditures made in defending against any adverse claim and all other expenditures which the Agent or the Lenders may make for the protection of the security hereof or which may be compelled to make by operation of law. All such sums and amounts so expended shall be - 5 - 6 repayable by the Pledgors on a joint and several basis promptly upon timely notice thereof and demand therefor, shall constitute additional Pledgor Obligations and shall bear interest from the date said amounts are expended at the default rate specified in Section 3.1 of the Credit Agreement for Loans that are Base Rate Loans. No such performance of any covenant or agreement by the Agent or the Lenders on behalf of any Pledgor, and no such advance or expenditure therefor, shall relieve the Pledgors of any default under the terms of this Pledge Agreement, the other Credit Documents or any Hedging Agreement. The Lenders may make any payment hereby authorized in accordance with any bill, statement or estimate procured from the appropriate public office or holder of the claim to be discharged without inquiry into the accuracy of such bill, statement or estimate or into the validity of any tax assessment, sale, forfeiture, tax lien, title or claim except to the extent such payment is being contested in good faith by a Pledgor in appropriate proceedings and against which adequate reserves are being maintained in accordance with GAAP. 8. Events of Default. The occurrence of an event which under the Credit Agreement would constitute an Event of Default shall be an Event of Default hereunder (an "Event of Default"). 9. Remedies. (a) General Remedies. Upon the occurrence of an Event of Default and during the continuation thereof, the Agent and the Lenders shall have, in respect of the Pledged Collateral of any Pledgor, in addition to the rights and remedies provided herein, in the Credit Documents, in the Hedging Agreements or by law, the rights and remedies of a secured party under the UCC or any other applicable law. (b) Sale of Pledged Collateral. Upon the occurrence of an Event of Default and during the continuation thereof, without limiting the generality of this Section and without notice, the Agent may, in its sole discretion, sell or otherwise dispose of or realize upon the Pledged Collateral, or any part thereof, in one or more parcels, at public or private sale, at any exchange or broker's board or elsewhere, at such price or prices and on such other terms as the Agent may deem commercially reasonable, for cash, credit or for future delivery or otherwise in accordance with applicable law. To the extent permitted by law, any Lender may in such event, bid for the purchase of such securities. Each Pledgor agrees that, to the extent notice of sale shall be required by law and has not been waived by such Pledgor, any requirement of reasonable notice shall be met if notice, specifying the place of any public sale or the time after which any private sale is to be made, is personally served on or mailed, postage prepaid, to such Pledgor, in accordance with the notice provisions of Section 11.1 of the Credit Agreement at least 10 days before the time of such sale. The Agent shall not be obligated to make any sale of Pledged Collateral of such Pledgor regardless of notice of sale having been given. The Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. - 6 - 7 (c) Private Sale. Upon the occurrence of an Event of Default and during the continuation thereof, the Pledgors recognize that the Agent may deem it impracticable to effect a public sale of all or any part of the Pledged Shares or any of the securities constituting Pledged Collateral and that the Agent may, therefore, determine to make one or more private sales of any such securities to a restricted group of purchasers who will be obligated to agree, among other things, to acquire such securities for their own account, for investment and not with a view to the distribution or resale thereof. Each Pledgor acknowledges that any such private sale may be at prices and on terms less favorable to the seller than the prices and other terms which might have been obtained at a public sale and, notwithstanding the foregoing, agrees that such private sale shall be deemed to have been made in a commercially reasonable manner and that the Agent shall have no obligation to delay sale of any such securities for the period of time necessary to permit the issuer of such securities to register such securities for public sale under the Securities Act of 1933. Each Pledgor further acknowledges and agrees that any offer to sell such securities which has been (i) publicly advertised on a bona fide basis in a newspaper or other publication of general circulation in the financial community of New York, New York (to the extent that such offer may be advertised without prior registration under the Securities Act of 1933), or (ii) made privately in the manner described above shall be deemed to involve a "public sale" under the UCC, notwithstanding that such sale may not constitute a "public offering" under the Securities Act of 1933, and the Agent may, in such event, bid for the purchase of such securities. (d) Retention of Pledged Collateral. In addition to the rights and remedies hereunder, upon the occurrence of an Event of Default, the Agent may, after providing the notices required by Section 9-505(2) of the UCC or otherwise complying with the requirements of applicable law of the relevant jurisdiction, retain all or any portion of the Pledged Collateral in satisfaction of the Pledgor Obligations. Unless and until the Agent shall have provided such notices, however, the Agent shall not be deemed to have retained any Pledged Collateral in satisfaction of any Pledgor Obligations for any reason. (e) Deficiency. In the event that the proceeds of any sale, collection or realization are insufficient to pay all amounts to which the Agent or the Lenders are legally entitled, the Pledgors shall be jointly and severally liable for the deficiency, together with interest thereon at the default rate specified in Section 3.1 of the Credit Agreement for Loans that are Base Rate Loans, together with the costs of collection and the reasonable fees of any attorneys employed by the Agent to collect such deficiency. Any surplus remaining after the full payment and satisfaction of the Pledgor Obligations shall be returned to the Pledgors or to whomsoever a court of competent jurisdiction shall determine to be entitled thereto. 10. Rights of the Agent. (a) Power of Attorney. In addition to other powers of attorney contained herein, each Pledgor hereby designates and appoints the Agent, on behalf of the Lenders, and each of its designees or agents as attorney-in-fact of such Pledgor, irrevocably and - 7 - 8 with power of substitution, with authority to take any or all of the following actions upon the occurrence and during the continuance of an Event of Default: (i) to demand, collect, settle, compromise, adjust and give discharges and releases concerning the Pledged Collateral of such Pledgor, all as the Agent may reasonably determine; (ii) to commence and prosecute any actions at any court for the purposes of collecting any of the Pledged Collateral of such Pledgor and enforcing any other right in respect thereof; (iii) to defend, settle or compromise any action brought and, in connection therewith, give such discharge or release as the Agent may deem reasonably appropriate; (iv) to pay or discharge taxes, liens, security interests, or other encumbrances levied or placed on or threatened against the Pledged Collateral of such Pledgor; (v) to direct any parties liable for any payment under any of the Pledged Collateral to make payment of any and all monies due and to become due thereunder directly to the Agent or as the Agent shall direct; (vi) to receive payment of and receipt for any and all monies, claims, and other amounts due and to become due at any time in respect of or arising out of any Pledged Collateral of such Pledgor; (vii) to sign and endorse any drafts, assignments, proxies, stock powers, verifications, notices and other documents relating to the Pledged Collateral of such Pledgor; (viii) to settle, compromise or adjust any suit, action or proceeding described above and, in connection therewith, to give such discharges or releases as the Agent may deem reasonably appropriate; (ix) execute and deliver all assignments, conveyances, statements, financing statements, renewal financing statements, pledge agreements, affidavits, notices and other agreements, instruments and documents that the Agent may determine necessary in order to perfect and maintain the security interests and liens granted in this Pledge Agreement and in order to fully consummate all of the transactions contemplated therein; (x) to exchange any of the Pledged Collateral of such Pledgor or other property upon any merger, consolidation, reorganization, recapitalization or other readjustment of the issuer thereof and, in connection therewith, deposit - 8 - 9 any of the Pledged Collateral of such Pledgor with any committee, depository, transfer agent, registrar or other designated agency upon such terms as the Agent may determine; (xi) to vote for a shareholder resolution, or to sign an instrument in writing, sanctioning the transfer of any or all of the Pledged Shares of such Pledgor into the name of the Agent or one or more of the Lenders or into the name of any transferee to whom the Pledged Shares of such Pledgor or any part thereof may be sold pursuant to Section 10 hereof; and (xii) to do and perform all such other acts and things as the Agent may reasonably deem to be necessary, proper or convenient in connection with the Pledged Collateral of such Pledgor. This power of attorney is a power coupled with an interest and shall be irrevocable (i) for so long as any of the Pledgor Obligations remain outstanding, any Credit Document or any Hedging Agreement is in effect or any Letter of Credit shall remain outstanding and (ii) until all of the Commitments shall have been terminated. The Agent shall be under no duty to exercise or withhold the exercise of any of the rights, powers, privileges and options expressly or implicitly granted to the Agent in this Pledge Agreement, and shall not be liable for any failure to do so or any delay in doing so. The Agent shall not be liable for any act or omission or for any error of judgment or any mistake of fact or law in its individual capacity or its capacity as attorney-in-fact except acts or omissions resulting from its gross negligence or willful misconduct. This power of attorney is conferred on the Agent solely to protect, preserve and realize upon its security interest in Pledged Collateral. (b) Performance by the Agent of Pledgor's Obligations. If any Pledgor fails to perform any agreement or obligation contained herein, upon prior written notice to such Pledgor, the Agent itself may reasonably perform, or cause performance of, such agreement or obligation, and the reasonable expenses of the Agent incurred in connection therewith shall be payable by the Pledgors on a joint and several basis pursuant to Section 13 hereof. (c) Assignment by the Agent. The Agent may from time to time assign the Pledgor Obligations and any portion thereof and/or the Pledged Collateral and any portion thereof, and the assignee shall be entitled to all of the rights and remedies of the Agent under this Pledge Agreement in relation thereto. (d) The Agent's Duty of Care. Other than the exercise of reasonable care to assure the safe custody of the Pledged Collateral while being held by the Agent hereunder, the Agent shall have no duty or liability to preserve rights pertaining thereto, it being understood and agreed that Pledgors shall be responsible for preservation of all rights in the Pledged Collateral of such Pledgor, and the Agent shall be relieved of all responsibility for Pledged Collateral upon surrendering it or tendering the surrender of it to the - 9 - 10 Pledgors. The Agent shall be deemed to have exercised reasonable care in the custody and preservation of the Pledged Collateral in its possession if such Pledged Collateral is accorded treatment substantially equal to that which the Agent accords its own property, which shall be no less than the treatment employed by a reasonable and prudent agent in the industry, it being understood that the Agent shall not have responsibility for (i) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relating to any Pledged Collateral, whether or not the Agent has or is deemed to have knowledge of such matters; or (ii) taking any necessary steps to preserve rights against any parties with respect to any Pledged Collateral. (e) Voting Rights in Respect of the Pledged Collateral. (i) So long as no Event of Default shall have occurred and be continuing, to the extent permitted by law, each Pledgor may exercise any and all voting and other consensual rights pertaining to the Pledged Collateral of such Pledgor or any part thereof for any purpose not inconsistent with the terms of this Pledge Agreement or the Credit Agreement; and (ii) Upon the occurrence and during the continuance of an Event of Default, all rights of a Pledgor to exercise the voting and other consensual rights which it would otherwise be entitled to exercise pursuant to paragraph (i) of this Section shall cease and all such rights shall thereupon become vested in the Agent which shall then have the sole right to exercise such voting and other consensual rights. (f) Dividend Rights in Respect of the Pledged Collateral. (i) So long as no Event of Default shall have occurred and be continuing and subject to Section 4(b) hereof, each Pledgor may receive and retain any and all dividends (other than stock dividends and other dividends constituting Pledged Collateral which are addressed hereinabove) or interest paid in respect of the Pledged Collateral to the extent they are allowed under the Credit Agreement. (ii) Upon the occurrence and during the continuance of an Event of Default: (A) all rights of a Pledgor to receive the dividends and interest payments which it would otherwise be authorized to receive and retain pursuant to paragraph (i) of this Section shall cease and all such rights shall thereupon be vested in the Agent which shall then have the sole right to receive and hold as Pledged Collateral such dividends and interest payments; and (B) all dividends and interest payments which are received by a Pledgor contrary to the provisions of paragraph (A) of this Section shall be - 10 - 11 received in trust for the benefit of the Agent, shall be segregated from other property or funds of such Pledgor, and shall be forthwith paid over to the Agent as Pledged Collateral in the exact form received, to be held by the Agent as Pledged Collateral and as further collateral security for the Pledgor Obligations. (g) Release of Pledged Collateral. The Agent may release any of the Pledged Collateral from this Pledge Agreement or may substitute any of the Pledged Collateral for other Pledged Collateral without altering, varying or diminishing in any way the force, effect, lien, pledge or security interest of this Pledge Agreement as to any Pledged Collateral not expressly released or substituted, and this Pledge Agreement shall continue as a first priority lien on all Pledged Collateral not expressly released or substituted. 11. Rights of Required Lenders. All rights of the Agent hereunder, if not exercised by the Agent, may be exercised by the Required Lenders. 12. Application of Proceeds. Upon the occurrence and during the continuance of an Event of Default, any payments in respect of the Pledgor Obligations and any proceeds of any Pledged Collateral, when received by the Agent or any of the Lenders in cash or its equivalent, will be applied in reduction of the Pledgor Obligations in the order set forth in Section 3.15(b) of the Credit Agreement, and each Pledgor irrevocably waives the right to direct the application of such payments and proceeds and acknowledges and agrees that the Agent shall have the continuing and exclusive right to apply and reapply any and all such payments and proceeds in the Agent's sole discretion, notwithstanding any entry to the contrary upon any of its books and records. 13. Costs of Counsel. At all times hereafter, the Pledgors agree to promptly pay upon demand any and all reasonable costs and expenses of the Agent or the Lenders, (a) as required under Section 11.5 of the Credit Agreement and (b) as reasonably necessary to protect the Pledged Collateral or to reasonably exercise any rights or remedies under this Pledge Agreement or with respect to any Pledged Collateral. All of the foregoing costs and expenses shall constitute Pledgor Obligations hereunder. 14. Continuing Agreement. (a) This Pledge Agreement shall be a continuing agreement in every respect and shall remain in full force and effect so long as any of the Pledgor Obligations remain outstanding or any Credit Document or Hedging Agreement is in effect or any Letter of Credit shall remain outstanding, and until all of the Commitments thereunder shall have terminated (other than any obligations with respect to the indemnities and the representations and warranties set forth in the Credit Documents). Upon such payment and termination, this Pledge Agreement shall be automatically terminated and the Agent and the Lenders shall, upon the request and at the expense of the Pledgors, forthwith release all of its liens and security interests hereunder and shall executed and deliver all UCC termination statements and/or other documents reasonably requested by the Pledgors - 11 - 12 evidencing such termination. Notwithstanding the foregoing all releases and indemnities provided hereunder shall survive termination of this Pledge Agreement. (b) This Pledge Agreement shall continue to be effective or be automatically reinstated, as the case may be, if at any time payment, in whole or in part, of any of the Pledgor Obligations is rescinded or must otherwise be restored or returned by the Agent or any Lender as a preference, fraudulent conveyance or otherwise under any bankruptcy, insolvency or similar law, all as though such payment had not been made; provided that in the event payment of all or any part of the Pledgor Obligations is rescinded or must be restored or returned, all reasonable costs and expenses (including without limitation any reasonable legal fees and disbursements) incurred by the Agent or any Lender in defending and enforcing such reinstatement shall be deemed to be included as a part of the Pledgor Obligations. 15. Amendments; Waivers; Modifications. This Pledge Agreement and the provisions hereof may not be amended, waived, modified, changed, discharged or terminated except as set forth in Section 11.6 of the Credit Agreement. 16. Successors in Interest. This Pledge Agreement shall create a continuing security interest in the Collateral and shall be binding upon each Pledgor, its successors and assigns and shall inure, together with the rights and remedies of the Agent and the Lenders hereunder, to the benefit of the Agent and the Lenders and their successors and permitted assigns; provided, however, that none of the Pledgors may assign its rights or delegate its duties hereunder without the prior written consent of each Lender or the Required Lenders, as required by the Credit Agreement. To the fullest extent permitted by law, each Pledgor hereby releases the Agent and each Lender, and its successors and assigns, from any liability for any act or omission relating to this Pledge Agreement or the Collateral, except for any liability arising from the gross negligence or willful misconduct of the Agent, or such Lender, or its officers, employees or agents. 17. Notices. All notices required or permitted to be given under this Pledge Agreement shall be in conformance with Section 11.1 of the Credit Agreement. 18. Counterparts. This Pledge Agreement may be executed in any number of counterparts, each of which where so executed and delivered shall be an original, but all of which shall constitute one and the same instrument. It shall not be necessary in making proof of this Pledge Agreement to produce or account for more than one such counterpart. 19. Headings. The headings of the sections and subsections hereof are provided for convenience only and shall not in any way affect the meaning or construction of any provision of this Pledge Agreement. - 12 - 13 20. Governing Law; Submission to Jurisdiction; Venue. (a) THIS PLEDGE AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH CAROLINA. Any legal action or proceeding with respect to this Security Agreement may be brought in the courts of the State of North Carolina, or of the United States for the Western District of North Carolina, and, by execution and delivery of this Security Agreement, each Pledgor hereby irrevocably accepts for itself and in respect of its property, generally and unconditionally, the jurisdiction of such courts. Each Pledgor further irrevocably consents to the service of process out of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to it at the address for notices pursuant to Section 11.1 of the Credit Agreement, such service to become effective 30 days after such mailing. Nothing herein shall affect the right of the Agent to serve process in any other manner permitted by law or to commence legal proceedings or to otherwise proceed against any Pledgor in any other jurisdiction. (b) Each Pledgor hereby irrevocably waives any objection which it may now or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection with this Pledge Agreement brought in the courts referred to in subsection (a) hereof and hereby further irrevocably waives and agrees not to plead or claim in any such court that any such action or proceeding brought in any such court has been brought in an inconvenient forum. 21. Waiver of Jury Trial. TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH OF THE PARTIES TO THIS PLEDGE AGREEMENT HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS PLEDGE AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. 22. Severability. If any provision of any of the Pledge Agreement is determined to be illegal, invalid or unenforceable, such provision shall be fully severable and the remaining provisions shall remain in full force and effect and shall be construed without giving effect to the illegal, invalid or unenforceable provisions. 23. Entirety. This Pledge Agreement, the other Credit Documents and the Hedging Agreements represent the entire agreement of the parties hereto and thereto, and supersede all prior agreements and understandings, oral or written, if any, including any commitment letters or correspondence relating to the Credit Documents, the Hedging Agreements or the transactions contemplated herein and therein. 24. Survival. All representations and warranties of the Pledgors hereunder shall survive the execution and delivery of this Pledge Agreement, the other Credit Documents and the - 13 - 14 Hedging Agreements, the delivery of the Notes and the making of the Loans and the issuance of the Letters of Credit under the Credit Agreement. 25. Other Security. To the extent that any of the Pledgor Obligations are now or hereafter secured by property other than the Pledged Collateral (including, without limitation, real and other personal property owned by a Pledgor), or by a guarantee, endorsement or property of any other Person, then the Agent and the Lenders shall have the right to proceed against such other property, guarantee or endorsement upon the occurrence of and during the contiuation of any Event of Default, and the Agent and the Lenders have the right, in their sole discretion, to determine which rights, security, liens, security interests or remedies the Agent and the Lenders shall at any time pursue, relinquish, subordinate, modify or take with respect thereto, without in any way modifying or affecting any of them or any of the Agent's and the Lenders' rights or the Pledgor Obligations under this Pledge Agreement, under any other of the Credit Documents or under any Hedging Agreement. 26. Joint and Several Obligations of Pledgors. (a) Each of the Pledgors is accepting joint and several liability hereunder in consideration of the financial accommodation to be provided by the Lenders under the Credit Agreement, for the mutual benefit, directly and indirectly, of each of the Pledgors and in consideration of the undertakings of each of the Pledgors to accept joint and several liability for the obligations of each of them. (b) Each of the Pledgors jointly and severally hereby irrevocably and unconditionally accepts, not merely as a surety but also as a co-debtor, joint and several liability with the other Pledgors with respect to the payment and performance of all of the Pledgor Obligations arising under this Pledge Agreement, the other Credit Documents and the Hedging Agreements, it being the intention of the parties hereto that all the Pledgor Obligations shall be the joint and several obligations of each of the Pledgors without preferences or distinction among them. (c) Notwithstanding any provision to the contrary contained herein or in any other of the Credit Documents, to the extent the obligations of a Guarantor shall be adjudicated to be invalid or unenforceable for any reason (including, without limitation, because of any applicable state or federal law relating to fraudulent conveyances or transfers) then the obligations of each Guarantor hereunder shall be limited to the maximum amount that is permissible under applicable law (whether federal or state and including, without limitation, the Bankruptcy Code). [remainder of page intentionally left blank] - 14 - 15 Each of the parties hereto has caused a counterpart of this Pledge Agreement to be duly executed and delivered as of the date first above written. BORROWER: SIMCALA, INC., a Delaware corporation By: /s/ C.E. Boardwine ----------------------------------------- Name: C. E. Boardwine Title: President and Chief Executive Officer GUARANTORS: SIMCALA HOLDINGS, INC., a Georgia corporation By: /s/ William A. Davies ----------------------------------------- Name: William A. Davies Title: Secretary, Treasurer Accepted and agreed to in Charlotte, North Carolina as of the date first above written. NATIONSBANK, N.A., as Agent By: /s/ Michael D. McKay ----------------------------------------- Name: Michael D. McKay Title: Senior Vice President 16 Schedule 2(a) to Pledge Agreement dated as of March 31, 1998 in favor of NationsBank, N.A. as Agent PLEDGED STOCK PLEDGOR: SIMCALA HOLDINGS, INC.
Name of Subsidiary Number of Shares Certificate Number Percentage Ownership - ------------------ ---------------- ------------------ -------------------- Simcala, Inc. 10,889 100%
PLEDGOR: SIMCALA, INC.
Name of Subsidiary Number of Shares Certificate Number Percentage Ownership - ------------------ ---------------- ------------------ -------------------- none
17 Exhibit 4(a) to Pledge Agreement dated as of March 31, 1998 in favor of NationsBank, N.A. as Agent Irrevocable Stock Power FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers to the following shares of capital stock of _____________________, a ____________ corporation:
No. of Shares Certificate No. ------------- ---------------
and irrevocably appoints __________________________________ its agent and attorney-in-fact to transfer all or any part of such capital stock and to take all necessary and appropriate action to effect any such transfer. The agent and attorney-in-fact may substitute and appoint one or more persons to act for him. The effectiveness of a transfer pursuant to this stock power shall be subject to any and all transfer restrictions referenced on the face of the certificates evidencing such interest or in the certificate of incorporation or bylaws of the subject corporation, to the extent they may from time to time exist. ---------------, a ______________ corporation By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- EX-10.5 16 SECURITY AGREEMENT 1 EXHIBIT 10.5 SECURITY AGREEMENT THIS SECURITY AGREEMENT (this "Security Agreement") is entered into as of March 31, 1998 among SIMCALA, INC. , a Delaware corporation (the "Borrower"), SIMCALA HOLDINGS, INC., a Georgia corporation, and certain Subsidiaries of the Borrower (individually a "Guarantor" and collectively the "Guarantors"; together with the Borrower, individually an "Obligor", and collectively the "Obligors") and NATIONSBANK, N.A., in its capacity as agent (in such capacity, the "Agent") for the lenders from time to time party to the Credit Agreement described below (the "Lenders"). RECITALS WHEREAS, pursuant to that certain Credit Agreement, dated as of the date hereof (as amended, modified, extended, renewed or replaced from time to time, the "Credit Agreement"), among the Borrower, the Guarantors, the Lenders and the Agent, the Lenders have agreed to make Loans and issue Letters of Credit upon the terms and subject to the conditions set forth therein; and WHEREAS, it is a condition precedent to the effectiveness of the Credit Agreement and the obligations of the Lenders to make their respective Loans and to issue Letters of Credit under the Credit Agreement that the Obligors shall have executed and delivered this Security Agreement to the Agent for the ratable benefit of the Lenders. NOW, THEREFORE, in consideration of these premises and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. Definitions. (a) Unless otherwise defined herein, capitalized terms used herein shall have the meanings ascribed to such terms in the Credit Agreement, and the following terms which are defined in the Uniform Commercial Code in effect in the State of North Carolina on the date hereof are used herein as so defined: Accounts, Chattel Paper, Deposit Accounts, Documents, Equipment, Farm Products, Fixtures, General Intangibles, Instruments, Inventory and Proceeds. For purposes of this Security Agreement, the term "Lender" shall include any Affiliate of any Lender which has entered into a Hedging Agreement with the Borrower. (b) In addition, the following terms shall have the following meanings: "Copyright Licenses": any written agreement, naming any Obligor as licensor, granting any right under any Copyright including, without limitation, any thereof referred to in Schedule 1(b) hereto. 2 "Copyrights": (a) all registered United States copyrights in all Works, now existing or hereafter created or acquired, all registrations and recordings thereof, and all applications in connection therewith, including, without limitation, registrations, recordings and applications in the United States Copyright office including, without limitation, any thereof referred to in Schedule 1(b) hereto, and (b) all renewals thereof including, without limitation, any thereof referred to in Schedule 1(b) hereto. "Patent License": all agreements, whether written or oral, providing for the grant by or to an Obligor of any right to manufacture, use or sell any invention covered by a Patent, including, without limitation, any thereof referred to in Schedule 1(b) hereto. "Patents": (a) all letters patent of the United States or any other country and all reissues and extensions thereof, including, without limitation, any thereof referred to in Schedule 1(b) hereto, and (b) all applications for letters patent of the United States or any other country and all divisions, continuations and continuations-in-part thereof, including, without limitation, any thereof referred to in Schedule 1(b) hereto. "Secured Obligations": the collective reference to the following: (a) In the case of the Borrower, the prompt performance and observance by the Borrower of all obligations of the Borrower under the Credit Agreement, the Notes, this Security Agreement and the other Credit Documents to which the Borrower is a party; (b) In the case of the Guarantors, the prompt performance and observance by such Guarantor of all obligations of such Guarantor under the Credit Agreement, this Security Agreement and the other Credit Documents to which such Guarantor is a party, including, without limitation, its guaranty obligations arising under Section 4 of the Credit Agreement; and (c) All other indebtedness, liabilities and obligations of any kind or nature, now existing or hereafter arising, owing from any Obligor to any Lender or the Agent, howsoever evidenced, created, incurred or acquired, whether primary, secondary, direct, contingent, or joint and several, including, without limitation, all liabilities arising under Hedging Agreements and all obligations and liabilities incurred in connection with collecting and enforcing the Secured Obligations. "Trademark License": means any agreement, written or oral, providing for the grant by or to an Obligor of any right to use any Trademark, including, without limitation, any thereof referred to in Schedule 1(b) hereto. "Trademarks": (a) all trademarks, trade names, corporate names, company names, business names, fictitious business names, trade styles, service marks, logos and other source or business identifiers, and the goodwill associated therewith, now existing or - 2 - 3 hereafter adopted or acquired, all registrations and recordings thereof, and all applications in connection therewith, whether in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country or any political subdivision thereof, or otherwise, including, without limitation, any thereof referred to in Schedule 1(b) hereto, and (b) all renewals thereof. "Work": any work which is subject to copyright protection pursuant to Title 17 of the United States Code. 2. Grant of Security Interest in the Collateral. To secure the prompt payment and performance in full when due, whether by lapse of time, acceleration or otherwise, of the Secured Obligations, each Obligor hereby grants to the Agent, for the benefit of the Lenders, a continuing security interest in, and a right to set off against, any and all right, title and interest of such Obligor in and to the following, whether now owned or existing or owned, acquired, or arising hereafter (collectively, the "Collateral"): (a) all Accounts; (b) all Chattel Paper; (c) all Copyrights; (d) all Copyright Licenses; (e) all Deposit Accounts; (f) all Documents; (g) all Equipment; (h) all Fixtures; (i) all General Intangibles; (j) all Instruments; (k) all Inventory; (l) all Patents; (m) all Patent Licenses; (n) all Trademarks; (o) all Trademark Licenses; - 3 - 4 (p) all books, records, ledger cards, files, correspondence, computer programs, tapes, disks, and related data processing software (owned by such Obligor or in which it has an interest) that at any time evidence or contain information relating to any Collateral or are otherwise necessary or helpful in the collection thereof or realization thereupon; and (q) to the extent not otherwise included, all Proceeds and products of any and all of the foregoing. The Obligors and the Agent, on behalf of the Lenders, hereby acknowledge and agree that the security interest created hereby in the Collateral (i) constitutes continuing collateral security for all of the Secured Obligations, whether now existing or hereafter arising and (ii) is not to be construed as an assignment of any Copyrights, Copyright Licenses, Patents, Patent Licenses, Trademarks or Trademark Licenses. 3. Provisions Relating to Accounts. (a) Anything herein to the contrary notwithstanding, each of the Obligors shall remain liable under each of the Accounts to observe and perform all the conditions and obligations to be observed and performed by it thereunder, all in accordance with the terms of any agreement giving rise to each such Account. Neither the Agent nor any Lender shall have any obligation or liability under any Account (or any agreement giving rise thereto) by reason of or arising out of this Security Agreement or the receipt by the Agent or any Lender of any payment relating to such Account pursuant hereto, nor shall the Agent or any Lender be obligated in any manner to perform any of the obligations of an Obligor under or pursuant to any Account (or any agreement giving rise thereto), to make any payment, to make any inquiry as to the nature or the sufficiency of any payment received by it or as to the sufficiency of any performance by any party under any Account (or any agreement giving rise thereto), to present or file any claim, to take any action to enforce any performance or to collect the payment of any amounts which may have been assigned to it or to which it may be entitled at any time or times. (b) Once during each calendar year or at any time after the occurrence and during the continuation of an Event of Default, the Agent shall have the right, but not the obligation, upon prior written notice to the Obligors, to make test verifications of the Accounts in any manner and through any medium that it reasonably considers advisable, and the Obligors shall furnish all such assistance and information as the Agent may require in connection with such test verifications. After the occurrence and during the continuance of an Event of Default, upon the Agent's request and at the expense of the Agent, the Obligors shall cause independent public accountants or others satisfactory to the Agent to furnish to the Agent reports showing reconciliations, aging and test verifications of, and trial balances for, the Accounts. After the occurrence and during the continuance of an Event of Default, the Agent in its own name or in the name of others - 4 - 5 may communicate with account debtors on the Accounts to verify with them to the Agent's satisfaction the existence, amount and terms of any Accounts. 4. Representations and Warranties. Each Obligor hereby represents and warrants to the Agent, for the benefit of the Lenders, that so long as any of the Secured Obligations remain outstanding or any Credit Document or Hedging Agreement is in effect or any Letter of Credit shall remain outstanding, and until all of the Commitments shall have been terminated: (a) Chief Executive Office; Books & Records. Each Obligor's chief executive office and chief place of business is (and for the prior four months have been) located at the locations set forth on Schedule 4(a) hereto, and each Obligor keeps its books and records at such locations. (b) Location of Collateral. The location of all Collateral owned by each Obligor is as shown on Schedule 4(b) hereto. (c) Ownership. Each Obligor is the legal and beneficial owner of its Collateral and has the right to pledge, sell, assign or transfer the same. Each Obligor's legal name is as shown in this Security Agreement and no Obligor has in the past four months changed its name, been party to a merger, consolidation or other change in structure or used any tradename except as set forth in Schedule 4(c) attached hereto. (d) Security Interest/Priority. This Security Agreement creates a valid security interest in favor of the Agent, for the benefit of the Lenders, in the Collateral of such Obligor and, when properly perfected by filing, shall constitute a valid perfected security interest in such Collateral, to the extent such security can be perfected by filing under the UCC, free and clear of all Liens except for Permitted Liens. (e) Farm Products. None of the Collateral constitutes, or is the Proceeds of, Farm Products. (f) Accounts. (i) Each Account of the Obligors and the papers and documents relating thereto are genuine and in all material respects what they purport to be, (ii) each Account arises out of (A) a bona fide sale of goods sold and delivered by such Obligor (or is in the process of being delivered) or (B) services theretofore actually rendered by such Obligor to, the account debtor named therein, (iii) no Account of an Obligor is evidenced by any Instrument or Chattel Paper unless such Instrument or Chattel Paper has been theretofore endorsed over and delivered to the Agent and (iv) no surety bond was required or given in connection with any Account of an Obligor or the contracts or purchase orders out of which they arose. (g) Inventory. No Inventory is held by an Obligor pursuant to consignment, sale or return, sale on approval or similar arrangement. (h) Copyrights, Patents and Trademarks. - 5 - 6 (i) Schedule 1(b) hereto includes all Copyrights, Copyright Licenses, Patents, Patent Licenses, Trademarks and Trademark Licenses owned by the Obligors in their own names as of the date hereof. (ii) To the best of each Obligor's knowledge, each Copyright, Patent and Trademark of such Obligor is valid, subsisting, unexpired, enforceable and has not been abandoned. (iii) Except as set forth in Schedule 1(b) hereto, none of such Copyrights, Patents and Trademarks is the subject of any licensing or franchise agreement. (iv) No holding, decision or judgment has been rendered by any Governmental Authority which would limit, cancel or question the validity of any Copyright, Patent or Trademark. (v) No action or proceeding is pending seeking to limit, cancel or question the validity of any Copyright, Patent or Trademark, or which, if adversely determined, would have a material adverse effect on the value of any Copyright, Patent or Trademark. (vi) All applications pertaining to the Copyrights, Patents and Trademarks of each Obligor have been duly and properly filed, and all registrations or letters pertaining to such Copyrights, Patents and Trademarks have been duly and properly filed and issued, and all of such Copyrights, Patents and Trademarks are valid and enforceable. (vii) No Obligor has made any assignment or agreement in conflict with the security interest in the Copyrights, Patents or Trademarks of each Obligor hereunder. 5. Covenants. Each Obligor covenants that, so long as any of the Secured Obligations remain outstanding or any Credit Document or Hedging Agreement is in effect or any Letter of Credit shall remain outstanding, and until all of the Commitments shall have been terminated, such Obligor shall: (a) Other Liens. Defend the Collateral against the claims and demands of all other parties claiming an interest therein, keep the Collateral free from all Liens, except for Permitted Liens, and not sell, exchange, transfer, assign, lease or otherwise dispose of the Collateral or any interest therein, except as permitted under the Credit Agreement. (b) Preservation of Collateral. Keep the Collateral in good order, condition and repair and not use the Collateral in violation of the provisions of this Security - 6 - 7 Agreement or any other agreement relating to the Collateral or any policy insuring the Collateral or any applicable statute, law, bylaw, rule, regulation or ordinance. (c) Instruments/Chattel Paper. If any amount payable under or in connection with any of the Collateral shall be or become evidenced by any Instrument or Chattel Paper, immediately deliver such Instrument or Chattel Paper to the Agent, duly indorsed in a manner satisfactory to the Agent, to be held as Collateral pursuant to this Security Agreement. (d) Change in Location. Not, without providing 30 days prior written notice to the Agent and without filing such amendments to any previously filed financing statements as the Agent may require, (a) change the location of its chief executive office and chief place of business (as well as its books and records) from the locations set forth on Schedule 4(a) hereto, (b) change the location of its Collateral from the locations set forth for such Obligor on Schedule 4(b) hereto, or (c) change its name, be party to a merger, consolidation or other change in structure or use any tradename other than as set forth on Schedule 4(c) attached hereto. (e) Inspection. Upon reasonable notice, and during reasonable hours, at all times allow the Agent or its representatives to visit and inspect the Collateral as set forth in Section 7.10 of the Credit Agreement. (f) Perfection of Security Interest. Execute and deliver to the Agent such agreements, assignments or instruments (including affidavits, notices, reaffirmations and amendments and restatements of existing documents, as the Agent may reasonably request) and do all such other things as the Agent may reasonably deem necessary or appropriate (i) to assure to the Agent its security interests hereunder, including (A) such financing statements (including renewal statements) or amendments thereof or supplements thereto or other instruments as the Agent may from time to time reasonably request in order to perfect and maintain the security interests granted hereunder in accordance with the UCC, (B) with regard to Copyrights, a Notice of Grant of Security Interest in Copyrights in the form of Schedule 5(f)(i), (C) with regard to Patents, a Notice of Grant of Security Interest in Patents for filing with the United States Patent and Trademark Office in the form of Schedule 5(f)(ii) attached hereto and (D) with regard to Trademarks, a Notice of Grant of Security Interest in Trademarks for filing with the United States Patent and Trademark Office in the form of Schedule 5(f)(iii) attached hereto, (ii) to consummate the transactions contemplated hereby and (iii) to otherwise protect and assure the Agent of its rights and interests hereunder. To that end, each Obligor agrees that the Agent may file one or more financing statements disclosing the Agent's security interest in any or all of the Collateral of such Obligor without, to the extent permitted by law, such Obligor's signature thereon, and further each Obligor also hereby irrevocably makes, constitutes and appoints the Agent, its nominee or any other person whom the Agent may designate, as such Obligor's attorney in fact with full power and for the limited purpose to sign in the name of such Obligor any such financing statements, or amendments and supplements to financing statements, renewal financing - 7 - 8 statements, notices or any similar documents which in the Agent's reasonable discretion would be necessary, appropriate or convenient in order to perfect and maintain perfection of the security interests granted hereunder, such power, being coupled with an interest, being and remaining irrevocable so long as the Credit Agreement is in effect or any amounts payable thereunder or under any other Credit Document, any Letter of Credit or any Hedging Agreement shall remain outstanding, and until all of the Commitments thereunder shall have terminated. Each Obligor hereby agrees that a carbon, photographic or other reproduction of this Security Agreement or any such financing statement is sufficient for filing as a financing statement by the Agent without notice thereof to such Obligor wherever the Agent may in its sole discretion desire to file the same. In the event for any reason the law of any jurisdiction other than North Carolina becomes or is applicable to the Collateral of any Obligor or any part thereof, or to any of the Secured Obligations, such Obligor agrees to execute and deliver all such instruments and to do all such other things as the Agent in its sole discretion reasonably deems necessary or appropriate to preserve, protect and enforce the security interests of the Agent under the law of such other jurisdiction (and, if an Obligor shall fail to do so promptly upon the request of the Agent, then the Agent may execute any and all such requested documents on behalf of such Obligor pursuant to the power of attorney granted hereinabove). If any Collateral is in the possession or control of an Obligor's agents and the Agent so requests, such Obligor agrees to notify such agents in writing of the Agent's security interest therein and, upon the occurrence of and during the continuation of and Event of Default, upon the Agent's request, instruct them to hold all such Collateral for the Lenders' account and subject to the Agent's instructions. Each Obligor agrees to mark its books and records to reflect the security interest of the Agent in the Collateral. (g) Treatment of Accounts. Not grant or extend the time for payment of any Account, or compromise or settle any Account for less than the full amount thereof, or release any person or property, in whole or in part, from payment thereof, or allow any credit or discount thereon, other than as normal and customary in the ordinary course of an Obligor's business. (h) Covenants Relating to Copyrights. (i) Employ the Copyright for each Work with such notice of copyright as may be required by law to secure copyright protection. (ii) Not do any act or knowingly omit to do any act whereby any material Copyright may become invalidated and (A) not do any act, or knowingly omit to do any act, whereby any material Copyright may become injected into the public domain; (B) notify the Agent immediately if it knows, or has reason to know, that any material Copyright may become injected into the public domain or of any adverse determination or development (including, without limitation, the institution of, or any such determination or development in, any court or tribunal in the United States or any other country) regarding an Obligor's ownership of any such Copyright or its validity; (C) take all necessary steps as it - 8 - 9 shall deem appropriate under the circumstances, to maintain and pursue each application (and to obtain the relevant registration) and to maintain each registration of each material Copyright owned by an Obligor including, without limitation, filing of applications for renewal where necessary; and (D) promptly notify the Agent of any material infringement of any material Copyright of an Obligor of which it becomes aware and take such actions as it shall reasonably deem appropriate under the circumstances to protect such Copyright, including, where appropriate, the bringing of suit for infringement, seeking injunctive relief and seeking to recover any and all damages for such infringement. (iii) Not make any assignment or agreement in conflict with the security interest in the Copyrights of each Obligor hereunder. (i) Covenants Relating to Patents and Trademarks. (i) (A) Continue to use each Trademark on each and every trademark class of goods applicable to its current line as reflected in its current catalogs, brochures and price lists in order to maintain such Trademark in full force free from any claim of abandonment for non-use, (B) maintain as in the past the quality of products and services offered under such Trademark, (C) employ such Trademark with the appropriate notice of registration, (D) not adopt or use any mark which is confusingly similar or a colorable imitation of such Trademark unless the Agent, for the ratable benefit of the Lenders, shall obtain a perfected security interest in such mark pursuant to this Security Agreement, and (E) not (and not permit any licensee or sublicensee thereof to) do any act or knowingly omit to do any act whereby any Trademark may become invalidated. (ii) Not do any act, or omit to do any act, whereby any Patent may become abandoned or dedicated. (iii) Notify the Agent and the Lenders within a reasonable time if it knows, or has reason to know, that any application or registration relating to any Patent or Trademark may become abandoned or dedicated, or of any adverse determination or development (including, without limitation, the institution of, or any such determination or development in, any proceeding in the United States Patent and Trademark Office or any court or tribunal in any country) regarding an Obligor's ownership of any Patent or Trademark or its right to register the same or to keep and maintain the same. (iv) Whenever an Obligor, either by itself or through an agent, employee, licensee or designee, shall file an application for the registration of any Patent or Trademark with the United States Patent and Trademark Office or any similar office or agency in any other country or any political subdivision thereof, an Obligor shall report such filing to the Agent and the Lenders within fifteen Business Days after the last day of the fiscal quarter in which such filing occurs. - 9 - 10 Upon request of the Agent, an Obligor shall execute and deliver any and all agreements, instruments, documents and papers as the Agent may request to evidence the Agent's and the Lenders' security interest in any Patent or Trademark and the goodwill and general intangibles of an Obligor relating thereto or represented thereby. (v) Take all reasonable and necessary steps, including, without limitation, in any proceeding before the United States Patent and Trademark Office, or any similar office or agency in any other country or any political subdivision thereof, to maintain and pursue each application (and to obtain the relevant registration) and to maintain each registration of the Patents and Trademarks, including, without limitation, filing of applications for renewal, affidavits of use and affidavits of incontestability. (vi) Promptly notify the Agent and the Lenders after it learns that any Patent or Trademark included in the Collateral is infringed, misappropriated or diluted by a third party and promptly sue for infringement, misappropriation or dilution, to seek injunctive relief where appropriate and to recover any and all damages for such infringement, misappropriation or dilution, or take such other actions as it shall reasonably deem appropriate under the circumstances to protect such Patent or Trademark. (vii) Not make any assignment or agreement in conflict with the security interest in the Patents or Trademarks of each Obligor hereunder. (j) New Patents, Copyrights and Trademarks. Promptly provide the Agent with (i) a listing of all applications, if any, for new Copyrights, Patents or Trademarks (together with a listing of the issuance of registrations or letters on present applications), which new applications and issued registrations or letters shall be subject to the terms and conditions hereunder, and (ii) (A) with respect to Copyrights, a duly executed Notice of Security Interest in Copyrights, (B) with respect to Patents, a duly executed Notice of Security Interest in Patents, (C) with respect to Trademarks, a duly executed Notice of Security Interest in Trademarks or (D) such other duly executed documents as the Agent may request in a form acceptable to counsel for the Agent and suitable for recording to evidence the security interest in the Copyright, Patent or Trademark which is the subject of such new application. (k) Insurance. Insure, repair and replace the Collateral of such Obligor as set forth in the Credit Agreement. All insurance proceeds shall be subject to the security interest of the Agent hereunder. 6. Advances by Lenders. On failure of any Obligor to perform any of the covenants and agreements contained herein, the Agent may, at its sole option and in its sole discretion, perform the same and in so doing may expend such sums as the Agent may reasonably deem advisable in the performance thereof, including, without limitation, the payment of any insurance - 10 - 11 premiums, the payment of any taxes, a payment to obtain a release of a Lien or potential Lien, expenditures made in defending against any adverse claim and all other expenditures which the Agent or the Lenders may make for the protection of the security hereof or which may be compelled to make by operation of law. All such sums and amounts so expended shall be repayable by the Obligors on a joint and several basis promptly upon timely notice thereof and demand therefor, shall constitute additional Secured Obligations and shall bear interest from the date said amounts are expended at the default rate specified in Section 3.1 of the Credit Agreement for Loans that are Base Rate Loans. No such performance of any covenant or agreement by the Agent or the Lenders on behalf of any Obligor, and no such advance or expenditure therefor, shall relieve the Obligors of any default under the terms of this Security Agreement, the other Credit Documents or any Hedging Agreement. The Lenders may make any payment hereby authorized in accordance with any bill, statement or estimate procured from the appropriate public office or holder of the claim to be discharged without inquiry into the accuracy of such bill, statement or estimate or into the validity of any tax assessment, sale, forfeiture, tax lien, title or claim except to the extent such payment is being contested in good faith by an Obligor in appropriate proceedings and against which adequate reserves are being maintained in accordance with GAAP. 7. Events of Default. The occurrence of an event which under the Credit Agreement would constitute an Event of Default shall be an Event of Default hereunder (an "Event of Default"). 8. Remedies. (a) General Remedies. Upon the occurrence of an Event of Default and during continuation thereof, the Lenders shall have, in addition to the rights and remedies provided herein, in the Credit Documents, in the Hedging Agreements or by law (including, but not limited to, the rights and remedies set forth in the Uniform Commercial Code of the jurisdiction applicable to the affected Collateral), the rights and remedies of a secured party under the UCC (regardless of whether the UCC is the law of the jurisdiction where the rights and remedies are asserted and regardless of whether the UCC applies to the affected Collateral), and further, the Agent may, with or without judicial process or the aid and assistance of others, (i) enter on any premises on which any of the Collateral may be located and, without resistance or interference by the Obligors, take possession of the Collateral, (ii) dispose of any Collateral on any such premises, (iii) require the Obligors to assemble and make available to the Agent at the expense of the Obligors any Collateral at any place and time designated by the Agent which is reasonably convenient to both parties, (iv) remove any Collateral from any such premises for the purpose of effecting sale or other disposition thereof, and/or (v) without demand and without advertisement, notice, hearing or process of law, all of which each of the Obligors hereby waives to the fullest extent permitted by law, at any place and time or times, sell and deliver any or all Collateral held by or for it at public or private sale, by one or more contracts, in one or more parcels, for cash, upon credit or otherwise, at such prices and upon such terms as the Agent deems advisable, in its sole discretion (subject to any and all mandatory legal - 11 - 12 requirements). In addition to all other sums due the Agent and the Lenders with respect to the Secured Obligations, the Obligors shall pay the Agent and each of the Lenders all reasonable documented costs and expenses incurred by the Agent or any such Lender, including, but not limited to, reasonable attorneys' fees and court costs, in obtaining or liquidating the Collateral, in enforcing payment of the Secured Obligations, or in the prosecution or defense of any action or proceeding by or against the Agent or the Lenders or the Obligors concerning any matter arising out of or connected with this Security Agreement, any Collateral or the Secured Obligations, including, without limitation, any of the foregoing arising in, arising under or related to a case under the Bankruptcy Code. To the extent the rights of notice cannot be legally waived hereunder, each Obligor agrees that any requirement of reasonable notice shall be met if such notice is personally served on or mailed, postage prepaid, to the Borrower in accordance with the notice provisions of Section 11.1 of the Credit Agreement at least 10 days before the time of sale or other event giving rise to the requirement of such notice. The Agent and the Lenders shall not be obligated to make any sale or other disposition of the Collateral regardless of notice having been given. To the extent permitted by law, any Lender may be a purchaser at any such sale. To the extent permitted by applicable law, each of the Obligors hereby waives all of its rights of redemption with respect to any such sale. Subject to the provisions of applicable law, the Agent and the Lenders may postpone or cause the postponement of the sale of all or any portion of the Collateral by announcement at the time and place of such sale, and such sale may, without further notice, to the extent permitted by law, be made at the time and place to which the sale was postponed, or the Agent and the Lenders may further postpone such sale by announcement made at such time and place. (b) Remedies relating to Accounts. Upon the occurrence of an Event of Default and during the continuation thereof, whether or not the Agent has exercised any or all of its rights and remedies hereunder, each Obligor will promptly upon request of the Agent instruct all account debtors to remit all payments in respect of Accounts to a mailing location selected by the Agent. In addition, the Agent or its designee may notify any Obligor's customers and account debtors that the Accounts of such Obligor have been assigned to the Agent or of the Agent's security interest therein, and may (either in its own name or in the name of an Obligor or both) demand, collect (including without limitation by way of a lockbox arrangement), receive, take receipt for, sell, sue for, compound, settle, compromise and give acquittance for any and all amounts due or to become due on any Account, and, in the Agent's discretion, file any claim or take any other action or proceeding to protect and realize upon the security interest of the Lenders in the Accounts. Each Obligor acknowledges and agrees that the Proceeds of its Accounts remitted to or on behalf of the Agent in accordance with the provisions hereof shall be solely for the Agent's own convenience and that such Obligor shall not have any right, title or interest in such Accounts or in any such other amounts except as expressly provided herein. The Agent and the Lenders shall have no liability or responsibility to any Obligor for acceptance of a check, draft or other order for payment of money bearing the legend "payment in full" or words of similar import or any other restrictive legend or endorsement or be responsible for determining the correctness of any remittance unless such acceptance was willful or with gross negligence. Each Obligor hereby agrees to indemnify the Agent - 12 - 13 and the Lenders from and against all liabilities, damages, losses, actions, claims, judgments, costs, expenses, charges and reasonable attorneys' fees suffered or incurred by the Agent or the Lenders (each, an "Indemnified Party") because of the maintenance of the foregoing arrangements except as relating to or arising out of the gross negligence or willful misconduct of an Indemnified Party or its officers, employees or agents. In the case of any investigation, litigation or other proceeding, the foregoing indemnity shall be effective whether or not such investigation, litigation or proceeding is brought by an Obligor, its directors, shareholders or creditors or an Indemnified Party or any other Person or any other Indemnified Party is otherwise a party thereto. (c) Access. In addition to the rights and remedies hereunder, upon the occurrence of an Event of Default and during the continuance thereof, the Agent shall have the right to enter and remain upon the various premises of the Obligors without cost or charge to the Agent, and use the same, together with materials, supplies, books and records of the Obligors for the purpose of collecting and liquidating the Collateral, or for preparing for sale and conducting the sale of the Collateral, whether by foreclosure, auction or otherwise. In addition, the Agent may remove Collateral, or any part thereof, from such premises and/or any records with respect thereto, in order to effectively collect or liquidate such Collateral. (d) Nonexclusive Nature of Remedies. Failure by the Agent or the Lenders to exercise any right, remedy or option under this Security Agreement, any other Credit Document, any Hedging Agreement or as provided by law, or any delay by the Agent or the Lenders in exercising the same, shall not operate as a waiver of any such right, remedy or option. No waiver hereunder shall be effective unless it is in writing, signed by the party against whom such waiver is sought to be enforced and then only to the extent specifically stated, which in the case of the Agent or the Lenders shall only be granted as provided herein. To the extent permitted by law, neither the Agent, the Lenders, nor any party acting as attorney for the Agent or the Lenders, shall be liable hereunder for any acts or omissions or for any error of judgment or mistake of fact or law other than their gross negligence or willful misconduct hereunder. The rights and remedies of the Agents and the Lenders under this Security Agreement shall be cumulative and not exclusive of any other right or remedy which the Agent or the Lenders may have. (e) Retention of Collateral. The Agent may, after providing the notices required by Section 9-505(2) of the UCC or otherwise complying with the requirements of applicable law of the relevant jurisdiction, to the extent the Agent is in possession of any of the Collateral, retain the Collateral in satisfaction of the Secured Obligations. Unless and until the Agent shall have provided such notices, however, the Agent shall not be deemed to have retained any Collateral in satisfaction of any Secured Obligations for any reason. (f) Deficiency. In the event that the proceeds of any sale, collection or realization are insufficient to pay all amounts to which the Agent or the Lenders are legally entitled, the Obligors shall be jointly and severally liable for the deficiency, together with - 13 - 14 interest thereon at the default rate specified in Section 3.1 of the Credit Agreement for Loans that are Base Rate Loans, together with the costs of collection and the reasonable fees of any attorneys employed by the Agent to collect such deficiency. Any surplus remaining after the full payment and satisfaction of the Secured Obligations shall be returned to the Obligors or to whomsoever a court of competent jurisdiction shall determine to be entitled thereto. 9. Rights of the Agent. (a) Power of Attorney. In addition to other powers of attorney contained herein, each Obligor hereby designates and appoints the Agent, on behalf of the Lenders, and each of its designees or agents, as attorney-in-fact of such Obligor, irrevocably and with power of substitution, with authority to take any or all of the following actions upon the occurrence and during the continuance of an Event of Default: (i) to demand, collect, settle, compromise, adjust, give discharges and releases, all as the Agent may reasonably determine; (ii) to commence and prosecute any actions at any court for the purposes of collecting any Collateral and enforcing any other right in respect thereof; (iii) to defend, settle or compromise any action brought and, in connection therewith, give such discharge or release as the Agent may deem reasonably appropriate; (iv) receive, open and dispose of mail addressed to an Obligor and endorse checks, notes, drafts, acceptances, money orders, bills of lading, warehouse receipts or other instruments or documents evidencing payment, shipment or storage of the goods giving rise to the Collateral of such Obligor on behalf of and in the name of such Obligor, or securing, or relating to such Collateral; (v) sell, assign, transfer, make any agreement in respect of, or otherwise deal with or exercise rights in respect of, any Collateral or the goods or services which have given rise thereto, as fully and completely as though the Agent were the absolute owner thereof for all purposes; (vi) adjust and settle claims under any insurance policy relating thereto; (vii) execute and deliver all assignments, conveyances, statements, financing statements, renewal financing statements, security agreements, affidavits, notices and other agreements, instruments and documents that the Agent may determine necessary in order to perfect and - 14 - 15 maintain the security interests and liens granted in this Security Agreement and in order to fully consummate all of the transactions contemplated therein; (viii) institute any foreclosure proceedings that the Agent may deem appropriate; and (ix) do and perform all such other acts and things as the Agent may reasonably deem to be necessary, proper or convenient in connection with the Collateral. This power of attorney is a power coupled with an interest and shall be irrevocable (i) for so long as any of the Secured Obligations remain outstanding, any Credit Document or any Hedging Agreement is in effect or any Letter of Credit shall remain outstanding and (ii) until all of the Commitments shall have been terminated. The Agent shall be under no duty to exercise or withhold the exercise of any of the rights, powers, privileges and options expressly or implicitly granted to the Agent in this Security Agreement, and shall not be liable for any failure to do so or any delay in doing so. The Agent shall not be liable for any act or omission or for any error of judgment or any mistake of fact or law in its individual capacity or its capacity as attorney-in-fact except acts or omissions resulting from its gross negligence or willful misconduct. This power of attorney is conferred on the Agent solely to protect, preserve and realize upon its security interest in the Collateral. (b) Performance by the Agent of Obligations. If any Obligor fails to perform any agreement or obligation contained herein, the Agent itself may perform, or cause performance of, such agreement or obligation, and the expenses of the Agent incurred in connection therewith shall be payable by the Obligors on a joint and several basis pursuant to Section 11 hereof. (c) Assignment by the Agent. The Agent may from time to time assign the Secured Obligations and any portion thereof and/or the Collateral and any portion thereof, and the assignee shall be entitled to all of the rights and remedies of the Agent under this Security Agreement in relation thereto. (d) The Agent's Duty of Care. Other than the exercise of reasonable care to assure the safe custody of the Collateral while being held by the Agent hereunder, the Agent shall have no duty or liability to preserve rights pertaining thereto, it being understood and agreed that the Obligors shall be responsible for preservation of all rights in the Collateral, and the Agent shall be relieved of all responsibility for the Collateral upon surrendering it or tendering the surrender of it to the Obligors. The Agent shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral in its possession if the Collateral is accorded treatment substantially equal to that which the Agent accords its own property, which shall be no less than the treatment employed by a reasonable and prudent agent in the industry, it being understood that the Agent shall not - 15 - 16 have responsibility for taking any necessary steps to preserve rights against any parties with respect to any of the Collateral. 10. Application of Proceeds. Upon the occurrence and during the continuance of an Event of Default, any payments in respect of the Secured Obligations and any proceeds of the Collateral, when received by the Agent or any of the Lenders in cash or its equivalent, will be applied in reduction of the Secured Obligations in the order set forth in Section 3.15(b) of the Credit Agreement, and each Obligor irrevocably waives the right to direct the application of such payments and proceeds and acknowledges and agrees that the Agent shall have the continuing and exclusive right to apply and reapply any and all such payments and proceeds in the Agent's sole discretion, notwithstanding any entry to the contrary upon any of its books and records. 11. Costs of Counsel. If at any time hereafter, whether upon the occurrence of an Event of Default or not, the Agent employs counsel to prepare or consider amendments, waivers or consents with respect to this Security Agreement, or to take action or make a response in or with respect to any legal or arbitral proceeding relating to this Security Agreement or relating to the Collateral, or to reasonably protect the Collateral or reasonably exercise any rights or remedies under this Security Agreement or with respect to the Collateral, then the Obligors agree to promptly pay upon demand any and all such reasonable documented costs and expenses of the Agent or the Lenders, all of which costs and expenses shall constitute Secured Obligations hereunder. 12. Continuing Agreement. (a) This Security Agreement shall be a continuing agreement in every respect and shall remain in full force and effect so long as any of the Secured Obligations remain outstanding or any Credit Document or Hedging Agreement is in effect or any Letter of Credit shall remain outstanding, and until all of the Commitments thereunder shall have terminated (other than any obligations with respect to the indemnities and the representations and warranties set forth in the Credit Documents). Upon such payment and termination, this Security Agreement shall be automatically terminated and the Agent and the Lenders shall, upon the request and at the expense of the Obligors, forthwith release all of its liens and security interests hereunder and shall execute and deliver all UCC termination statements and/or other documents reasonably requested by the Obligors evidencing such termination. Notwithstanding the foregoing all releases and indemnities provided hereunder shall survive termination of this Security Agreement. (b) This Security Agreement shall continue to be effective or be automatically reinstated, as the case may be, if at any time payment, in whole or in part, of any of the Secured Obligations is rescinded or must otherwise be restored or returned by the Agent or any Lender as a preference, fraudulent conveyance or otherwise under any bankruptcy, insolvency or similar law, all as though such payment had not been made; provided that in the event payment of all or any part of the Secured Obligations is rescinded or must be restored or returned, all reasonable costs and expenses (including without limitation any reasonable legal fees and disbursements) incurred by the Agent or any Lender in defending - 16 - 17 and enforcing such reinstatement shall be deemed to be included as a part of the Secured Obligations. 13. Amendments; Waivers; Modifications. This Security Agreement and the provisions hereof may not be amended, waived, modified, changed, discharged or terminated except as set forth in Section 11.6 of the Credit Agreement. 14. Successors in Interest. This Security Agreement shall create a continuing security interest in the Collateral and shall be binding upon each Obligor, its successors and assigns and shall inure, together with the rights and remedies of the Agent and the Lenders hereunder, to the benefit of the Agent and the Lenders and their successors and permitted assigns; provided, however, that none of the Obligors may assign its rights or delegate its duties hereunder without the prior written consent of each Lender or the Required Lenders, as required by the Credit Agreement. To the fullest extent permitted by law, each Obligor hereby releases the Agent and each Lender, and its successors and assigns, from any liability for any act or omission relating to this Security Agreement or the Collateral, except for any liability arising from the gross negligence or willful misconduct of the Agent, or such Lender, or its officers, employees or agents. 15. Notices. All notices required or permitted to be given under this Security Agreement shall be in conformance with Section 11.1 of the Credit Agreement. 16. Counterparts. This Security Agreement may be executed in any number of counterparts, each of which where so executed and delivered shall be an original, but all of which shall constitute one and the same instrument. It shall not be necessary in making proof of this Security Agreement to produce or account for more than one such counterpart. 17. Headings. The headings of the sections and subsections hereof are provided for convenience only and shall not in any way affect the meaning or construction of any provision of this Security Agreement. 18. Governing Law; Submission to Jurisdiction; Venue. (a) THIS SECURITY AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH CAROLINA. Any legal action or proceeding with respect to this Security Agreement may be brought in the courts of the State of North Carolina, or of the United States for the Western District of North Carolina, and, by execution and delivery of this Security Agreement, each Obligor hereby irrevocably accepts for itself and in respect of its property, generally and unconditionally, the jurisdiction of such courts. Each Obligor further irrevocably consents to the service of process out of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to it at the address for notices pursuant to Section 11.1 of the Credit Agreement, such service to become - 17 - 18 effective 30 days after such mailing. Nothing herein shall affect the right of the Agent to serve process in any other manner permitted by law or to commence legal proceedings or to otherwise proceed against any Obligor in any other jurisdiction. (b) Each Obligor hereby irrevocably waives any objection which it may now or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection with this Security Agreement brought in the courts referred to in subsection (a) hereof and hereby further irrevocably waives and agrees not to plead or claim in any such court that any such action or proceeding brought in any such court has been brought in an inconvenient forum. 19. Waiver of Jury Trial. TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH OF THE PARTIES TO THIS SECURITY AGREEMENT HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS SECURITY AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. 20. Severability. If any provision of any of the Security Agreement is determined to be illegal, invalid or unenforceable, such provision shall be fully severable and the remaining provisions shall remain in full force and effect and shall be construed without giving effect to the illegal, invalid or unenforceable provisions. 21. Entirety. This Security Agreement, the other Credit Documents and the Hedging Agreements represent the entire agreement of the parties hereto and thereto, and supersede all prior agreements and understandings, oral or written, if any, including any commitment letters or correspondence relating to the Credit Documents, the Hedging Agreements or the transactions contemplated herein and therein. 22. Survival. All representations and warranties of the Obligors hereunder shall survive the execution and delivery of this Security Agreement, the other Credit Documents and the Hedging Agreements, the delivery of the Notes and the making of the Loans and the issuance of the Letters of Credit under the Credit Agreement. 23. Other Security. To the extent that any of the Secured Obligations are now or hereafter secured by property other than the Collateral (including, without limitation, real property and securities owned by an Obligor), or by a guarantee, endorsement or property of any other Person, then the Agent and the Lenders shall have the right to proceed against such other property, guarantee or endorsement upon the occurrence and during the continuance of any Event of Default, and the Agent and the Lenders have the right, in their sole discretion, to determine which rights, security, liens, security interests or remedies the Agent and the Lenders shall at any time pursue, relinquish, subordinate, modify or take with respect thereto, without in any way modifying or affecting any of them or any of the Agent's and the Lenders' rights or the Secured Obligations under this Security Agreement, under any other of the Credit Documents or under any Hedging Agreement. - 18 - 19 24. Joint and Several Obligations of Obligors. (a) Each of the Obligors is accepting joint and several liability hereunder in consideration of the financial accommodation to be provided by the Lenders under the Credit Agreement, for the mutual benefit, directly and indirectly, of each of the Obligors and in consideration of the undertakings of each of the Obligors to accept joint and several liability for the obligations of each of them. (b) Each of the Obligors jointly and severally hereby irrevocably and unconditionally accepts, not merely as a surety but also as a co-debtor, joint and several liability with the other Obligors with respect to the payment and performance of all of the Secured Obligations arising under this Security Agreement, the other Credit Documents and the Hedging Agreements, it being the intention of the parties hereto that all the Obligations shall be the joint and several obligations of each of the Obligors without preferences or distinction among them. (c) Notwithstanding any provision to the contrary contained herein or in any other of the Credit Documents, to the extent the obligations of a Guarantor shall be adjudicated to be invalid or unenforceable for any reason (including, without limitation, because of any applicable state or federal law relating to fraudulent conveyances or transfers) then the obligations of each Guarantor hereunder shall be limited to the maximum amount that is permissible under applicable law (whether federal or state and including, without limitation, the Bankruptcy Code). 25. Rights of Required Lenders. All rights of the Agent hereunder, if not exercised by the Agent, may be exercised by the Required Lenders. - 19 - 20 Each of the parties hereto has caused a counterpart of this Security Agreement to be duly executed and delivered as of the date first above written. BORROWER: SIMCALA, INC. , a Delaware corporation By: /s/ C. E. Boardwine ----------------------------------------- Name: C. E. Boardwine Title: President and Chief Executive Officer GUARANTORS: SIMCALA HOLDINGS, INC., a Georgia corporation By: /s/ William D. Davies ----------------------------------------- Name: William A. Davies Title: Secretary-Treasurer Accepted and agreed to in Charlotte, North Carolina as of the date first above written. NATIONSBANK, N.A., as Agent By: /s/ Michael D. McKay ----------------------------------------- Name: Michael D. McKay Title: Senior Vice President 21 SCHEDULE 1(b) INTELLECTUAL PROPERTY None. 22 SCHEDULE 4(a) CHIEF EXECUTIVE OFFICE Simcala, Inc. Ohio Ferro-Alloys Road Mt. Meigs, Alabama 36057 Simcala, Holdings, Inc. c/o CGW Southeast Partners III, L.P. Twelve Piedmont Center, Suite 210 Atlanta, Georgia 30305 23 SCHEDULE 4(b) LOCATIONS OF COLLATERAL Simcala, Inc. Ohio Ferro-Alloys Road Mt. Meigs, Alabama 36057 Marietta Industrial Enterprises Alloys Division Route 7 South Marietta, OH 45750 24 SCHEDULE 4(c) MERGERS, CONSOLIDATIONS, CHANGE IN STRUCTURE OR USE OF TRADENAMES Merger between Simcala, Inc. and SAC Acquisition Corp. with Simcala, Inc. as the survivor 25 SCHEDULE 5(f)(i) NOTICE OF GRANT OF SECURITY INTEREST IN COPYRIGHTS United States Copyright Office Gentlemen: Please be advised that pursuant to the Security Agreement dated as of March 31, 1998 (as the same may be amended, modified, extended or restated from time to time, the "Security Agreement") by and among the Obligors party thereto (each an "Obligor" and collectively, the "Obligors") and NationsBank, N.A., as Agent (the "Agent") for the lenders referenced therein (the "Lenders"), the undersigned Obligor has granted a continuing security interest in and continuing lien upon, the copyrights and copyright applications shown below to the Agent for the ratable benefit of the Lenders: COPYRIGHTS
Date of Copyright No. Description of Copyright Copyright ------------- ------------------------ ---------
Copyright Applications
Copyright Description of Copyright Date of Copyright Applications No. Applied For Applications ---------------- ------------------------ -----------------
26 The Obligors and the Agent, on behalf of the Lenders, hereby acknowledge and agree that the security interest in the foregoing copyrights and copyright applications (i) may only be terminated in accordance with the terms of the Security Agreement and (ii) is not to be construed as an assignment of any copyright or copyright application. Very truly yours, ---------------------------------- [Obligor] By: ------------------------------- Name: ----------------------------- Title: ---------------------------- Acknowledged and Accepted: NATIONSBANK, N.A., as Agent By: ------------------------------- Name: ----------------------------- Title: ---------------------------- - 26 - 27 SCHEDULE 5(f)(ii) NOTICE OF GRANT OF SECURITY INTEREST IN PATENTS United States Patent and Trademark Office Gentlemen: Please be advised that pursuant to the Security Agreement dated as of March 31, 1998 (the "Security Agreement") by and among the Obligors party thereto (each an "Obligor" and collectively, the "Obligors") and NationsBank, N.A., as Agent (the "Agent") for the lenders referenced therein (the "Lenders"), the undersigned Obligor has granted a continuing security interest in and continuing lien upon, the patents and patent applications shown below to the Agent for the ratable benefit of the Lenders: PATENTS
Description of Patent Date of Patent No. Item Patent ---------- --------------------- -------
Patent Applications
Patent Description of Patent Date of Patent Applications No. Applied For Applications ---------------- --------------------- --------------
28 The Obligors and the Agent, on behalf of the Lenders, hereby acknowledge and agree that the security interest in the foregoing patents and patent applications (i) may only be terminated in accordance with the terms of the Security Agreement and (ii) is not to be construed as an assignment of any patent or patent application. Very truly yours, ---------------------------------- [Obligor] By: ------------------------------- Name: ----------------------------- Title: ---------------------------- Acknowledged and Accepted: NATIONSBANK, N.A., as Agent By: ------------------------------- Name: ----------------------------- Title: ---------------------------- - 28 - 29 SCHEDULE 5(f)(iii) NOTICE OF GRANT OF SECURITY INTEREST IN TRADEMARKS United States Patent and Trademark Office Gentlemen: Please be advised that pursuant to the Security Agreement dated as of March 31, 1998 (the "Security Agreement") by and among the Obligors party thereto (each an "Obligor" and collectively, the "Obligors") and NationsBank, N.A., as Agent (the "Agent") for the lenders referenced therein (the "Lenders"), the undersigned Obligor has granted a continuing security interest in and continuing lien upon, the trademarks and trademark applications shown below to the Agent for the ratable benefit of the Lenders: TRADEMARKS
Description of Trademark Date of Trademark No. Item Trademark ------------- ------------------------ ---------
Trademark Applications
Trademark Description of Trademark Date of Trademark Applications No. Applied For Applications ---------------- ------------------------ -----------------
30 The Obligors and the Agent, on behalf of the Lenders, hereby acknowledge and agree that the security interest in the foregoing trademarks and trademark applications (i) may only be terminated in accordance with the terms of the Security Agreement and (ii) is not to be construed as an assignment of any trademark or trademark application. Very truly yours, ---------------------------------- [Obligor] By: ------------------------------- Name: ----------------------------- Title: ---------------------------- Acknowledged and Accepted: NATIONSBANK, N.A., as Agent By: ------------------------------- Name: ----------------------------- Title: ---------------------------- - 30 - EX-10.6 17 MORTGAGE SECURITY AGREEMENT 1 EXHIBIT 10.6 ================================================================================ MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF LEASES AND RENTS AND FIXTURE FINANCING STATEMENT by SIMCALA, INC. and THE INDUSTRIAL DEVELOPMENT BOARD OF THE CITY OF MONTGOMERY and to NATIONSBANK, N.A., as Agent for the Lenders party to the Credit Agreement (herein defined) - -------------------------------------------------------------------------------- Dated March 31, 1998 ================================================================================ 2 THIS INSTRUMENT WAS PREPARED BY, AND WHEN RECORDED SHOULD BE RETURNED TO: Moore & Van Allen PLLC 100 North Tryon Street, Floor 47 Charlotte, North Carolina 28202 MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF LEASES AND RENTS AND FIXTURE FINANCING STATEMENT THIS MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF LEASES AND RENTS AND FIXTURE FINANCING STATEMENT (this "Mortgage") is given as of March 31, 1998, by SIMCALA, INC., a Delaware corporation (the "Borrower"), having its principal offices at Ohio Ferro Alloys Road, Mt. Meigs, Alabama 36057, and THE INDUSTRIAL DEVELOPMENT BOARD OF THE CITY OF MONTGOMERY (the "IDB"), a public corporation organized and existing under the laws of the State of Alabama, and in particular Article 4, Chapter 54, Title 11 of the Code of Alabama of 1975, as amended, in favor of NATIONSBANK, N.A., a national banking association, as agent for the lenders party to the Credit Agreement hereinafter defined (in such capacity, the "Agent"), having its principal offices at 101 North Tryon Street, 15th Floor, Charlotte, North Carolina 28255. RECITALS A. The IDB is the owner of the real property situated in Montgomery County, Alabama, legally described on Exhibit A attached hereto and made a part hereof (the "Real Property"); B. Pursuant to that certain Consolidated, Amended and Restated Lease Agreement dated as of January 1, 1995, by and between the IDB and the Borrower and recorded in Book 1542 at Page 870 in the Montgomery County Public Registry (as amended, modified, supplemented, extended or renewed from time to time, the "IDB Lease"), entered into in connection with those certain $6,000,000 Taxable Industrial Revenue Bonds (SIMCALA, Inc. Project), Series 1995, issued by the State Industrial Development Authority, an Alabama public corporation (the "Bonds"), the Borrower leased from the IDB the Real Property and the improvements, fixtures and equipment located thereon; C. The Agent, as agent for the Lenders, and the Lenders have agreed to establish a $15,000,000 credit facility in favor of the Borrower pursuant to the terms of that certain Credit Agreement dated as of the date hereof among the Borrower, the guarantors party thereto, the lenders party thereto (the "Lenders") and the Agent (as amended, modified, supplemented, extended, renewed or replaced from time to time, the "Credit Agreement"; terms used but not - 1 - 3 otherwise defined herein shall have the meanings provided in the Credit Agreement) and as evidenced by (i) the revolving credit promissory notes of the Borrower (as amended, modified, supplemented, extended, renewed or replaced from time to time, the "Notes"); and (ii) those letters of credit for the account of the Borrower or any other Credit Party (as referenced in the Credit Agreement, as amended, modified, supplemented, extended, renewed or replaced from time to time, the "Letters of Credit"). Hereinafter, the loans and extensions of credit under the Credit Agreement may be called the "Loan". D. It is a condition precedent to the obligation of the Lenders to make the Loan pursuant to the terms of the Credit Agreement that this Mortgage be executed and delivered by the Borrower and the IDB. E. In order to secure the payment and performance of the Obligations (as hereinafter defined), the Borrower and the IDB have agreed to execute and deliver this Mortgage. F. The obligations secured by this Mortgage (the "Obligations") are as follows: (i) the prompt performance and observance by the Borrower of all obligations of the Borrower under the Credit Agreement, the Notes (as defined in the Credit Agreement), this Mortgage and the other Credit Documents; and (ii) all other indebtedness, liabilities and obligations of any kind or nature, now existing or hereafter arising pursuant to the Credit Documents, owing from the Borrower to any Lender or the Agent, howsoever evidenced, created, incurred or acquired, whether primary, secondary, direct, contingent, or joint and several, including, without limitation, all liabilities arising under Hedging Agreements (as defined in the Credit Agreement) and all obligations and liabilities incurred in connection with collecting and enforcing the Obligations. G. The maximum principal indebtedness secured hereby is $15,000,000, plus amounts which may be advanced by the Agent or the Lenders in protection of the Mortgaged Property (as hereinafter defined) or this Mortgage. H. The Obligations shall mature on or before December 1, 2019 (the "Maturity Date"). NOW, THEREFORE, in consideration of the Lenders making the Loan and of the Issuing Lender issuing the Letters of Credit, and to secure the Loan and payment and performance of the Obligations, including without limitation all advances and readvances of principal under the Notes and all draws under the Letters of Credit, together with all interest and other charges due thereon, and also to secure the performance of all terms, conditions and agreements of the Credit Agreement, the Notes, this Mortgage and the other Credit Documents, the Borrower and the IDB do hereby grant, bargain, sell and convey to the Agent its successors and assigns, forever, with power of sale, and grant to the Agent, its successors and assigns, a security interest in, the following, all of which is called the "Mortgaged Property": - 2 - 4 A. LAND AND IMPROVEMENTS All of the IDB's and the Borrower's rights, title and interests in the Real Property and all mineral rights, hereditaments, easements and appurtenances thereto (collectively the "Land"), and all improvements and structures thereon (the "Improvements"), and all of the Borrower's rights, title and interest in the Mortgaged Property arising from and out of the IDB Lease; and B. FIXTURES AND PERSONAL PROPERTY All fixtures (the "Fixtures"), and all machinery, equipment and personal property (collectively, the "Personal Property") now or hereafter located on, in or under the Land and the Improvements, or usable in connection with the Land or the Improvements, and which are owned by the IDB or the Borrower or in which the IDB or the Borrower has an interest, including any construction and building materials stored on and to be included in the Improvements, plus any repairs, replacements and betterments to any of the foregoing and the proceeds and products thereof; and C. LEASES AND RENTS All rights of the Borrower and the IDB with respect to the IDB Lease, and all rights of the Borrower with respect to tenants or occupants now or hereafter occupying any part of the Land or the Improvements, if any, including all subleases and licenses and rights in connection therewith, whether oral or written (collectively the "Subleases"), and all rents, income, both from services and occupation, royalties, revenues and payments, including prepayments and security deposits (collectively the "Rents"), which are now or hereafter due or to be paid in connection with the Land, the Improvements, the Fixtures or the Personal Property; and D. INSURANCE AND CONDEMNATION PROCEEDS All proceeds of insurance and condemnation or other conveyance of the Land and the Improvements; and E. AFTER-ACQUIRED PROPERTY AND PROCEEDS All after-acquired property similar to the property herein described and conveyed which may be subsequently acquired by the IDB or the Borrower and used in connection with the Land, the Improvements, the Fixtures, the Personal Property and other property; and all cash and non-cash proceeds and products of all of the foregoing property (provided, however, that the inclusion of proceeds and products shall not be deemed to permit any sale or other disposition of the Mortgaged Property or any part thereof in violation of the terms and provisions of this Mortgage). - 3 - 5 TO HAVE AND TO HOLD the same, and all estate therein, together with all the rights, privileges and appurtenances thereunto belonging, to the use and benefit of the Agent, its successors and assigns, forever. BUT, THIS CONVEYANCE IS MADE UPON THE FOLLOWING CONDITIONS NEVERTHELESS, that is to say: (a) the Borrower shall well and truly pay when and as due the aggregate of all of the Obligations, including without limitation all advances and re-advances of principal under the Notes and all draws under the Letters of Credit, together with all interest and other charges due therein, (b) the Borrower and the IDB shall have fulfilled and performed all of the terms, conditions and agreements contained in the Credit Agreement, the Notes, this Mortgage and the other Credit Documents, (c) the Notes shall have been satisfied and terminated in accordance with their terms and the Lenders shall have no obligation to extend any further credit under the Credit Agreement or the Notes, and (d) an appropriate instrument in satisfaction of this Mortgage, executed by a duly authorized officer of the Agent, shall have been duly recorded in the Probate Office in which this Mortgage is originally recorded, then this conveyance shall become void; otherwise, the same shall remain in full force and effect. This Mortgage constitutes (a) a real estate mortgage under the laws of the State of Alabama, (b) a security agreement within the meaning of the Uniform Commercial Code as in effect in the State of Alabama (the "UCC"), with respect to all property described herein as to which a security interest may be granted and/or perfected pursuant to the UCC (and is intended to afford the Agent, to the fullest extend allowed by law, the rights and remedies of a secured party under the UCC), and (c) a financing statement filed as a fixture filing for purposes of Article 9 of the UCC. The Notes evidence and this Mortgage secures an open-end revolving line of credit under which the Borrower may borrow and repay, and reborrow and repay, amounts from the Lenders from time to time up to a maximum principal amount to any one time outstanding not exceeding $15,000,000. Advances under the Notes are obligatory. The Notes do not require that the Borrower maintain any minimum balance under the revolving line of credit and, therefore, at times there may be no outstanding debt under the Notes. This Mortgage shall not be deemed satisfied nor shall title to the Mortgaged Property be divested from the Agent by the payment in full of all the debt at any one time evidenced by the Notes, since in each case further borrowings can thereafter be made from time to time by the Borrower under the terms of the Notes and all such borrowings are to be included in the Obligations. The Borrower agrees to pay or reimburse the Agent and the Lenders for any and all recording and mortgage taxes and fees which at any time and from time to time may be paid or incurred by the Agent or the Lenders by virtue of the recordation of this Mortgage or any advances or readvances of principal under the Notes. - 4 - 6 BORROWER FURTHER agrees as follows: ARTICLE I AGREEMENTS Section 1.1 Performance of Obligations; Incorporation by Reference. The Borrower shall pay and perform the Obligations as provided in the Credit Agreement and the other Credit Documents. Time is of the essence hereof. All of the covenants, obligations, agreements, warranties and representations of the Borrower contained in the Credit Agreement and the other Credit Documents and all of the terms and provisions thereof, are hereby incorporated herein and made a part hereof by reference as if fully set forth herein. If there is a conflict or inconsistency between the Credit Agreement and this Mortgage, the provisions of the Credit Agreement shall control and govern. Section 1.2 Further Assurance. If the Agent requests, the Borrower and the IDB shall sign and deliver and cause to be recorded as the Agent shall direct any further mortgages, instruments of further assurances, certificates and other documents as the Agent reasonably may consider necessary or desirable in order to perfect, continue and preserve the Obligations and the Agent's rights, title, estate, liens and interests under the Credit Documents. The Borrower further agrees to pay to the Agent, upon demand, all costs and expenses incurred by the Agent or the Lenders in connection with the preparation, execution, recording, filing and refiling of any such documents, including reasonable attorneys' fees and title insurance costs. Section 1.3 Sale, Transfer, Encumbrances. If the Borrower or the IDB sells, conveys, transfers or otherwise disposes of, or encumbers, all or any part of its interest in the Mortgaged Property, whether voluntarily, involuntarily or by operation of law, without the prior written consent of the Agent, the Agent shall have the option to declare the Obligations immediately due and payable without notice, except as to Liens that are permitted by the Credit Agreement. In addition, during the term of this Mortgage there shall not be any change in the ownership, membership or control of the Borrower unless the Agent in its sole discretion has given its approval, which approval shall not be unreasonably withheld or delayed. Notwithstanding anything to the contrary contained herein, Agent hereby consents to the sale of the Mortgaged Property from the IDB to the Borrower pursuant to the purchase option contained in the IDB Lease. Section 1.4 Insurance. (A) Types Required. The Borrower shall maintain insurance for the Mortgaged Property as set forth in Section 7.6 of the Credit Agreement. In addition to the requirements set forth in Section 7.6 of the Credit Agreement, if any part of the Improvements is located in an area having "special flood hazards" as defined in the Federal Flood Disaster Protection Act of 1973, a flood insurance policy as may be required by law naming the Agent as insured mortgagee must be submitted to the Agent. The policy must be in such amount, covering such risks and liabilities and - 5 - 7 with such deductibles or self-insurance retentions as are in accordance with normal industry practice. (B) Use of Proceeds: All insurance proceeds received by the Borrower shall be applied as set forth in Section 7.6 of the Credit Agreement. Section 1.5 Taxes and Fees. The Borrower will pay all taxes, including, but not limited to, all ad valorem taxes, mortgage taxes, privilege taxes, recording taxes and other taxes, general and special assessments, insurance premiums, permit fees, inspection fees, license fees, water and sewer charges, franchise fees and equipment rents and any other charges or fees against it or the Mortgaged Property (and the Borrower, upon request of the Agent, will submit to the Agent receipts evidencing said payments) in accordance with Section 7.5 of the Credit Agreement. The Borrower shall keep the Mortgaged Property free and clear of all liens, encumbrances, easements, covenants, conditions, restrictions and reservations except Permitted Liens. Section 1.6 Escrow Payments. If requested by the Agent, which request shall only be made after an Event of Default hereunder, the Borrower shall, for so long as such Event of Default continues, deposit with the Agent on the same date as payments are due under the Credit Agreement the amount reasonably estimated by the Agent to be necessary to enable the Agent to pay, at least five (5) days before they become due, all taxes, assessments and governmental charges and levies of every kind or nature whatsoever ( collectively, the "Impositions") against the Mortgaged Property and the premiums upon all insurance required hereby to be maintained with respect to the Mortgaged Property. All funds so deposited shall secure the Obligations. Such deposits shall be held by the Agent, or its nominee, in a non-interest bearing account and may be commingled with other funds. Such deposits shall be used to pay such Impositions and insurance premiums when due. Any excess sums so deposited shall be retained by the Agent and shall be applied to pay said items in the future, unless the Obligations have been paid and performed in full, in which case all excess sums so paid shall be refunded to the Borrower. Upon the occurrence and during the continuation of an Event of Default, the Agent may apply any funds in said account against the Obligations in such order as the Agent may determine. Section 1.7 Maintenance and Repair; Compliance with Laws. Except as provided otherwise in the Credit Agreement, the Borrower will abstain from and will not permit the commission of waste in or about the Mortgaged Property and will maintain the Mortgaged Property in good condition and repair, ordinary wear and tear excepted. The Borrower will do, or cause to be done, all such things as may be required by law in order fully to protect the security and all rights of the Agent under this Mortgage. The Borrower shall not cause or permit the lien of this Mortgage to be impaired in any way. Section 1.8 Subleases. (A) The Borrower represents that there is no existing Sublease. The Borrower shall not enter into or amend any Sublease without the Agent's prior written consent, and shall furnish to the Agent, upon execution, a complete and fully executed copy of each Sublease. The Borrower shall provide the Agent with a copy of each proposed Sublease - 6 - 8 requiring the consent of the Agent and with any information requested by the Agent regarding the proposed Tenant (as hereinafter defined) thereunder. The Agent may declare each Sublease to be prior or subordinate to this Mortgage, at the Agent's option. (B) The Borrower shall, at its cost and expense, perform each obligation to be performed by the landlord under each Sublease; not borrow against, pledge or further assign any rents or other payments due thereunder; not permit the prepayment of any rents or other payments due for more than thirty (30) days in advance; and not permit any Tenant to assign its Sublease or sublet the Mortgaged Property covered by its Sublease, unless required to do so by the terms thereof and then only if such assignment does not work to relieve the Tenant of any liability for performance of its obligations thereunder. (C) If any Tenant shall default under its Sublease, the Borrower shall, in the ordinary course of business, exercise sound business judgment with respect to such default, but may discount, compromise, forgive or waive claims or discharge the Tenant from its obligations under the Sublease or terminate or accept a surrender of the Sublease. (D) If the Borrower fails to perform any obligations of landlord under any Sublease or if the Agent becomes aware of or is notified by any Tenant of a failure on the part of the Borrower to so perform, the Agent may, but shall not be obligated to, without waiving or releasing the Borrower from any obligation in this Agreement or any of the other Credit Documents, remedy such failure, and the Borrower agrees to repay upon demand all sums incurred by the Agent or the Lenders in remedying any such failure, together with interest thereon from the date incurred at the rate of interest set forth in Section 3.1 of the Credit Agreement. (E) For purposes of this Mortgage, the following terms shall have the following meanings: (I) "Sublease": Any lease or other document or agreement, written or oral, permitting any Person to use or occupy any part of the Mortgaged Property. (II) "Person": Person shall have the meaning assigned thereto in the Credit Agreement. (III) "Tenant": Any person or party using or occupying any part of the Mortgaged Property pursuant to a Sublease. Section 1.9 Indemnity. The Borrower shall indemnify the Agent, the Lenders, the IDB and their directors, officers, agents and employees (collectively the "Indemnified Parties") against, and hold the Indemnified Parties harmless from, all losses, damages, suits, claims, judgments, penalties, fines, liabilities, costs and expenses by reason of, or on account of, or in connection with the construction, reconstruction or alteration of the Mortgaged Property, or any accident, injury, death or damage to any person or property occurring in, on or about the Mortgaged Property or any street, drive, sidewalk, curb or passageway adjacent thereto, except to the extent - 7 - 9 that such losses, damages, suits, claims, judgments, penalties, fines, liabilities, costs and expenses are directly caused by the Indemnified Party's negligence, wanton or willful misconduct. The indemnity contained in this Section shall include costs of defense of any such claim asserted against an Indemnified Party, including reasonably attorneys' fees. The indemnity contained in this Section shall survive payment and performance of the Obligations and satisfaction and release of this Mortgage and any foreclosure thereof or acquisition of title by deed in lieu of foreclosure. ARTICLE II REPRESENTATIONS AND WARRANTIES Section 2.1 Ownership. The IDB covenants with the Agent, its successors and assigns, that the IDB is lawfully seized in fee simple of the Real Property and the IDB and the Borrower covenant with the Agent that they are the lawful owners of the Improvements, Fixtures and Personal Property, and have good right to sell and convey the Mortgaged Property as aforesaid; that the Mortgaged Property is free of all encumbrances except for Permitted Liens, and that the IDB and the Borrower will forever warrant and forever defend their respective titles to the Mortgaged Property unto the Agent, its successors and assigns, against the lawful claims and demands of all persons. Section 2.2 Liens, Compliance with Laws. The Borrower makes the following representations and warranties: that the Mortgaged Property is free from any and all liens and encumbrances, except for Permitted Liens; and that if the Borrower shall, at any time prior to payment in full of the Obligations, acquire the fee title or any greater estate in any of the Mortgaged Property, the lien of this Mortgage shall attach, extend to cover and be a lien upon such fee simple title or other estate. All applicable zoning, environmental, land use, subdivision, building, fire, safety and health laws, statutes, ordinances, codes, rules, regulations and requirements affecting the Mortgaged Property permit the current use and occupancy thereof, and the Borrower has obtained all consents, permits and licenses required for such use. The Borrower has examined and is familiar with all applicable laws, statutes, ordinances, codes and governmental rules, regulations and requirements affecting the Mortgaged Property, and the Mortgaged Property complies with all of the foregoing. Section 2.3 Use. The Mortgaged Property is not homestead property nor is it agricultural property or in agricultural use. Section 2.4 Utilities; Services. The Mortgaged Property is serviced by all necessary public utilities, and all such utilities are operational and have sufficient capacity for current uses. There is no contract or agreement providing for services to or maintenance of the Mortgaged Property which cannot be canceled upon thirty (30) days' or less notice, except as approved by the Agent, which approval shall not be reasonably withheld. - 8 - 10 Section 2.5 Compliance with IDB Lease. (A) The Borrower covenants and agrees that it will at all times fully perform and comply with all agreements, covenants, terms and conditions imposed upon or assumed by it as tenant under the IDB Lease, that it will not surrender its leasehold estate and interests, nor exercise any right to terminate or cancel the IDB Lease (except in the exercise of the Borrower's purchase option in the IDB Lease), and that it will not, without the express written consent of the Agent, modify, change, supplement, alter or amend the IDB Lease, and as further security for the repayment of the Obligations and for the performance of the covenants contained herein and in the IDB Lease, the Borrower hereby assigns to the Agent all of its rights, privileges and prerogatives as tenant under the IDB Lease to terminate, cancel, modify, change, supplement, alter or amend the IDB Lease, and any such termination, cancellation, modification, change, supplement, alteration, or amendment of the IDB Lease without the prior written consent thereto by the Agent, shall be void and of no force and effect; provided that so long as no Event of Default exists, the Agent shall have no right to terminate, cancel, modify, change, supplement, alter or amend the IDB Lease. (B) The Borrower covenants and agrees that no release or forbearance of any of the Borrower's obligations under the IDB Lease, pursuant to the IDB Lease or otherwise, shall release the Borrower from any of its obligations under this Mortgage, including its obligations with respect to the payment of rent as provided for in the IDB Lease and the performance of all of the terms, provisions, covenants, conditions and agreements contained in the IDB Lease to be kept, performed and complied with by the Borrower. (C) The Borrower shall not borrower against, pledge or further assign its rights under the IDB Lease. (D) The Borrower shall not waive or fail to exercise its rights to renew and extend the term of the IDB Lease without the Agent's prior written consent. (E) If the Borrower fails to perform any covenants or obligations of the Borrower under the IDB Lease, the Agent may (but shall not be obligated to) take any action the Agent deems necessary or desirable to prevent or to cure any such failure by the Borrower. Upon receipt by the Agent from the IDB of any notice of default by the Borrower under the IDB Lease, the Agent may rely thereon and take any action as aforesaid to cure such default even though the existence of such default or the nature thereof is questioned or denied by the Borrower or by any party on behalf of the Borrower, unless such default is being contested in a manner permitted by the Credit Agreement and for which reserves or security has been provided. The Borrower hereby expressly grants to the Agent, and agrees that the Agent shall have, the absolute and immediate right to enter in and upon the Mortgaged Property or any part thereof to such extent and as often as the Agent, in its sole discretion, deems necessary or desirable in order to prevent or to cure any such default by the Borrower. So long as no Event of - 9 - 11 Default exists, the Agent shall give at least one Business Day's prior notice of any such entry, but no prior notice shall be required with respect to any entry during the continuance of an Event of Default. The Agent may pay and expend such sums of money as the Agent in its sole discretion deems necessary for any such purpose, and the Borrower hereby agrees to pay to the Agent, immediately and without demand, all such sums so paid and expended by the Agent or the Lenders, together with interest thereon at the rate of interest set forth in Section 3.1 of the Credit Agreement. All sums so paid and expended by the Agent or the Lenders, together with interest thereon, shall be added to and be secured by the lien of this Mortgage. (f) The IDB agrees that: (i) the Agent's lien upon or security interest in the Personal Property owned by the Borrower is prior and superior to any interest, lien or claim of any nature the IDB may now have or hereafter obtain in such Personal Property whether by operation of law, contract or otherwise; (ii) either the Borrower or the Agent may remove such Personal Property from the Land at any time without hindrance on the part of the IDB, and, upon request, the IDB will grant the Agent (or its representatives) access to the Land so that the Agent (or its representatives) may remove such Personal Property; and (iii) such Personal Property shall remain personal property (to the extent such Personal Property is not already a fixture as of the date hereof) and shall not become fixtures, notwithstanding the manner or mode of the attachment of the Personal Property to the Land. The IDB hereby waives any rights it may now or hereafter have in such Personal Property, including without limitation, any lien rights available under applicable law. Agent will repair, at its expense, any material damage to the Mortgaged Property resulting from Agent's removal of such Personal Property. ARTICLE III EMINENT DOMAIN Section 3.1 Eminent Domain. The Borrower assigns to the Agent any proceeds or awards which may become due by reason of any condemnation or other taking for public use of the whole or any part of the Mortgaged Property or any rights appurtenant thereto to which the Borrower is entitled, and such proceeds or awards shall be applied in the same manner the insurance proceeds are applied pursuant to Section 7.6 of the Credit Agreement. The Borrower agrees to execute such further assignments and agreements as may be reasonably required by the Agent to assure the effectiveness of this Section. In the event any Governmental Authority shall require or commence any proceedings for the demolition of any buildings or structures comprising a part of the Mortgaged Property, or shall commence any proceedings to condemn or otherwise take pursuant to the power of eminent domain a material portion of the Mortgaged Property, the Borrower shall promptly notify the Agent of such requirement or commencement of proceeding (for demolition, condemnation or other taking). - 10 - 12 ARTICLE IV DEFAULTS AND REMEDIES Section 4.1 Events of Default. An Event of Default, as defined in the Credit Agreement, shall constitute an Event of Default hereunder, as shall failure of the Borrower to comply with any term, covenant or condition of the IDB Lease, if such failure is not cured within the grace period provided for in the IDB Lease, if any. Section 4.2 Remedies. Upon the occurrence of an Event of Default, all of the Obligations shall, at the option of the Agent, be accelerated and become immediately due and payable without notice or declaration to the Borrower. The Obligations shall be due and payable without presentment, demand or further notice of any kind. The Agent shall have the right to proceed to protect and enforce its rights by one or more of the following remedies: (A) Bring a court action at law or in equity to foreclose this Mortgage or to enforce its provisions or any of the obligations secured by this Mortgage, either or both, concurrently or otherwise, and one action or suit shall not abate or be a bar to or waiver of the Agent's right to institute or maintain the other, provided that the Agent shall have only one payment and satisfaction of the Obligations; (B) Cause any or all of the Mortgaged Property to be sold under the power of sale granted hereby in any manner permitted by applicable law; (c) Take physical possession of the Mortgaged Property; (d) Exercise its right to collect the Rents; (e) Enter into contracts for the completion, repair and maintenance of the Improvements thereon; (f) Expend Loan funds and any rents, income and profits derived from the Mortgaged Property for payment of any taxes, insurance premiums, assessments and charges for completion, repair and maintenance of the Improvements, preservation of the lien of this Mortgage and satisfaction and fulfillment of any liabilities or obligations of the Borrower arising out of or in any way connected with the construction of Improvements on the Mortgaged Property whether or not such liabilities and obligations in any way affect, or may affect, the lien of this Mortgage; (g) Enter into leases demising the Mortgaged Property or any part thereof; (h) Take such steps to protect and enforce the specific performance of any covenant, condition or agreement in the Notes, this Mortgage, the Credit Agreement, or the other Credit Documents, or to aid the execution of any power herein granted; - 11 - 13 (i) Generally, supervise, manage, and contract with reference to the Mortgaged Property as if the Agent were equitable owner of the Mortgaged Property. The Borrower also agrees that any of the foregoing rights and remedies of the Agent may be exercised at any time independently of the exercise of any other such rights and remedies, and the Agent may continue to exercise any or all such rights and remedies until the Event(s) of Default are cured or waived with the consent of the Required Lenders or the Lenders (as required by the Credit Agreement) or until foreclosure and the conveyance of the Mortgaged Property or until the Loans and Letters of Credit and other indebtedness secured hereby are otherwise satisfied or paid in full and the Commitments are terminated; (j) Sell the Mortgaged Property at public outcry to the highest bidder for cash in front of the front or main door of the court house of the county where said Mortgaged Property, or a substantial and material part thereof, if located, either in person or by auctioneer, after having first given notice of the time, place and terms of sale, together with a description of the Mortgaged Property, by publication once a week for three (3) successive weeks prior to said sale in some newspaper published in the county (or all counties, if more than one) in which the Mortgaged Property is located (but if no newspaper is published in any such county, the notice shall be published in a newspaper published in an adjoining county for three successive weeks), and upon payment of the purchase money, the Agent or any person conducting the sale for the Agent is authorized to execute to the purchaser at said sale a deed to the Mortgaged Property so purchased. Any such sale shall be held between the hours of 11:00 a.m.. and 4:00 p.m. on the day designated for the exercise of the power of sale hereunder. The Agent may bid at said sale and purchase said Mortgaged Property, or any part thereof, if the highest bidder therefor. The purchaser at any such sale shall be under no obligation to see to the proper allocation of the purchase money. At the foreclosure sale, the Mortgaged Property may be offered for sale and sold as a whole without first offering it in any other manner or may be offered for sale and sold in any other manner the Agent may elect in its sole discretion. Any such sale shall operate as a foreclosure of this Mortgage only as to the Mortgaged Property sold, and if the Obligations and all other sums secured hereby are not thereby satisfied in full, the other Mortgaged Property shall continue as security therefor and there may be a further foreclosure of this Mortgage, either by sale under power of sale or by judicial foreclosure; (k) Exercise any other right or remedy available under law or in equity or under the Credit Documents Section 4.3 Appointment of Receiver. If upon the maturity of any of the Loan or any other amounts or obligations under the Credit Documents, the same remain unpaid, or upon the occurrence and continuance of an Event of Default, the Agent as a matter of right shall be entitled to the appointment of a receiver or receivers for all or any part of the Mortgaged Property, to take possession of and to operate the Mortgaged Property, and to collect the rents, issues, profits, and income thereof, all expenses of which shall be added to the indebtedness secured hereby, whether such receivership be incident to a proposed sale (or sales) of such property or otherwise, and without regard to the value of the Mortgaged Property or the solvency of any Person or - 12 - 14 Persons liable for the payment of the indebtedness secured hereby, and the Borrower does hereby irrevocably consent to the appointment of such receiver or receivers, waives any and all defenses to such appointment, and agrees not to oppose any application therefor by Agent. Nothing herein is to be construed to deprive the Agent of any other right, remedy or privilege it may have under the law to have a receiver appointed. Any money advanced by the Agent in connection with any such receivership shall be a demand obligation (which obligation the Borrower hereby promises to pay) owing by the Borrower to the Agent pursuant to this Mortgage. Section 4.4 Proceeds. The proceeds of any sale under this Mortgage will be applied in accordance with Section 3.15(b) of the Credit Agreement. Section 4.5 The Agent's Option on Foreclosure. At the option of the Agent, this Mortgage may be foreclosed as provided by law or in equity, in which event the Agent's attorneys' fees shall, among other costs and expenses, be allowed and paid out the proceeds of the sale. In the event the Agent exercises its option to foreclose the Mortgage in equity, the Agent may, at its option, foreclose this Mortgage subject to the rights of any tenants of the Mortgaged Property, and the failure to make any such tenants parties defendants to any such foreclosure proceeding and to foreclose their rights will not be, nor be asserted by the Borrower to be a defense to any proceedings instituted by the Agent to collect the sums secured hereby, or any deficiency remaining unpaid after the foreclosure sale of the Mortgaged Property. Section 4.6 Expenses of Exercising Rights Powers and Remedies. The reasonable expenses (including any receiver's fees, attorneys' fees, appraisers' fees, environmental engineers' and/or consultant's fees, costs incurred for documentary and expert evidence, stenographers' charges, publication costs, costs (which may be estimated as to items to be expended after entry of the decree of foreclosure) of procuring all abstracts of title, continuations of abstracts of title, title searches and examinations, title insurance policies and commitments and extensions therefor, UCC and chattel lien searches, and similar data and assurances with respect to title as the Agent may deem reasonably necessary either to prosecute any foreclosure action or to evidence to bidders at any sale which may be had pursuant to any foreclosure decree the true condition of the title to or the value of the Mortgaged Property, and agent's compensation) incurred by the Agent or the Lenders after the occurrence of any Event of Default and/or in pursuing the rights, powers and remedies contained in this Mortgage shall be immediately due and payable by the Borrower, with interest thereon from the date incurred at the rate of interest set forth in Section 3.1 of the Credit Agreement, and shall be added to the indebtedness secured by this Mortgage. Section 4.7 Restoration of Position. In case the Agent shall have proceeded to enforce any right under this Mortgage by foreclosure, sale, entry or otherwise, and such proceedings shall have been discontinued or abandoned for any reason or shall have been determined adversely, then, and in every such case, the Borrower and the Agent shall be restored to their former positions and rights hereunder with respect to the Mortgaged Property subject to the lien hereof. Section 4.8 Waivers. The Borrower and the IDB waive all rights to direct the order or manner in which any of the Mortgaged Property will be sold in the event of any sale under this Mortgage, and also any right to have any of the Mortgaged Property marshalled upon any sale. - 13 - 15 The Agent may in its discretion sell all the personal and real property together or in parts, in one or more sales, and in any sequence the Agent selects. No waiver of any provision hereof shall be implied from the conduct of the parties. Any such waiver much be in writing and must be signed by the party against which such waiver is sought to be enforced. The waiver or release of any breach of the provisions set forth herein to be kept and performed shall not be a waiver or release of any preceding or subsequent breach of the same or any other provision. No receipt of partial payment after acceleration of any of the Obligations shall waive the acceleration. No payment by the Borrower or receipt by the Agent of a lesser amount than the full amount secured hereby shall be deemed to be other than on account of the sums due and payable hereunder, nor shall any endorsement or statement on any check or any letter accompanying any check or payment be deemed an accord and satisfaction, and the Agent may accept any check or payment without prejudice to the Agent's right to recover the balance of such sums or to pursue any other remedy provided in this Mortgage. The consent by the Agent to any matter or event requiring such consent shall not constitute a waiver of the necessity for such consent to any subsequent matter or event. No waiver of any Event of Default shall at any time thereafter be held to be a waiver of any rights of the Agent stated anywhere in the Credit Agreement, the Notes, this Mortgage or any of the other Credit Documents, nor shall any waiver of a prior Event of Default operate to waive any subsequent Event(s) of Default. All remedies provided in the Credit Agreement, the Notes, this Mortgage or any of the other Credit Documents are cumulative and may, at the election of the Agent, be exercised alternatively, successively, or in any manner and are in addition to any other rights provided by law. Section 4.9 The Agent's Right to Cure Defaults. If the Borrower shall fail to comply with any of the terms of the Credit Documents with respect to the procuring of insurance, the payment of taxes, assessments and other charges, the keeping of the Mortgaged Property in repair, or any other term contained herein or in any of the other Credit Documents, the Agent may make advances to perform the same without releasing the Borrower from any of the Obligations. The Borrower agrees to repay upon demand all sums so advanced and all sums expended by the Agent or the Lenders in connection with such performance, including without limitation attorneys' fees, with interest at the rate of interest set forth in Section 3.1 of the Credit Agreement from the dates such advances are made, and all sums so advanced and/or expenses incurred, with interest, shall be secured hereby, but no such advance and/or incurring of expense by the Agent or the Lenders, shall be deemed to relieve the Borrower from any default hereunder or under any of the other Loan Documents, or to release the Borrower from any of the Obligations. Section 4.10 Suits and Proceedings. The Agent shall have the power and authority, upon prior notice to the Borrower, to institute and maintain any suits and proceedings as the Agent may deem advisable to (i) prevent any impairment of the Mortgaged Property by any act which may be unlawful or by any violation of this Mortgage, (ii) preserve or protect its interest in the Mortgaged Property, or (iii) restrain the enforcement of or compliance with any legislation or other governmental enactment, rule or order that may be unconstitutional or otherwise invalid, if, in the sole opinion of the Agent, the enforcement of or compliance with such enactment, rule or order might impair the security hereunder or be prejudicial to the Agent's interest. - 14 - 16 Section 4.11 Delivery of Possession After Foreclosure. In the event there is a foreclosure sale hereunder and at the time of such sale, the Borrower or the Borrower's heirs, devises, representatives, successors or assigns are occupying or using the Mortgaged Property, or any part thereof, each and all immediately shall become the tenant of the purchaser at such sale, which tenancy shall be a tenancy from day to day, terminable at the will of either landlord or tenant, at a reasonable rental per day based upon the value of the property occupied, such rental to be due daily to the purchaser; and to the extent permitted by applicable law, the purchaser at such sale, notwithstanding any language herein apparently to the contrary, shall have the sole option to demand possession immediately following the sale or to permit the occupants to remain as tenants at will. In the event the tenant fails to surrender possession of said property upon demand, the purchaser shall be entitled to institute and maintain a summary action for possession of the property (such as an action for forcible detainer) in any court having jurisdiction. ARTICLE V MISCELLANEOUS Section 5.1 Binding Effect; Survival; Number; Gender. This Mortgage shall be binding on and inure to the benefit of the parties hereto, and their respective heirs, legal representatives, successors and assigns. All agreements, representations and warranties contained herein or otherwise heretofore made by the IDB or the Borrower to the Agent shall survive the execution, delivery and foreclosure hereof. The singular of all terms used herein shall include the plural, the plural shall include the singular, and the use of any gender herein shall include all other genders, where the context so requires or permits. Section 5.2 Severability. The unenforceability or invalidity of any provision of this Mortgage as to any person or circumstance shall not render that provision unenforceable or invalid as to any other person or circumstance. Section 5.3 Notices. Any notice or other communication to any party in connection with this Mortgage shall be in writing and shall be sent by manual delivery, telegram, telex, facsimile transmission, overnight courier or United States mail (postage prepaid) addressed to such party at the address specified below, or at such other address as such party shall have specified to the other party hereto in writing. All periods of notice shall be measured from the date of delivery thereof if manually delivered, from the date of sending thereof if sent by telegram, telex or facsimile transmission, from the first Business Day after the date of sending if sent by overnight courier, or from three Business Days after the date of mailing if mailed. Notices shall be given to or made upon the respective parties hereto at their respective addresses set forth below: If to the Borrower: Simcala, Inc. Ohio Ferro Alloys Road Mt. Meigs, Alabama 36057 Attention: Chief Financial Officer Telecopy No. (334)215-7560 - 15 - 17 If to the IDB: The Industrial Development Board of The City of Montgomery P.O. Box 79 Montgomery, Alabama 36101 If to the Agent: NationsBank, N.A. 101 North Tryon Street, Floor 15 Charlotte, NC 28255 Attn: Agency Services Telecopy No. (704) 388-3916 Either party may change its address for notices by a notice given not less than five (5) Business Days prior to the effective date of the change. Section 5.4 Applicable Law. This Mortgage shall be governed by and construed in accordance with the internal law of the State of North Carolina as provided in Section 11.10 of the Credit Agreement; provided, however, that the provisions of this Mortgage relating to the creation, perfection and enforcement of the lien and security interest created by this Mortgage in respect of the Mortgaged Property and the exercise of each remedy provided hereby, including the power of foreclosure or power of sale procedures set forth in this Mortgage, shall be governed by and construed in accordance with the internal law of the state where the Mortgaged Property is located. In the event of a conflict between the laws of the State of North Carolina and the internal law of the state in which the Mortgaged Property is located with respect to creation, perfection and enforcement of the lien and security interest created by this Mortgage, the laws of the state in which the Mortgaged Property is located shall govern. Section 5.5 Effect. This Mortgage is in addition and not in substitution for any other guarantees, covenants, obligations or other rights now or hereafter held by the Agent from any other person or entity in connection with the Obligations. Section 5.6 Assignability. The Agent shall have the right to assign this Mortgage, in whole or in part, or sell participation interests herein, to any person obtaining an interest in the Obligations. Section 5.7 Headings. Headings of the Sections of this Mortgage are inserted for convenience only and shall not be deemed to constitute a part hereof. Section 5.8 Fixture Filing. This instrument shall be deemed to be a Fixture Filing within the meaning of the Alabama Uniform Commercial Codes, and for such purpose, the following information is given: - 16 - 18 (A) Name and address of Debtors: Simcala, Inc. Ohio Ferro Alloys Road Mt Meigs, Alabama 36057 Attention: Chief Financial Officer Federal Tax I.D. No.: 34-0438210 The Industrial Development Board of The City of Montgomery P. 0. Box 79 Montgomery, Alabama 36101 Federal Tax I.D. No.: 63-6083264 (B) Name and address of NationsBank, N.A. Secured Party: 101 North Tryon Street, 15th Floor Charlotte, NC 28255 (C) Description of the types (or items) of property covered by this Fixture Filing: See granting clause on pages 2 and 3 hereof. (D) Description of real estate to which the collateral is attached or upon which it is or will be located: See Exhibit A hereto. Some of the above-described collateral is or is to become Fixtures upon the above described real estate, and shall be deemed part of said real estate and this Fixture Filing is to be filed for record and indexed in the public real estate records. IDB is the record owner of said real estate. Section 5.9 The IDB. It is expressly understood and agreed that the IDB's liability hereunder is limited solely to its interest in the Mortgaged Property and the revenues and receipts derived from the leasing of the Mortgage Property under the IDB Lease (except for Unassigned Rights as therein defined) or under any other Leases or Subleases of all or any part or parts of the Mortgaged Property. No agreement, covenant or representation herein contained shall ever constitute or give rise to any pecuniary liability or charge, including environmental obligations, against the general credit of the IDB or against the servants, agents or employees of the IDB. Further, none of the directors, officers, employees or agents of the IDB shall have any personal liability hereunder whatsoever for the breach by the IDB of any of the representations, covenants or agreements on its part herein contained. Section 5.10 Remedies Cumulative. All remedies contained in this Mortgage are cumulative and not exclusive, and the Agent shall also have all other remedies provided by law or equity or in any other agreement between the Borrower and the Agent. No delay or failure by the Agent to exercise any right or remedy under this Mortgage will be construed to be a waiver of that right or remedy or of a default or Event of Default by the Borrower or the IDB. The Agent - 17 - 19 may exercise any one or more of its rights and remedies at its option without regard to the adequacy of its security, and all of the Agent's rights and remedies with respect to all collateral shall be cumulative and may be exercised concurrently by the Agent. Section 5.11 Releases and Waivers. The Borrower and the IDB agree that no release by the Agent of any of the Borrower's or the IDB's successors in title from liability on the Obligations, no release by the Agent of any portion of the Mortgaged Property, the Rents or the Fixtures or Personal Property, no subordination of lien, no forbearance on the part of the Agent or the Lenders to collect on the Obligations, or any part thereof, no waiver of any right granted or remedy available to the Agent or the Lenders and no action taken or not taken by the Agent or the Lenders shall in any way diminish the Borrower's or the IDB's obligations to the Agent or the Lenders or have the effect of releasing the Borrower or the IDB, or any successor, from full responsibility to the Agent or the Lenders for the complete discharge of each and every of the Borrower's or the IDB's obligations hereunder or the Borrower's obligations pursuant to any Credit Document. [The remainder of this page is intentionally left blank.] - 18 - 20 IN WITNESS HEREOF, the Borrower and the IDB have executed this Mortgage as of the date first written above. SIMCALA, INC. By: /s/ C. Edward Boardwine ---------------------------- Name: C. Edward Boardwine Title: President THE STATE OF ALABAMA ) ) ss. MONTGOMERY COUNTY ) I, Linda L. Kelley, a Notary Public in and for said County, in said State, hereby certify that C. Edward Boardwine whose name as President of SIMCALA, INC., a Delaware corporation, is signed to the foregoing Mortgage and who is known to me, acknowledged before me on this day that, being informed of the contents of the Mortgage, he, as such officer and with full authority, executed the same voluntarily for and as the act of said corporation. Given under my hand this the 26th day of March, 1998. /s/ ----------------------------------- Notary Public 21 THE INDUSTRIAL DEVELOPMENT BOARD OF THE CITY OF MONTGOMERY By: /s/ ---------------------------- Name: R.E. Thornton, Jr. Title: Chairman THE STATE OF ALABAMA ) )ss MONTGOMERY COUNTY ) I, Samantha Anne Wood, a Notary in and for said County, in said State, hereby certify that R.E. Thornton, Jr., whose name as Chairman of THE INDUSTRIAL DEVELOPMENT BOARD OF THE CITY OF MONTGOMERY is signed to the foregoing Mortgage and who is known to me, acknowledged before me on this day, that being informed of the contents of said Mortgage, he, as such officer, and with full authority, executed the same voluntarily for and as the act of said corporation, acting in its capacity as Chairman as aforesaid. Given under my hand this the 27th day of March, 1998 /s/ ----------------------------------- Notary Public 22 EXHIBIT A Legal Description (Granting Clause A) PARCEL 1: Begin at the Southeast Corner of Section 5, T-16-N, R-20-E, Montgomery County, Alabama; thence run along the South Line of said Section 5, S 87(0) 05' 57" W, 1818.81 feet to a point; thence run N 01(0) 53" 50" W, 1623.33 feet to an iron pin; thence run N 03(0) 50' 08" E, 1038.55 feet to a concrete monument lying on the North Line of the Southeast Quarter of said Section; thence run N 87(0) 34' 04" E, 1990.78 feet to a point at the Northeast Corner of the Southeast Quarter of said Section 5; thence run along the East Line of said Section, S 04(0) 03' 41" W, 2657.77 feet to the point of beginning. Said described property lying and being situated in the Southeast Quarter of Section 5, T-16-N, R-20-E, Montgomery County, Alabama. PARCEL 2: Begin at the Northeast Corner of the Southeast Quarter of Section, 5, T-16-N, R-20-E, Montgomery County, Alabama; thence run along the North Line of the Southeast Quarter of said Section, S 87(0) 34; 04" W, 1990.78 feet to a concrete monument; thence continue, S 87(0) 34' 04" W, 663.34 feet to a concrete monument lying at the Northwest Corner of the Southeast Quarter of said Section 5; thence run N 04(0) 03' 41" E, 90.10 feet to a point lying on the South right of way of CSX Railroad (100' ROW); thence run along said South right of way, N 87(0) 00' 00" E, 2657.34 feet to a point lying on the East Line of said Section 5; thence run along said East Line, S 04(0) 03' 41" W, 117.34 feet to the point of beginning. Said described property lying and being situated in the Northeast Quarter of Section 5, T-16-N, R-20-E, Montgomery County, Alabama. PARCEL 3: Begin at a concrete monument at the Northwest Corner of the Southeast Quarter of Section 5, T-16-N, R-20-E, Montgomery County, Alabama; thence run S 87(0) 33' 07" W, 661.96 feet to an iron pin; thence run S 87(0) 33' 21" W, 671.78 feet to an iron pin; thence run N 04(0) 03' 41" E 76.74 feet to a point lying on the South right of way of CSX Railroad; thence run along said South right of way, N 87(0) 00' 00" E, 1335.32 feet to a point; thence run S 04(0) 03' 41" W, 90.10 feet to the point of beginning. Said described parcel lying and being situated in the Northwest Quarter of Section 5, T-16-N, R-20-E, Montgomery County, Alabama. 23 TOGETHER WITH all of the Borrower's right, title and interest in and to the lease agreement between the Borrower and the Department of Youth Services, dated January 3, 1986, as amended by letter agreements dated August 7, 1995 and September 14, 1995(as amended, the "Slurry Pond Lease") and the easements, rights, interests and privileges granted to the Borrower under the provisions of the Slurry Pond Lease. EX-10.7 18 CONSOLIDATED, AMENDED & RESTATED LEASE AGREEMENT 1 EXHIBIT 10.7 ================================================================================ CONSOLIDATED, AMENDED AND RESTATED LEASE AGREEMENT between THE INDUSTRIAL DEVELOPMENT BOARD OF THE CITY OF MONTGOMERY and SIMCALA, INC. ----------------------------------- Dated as of January 1, 1995 ================================================================================ THIS INSTRUMENT CONSOLIDATES AND AMENDS THREE LEASES, ALL BETWEEN THE INDUSTRIAL DEVELOPMENT BOARD OF THE CITY OF MONTGOMERY AS LESSOR AND SIMETCO, INC. (FORMERLY KNOWN AS OHIO FERRO-ALLOYS CORPORATION) AS LESSEE, DATED AS OF JUNE 1, 1975, AND RECORDED IN THE OFFICE OF THE JUDGE OF PROBATE OF MONTGOMERY COUNTY, ALABAMA, IN RLPY BOOK 271 AT PAGE 715 (AS AMENDED BY INSTRUMENT SO RECORDED IN RLPY BOOK 720 AT PAGE 90), IN RLPY BOOK 271 AT PAGE 860, AND IN RLPY BOOK 272 AT PAGE 4, RESPECTIVELY. ALL THREE AFORESAID LEASES HAVE BEEN ASSIGNED BY SIMETCO, INC. TO SIMCALA, INC. PURSUANT TO AN ASSIGNMENT AND ASSUMPTION OF LEASES DATED AS OF JANUARY 1, 1995 AND RECORDED IN SAID PROBATE OFFICE IN RLPY BOOK 1542 AT PAGE 848. 2 CONSOLIDATED, AMENDED AND RESTATED LEASE AGREEMENT BETWEEN THE INDUSTRIAL DEVELOPMENT BOARD OF THE CITY OF MONTGOMERY AND SIMCALA, INC. INDEX -----
Page ---- ARTICLE I DEFINITIONS Section 1.1 Definitions ................................................................... 2 Section 1.2 Interpretation ................................................................ 7 Section 1.3 Captions and Headings.......................................................... 8 ARTICLE II REPRESENTATIONS AND COVENANTS Section 2.1 Representations and Findings by the IDB........................................ 9 Section 2.2 Representations and Covenants by the Lessee - General.......................... 9 ARTICLE III LEASE PROVISIONS Section 3.1 Demising Provision; Assignment of Redemption Rights ........................... 12 Section 3.2 Exercise of Renewal Option; Lease Term; Possession and Quiet Enjoyment ............................................................... 12 Section 3.3 Rentals ....................................................................... 13 Section 3.4 Obligations of Lessee Unconditional ........................................... 13 Section 3.5 Sublease or Grant of Use by Lessee ............................................ 14 Section 3.6 Execution and Delivery of Mortgages, SIDA Documents ........................... 15 Section 3.7 Restrictions on Mortgage or Sale of Project ................................... 15 Section 3.8 Option to Terminate Lease Agreement and Purchase Project ...................... 15 Section 3.9 Conveyance on Exercise of Option to Purchase................................... 16 Section 3.10 Use of Party Walls ............................................................ 16 ARTICLE IV PROVISIONS RESPECTING THE PROJECT Section 4.1 1995 Project................................................................... 18 Section 4.2 Construction Fund; Disbursements; Pledge ...................................... 18 Section 4.3 No Warranty of Suitability by IDB ............................................. 19
3 Section 4.4 IDB to Pursue Remedies Against Contractors, Subcontractors Suppliers and Sureties ........................................................ 19 Section 4.5 Completion of the 1995 Project ................................................ 20 Section 4.6 Maintenance, Additions and Improvements ....................................... 20 Section 4.7 Taxes, Other Governmental Charges and Utility Charges ......................... 21 Section 4.8 Insurance ..................................................................... 22 Section 4.9 Advances by IDB................................................................ 23 Section 4.10 Damage or Destruction ......................................................... 23 Section 4.11 Condemnation .................................................................. 24 Section 4.12 Removal and Disposition of Equipment .......................................... 25 Section 4.13 Cooperation with the County ................................................... 25 ARTICLE V ADDITIONAL AGREEMENTS AND COVENANTS Section 5.1 General Covenants ............................................................. 26 Section 5.2 Inspection of Project ......................................................... 26 Section 5.3 Indemnification ............................................................... 26 Section 5.4 Covenants Under Other Lessee Documents ........................................ 27 ARTICLE VI EVENTS OF DEFAULT AND REMEDIES Section 6.1 Events of Default ............................................................. 28 Section 6.2 Remedies on Default ........................................................... 28 Section 6.3 No Remedy Exclusive ........................................................... 29 Section 6.4 Agreement to Pay Attorneys' Fees and Expenses ................................. 29 Section 6.5 No Additional Waiver Implied by One Waiver .................................... 30 ARTICLE VII MISCELLANEOUS Section 7.1 Prior Agreements Cancelled .................................................... 31 Section 7.2 IDB's Liabilities Limited ..................................................... 31 Section 7.3 Execution Counterparts ........................................................ 31 Section 7.4 Binding Effect; Assignability ................................................. 31 Section 7.5 Amendments .................................................................... 32 Section 7.6 Severability .................................................................. 32 Section 7.7 Notices ....................................................................... 32 Section 7.8 Governing Law ................................................................. 32 Section 7.9 References to Mortgagees....................................................... 32 SIGNATURES ...................................................................................... 33 ACKNOWLEDGMENTS ................................................................................. 34 EXHIBIT A - Description of Realty
-3- 4 STATE OF ALABAMA ) : MONTGOMERY COUNTY ) THIS CONSOLIDATED, AMENDED AND RESTATED LEASE AGREEMENT made and entered into as of January 1, 1995 (as the same may hereafter be further amended or supplemented, this "Lease Agreement"), between THE INDUSTRIAL DEVELOPMENT BOARD OF THE CITY OF MONTGOMERY (the "IDB"), a public corporation organized under the laws of the State of Alabama (the "State"), and SIMCALA, INC., a Delaware corporation (the "Lessee"), their respective successors and assigns, under the circumstances summarized in the following Recitals (with capitalized terms used but not defined therein having the meanings given to them in Article I hereof): A. The IDB has been heretofore organized under and is authorized by the Act to acquire, enlarge, improve, replace, own, lease and dispose of properties to the end that the IDB may be able to promote industry, develop trade and further the use of the agricultural products and natural and human resources of the State and the development and preservation of said resources. B. Pursuant to and in furtherance of the public purposes expressed in the Act, the IDB has heretofore issued its $1,000,000 Industrial Development First Mortgage Revenue Bonds (Ohio Ferro-Alloys Corporation Project) Series A, its $5,000,000 Pollution Control First Mortgage Revenue Bonds (Ohio Ferro-Alloys Corporation Project) Series A and its $14,000,000 Subordinated Industrial Development Revenue Bond (Ohio Ferro-Alloys Corporation Project) Series A (collectively, the "Prior Bonds"), and applied the proceeds thereof to acquire, construct and equip certain "projects" within the meaning of the Act (collectively, the "Existing Project") which the IDB leased to SiMETCO, Inc., formerly known as Ohio Ferro-Alloys Corporation ("SiMETCO"), pursuant to three separate Leases referenced on the cover page hereof (collectively, the "Original Leases"). C. SiMETCO and Lessee have heretofore entered into an Agreement of Purchase and Sale of Assets dated as of September 14, 1994 (the "SiMETCO Agreement") whereby SiMETCO agreed to transfer, sell, assign, deliver and convey to Lessee, and Lessee agreed to purchase and acquire from SiMETCO, the assets therein described. Such assets include without limitation SiMETCO's rights and incidents of interest in and to the Leased Premises under and as defined in each of the Original Leases and consisting of (i) the Leased Real Property, as defined and described in each of the Original Leases, and (ii) the Existing Project. The closing of the SiMETCO Agreement and the consummation of the transactions contemplated therein have been reviewed and approved by the United States Bankruptcy Court for the Northern District of Ohio in the SiMETCO, Inc., Case No. 93-61772. D. The transfer of the property described in the second sentence of the preceding Recital has simultaneously herewith been accomplished pursuant to the 5 Assignment and Assumption of Leases referenced on the cover page hereof (the "Lease Assignment"), among the IDB, SiMETCO and the Lessee. In consideration therefor, the Lessee has, among other things, simultaneously herewith caused the Prior Bonds (which have heretofore been in default) to be paid in full and the indentures pursuant to which the same were issued, to be discharged. E. Lessee has proposed to acquire, construct and equip an expansion to the Existing Project (the "l995 Project") and to pay costs of the 1995 Project from proceeds of the SIDA Bonds, part of the proceeds of which have also been used to pay part of the consideration for acquiring the Existing Project. F. SIDA has adopted the Preliminary Resolution and entered into the Preliminary Agreement with the Lessee in respect of the Project, all pursuant to the SIDA Act. G. Lessee is desirous of consolidating the three Original Leases, because of the virtual identity of the provisions thereof and the interrelatedness of the premises demised thereby, amending the provisions thereof, in order to accommodate the issuance of the SIDA Bonds and the undertaking of the 1995 Project, and by virtue of such consolidation and amendment, restating the three Original Leases in this Lease Agreement, as a document which can facilitate the expansion and continuing operation of the Project, in fulfillment of the purposes of the Act. The IDB, in consideration of the retirement by the Lessee of the Prior Bonds and of the Lessee's commitment to the continuing operation of the Existing Project and to the undertaking of the 1995 Project, has consented to and joined in the Lease Assignment, will execute and deliver the IDB Documents and will cooperate with the Lessee in obtaining such other economic development incentives, including without limitation a Site Prep Grant, the CDBG Loan, enterprise zone benefits, linked-deposit loans and the like (collectively, the "Incentives"), as may be available to the Lessee from the State, the County, the City and their respective various agencies or departments. W I T N E S S E T H: In consideration of the mutual covenants and agreements hereinafter contained, the parties to this Lease Agreement hereby formally covenant, agree and bind themselves as follows: ARTICLE I DEFINITIONS Section 1.1 Definitions. In addition to the words and terms elsewhere defined in this Lease Agreement (including in the Recitals hereto) or by reference to another document, unless the context or use clearly indicates another or different meaning or intent: -2- 6 "Act" means Article 4, Chapter 54, Title 11 of the Code of Alabama of 1975, as amended. "ADECA" means the Alabama Department of Economic and Community Affairs, its successors and assigns. "Affiliate" means a Person that directly, or indirectly, through one or more intermediaries, controls or is controlled by, or is under common control with, the Lessee. "Basic Rent" means that portion of the Rentals payable hereunder in the amounts and at the times sufficient to pay Debt Service. "Building" means, collectively, all structures and improvements now existing or hereafter expanded, constructed, reconstructed or made on the Realty, as they may at any time exist. "CDBG" means the Community Development Block Grant in the amount of $520,000 to be made by ADECA to the County, $500,000 of the proceeds of which are to be applied by the County to make the CDBG Loan. "CDBG Documents" means all documents evidencing or securing the CDBG Loan, including without limitation the CDBG Grant Agreement, the CDBG Loan Commitment Agreement, the CDBG Note and the CDBG Security Agreement. "CDBG Grant Agreement" means the Agreement to be entered into between ADECA and the County relating to the CDBG and the CDBG Loan. "CDBG Loan" means the ten-year Economic Development Fund loan in the principal amount of $500,000 to be made by the County to the IDB with moneys furnished to the County by ADECA pursuant to the CDBG Grant Agreement, the proceeds of which are to be applied by the IDB to pay or reimburse costs of acquiring and installing assets comprising part of the 1995 Project. "CDBG Loan Commitment Agreement" means the Loan Commitment Agreement dated the date of closing of the CDBG Loan among the Lessee, the County, the IDB and ADECA. "CDBG Note means the Promissory Note from the IDB to the County, and assigned by the County to ADECA, in the principal amount of $500,000 dated the date of closing of the CDBG Loan and evidencing the CDBG Loan. "CDBG Security Agreement" means the Security Agreement dated the date of closing of the CDBG Loan from the IDB, joined in by the Lessee, to the County and assigned by the County to ADECA, pursuant to which a security interest is granted in -3- 7 those assets comprising part of the 1995 Project, costs of which have been paid or reimbursed with proceeds of the CDBG Loan. "City" means the City of Montgomery, Alabama. "County" means Montgomery County, Alabama. "Debt Service" means, for any period or payable at any time, the aggregate principal, interest and other charges (if any) due on the outstanding Notes for that period or payable at that time, including for purposes of this Lease Agreement the Purchase Price (as defined in the Loan Agreement) that may become due from time to time in respect of the SIDA Bonds. "Equipment" means any items of equipment, fixtures and tangible personal property located in or on the Building or the Realty and any item of equipment, fixtures or tangible personal property acquired in substitution therefor or as a renewal or replacement thereof pursuant to the provisions hereof and of the Mortgages. "Event of Default' means an Event of Default specified and defined in Section 6.1 hereof. "First Mortgage" means the Real Estate Mortgage, Assignment of Lease and Security Agreement of even date herewith, as the same may hereafter be amended or supplemented, from the Lessee and the IDB to the guarantor of Lessee's reimbursement obligations to the bank issuing a letter of credit securing the SIDA Bonds. "Governmental Authority" means the United States, any state or political subdivision thereof and any court, agency, department, commission, board, bureau or instrumentality of any of the foregoing. "IDB Documents" means, individually or collectively, as the context may require, each or all of the Loan Agreement, the Notes to which the IDB is a party, the Mortgages, this Lease Agreement, those of the CDBG Documents to which the IDB is a party and such other documents or instruments as the IDB may enter into in order to consummate the transactions contemplated hereby and thereby. "IDB Resolution" means the resolution adopted by the Board of Directors of the IDB on January 23, 1995 authorizing the execution and delivery of the IDB Documents and the IDB's cooperation in obtaining the Incentives. "Indenture" means the Trust Indenture of even date herewith between the SIDA and the Trustee, as the same may hereafter be amended or supplemented. -4- 8 "Independent Counsel" means an attorney or firm of attorneys duly admitted to practice law in the State and not in the full-time employment of either the IDB or the Lessee. "Interest Rate for Advances" means the rate per annum which is one percent in excess of that rate announced from time to time by the Trustee as its "prime" or "base" rate. "Issue Date" means the date of initial authentication and delivery of the SIDA Bonds. "Loan Agreement" means the Loan Agreement of even date herewith between the SIDA as lender and the Lessee and the IDB as borrowers, as the same may hereafter be amended or supplemented. "Lease Term" means the duration of the leasehold estate created in the Original Leases, as hereby renewed, all as more fully described in Section 3.2 hereof. "Lessee Documents" means, individually or collectively, as the context may require, each or all of this Lease Agreement, the Loan Agreement, the Notes to which the Lessee is a party, the Mortgages, the Bond Purchase Agreement and the Reimbursement Agreement (both as defined in the Loan Agreement), those of the CDBG Documents to which the Lessee is a party and such other documents or instruments as the Lessee may enter into in order to consummate the transactions contemplated hereby and thereby. "Mortgages" means any instrument conveying a mortgage on and/or security interest in the Project or any part thereof or any rents, income and profits therefrom in order to secure one or more Notes. As used herein, "Mortgages" would include the First Mortgage, the Subordinated Mortgages and the CDBG Security Agreement. "Necessary Authorizations" means, with respect to any given action or effect, all authorizations, consents, approvals, permits, licenses and exemptions of, filings and registrations with, and reports to, all Governmental Authorities which are necessary or required to accomplish such action or achieve such effect. "Net Proceeds," when. used with respect to any insurance or condemnation award, means the gross proceeds from the insurance or condemnation award with respect to which that term is used remaining after payment of all reasonable expenses (including reasonable attorneys' fees) incurred in the collection of such gross proceeds. "Notes" means any and all bonds, promissory notes or other evidences of indebtedness incurred by the Lessee and/or by another Person on the Lessees behalf, the proceeds of which borrowing are used in whole or in part to pay or reimburse Project Costs or costs or expenses relating to the Project. As used herein, "Notes" would include -5- 9 the SIDA Bonds (and the SIDA Note related thereto, which together represent but one indebtedness), the CDBG Note and any bonds hereafter issued by the IDB. "Person" includes natural persons, firms, associations, partnerships, trusts, corporations, limited liability companies, and public bodies. "Preliminary Agreement" means the Preliminary Agreement dated September 12, 1994 between SIDA and the Lessee. "Preliminary Resolution" means the resolution adopted by SIDA on September 12, 1994, as amended by a further resolution adopted December 8, 1994, preliminarily approving the Project and the issuance of the SIDA Bonds. "Project" means, collectively, the Existing Project and the 1995 Project, together consisting of the Realty, the Building and the Equipment, to be leased to the Lessee pursuant hereto for use as silicon metal manufacturing facilities, as such Realty, Building and Equipment may at any time exist. "Project Costs" means costs of acquiring, preserving, constructing, modifying, expanding, equipping and financing the Project, including any fees and charges in connection therewith and any architectural and engineering costs incidental to, and any interest during the construction phase of, the 1995 Project. "Project Supervisor" means any employee or agent of the Lessee hereafter authorized in writing, by the President or any Vice President of the Lessee, to act in connection with matters pertaining to the Project pursuant to the provisions hereof. "Realty" means the Leased Real Property (as defined and described in each of the Original Leases) and any additional real property and interests therein subjected to the demise of this Lease Agreement, all as described in Exhibit A hereto, and together constituting the site of the Building. "Rentals" means the amounts required to be paid by the Lessee pursuant to Section 3.3 hereof. "SIDA" means the State Industrial Development Authority, a public corporation of the State organized pursuant to and existing under the provisions of Articles 2 and 2A, Chapter 10, Title 41 of the Code of Alabama of 1975, as amended. "SIDA Act" means Act No. 93-851 enacted at the 1993 First Special Session of the Alabama Legislature, as amended. "SIDA Bonds" means the $6,000,000 Taxable Industrial Revenue Bonds (SIMCALA, Inc. Project) Series 1995 of SIDA issued and delivered under the Indenture. -6- 10 "SIDA Note" means the promissory note of the Lessee and the IDB, dated the Issue Date, in the form attached as Exhibit B to the Loan Agreement and in principal amount equal to the aggregate principal amount of the SIDA Bonds. "Site Prep Grant" means a grant from SIDA for the grading, drainage and other preparation of a site. "Subordinated Mortgages" means three separate subordinated Real Estate Mortgages, Assignments of Lease and Security Agreements from the Lessee and the IDB to subordinated creditors of the Lessee. "Trustee" means the institution serving as such under the Indenture, initially, First Alabama Bank, Montgomery, Alabama. "Unassigned Rights" means all of the rights of the IDB to receive payments or reimbursement pursuant to Section 3.3(b) and (c) hereof, to be held harmless and indemnified pursuant to Section 5.3 hereof, to be reimbursed for attorney's fees and expenses pursuant to Section 6.4 hereof, to receive notices hereunder and to give or withhold consent to amendments, supplements, modifications or termination of this Lease Agreement. Section 1.2 Interpretation. Any reference herein to the IDB or to any member of the Board of Directors or officer thereof includes servants, agents or employees or entities or officials succeeding to their respective functions, duties or responsibilities pursuant to or by operation of law or lawfully performing their functions. Any reference to a section or provision of the Constitution of the State or the Act, or to a section, provision or chapter of the Code of Alabama of 1975, or to any statute of the United States of America, includes that section, provision or chapter as amended, modified, revised, supplemented or superseded from time to time; provided, however, that no amendment, modification, revision, supplement or superseding section, provision or chapter shall be applicable solely by reason of this provision, if it constitutes in any way an impairment of the rights or obligations of the IDB, SIDA or the Lessee under this Lease Agreement, the Notes, the Mortgages or any other instrument or document entered into in connection with any of the foregoing, including without limitation, any alteration of the obligation to pay Debt Service in the amount and manner, at the times, and from the sources provided therein. Unless the context indicates otherwise, words importing the singular number include the plural number, and vice versa; the terms "hereof", "hereby", "herein", "hereto", "hereunder" and similar terms refer to this Lease Agreement; and the term "hereafter" means after, and the term "heretofore" means before, the effective date of this Lease Agreement. Words of any gender include the correlative words of the other genders, unless the sense indicates otherwise. -7- 11 Section 1.3 Captions and Headings. The captions and headings in this Lease Agreement are solely for convenience of reference and in no way define, limit or describe the scope or intent of any Articles, Sections, subsections, paragraphs, subparagraphs or clauses hereof. [END OF ARTICLE I] -8- 12 ARTICLE 11 REPRESENTATIONS AND COVENANTS Section 2.1 Representations and Findings by the IDS. The IDB makes the following representations and findings as the basis for the undertakings on its part herein contained: (a) The IDB finds and determines that (i) the Existing Project constituted and continues to constitute, and the 1995 Project will constitute, a "project", within the meaning of the Act; (ii) the Project has been and will continue to be consistent with and in furtherance of the purposes of the Act in promoting the development of trade and furthering the use of natural and human resources of the State and the development and preservation of said resources; and (iii) the utilization of the Project has benefited and will continue to benefit the people of the City, the County and the State by preserving and creating jobs and employment opportunities, thereby promoting the economic welfare of the City, the County and the State. (b) The IDB is duly incorporated under the provisions of the Act. Under the provisions of the Act, the IDB had the power to undertake the Existing Project and to enter into the Original Leases and has the power to enter into the IDB Documents and to carry out its obligations thereunder. The IDB is not in default under any of the provisions contained in its Certificate of Incorporation or By-Laws or of the laws of the State. The IDB by proper corporate action has duly authorized the execution, delivery and performance of the IDB Documents. (c) The Project has been and will continue to be located within 25 miles of the corporate limits of the City and therefore within the jurisdiction of the IDB. (d) The execution, delivery and performance by the IDB of the IDB Documents are within the IDB's corporate powers, and each such document, when executed and delivered, will constitute a legal, valid and binding obligation of the IDB enforceable against the IDB in accordance with its terms, except as enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally and by the application of general principles of equity. Section 2.2 Representations and Covenants by the Lessee - General. The Lessee represents and covenants that: (a) It is a corporation duly organized and validly existing under the laws of the State of Delaware and qualified to transact business under the laws of the State. -9- 13 (b) The execution, delivery and performance by the Lessee of the Lessee Documents and the carrying out of the transactions contemplated thereby are within the Lessee's powers as a corporation, have been duly authorized by all necessary action on the part of the shareholders and members of the Board of Directors of Lessee, and do not violate any provision of law, any order of any court or other governmental agency, the Articles of Incorporation or By-laws of the Lessee, or any indenture, agreement or other instrument to which the Lessee or any Affiliate is a party or by which the Lessee or any Affiliate or any of its or their properties or assets is bound, or conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under, any such indenture, agreement or other instrument, or result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the properties or assets of the Lessee or any Affiliate (other than the liens of the Mortgages). (c) The Lessee intends to continue to operate the Project as silicon metal manufacturing facilities throughout the Lease Term and knows of no reason why the Project will not be so operated. If, in the future, there is a cessation of that operation, it. will use its reasonable efforts to resume that operation or accomplish an alternate use by the Lessee or others which will be consistent with the Act and the SIDA Act. (d) To the best of its knowledge, the Lessee has obtained and will use its reasonable efforts to maintain all Necessary Authorizations for the acquisition of the Existing Project and the acquisition, construction and equipping of the 1995 Project, and has obtained or will obtain and will use its reasonable efforts to maintain all Necessary Authorizations for the operation of the Project and for the due execution, delivery and performance by the Lessee of each of the Lessee Documents. In particular, all building permits required for the construction or renovation of the Building have been or will when and as necessary be obtained and, once obtained, will be maintained in full force and effect, and all utility services (including water supply, storm and sanitary sewerage, electric and telephone facilities) necessary for the construction or renovation and operation of the Building for the intended purposes are or will be available. (e) Each of the Lessee Documents, when executed and delivered, will constitute a legal, valid and binding obligation of the Lessee enforceable against the Lessee in accordance with its terms, except as enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally and by the application of general principles of equity. (f) There is no pending or, to the best of its knowledge, threatened action, investigation or proceeding before any court, governmental agency or arbitrator against or affecting the Lessee or any Affiliate (i) in any way contesting -10- 14 or affecting the validity of the Original Leases, the Lease Assignment, this Lease Agreement or any of the other Lessee Documents, or (ii) in any way contesting the existence or powers of the Lessee as a corporation. [END OF ARTICLE II] -11- 15 ARTICLE III LEASE PROVISIONS Section 3.1 Demising Provision: Assignment of Redemption Rights. (a) The IDB has heretofore demised and leased to the Lessee, as assignee of SiMETCO, the Existing Project and that portion of the Realty on which the same is situated, being described as Parcel 1 of Exhibit A hereto; and the IDB does hereby demise and lease to the Lessee, and the Lessee leases from the IDB, that portion of the Realty acquired in connection with the 1995 Project, being described as Parcels 2 and 3 of Exhibit A hereto, together with the additions and improvements to the Existing Project which constitute part of the 1995 Project; all in accordance with the provisions of this Lease Agreement and upon and subject to the terms, conditions and provisions of this Lease Agreement, to each of which the IDB and the Lessee and each of them do hereby separately and severally covenant and agree. (b) The IDB hereby conveys and assigns to the Lessee, subject to the Mortgages, the IDB's equity of redemption in respect of the Project, entitling the Lessee to redeem the Project from impending foreclosure under any one or more of the Mortgages. The IDB furthermore assigns to the Lessee, without reservation, the IDB's statutory right of redemption under Section 6-5-248 of the Code of Alabama of 1975, as amended. Additionally, the IDB will, upon request of the Lessee, transfer and assign the IDB's statutory right of redemption to the Lessee for the sum of $1.00 at any time after foreclosure of any mortgage on the Project. The foregoing assignments are made in further consideration of the Lessee's agreement to acquire the Existing Project and to acquire, construct and equip the 1995 Project on behalf of the IDB and to use and operate the same in furtherance of the public purposes of the Act. Section 3.2 Exercise of Renewal Option; Lease Term; Possession and Quiet Enjoyment. Section 12.3 of each of the Original Leases grants to the Lessee, as assignee of SiMETCO, the option to renew the terms of the Original Leases provided (i) such options exercised in writing not fewer than 90 days prior to June 1, 1995 and (ii) Lessee is not in default under the Original Leases at the time such options are exercised. Having cured any previous defaults under the Original Leases by virtue of the retirement of the Prior Bonds, the Lessee, by its execution hereof, hereby exercises its options to renew the term of each of the Original Leases (as hereby consolidated) for the Renewal Term as defined and specified therein. The IDB, by its execution and delivery hereof, acknowledges that the foregoing constitutes due and proper notice of the exercise by Lessee of its options to renew under the Original Leases. By reason of the exercise of such options, the Lease Term shall, subject to the provisions of this Lease Agreement permitting earlier termination, continue until midnight on June 1, 2010. -12- 16 So long as the Lessee performs and observes all the covenants and agreements on its part herein contained, it shall peaceably and quietly have, hold and enjoy the Project during the Lease Term subject to all the terms and provisions hereof. Section 3.3 Rentals. (a) In consideration of the lease of the Project, the Lessee does hereby covenant and agree to pay Basic Rent, directly to the Persons who or which hold the Notes or to any fiduciary for such Person or Persons, in such respective amounts and at such respective times as shall be sufficient and timely to pay all Debt Service as the same shall be or become due and payable, whether at maturity, upon acceleration or otherwise. All such payments of Basic Rent, albeit not to the IDB, shall be and constitute adequate consideration to the IDB for the leasing of the Project to the Lessee, inasmuch as the Notes shall finance the payment of the costs of acquiring, preserving, constructing, expanding, equipping and financing the Project, accomplishment of which is the paramount objective and public purpose of the IDB. The Lessee recognizes and acknowledges that it is the intention of the parties hereto that this Lease Agreement be a net lease. (b) In further consideration of the lease of the Project, and in accordance with Section 3.1 of each of the Original Leases, the Lessee shall pay to the IDB, as additional Rentals hereunder, the amount of $2,000 per year, being the sum of the rents specified in the three Original Leases during the Renewal Term (as therein defined), payable annually in advance on each June 1 of the Lease Term, commencing on June 1, 1995 and ending (subject to earlier termination of the Lease Term) on June 1, 2009. (c) In further consideration of the lease of the Project, the Lessee covenants and agrees to pay as additional Rentals hereunder any and all costs and expenses incurred or to be paid by the IDB related to actions taken by the IDB under this Lease Agreement, including any advances made pursuant to Section 4.6 hereof, provided that the Lessee may, without creating a default hereunder, contest in good faith the reasonableness of any such fees, charges or expenses. Following the payment or incurring of any such costs, expenses or liability, such additional Rentals are payable upon written demand therefor, and if not paid upon such demand shall bear interest from the date paid or incurred at the Interest Rate for Advances. Section 3.4 Obligations of Lessee Unconditional. The obligation of the Lessee to pay the Rentals, to make all other payments provided for herein and to perform and observe the other agreements and covenants on its part herein contained shall be absolute and unconditional, irrespective of any rights of setoff, recoupment or counterclaim it might otherwise have against the IDB or any other Person. The Lessee will not suspend or -13- 17 discontinue any such payment or fail to perform and observe any of its other agreements and covenants contained herein or terminate this Lease Agreement for any cause whatsoever, including, without limiting the generality of the foregoing, any acts or circumstances that may constitute an eviction or constructive eviction, failure of consideration or commercial frustration of purpose, any damage to or destruction of the Project, the invalidity of any provision of this Lease Agreement, the taking by eminent domain of title to or the right to temporary use of all or any of the Project, any change in the tax or other laws of the United States of America, the State or any political subdivision of either thereof, or any failure of the IDB to perform and observe any agreement or covenant, whether express or implied, or any duty, liability or obligation arising out of or connected with this Lease Agreement. Notwithstanding the foregoing, the Lessee may, at its own cost and expense and in its own name or in the name of the IDB, prosecute or defend any action or proceeding, or take any other action involving third persons which the Lessee deems reasonably necessary, in order to secure or protect its rights of use and occupancy and its other rights hereunder. Nothing contained herein shall be construed to be a waiver of any rights which the Lessee may have against the IDB under this Lease Agreement or under any provision of law. Section 3.5 Sublease or Grant of Use by Lessee. The Lessee may, without the necessity of the IDB's consent, assign this Lease Agreement or sublease or grant the right to occupy and use the Project, in whole or in part, to others, provided: (a) No such assignment, grant or sublease shall relieve the Lessee from primary liability for any of its obligations under this Lease Agreement; (b) In connection with any such assignment, grant or sublease the Lessee shall retain such rights and interests as will permit it to comply with its obligations under this Lease Agreement; (c) No such assignment, grant or sublease shall permit any use other than one consistent with the intended use of the Project or the purposes of the Act and (so long as the SIDA Bonds are outstanding) the SIDA Act; and (d) All such assignments, subleases or grants of use as may be entered into shall be subject to the terms and conditions of this Lease Agreement and the Mortgages, including, without limitation, the provisions with respect to the maintenance and operation of the Project. The IDB hereby agrees, if requested by the Lessee, to join in the execution and delivery of each and every assignment, sublease or grant of use made pursuant to the provisions of this Section 3.5, but solely for the purposes of indicating its consent thereto and approval thereof, provided, however, that any such assignment, sublease or grant of use entered into pursuant to this Section will be effective even if the IDB refuses to execute it. -14- 18 Section 3.6 Execution and Delivery of Mortgages, SIDA Documents. (a) In furtherance of the public purposes that will be accomplished by the establishment and operation by the Lessee of the Project and in consideration thereof, the IDB hereby agrees that it shall, whenever requested by the Lessee, execute and deliver any one or more of the Mortgages, pursuant to which it is anticipated that the IDB will assign all its right, title and interest (except for Unassigned Rights) in and to and pledge Basic Rent payable under this Lease Agreement and join in conveying a mortgage on and security interest in the Project or any part thereof to each mortgagee under a Mortgage as security for payment of the amount of Debt Service due to such mortgagee or (if such mortgagee serves in a fiduciary capacity) to its beneficiaries. Each such mortgagee shall have all rights and remedies herein accorded to the IDB (except for Unassigned Rights) and any reference herein to the IDB shall be deemed, with the necessary changes in detail, to include each such mortgagee, and each such mortgagee is deemed to be a third party beneficiary of the covenants and agreements of the Lessee herein contained. (b) The parties acknowledge that the transaction involving the SIDA Bonds is structured as a loan of the proceeds of sale thereof by SIDA to the Lessee and the IDB, repayment of which is evidenced by the Loan Agreement and the SIDA Note. Any liability of the IDB under the Loan Agreement and the SIDA Note shall be limited solely to the revenues and receipts derived from the leasing of the Project hereunder. Section 3.7 Restrictions on Mortgage or Sale of Project. Except for the Mortgages, the IDB will not mortgage, sell, assign, transfer or convey the Project during the Lease Term without the prior written consent of the Lessee. If the laws of the State at the time shall permit it, nothing contained in this Section shall prevent the consolidation of the IDB with, or merger of the IDB into, or transfer of the Project as an entirety to, the City, the County or any public corporation whose property and income are not subject to State taxation and which has corporate authority to carry on the business of owning and leasing the Project; provided, that upon any such consolidation, merger, or transfer, the due and punctual performance and observance of all the agreements and conditions of this Lease Agreement to be kept and performed by the IDB shall be expressly assumed in writing by the corporation resulting from such consolidation or surviving such merger or to which the Project shall be transferred as an entirety. Section 3.8 Option to Terminate Lease Agreement and Purchase Project. (a) Prior to the expiration of the Lease Term, and notwithstanding any provision herein to the contrary, the Lessee shall have the option to terminate this Lease Agreement and purchase the Project from the IDB upon: -15- 19 (i) written notice to the IDB of the exercise of such option, to be given at least 30 days in advance of the date specified by the Lessee for conveyance of the Project; (ii) payment of a purchase price for the Project of Two Thousand Dollars ($2,000.00), being the sum of the purchase prices specified in Section 12.4 of each of the Original Leases, together with payment of any amounts due under Section 3.3(c) hereof, and (iii) if any of the Notes consist of bonds issued by the IDB, payment or redemption in whole of all such bonds in accordance with their terms. When the foregoing conditions shall have been met, the IDB will promptly convey the Project to the Lessee (or, if applicable, to any nominee of the Lessee designated in writing to the IDB) in accordance with Section 3.9 hereof. (b) In the event said option shall not have been exercised prior to the end of the Lease Term, it shall be deemed exercised on and as of the last day of the Lease Term, whereupon the IDB and the Lessee shall proceed to closing. (c) The IDB finds and determines that the price payable upon exercise of the option to purchase granted hereby, together with the amounts of Basic Rent to be paid to retire the long-term debt incurred to finance the Project and the other Rentals payable hereunder, constitutes fair market value for the property for purposes of State law, including without limitation within the interpretation of Act No. 91-635, Legislature of Alabama, and any predecessor statute thereto. Section 3.9 Conveyance on Exercise of Option to Purchase. At the closing of the purchase pursuant to the exercise of the option to purchase granted herein, the IDB will upon receipt of the purchase price deliver to the Lessee or its nominee a statutory warranty deed and such other documents as may be necessary to convey to the Lessee or its nominee the Realty together with all improvements thereon, as such property then exists, subject only to the following: (a) those liens and encumbrances, if any, to which title to said property was subject when conveyed to the IDB; (b) those liens and encumbrances created by the Lessee or to the creation or suffering of which the Lessee consented, including without limitation any of the Mortgages to the extent then still in effect; and (c) those liens and encumbrances resulting from the failure of the Lessee to perform or observe any of the agreements on its part contained in this Lease Agreement. Section 3.10 Use of Party Walls. If the Lessee owns, acquires or leases other real property adjacent to the Realty, all walls presently standing or hereafter erected on or contiguous to the boundary line of such other property shall be party walls; and each party hereto grants the other a ten-foot easement adjacent to any such party wall for the purpose of inspection, maintenance, repair and replacement thereof and the tying-in of new -16- 20 construction. If the Lessee utilizes any party wall for the purpose of tying in new construction that will be utilized under common control with the Project, Lessee may also tie in the utility facilities on the Realty for the purpose of serving the new construction and may remove any non-loadbearing wall panels in the party wall; provided, however, that if the property so owned, acquired or leased by the Lessee ceases to be operated under common control with the Project, Lessee covenants that it will install non-loadbearing wall panels similar in quality to those that have been removed and will provide separate utility services for the new construction. The foregoing provisions shall also be required to be observed by any third party in the event such third party acquires, as Lessee's designee, any portion of the Realty. [END OF ARTICLE III] -17- 21 ARTICLE IV PROVISIONS RESPECTING THE PROJECT Section 4.1 1995 Project. (a) Section 6.1 of each of the Original Leases permits "additions, modifications and improvements" to be made to the Existing Project. The IDB and Lessee agree that the 1995 Project (and any and all future additions, modifications and improvements permitted under the provisions of Section 4.6 hereof and of the Mortgages) constitutes such an addition, modification and improvement to the Existing Project and that the IDB will undertake the 1995 Project in accordance with the provisions hereof and of the Act. (b) The IDB hereby authorizes the Lessee, in the name and on behalf of the IDB, to commence the planning, design, acquisition, construction, improvement and equipping of the 1995 Project. The Lessee hereby accepts such authorization and covenants that it shall, pursuant to such authorization, complete the acquisition, construction and equipping of the 1995 Project as promptly as is practicable. Notwithstanding the foregoing, it remains the intention of the parties to this Lease Agreement that the IDB purchase all building materials and supplies and Equipment to be acquired as part of the 1995 Project and that title to such building materials and supplies and Equipment will pass from the respective supplier or vendor thereof directly to the IDB. The IDB will enter into, or accept the assignment of, such contracts as the Lessee may request in order to effectuate the purposes of this Section -- but it will not execute any contract or give any order for such construction or for the purchase of materials, supplies or equipment unless and until the Lessee shall have approved the same in writing. (c) The IDB has agreed to cooperate with the Lessee in applying for and obtaining any Incentives for which the Lessee and the Project may be eligible. The IDB hereby reaffirms such commitment and in particular agrees to apply for a Site Prep Grant from SIDA in accordance with Article 2, Chapter 10, Title 41 of the Code of Alabama of 1975, as amended. All proceeds of the Site Prep Grant and of the CDBG Loan for the 1995 Project (if and when received) shall be deposited in the Construction Fund and shall be applied to pay or to reimburse the Lessee for paying such Project Costs of the 1995 Project as the Lessee shall requisition in accordance with the provisions hereof and of the Indenture. Section 4.2 Construction Fund: Disbursements; Pledge. There is hereby created and established with the Trustee a trust fund (the "Construction Fund") in the name of the IDB to be designated "The Industrial Development Board of the City of Montgomery - SIMCALA Construction Fund". In accordance with the Indenture, the proceeds of the sale of the SIDA Bonds shall be deposited by the Trustee, on behalf of SIDA, in the Construction Fund. -18- 22 The moneys in the Construction Fund shall be paid out by the Trustee from time to time solely for the purposes of (a) reimbursing to the Company all funds advanced to pay Project Costs subsequent to the date of the Preliminary Agreement and (b) paying the Project Costs. The provisions of Section 405 of the Indenture shall govern the manner of requisitioning and disbursing moneys in the Construction Fund. Until expended, the IDB hereby pledges and assigns to the Trustee all moneys and investments in the Construction Fund as security for the payment of the Loan Payments due under and as defined in the Loan Agreement and the SIDA Note; and such moneys shall be held and invested by the Trustee, at the direction of the Lessee, all as provided in the Indenture. Section 4.3 No Warranty of Suitability by IDB. The Lessee recognizes that since the plans and specifications for constructing and equipping the 1995 Project have been prepared to its order, and that since the Equipment intended to constitute part of the 1995 Project has been and is to be selected by it, the IDB can make no warranty, either express or implied, or offer any assurances, that the 1995 Project or said Equipment is or will be suitable for the Lessee's purposes or needs, or that the proceeds derived from the sale of the SIDA Bonds will be sufficient to pay in full all of the Project Costs related thereto. Section 4.4 IDB to Pursue Remedies Against Contractors, Subcontractors, Suppliers and Sureties. In the event of default of any contractor, subcontractor or supplier under any contract made by it in connection with the Project, the IDB at the request of the Lessee will promptly proceed (at the Lessee's sole cost and expense), either separately or in conjunction with others, to exhaust the remedies of the IDB against the contractor, subcontractor or supplier so in default and against his surety, if any, for the performance of such contract. The IDB will advise the Lessee of the steps it intends to take in connection with any such default. If the Lessee shall so notify the IDB, the Lessee may, in its own name or in the name of the IDB, prosecute or defend any action or proceeding or take any other action involving any such contractor, subcontractor, supplier or surety which the Lessee deems reasonably necessary, and in such event the IDB will cooperate fully with the Lessee and will take all action necessary to effect the substitution of the Lessee for the IDB in any such action or proceeding. Any amounts recovered by way of damages, refunds, adjustments or otherwise in connection with the foregoing prior to the completion of the 1995 Project shall, after payment of all costs and expenses including reasonable attorney's fees incurred in connection with the foregoing, be paid into the Construction Fund. Upon completion of the 1995 Project or at any time prior thereto upon the request of the Lessee, the IDB will assign to the Lessee all warranties and guaranties of all contractors, subcontractors, suppliers, architects and engineers for the furnishing of labor, materials or equipment or for supervision or design in connection with the 1995 Project and any rights or causes of action against any of the foregoing. -19- 23 Section 4.5 Completion of the 1995 Project. If moneys in the Construction Fund shall be insufficient to pay fully all sums required to complete the 1995 Project, the Lessee shall be obligated to complete the acquisition, construction and equipping of the 1995 Project at its own expense. The Lessee shall pay any such deficiency either by making payments directly to the contractor or contractors or the suppliers of materials and equipment or by paying into the Construction Fund the moneys necessary to complete the 1995 Project, in which case the IDB will proceed to complete the Project and the cost thereof will be paid from the Construction Fund. The Lessee shall save the IDB whole and harmless from any obligation to pay any amount in excess of the moneys available therefor in the Construction Fund. The Lessee shall not by reason of the payment of such excess costs from its own funds (whether by direct payment thereof or payment into the Construction Fund) be entitled to any diminution in the payment of Rentals hereunder. Section 4.6 Maintenance, Additions and Improvements. (a) The Lessee will, at its own expense, (1) keep the Project in as reasonably safe condition as its operations permit, and (2) keep the Project in good order and repair, and from time to time make all needful and proper repairs, renewals and replacements thereto, including external and structural repairs, renewals and replacements. In lieu of making such repairs, renewals and replacements directly, the Lessee may, if it so desires, furnish to the IDB the funds necessary therefor, in which case the 1013 will proceed to make such repairs, renewals and replacements. (b) The Lessee may, also at its own expense, make any additions, modifications and improvements to the Project that it may deem desirable for its business purposes, provided that such additions, modifications and improvements do not in the opinion of Independent Counsel change the character of the Project to such an extent that it ceases to be a "project" under the Act or (so long as the SIDA Bonds shall be outstanding) under the SIDA Act. In lieu of making such additions, improvements or alterations directly, the Lessee may, if it so desires, furnish to the IDB the funds necessary therefor, in which case the IDB will proceed to make such additions, improvements or alterations. (c) All such additions, modifications and improvements as are made by the Lessee shall become a part of the Project and shall be subject to the demise of this Lease Agreement and (except as limited in the CDBG Security Agreement) the liens of the Mortgages; provided, however, that any personal property used at or in connection with the Project by the Lessee which was not acquired with proceeds of a Note and is not a replacement or renewal of Equipment constituting a part of the Project may, subject to the provisions of the Mortgages, be removed by the Lessee at any time and from time to time while it is not in default under the terms of this Lease Agreement; and provided further, that any damage to the Project occasioned by such removal shall be repaired by the Lessee at its own expense. -20- 24 The same provisions will apply with respect to personal property of a sublessee or other user of the Project pursuant to Section 3.5 hereof. (d) The Lessee will not permit any mechanic's or other liens to stand against the Project for labor or material furnished in connection with the original acquisition, construction or equipping of the Project or any additions, modifications, improvements or repairs to the Project so made by it. The Lessee may, however, in good faith contest any such mechanic's or other liens and in such event may permit any such liens to remain unsatisfied and undischarged during the period of such contest and any appeal therefrom unless by such action the Project or any part thereof shall be subject to loss or forfeiture, in which event such mechanics or other liens shall be promptly satisfied or bonded for. (e) The Lessee may, also at its own expense, connect or "tie-in" walls and utility and other facilities located on the Realty to other facilities on real property adjacent to the Realty or partly on such adjacent real property and partly on the Realty, but only if the Lessee certifies to the IDB and the mortgagees under the Mortgages that such connection and "tie-in" of walls and facilities will not unreasonably interfere with the operation of the Project. (f) The IDB will, upon request of the Lessee, grant such utility, right-of-way and other similar easements over, across or under the Realty as shall be necessary or convenient for the furnishing of utility, transportation and other similar services to real property adjacent to or near the Realty, provided that such easements shall not adversely affect the operations of any facilities forming a part of the Project. Section 4.7 Taxes, Other Governmental Charges and Utility Charges. (a) The IDB and the Lessee acknowledge that (i) under the law in existence as of the Issue Date, by reason of the entry by the IDB and Lessee's assignor into the Original Leases prior to May 21, 1992 (the effective date of Act No. 92-599, Legislature of Alabama), and by reason of the renewal provisions contained in the Original Leases, no part of the Project owned by the IDB will be subject, throughout the Lease Term, to ad valorem taxation by the State or by any political or taxing subdivision thereof; (ii) under the law in existence as of the Issue Date, the income and profits (if any) of the IDB from the Project are not subject to either federal or State taxation; and (iii) these factors, among others, induced the Lessee to enter into this Lease Agreement. In the event such exemptions are terminated or deemed inapplicable to the Project or any part thereof, the Lessee may at its option terminate this Lease Agreement and may purchase the Project in accordance with the terms hereof. However, the Lessee will pay, as the same respectively become due, all taxes and governmental charges of any kind whatsoever that may at any time be lawfully assessed or levied against or with respect to the Project or any machinery, equipment or other property installed or -21- 25 brought by the Lessee onto the Realty (including, without limiting the generality of the foregoing, (i) any taxes levied on or with respect to the income or profits of the IDB from the Project which, if not paid, will become a lien on the Project or a charge on the revenues and receipts from the Project prior to or on a parity with the lien of any of the Mortgages thereon and (ii) any ad valorem taxes levied or assessed upon Lessee's interest in the Project), and all assessments and charges lawfully made by any governmental body for public improvements that may be secured by a lien on the Project; provided, however, that with respect to special assessments or other governmental charges that may lawfully be paid in installments over a period of years, the Lessee shall be obligated to pay only such installments as are required to be paid during the Lease Term. (b) The Lessee agrees to pay all gas, electric, light and power, water, sewer and all other charges for the operation, maintenance, use and upkeep of the Project. (c) The Lessee may, subject to the provisions of the Mortgages, at its own expense and in its own name and behalf or in the name and behalf of the IDB, in good faith contest any such taxes, assessments and other charges and, in the event of any such contest, may permit the taxes, assessments or other charges so contested to remain unpaid during the period of such contest and any appeal therefrom, unless by such action the title of the IDB to any part of the Project shall be materially endangered or the Project or any part-thereof shall become subject to loss or forfeiture, in which event such taxes, assessments or charges shall be paid forthwith by the Lessee. The IDB will cooperate fully with the Lessee in any such contest. Section 4.8 Insurance. (a) The Lessee will cause the Project to be insured and at all times keep the Project insured against loss and/or damage to the Project by fire and other perils (including vandalism and malicious mischief) customarily covered by the extended coverage clause of fire insurance policies in an amount equal to the full replacement cost of the Project. The Lessee will pay all premiums on such insurance. All such policies shall be for the benefit of the Lessee and the mortgagees under the Mortgages, as their respective interests may appear. Any such insurance policy or policies may, at the Lessee's option, contain a deductible clause in a commercially reasonable amount. All such insurance policies shall be taken out and maintained with generally recognized, responsible insurance companies, each of which shall be qualified and authorized to assume the respective risks undertaken. (b) The Lessee shall also take out and at all times maintain and pay the premium on policies of general liability insurance with generally recognized, responsible insurance companies, each of which shall be qualified to assume the -22- 26 risks undertaken, for the benefit of the IDB and the Lessee, as their interests may appear. Such general public liability insurance shall insure against liability for injuries to persons and property or death or accidental injuries arising out of the occupancy, use or operation of the Project, in the minimum amount of $2,000,000 combined single limit coverage, and also in such amount with respect to any vehicle used in connection with the Project. All such insurance shall be provided during the entire Lease Term. Notwithstanding the foregoing, during the construction phase of the 1995 Project such insurance as may be applicable to the 1995 Project may be provided by way of builders' risk insurance which shall be for the benefit of the parties specified above, as their respective interests may appear. Each policy shall provide that the policy may not be cancelled or expire without 30 days' prior written notice of such cancellation or expiration by the insurer to the Lessee and, as applicable, to the IDB and each of the mortgagees under the Mortgages. Such insurance may also be provided under a blanket insurance policy or policies. Section 4.9 Advances by IDB. In the event that the Lessee fails to take out or maintain the full insurance coverage required by this Lease Agreement, fails to pay the taxes and other charges required to be paid by the Lessee at the times they are required to be paid, or fails to keep the Project in as reasonably safe condition as its operating conditions permit and in good order and repair, the IDB, after first notifying the Lessee of any such failure on its part, may (but shall not be obligated to) take out the required policies of insurance and pay the premiums on the same, pay such taxes or other charges, or make such repairs, renewals and replacements as may be necessary to maintain the Project in as reasonably safe condition as the Lessee's operations permit and in good order and repair, respectively; and all amounts so advanced therefor by the IDB shall become an additional obligation of the Lessee to the IDB, which amounts, together with interest thereon at the Interest Rate for Advances, the Lessee agrees to pay. Any remedy herein vested in the IDB for the collection of the Rentals shall also be available to the IDB for the collection of all such amounts so advanced. Section 4.10 Damage or Destruction. If prior to full payment of the Notes the Project is destroyed (in whole or in part) or is damaged by fire or other casualty, the Lessee shall be obligated to continue to pay Rentals, to perform its other obligations and covenants hereunder and to repair, rebuild or restore the property damaged or destroyed to substantially the same condition as existed prior to the event causing such damage or destruction, with such changes, alterations and modifications (including the substitution and addition of other property) as may be desired by the Lessee and as will not, in the opinion of Independent Counsel, change the character of the Project to such an extent that it ceases to be a "project" under the Act or (so long as the SIDA Bonds shall be outstanding) the SIDA Act. The Lessee may apply for such purpose so much as may be necessary of any Net Proceeds of insurance resulting from claims for such losses. In the event said Net -23- 27 Proceeds are not sufficient to pay in full the costs of such repair, rebuilding or restoration, the Lessee will nonetheless complete the work thereof and will pay that portion of the costs thereof in excess of the amount of said proceeds. The Lessee shall not, by reason of the payment of such excess costs, be entitled to any reimbursement from the IDB or any abatement or diminution of the Rentals payable hereunder. Any balance of insurance proceeds remaining after payment of all the costs of such repair, rebuilding or restoration shall be paid to the Lessee. Notwithstanding the foregoing, if the Lessee shall determine that such repair, restoration or rebuilding is not, in whole or in part, economically viable, then the Lessee may elect to prepay one or more of the Notes in accordance with their terms, in which case the Net Proceeds (or such portion thereof as is allocable to the portion of the Project not being repaired, restored or rebuilt) shall be applied to such prepayment; provided, however, that if the SIDA Bonds shall at the time bear interest at a Yearly Fixed Rate or the Permanent Fixed Rate (both as therein defined), then such prepayment may occur only if the preconditions set forth therein for extraordinary optional redemption thereof shall have been met. The IDB shall cooperate fully with the Lessee in the handling of any prospective or pending insurance claim with respect to the Project or any part thereof. In no event will the IDB voluntarily settle, or consent to the settlement of, any prospective or pending insurance claim with respect to the Project or any part thereof without the written consent of the Lessee, in its sole discretion. Section 4.11 Condemnation. In the event that title to, or the temporary use of, the Project or any part thereof or interest therein shall be taken under the exercise of the power of eminent domain by any Governmental Authority or by any Person acting under governmental authorization, the Lessee shall be obligated to continue to pay Rentals and to perform its other obligations and covenants hereunder. If the Lessee so elects, the IDB and the Lessee will cause the Net Proceeds received by them or by any of the mortgagees under the Mortgages from any award made in such eminent domain proceedings to be applied, as shall be directed in writing by the Lessee within 120 days from entry of a final order in such eminent domain proceedings, to: (a) the restoration of the remaining improvements located on the Realty to substantially the same condition as existed prior to the exercise of the power of eminent domain, and/or (b) the acquisition, by construction or otherwise, of other lands or improvements suitable for the Lessee's operations at the Project (which land or improvements shall be deemed a part of the Project and available for use and occupancy by the Lessee without the payment of any rent other than herein provided for, to the same extent as if such land or other improvements were specifically described herein and demised hereby). -24- 28 In the event that the Lessee elects either of the foregoing options and the Net Proceeds are not sufficient to pay in full the costs of such restoration or acquisition, the Lessee will nonetheless pay that portion of the costs thereof in excess of the amount of the proceeds. The Lessee shall not, by reason of the payment of such excess costs, be entitled to any reimbursement from the IDB or any abatement or diminution of the Rentals payable hereunder. Notwithstanding the foregoing, if the Lessee shall determine that such restoration or acquisition is not, in whole or in part, economically viable, then the Lessee may elect to prepay one or more of the Notes in accordance with their terms, in which case the Net Proceeds (or such portion thereof as is allocable to the portion of the Project not being restored) shall be applied to such prepayment; provided, however, that if the SIDA Bonds shall at the time bear interest at a Yearly Fixed Rate or the Permanent Fixed Rate (both as therein defined), then such prepayment may occur only if the preconditions set forth therein for extraordinary optional redemption thereof shall have been met. Any balance of Net Proceeds of an award in such eminent domain proceedings remaining after the application thereof as hereinabove provided shall be paid to the Lessee. The IDB shall cooperate fully with the Lessee in the handling and conduct of any prospective or pending condemnation proceeding with respect to the Project or any part thereof and will, to the extent it may lawfully do so, permit the Lessee to litigate in any such proceeding in the name and behalf of the IDB, through counsel of Lessee's own choice; provided, however, if the IDB is legally required to participate through its own counsel in any such defense, the Lessee shall be responsible for the reasonable fees and charges of such counsel. In no event will the IDB voluntarily settle, or consent to the settlement of, any prospective or pending condemnation proceeding with respect to the Project or any part thereof without the written consent of the Lessee, in its sole discretion. Section 4.12 Removal and Disposition of Equipment. Subject to the provisions of the Mortgages, the Lessee may, if no Event of Default shall have occurred and be continuing, remove or sever any item of the Equipment from the Project and use such item in its other operations or sell or otherwise dispose of such item in any way the Lessee may see fit, free of the demise of this Lease Agreement and without the Lessee having any responsibility or accountability to the IDB therefor. Section 4.13 Cooperation with the County. The IDB and the Lessee covenant to give reasonable cooperation to the County in the performance of the County's obligations under the CDBG Grant Agreement relative to the CDBG Loan; provided the foregoing shall not obligate the Lessee to furnish proprietary or confidential information or otherwise adversely affect trade secrets, processes or contractual relationships. [END OF ARTICLE IV] -25- 29 ARTICLE V ADDITIONAL AGREEMENTS AND COVENANTS Section 5.1 General Covenants. The Lessee will not do or permit anything to be done on or about the Project that will affect, impair or contravene any policies of insurance that may be carried on the Project or any part thereof against loss or damage by fire, casualty or otherwise. The Lessee will, in the use of the Project and the public ways abutting the same, comply with all lawful requirements of all governmental bodies; provided, however, the Lessee may, at its own expense in good faith contest the validity or applicability of any such requirement. Section 5.2 Inspection of Project. The Lessee will permit the IDB and its duly authorized agents at reasonable times during normal business hours and on reasonable advance notice to enter upon, examine and inspect the Project and, provided the same shall not unduly infringe on professional or trade secrets, privileges or processes of the Lessee, to have access to, inspect, examine and make copies of the books and records, accounts and data of the Lessee pertaining to the Project. Section 5.3 Indemnification. The Lessee releases the IDB from, agrees that the IDB shall not be liable for, and indemnifies the IDB against, all liabilities, claims, costs and expenses (including reasonable attorneys' fees) sustained or incurred in the absence of negligence or willful misconduct on the part of the IDB and arising out of or in connection with: (a) any loss or damage to property or injury to or death of or loss by any person that may be occasioned by any cause whatsoever pertaining to the maintenance, operation and use of the Project; (b) any breach or default on the part of the Lessee in the performance of any covenant or agreement of the Lessee under any of the Lessee Documents, or arising from any act or failure to act by the Lessee or any of its agents, contractors, servants, employees or licensees; (c) any action taken in connection with obtaining any of the Incentives; and (d) any claim, action or proceeding brought with respect to the matters set forth in (a), (b) or (c) above. The indemnification set forth above is intended to and shall include the indemnification of all affected officials, directors, officers and servants, agents and employees of the IDB. That indemnification is intended to and shall be enforceable by the IDB to the full extent permitted by law. In case any action or proceeding is brought against the IDB in respect of which indemnity may be sought hereunder, the party seeking indemnity shall promptly give notice of that action or proceeding to the Lessee, and thereafter shall forward to the Lessee a copy of every summons, complaint, pleading, motion or other process received with respect to such action or proceeding. The Lessee upon receipt of that notice shall have the obligation and the right to assume at its expense the defense of the action or proceeding; provided that failure or untimeliness of a party to give that notice shall not relieve the Lessee from any of its obligations under this Section unless that failure or -26- 30 untimeliness materially prejudices the defense of the action or proceeding by the Lessee. At its own expense, an indemnified party may employ separate counsel and participate in the defense. No indemnified party shall take any actions, including an admission of liability, which would bar the Lessee from enforcing any applicable coverage under policies of insurance held by the Lessee or would prejudice any defense of Lessee in any appropriate legal proceedings pertaining to any such matter or otherwise prevent Lessee from defending itself with respect to any such matter. The Lessee shall not be liable for any settlement without its consent, unless it shall have failed after due notice to participate in such proceedings. Section 5.4 Covenants Under Other Lessee Documents. The Lessee shall observe and perform all covenants and agreements to be observed or performed by the Lessee under the other Lessee Documents. [END OF ARTICLE V] -27- 31 ARTICLE VI EVENTS OF DEFAULT AND REMEDIES Section 6.1 Events of Default. Each of the following shall be an Event of Default under this Lease Agreement: (a) Failure by the Lessee to make when due any payment of Rentals that has become due and payable by the terms of this Lease Agreement and continuation of the same for a period of five days after notice thereof from the IDB or the holder of any Note to the Lessee. (b) Failure by the Lessee to observe and perform any other covenant, condition or agreement on its part to be observed or performed hereunder and continuation of such failure for a period of 30 days after written notice, specifying such failure and requesting that it be remedied, shall have been given to the Lessee by the IDB or the mortgagee under the First Mortgage, unless the IDB and said mortgagee shall agree in writing to an extension of such time prior to its expiration; provided, however, if the failure stated in the notice can be corrected but not within the applicable period, it shall not constitute an Event of Default if corrective action is instituted by the Lessee within the applicable period and diligently pursued until the failure is corrected. (c) Any representation or warranty made by the Lessee herein or any statement in any report, certificate, financial statement or other instrument furnished in connection with this Lease Agreement shall at any time prove to have been false or misleading in any material respect when made or given. (d) The filing of a petition in bankruptcy (or other commencement of a bankruptcy or similar proceeding) by or against the Lessee, as debtor, under any applicable bankruptcy, reorganization, insolvency or other similar law now or hereafter in effect; provided, however, that if any such petition or proceeding is filed, such filing shall not constitute an Event of Default hereunder unless such petition shall remain undismissed for a period of 120 days after filing; provided further, however, that the occurrence of an Event of Default under this subsection and the exercise of remedies upon any such occurrence shall be subject to any applicable limitations of federal or state law affecting or precluding such occurrence or exercise during the pendency of or immediately following any liquidation or reorganization proceedings. Section 6.2 Remedies on Default. Whenever any such Event of Default shall have happened and be continuing, the mortgagee under the First Mortgage, as assignee of the IDB, or the IDB (but only as to Unassigned Rights), may: -28- 32 (a) Declare all installments of Basic Rent allocable to the Notes and payable under this Lease Agreement for the remainder of the Lease Term to be immediately due and payable; (b) Re-enter and take possession of the Project, without terminating this Lease Agreement, exclude the Lessee from possession thereof and sublease the Project or any part thereof, for the account of the Lessee, holding the Lessee liable for the difference in the rent and other amounts payable by such sublessee in such subleasing and the Rentals and other amounts payable by the Lessee hereunder; (c) Terminate this Lease Agreement, exclude the Lessee from possession of the Project and lease the same for the account of the IDB, holding the Lessee liable for all Rentals due up to the date such lease is made for the account of the IDB; (d) Take whatever action at law or in equity may appear necessary or desirable to collect the Rentals then due, whether by declaration or otherwise, or to enforce any obligation, covenant or agreement of the Lessee under this Lease Agreement or by law. The IDB may, without consent of the mortgagee under the First Mortgage, waive any Event of Default hereunder with respect to Unassigned Rights, and said mortgagee may, without the written consent of the IDB, waive any Event of Default hereunder with respect to Unassigned Rights. Section 6.3 No Remedy Exclusive. No remedy herein conferred upon or reserved to the IDB or the mortgagee under the First Mortgage is intended to be exclusive of any other available remedy or remedies, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given under this Lease Agreement or now or hereafter existing at law or in equity or by statute. No delay or omission to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to be a waiver thereof but any such right or power may be exercised from time to time and as often as may be deemed expedient. Section 6.4 Agreement to Pay Attorneys' Fees and Expenses. In the event the Lessee should default under any of the provisions of this Lease Agreement and the IDB or the mortgagee under the First Mortgage (in its own name or in the name and on behalf of the IDB) should employ attorneys or incur other expenses for the collection of Rentals or the enforcement of performance or observance of any obligation or agreement on the part of the Lessee herein contained, the Lessee will on demand therefor pay to the IDB and/or said mortgagee the reasonable fees of such attorneys and such other expenses so incurred; and such amounts shall bear interest at the Interest Rate for Advances from the date of demand to the date of payment. -29- 33 Section 6.5 No Additional Waiver Implied by One Waiver. In the event any agreement contained in this Lease Agreement should be breached by either party and thereafter waived by the other party, such waiver shall be limited to the particular breach so waived and shall not be deemed to waive any other breach hereunder. [END OF ARTICLE VI] -30- 34 ARTICLE VII MISCELLANEOUS Section 7.1 Prior Agreements Cancelled. This Lease Agreement shall completely and fully supersede all other prior agreements (including without limitation the Original Leases, which are restated hereby), both written and oral, between the IDB and the Lessee or the Lessee's assignor relating to the acquisition, preservation, construction, expansion or equipping or the leasing or operation of the Project. No party to any such prior agreement shall hereafter have any rights thereunder but shall look solely to this Lease Agreement for definition and determination of all of its rights, liabilities and responsibilities relating to the Project. Section 7.2 IDB's Liabilities Limited. (a) The covenants and agreements contained in this Lease Agreement shall never constitute or give rise to a personal or pecuniary liability or charge against the general credit of the IDB, and in the event of a breach of any such covenant or agreement. no personal or pecuniary liability or charge payable directly or indirectly from the general assets or revenues of the IDB shall arise therefrom. Nothing contained in this Section, however, shall relieve the IDB from the observance and performance of the covenants and agreements on its part contained herein. (b) Other than for willful or wanton acts, no recourse under or upon any covenant or agreement of this Lease Agreement shall be had against any past, present or future incorporator, officer or member of the Board of Directors of the IDB, or any of its servants, agents or employees, or of any successor corporation, either directly or through the IDB, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise; it being expressly understood that this Lease Agreement is solely a corporate obligation, and that no personal liability whatever shall attach to, or is or shall be incurred by, any incorporator, officer or member of the Board of Directors of the IDB or any of its servants, agents or employees, or any successor corporation, or any of them, under or by reason of the covenants or agreements contained in this Lease Agreement. Section 7.3 Execution Counterparts. This Lease Agreement may be simultaneously executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. Section 7.4 Binding Effect; Assignability. This Lease Agreement shall inure to the benefit of, and shall be binding upon, the IDB, the Lessee and their respective successors and assigns, provided, however, that the Lessee may not assign this Lease Agreement in -31- 35 whole or in part without the prior written consent of the mortgagee under the First Mortgage. Section 7.5 Amendments. So long as any of the SIDA Bonds are outstanding, this Lease Agreement may be amended only by a written instrument between the IDB and the Lessee with the written consent of the mortgagee under the First Mortgage. Section 7.6 Severability. In the event any provision of this Lease Agreement shall be held invalid or unenforceable by any court of competent jurisdiction, such holding shall not invalidate or render unenforceable any other provision hereof. Section 7.7 Notices. Unless otherwise provided herein, all notices, certificates or other communications hereunder shall be sufficiently given and shall be deemed given when delivered or mailed by registered or certified mail, postage prepaid, or sent by overnight courier service, telegram, telex or other instantaneous transmission device, addressed as follows: (a) If to the IDB, at The Industrial Development Board of the City of Montgomery, Post Office Box 79, Montgomery, Alabama 36101, Attention: Chairman of the Board of Directors; and (b) If to the Lessee, (i) by mail or telegram, at SIMCALA, Inc., c/o Capital One Partners, 1111 Chester Avenue, Cleveland, Ohio 44114, Attention: JimPetras, Partner; and (ii) by telefax, at (216) 781-0158. Either of the foregoing parties may, by notice given hereunder, designate any further or different addresses to which subsequent notices, certificates or other communications shall be sent. Section 7.8 Governing Law. This Lease Agreement shall be deemed to be a contract made under the laws of the State and for all purposes shall be governed by and construed in accordance with the laws of the State. Section 7.9 References to Mortgagees. Provisions of this Lease Agreement pertaining to required notices to or consents from the mortgagees under the Mortgages and like provisions shall be understood to apply, as to any given mortgagee, only so long as the Note underlying the Mortgage of said mortgagee is outstanding and shall not have been paid in full. [END OF ARTICLE VII] -32- 36 IN WITNESS WHEREOF, the IDB and the Lessee have caused this Consolidated, Amended and Restated Lease Agreement to be executed, sealed and attested, as applicable, in their respective names, all by their respective duly authorized officers, as of the date first hereinabove stated. THE INDUSTRIAL DEVELOPMENT BOARD OF THE CITY OF MONTGOMERY (SEAL) By:/s/ -------------------------------------- Chairman of the Board of Directors ATTEST: /s/ - --------------------------------- Its [Assistant] Secretary SIMCALA, INC., a Delaware corporation (SEAL) By:/s/ -------------------------------------- President ATTEST: /s/ - --------------------------------- Its Secretary -33- 37 ACKNOWLEDGMENT OF IDB STATE OF ALABAMA ) : COUNTY OF MONTGOMERY ) I, the undersigned Notary Public in and for said County in said State, hereby certify that R.E. Thornton, Jr., whose signature as the Chairman of the Board of Directors of The Industrial Development Board of the City of Montgomery is signed to the foregoing instrument and who is known to me and known to be such officer, acknowledged before me on this day that, being informed of the contents of said instrument, he, as such officer and with full authority, executed the same voluntarily for and as the act of said Board. Given under my hand and seal of office this 8th day of February, 1995. /s/ -------------------------------------- NOTARY PUBLIC, State at Large My Commission Expires: October 8, 1995 (SEAL) -34- 38 ACKNOWLEDGMENT OF LESSEE STATE OF ALABAMA ) : COUNTY OF MONTGOMERY ) I, the undersigned authority, a Notary Public in and for said County in said State, hereby certify that James M. Petras, whose signature as President of SIMCALA, Inc., a Delaware corporation, is signed to the foregoing instrument, and who is known to me and known to be such officer, acknowledged before me on this day that, being informed of the contents of said instrument, he, as such officer and with full authority, executed the same voluntarily for and as the act of said corporation Given under my hand and seal of office this 9th day of February, 1995. /s/ ---------------------------------------- NOTARY PUBLIC, State at Large My Commission Expires: November 30, 1996 (SEAL) -35- 39 EXHIBIT A DESCRIPTION OF REALTY PARCEL 1 Begin at the Southeast Corner of Section 5, T-16-N, R-20-E, Montgomery County. Alabama; thence run along the South Line of said Section 5, S 87(degree) 05' 57" W, 1818.81 feet to a point; thence run N 01(degree) 53' 50" W, 1623.33 feet to an iron pin; thence run N 03(degree) 50' 08" E, 1038.55 feet to a concrete monument lying on the North Line of the Southeast Quarter of said Section; thence run N 87(degree) 34' 04" E, 1990.78 feet to a point at the Northeast Corner of the Southeast Quarter of said Section 5; thence run along the East Line of said Section, S 04(degree) 03' 41" W, 2657.77 feet to the point of beginning. Said described property lying and being situated in the Southeast Quarter of Section 5, T-16-N, R-20-E, Montgomery County, Alabama, and contains 117.693 acres, more or less. PARCEL 2 Begin at the Northeast Corner of the Southeast Quarter of Section 5, T-16-N, R-20-E. Montgomery County, Alabama; thence run along the North Line of the Southeast Quarter of Said Section, S 87(degree) 34' 04" W, 1990.78 feet to a concrete monument; thence continue, S 87(degree) 34' 04" W, 663.34 feet to a concrete monument lying at the Northwest Corner of the Southeast Quarter of said Section 5; thence run N 04(degree) 03' 41" E, 90.10 feet to a point lying on the South right of way of CSX Railroad (100' ROW); thence run along said South right of way, N 87(degree) 00' 00" E, 2657.34 feet to a point lying on the East Line of said Section 5; thence run along said East Line, S 04(degree) 03' 41" W, 117.34 feet to the point of beginning. Said described property lying and being situated in the Northeast Quarter of Section 5, T-16-N, R-20-E, Montgomery County, Alabama, and contains 6.279 acres, more or less. PARCEL 3 Begin at a concrete monument at the Northwest Corner of the Southeast Quarter of Section 5. T-16-N, R-20-E, Montgomery County, Alabama, thence run S 87(degree) 33' 07" W, 661.96 feet to an iron pin; thence run S 87(degree) 33' 21" W, 671.78 feet to an iron pin; thence run N 04(degree) 03' 41" E, 76.74 feet to a point lying on the South right of way of CSX Railroad; thence run along said South right of way, N 87(degree) 00' 00" E, 1335.32 feet to a point, thence run S 04(degree) O3' 41" W, 90.10 feet to the point of beginning. Said described parcel lying and being situated in the Northwest Quarter of Section 5, T-16-N, R-20-E, Montgomery County, Alabama, and contains 2.487 acres, more or less. -36- EX-10.8 19 LOAN AGREEMENT DATED 1/1/95 1 EXHIBIT 10.8 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- LOAN AGREEMENT BETWEEN STATE INDUSTRIAL DEVELOPMENT AUTHORITY, AS LENDER, AND SIMCALA, INC. AND THE INDUSTRIAL DEVELOPMENT BOARD OF THE CITY OF MONTGOMERY, AS BORROWERS ---------------------- RELATING TO $6,000,000 STATE INDUSTRIAL DEVELOPMENT AUTHORITY TAXABLE INDUSTRIAL REVENUE BONDS (SIMCALA, INC. PROJECT) SERIES 1995 ---------------------- DATED AS OF JANUARY 1, 1995 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- KAUFMAN & ROTHFEDER, P.C. MONTGOMERY, ALABAMA BOND COUNSEL 2 LOAN AGREEMENT BETWEEN STATE INDUSTRIAL DEVELOPMENT AUTHORITY AND SIMCALA, INC. AND THE INDUSTRIAL DEVELOPMENT BOARD OF THE CITY OF MONTGOMERY I N D E X ARTICLE I DEFINITIONS.................................................................... 2 Section 1.1 Definitions............................................................. 2 Section 1.2 Interpretation.......................................................... 8 Section 1.3 Captions and Headings................................................... 9 ARTICLE II REPRESENTATIONS AND COVENANTS.................................................. 10 Section 2.1 Representations by the Issuer........................................... 10 Section 2.2 Representations and Covenants by the Company - General.................. 10 Section 2.3 Representations and Covenants by the Company - SIDA Act................. 11 ARTICLE III LOAN PROVISIONS................................................................ 13 Section 3.1 Loan; Loan Payments..................................................... 13 Section 3.2 Additional Payments..................................................... 13 Section 3.3 Obligations of Company Unconditional.................................... 14 Section 3.4 Assignment of Loan Agreement............................................ 14 ARTICLE IV PROVISIONS RESPECTING THE PROJECT.............................................. 16 Section 4.1 Agreement to Complete Project........................................... 16 Section 4.2 No Warranty of Suitability by Issuer.................................... 16 Section 4.3 Completion of the Project............................................... 16 ARTICLE V ADDITIONAL AGREEMENTS AND COVENANTS............................................ 17 Section 5.1 General Covenants....................................................... 17 Section 5.2 Indemnification......................................................... 17 Section 5.3 Compliance with Other Documents......................................... 17
-i- 3 Section 5.4 Letter of Credit; Alternate Credit Facility............................. 17 ARTICLE VI EVENTS OF DEFAULT AND REMEDIES................................................. 21 Section 6.1 Events of Default....................................................... 21 Section 6.2 Remedies on Default..................................................... 21 Section 6.3 No Remedy Exclusive..................................................... 22 Section 6.4 Agreement to Pay Attorneys' Fees and Expenses........................... 22 Section 6.5 No Additional Waiver Implied by One Waiver.............................. 22 ARTICLE VII MISCELLANEOUS.................................................................. 23 Section 7.1 Limitation of Issuer's Liability........................................ 23 Section 7.2 Limitation of IDB's Liability........................................... 23 Section 7.3 Execution Counterparts.................................................. 24 Section 7.4 Binding Effect; Assignability........................................... 24 Section 7.5 Amendments.............................................................. 24 Section 7.6 Severability............................................................ 24 Section 7.7 Notices................................................................. 24 Section 7.8 Governing Law........................................................... 25 Section 7.9 Term of Loan Agreement.................................................. 25 SIGNATURES ...................................................................................... 26 ACKNOWLEDGMENTS ................................................................................. 27 Exhibit A Description of Realty Exhibit B Form of Note
-ii- 4 LOAN AGREEMENT This LOAN AGREEMENT made and entered into as of January 1, 1995 (as the same may hereafter be amended or supplemented, this "Loan Agreement"), between the STATE INDUSTRIAL DEVELOPMENT AUTHORITY (the "Issuer"), a public corporation organized under the laws of the State of Alabama (the "State"), as lender, and SIMCALA, INC., a Delaware corporation qualified to transact business in and pursuant to the laws of the State (the "Company") and THE INDUSTRIAL DEVELOPMENT BOARD OF THE CITY OF MONTGOMERY, a public corporation organized under the laws of the State (the "IDB"), as borrowers, their respective successors and assigns, under the circumstances summarized in the following recitals (with capitalized terms used but not defined therein having the meanings given to them in Article 1 hereof): A. The Issuer will issue the Bonds pursuant to the Bond Resolution in order to finance part of the costs of acquiring, constructing and equipping the Project. B. Pursuant to this Loan Agreement, the Issuer will make the Loan to the Company and the Company will agree to make Loan Payments to or for the account of the Issuer, as herein and in the Note provided, at such times and in such amounts as shall be sufficient to pay when due Debt Service on or Purchase Price of the Bonds. C. Title to the Project is nominally vested in the IDB, but is leased by the IDB to and used by the Company in accordance with the provisions of the Lease Agreement. Pursuant to the Lease Agreement, and in furtherance of the public purposes for which it was created under the IDB Act, the IDB shall join in the execution and delivery of this Loan Agreement, the Note and the Mortgages, essentially as an accommodation to the Company. NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter contained, the parties to this Loan Agreement hereby formally covenant, agree and bind themselves as follows: 5 ARTICLE I DEFINITIONS Section 1.1 Definitions. In addition to the words and terms elsewhere defined in this Loan Agreement or by reference to another document, unless the context or use clearly indicates another or different meaning or intent: "Act of Bankruptcy" means the filing of a petition in bankruptcy (or other commencement of a bankruptcy or similar proceeding) by or against the Company or by the Issuer, as debtor, under any applicable bankruptcy, reorganization, insolvency or other similar law now or hereinafter in effect. "Additional Payments" means the amounts required to be paid by the Company pursuant to the provisions of Section 3.2 hereof. "Affiliate" means, as to any specified Person, another Person that directly, or indirectly, through one or more intermediaries, controls or is controlled by, or is under common control with the specified Person. "Alternate Credit Facility" means an irrevocable letter of credit, a surety bond, an insurance policy or other credit facility delivered to the Trustee pursuant to Section 5.4 of this Loan Agreement. "Available Moneys" shall mean (a) original proceeds of the Bonds held in any fund or account under the Indenture, together with investment earnings on such proceeds, provided such proceeds are not furnished by, and do not come into the possession of, the Company; (b) moneys paid by the Company to the Trustee pursuant to this Loan Agreement, together with investment earnings on such moneys, provided that, at the time of such payment and for a period of at least 123 days thereafter, there shall not have occurred any Act of Bankruptcy, as evidenced by a certificate of the Company and the Issuer delivered to the Trustee to that effect; provided such moneys need not have been on deposit for 123 days if the Company shall furnish to the Trustee, the Tender Agent and any Rating Agency by which the Bonds shall then be rated an unqualified opinion of counsel of national recognition experienced in bankruptcy matters, which opinion shall be certified in writing by Moody's to be acceptable in form and content, that payment of such moneys to the Holders would not constitute an avoidable preference under Section 547 of the Federal Bankruptcy Code in the event of the filing of a petition thereunder by or against the Company or by the Issuer; and (c) moneys received by the Trustee from a draw under the Letter of Credit or Alternate Credit Facility (provided such moneys are the Bank's own funds and are not funds furnished by the Company), together with investment earnings on such moneys. "Bank" means Chemical Bank, New York, New York, and its successors and assigns, as issuer of the Initial Letter of Credit, until such time, if any, as a Substitute -2- 6 Letter of Credit or Alternate Credit Facility shall become effective pursuant to Section 5.4 hereof, and thereafter "Bank" shall mean the issuer or provider of such Substitute Letter of Credit or Alternate Credit Facility. "Basic Rent" means that portion of the rentals payable under the Lease Agreement in respect of Debt Service on or Purchase Price of the Bonds. "Bond" or "Bonds" means the $6,000,000 Taxable Industrial Revenue Bonds (SIMCALA, Inc. Project) Series 1995 of the Issuer issued and delivered under the Bond Resolution and the Indenture. "Bond Purchase Agreement" means the Bond Purchase Agreement, dated the date of final pricing of the Bonds by the Original Purchaser, among the Issuer, the Company and the Original Purchaser. "Bond Resolution" means the resolution of the Issuer adopted January 11, 1995 authorizing the issuance of the Bonds and the execution and delivery of the Issuer Documents, among other matters. "Building" means, collectively, all structures and improvements now existing or hereafter expanded, constructed, reconstructed or made on the Realty, as they may at any time exist. "Business Day" means any day other than (A) a Saturday or Sunday or (B) a day on which commercial banks are required or authorized by law to close in any of the following locations: (i) the city in which the Trustee's Office (as defined in the Indenture) is located, (ii) the city in which the principal office of the Remarketing Agent is located, (iii) the city in which the office of the Bank at which drawings under the Letter of Credit are to be made is located, or (iv) the City of New York, New York. "Company Documents" means, individually or collectively, as the context may require, each or all of this Loan Agreement, the Note, the Mortgages, the Bond Purchase Agreement, the Reimbursement Agreement, the Lease Agreement and such other documents or instruments as the Company may enter into in order to consummate the transactions contemplated hereby and thereby. "Completion Date" means the date of completion of the Project to be established by the Company in accordance with Section 4.3 hereof. "Construction Fund" means the fund created pursuant to the Lease Agreement and described in Section 3.1 hereof. "Debt Service" means, for any period or payable at any time, the principal, interest and any premium due on the Bonds for that period or payable at that time. -3- 7 "Department" means the Department of Revenue of the State. "Equipment" means any items of equipment, fixtures and tangible personal property located in or on the Building or the Realty and any item of equipment, fixtures or tangible personal property acquired in substitution therefor or as a renewal or replacement thereof pursuant to the provisions of the Lease Agreement and the Mortgages. "Event of Default" means an Event of Default specified and defined in Section 6.1 hereof. "Existing Letter of Credit" means, as of any particular time, the Letter of Credit or Alternate Credit Facility held by the Trustee at that time. "Extension Letter of Credit" means a Substitute Letter of Credit from the same Bank which issued the Existing Letter of Credit, substantially identical to the Existing Letter of Credit except that it has a Stated Termination Date at least one year later than that of the Existing Letter of Credit. "First Mortgage" means the Real Estate Mortgage, Assignment of Lease and Security Agreement of even date herewith from the Company and the IDB to the guarantor of the Company's obligations to the Bank under the Reimbursement Agreement, as the same may hereafter be amended or supplemented. "Governmental Authority" means the United States, any state or political subdivision thereof and any court, agency, department, commission, board, bureau or instrumentality of any of the foregoing. "Holder" means the Person in whose name a Bond is registered on the books kept and maintained by the Registrar for the registration and transfer of Bonds. "IDB Act" means Article 4, Chapter 54, Title 11 of the Code of Alabama of 1975, as amended. "IDB Documents" means, individually or collectively, as the context may require, each or all of this Loan Agreement, the Note, the Mortgages, the Lease Agreement and such other documents or instruments as the IDB may enter into in order to consummate the transactions contemplated hereby and thereby. "Indenture" means the Trust Indenture of even date herewith between the issuer and the Trustee, as the same may hereafter be amended or supplemented. "Initial Letter of Credit" means the initial Letter of Credit in the form attached to the Reimbursement Agreement as Schedule I and delivered to the Trustee on or prior to the Issue Date. -4- 8 "Interest Payment Date," when used with respect to any installment of interest on a Bond, means the date specified in such Bond as the fixed date on which such installment of interest is due and payable, as more particularly described in the Indenture. "Interest Rate for Advances" means the rate per annum which is one percent per annum in excess of that rate announced from time to time by the Trustee as its "prime" or "base" rate. "Issue Date" means the date of initial authentication and delivery of the Bonds. "Issuer Documents" means, individually or collectively, as the context may require, each or all of this Loan Agreement, the Indenture, the Bond Purchase Agreement and such other documents or instruments as the Issuer may issue into in order to consummate the transactions contemplated hereby, thereby and by the Bond Resolution. "Lease Agreement" means the Consolidated, Amended and Restated Lease Agreement of even date herewith between the IDB, as lessor, and the Company, as lessee, as the same may hereafter be amended and supplemented. "Letter of Credit" means the Initial Letter of Credit and, unless the context or use indicates another or different meaning or intent, any Substitute Letter of Credit. "Loan" means the loan by the Issuer to the Company and the IDB of the proceeds received from the sale of the Bonds to the Original Purchaser. "Loan Payment Date" means the Business Day preceding (a) any date on which any Debt Service on the Bonds shall be due and payable, whether at maturity, upon acceleration, call for redemption or otherwise, or (b) any Tender Date on which the Purchase Price of Bonds shall be due and payable. "Loan Payments" means the amounts required to be paid by the Company in repayment of the Loan pursuant to Section 3.1 hereof and the Note. "Mandatory Tender" means a tender of Bonds required to be made by the provisions of the Indenture. "Mortgages" means any instrument conveying a mortgage on and/or security interest in the Project or any part thereof or any rents, income and profits therefrom, including without limitation the First Mortgage and the Subordinated Mortgages. "Necessary Authorizations" means, with respect to any given action or effect, all authorizations, consents, approvals, permits, licenses and exemptions of, filings and registrations with, and reports to, all Governmental Authorities which are necessary or required to accomplish such action or achieve such effect. -5- 9 "Note" means the promissory note of the Company and the IDB, dated the Issue Date, in the form attached as Exhibit B to this Loan Agreement and in principal amount equal to the aggregate principal amount of the Bonds, evidencing the obligation of the Company to make Loan Payments. "Optional Tender" means a tender of Bonds at the option of the Holder thereof pursuant to the provisions of the Indenture. "Original Purchaser" means, as to the Bonds, Merchant Capital, L.L.C., Montgomery, Alabama. "Person" includes natural persons, firms, associations, partnerships, trusts, corporations and public bodies. "Preliminary Agreement" means the Preliminary Agreement dated September 12, 1994 between the Issuer and the Company. "Project" means the Realty, the Building and the Equipment, to be acquired, constructed, equipped, owned and operated by the Company pursuant to the Lease Agreement and this Loan Agreement for use as silicon metal manufacturing facilities or other purposes consistent with the provisions of the IDB Act and the SIDA Act, as such Realty, Building and Equipment may at any time exist. "Project Costs" means costs of or relating to the Project which may be paid (or the prior payment of which may be reimbursed) with proceeds of the Bonds, including without limitation the following: (a) all costs related to the acquisition of real and personal properties or any interest therein; (b) the cost of labor, materials and supplies furnished or used in the construction, installation, renovation or rehabilitation of buildings and structures; (c) acquisition, transportation and installation costs for personal property and fixtures; (d) fees for architectural, engineering, legal and supervisory services, including any legal, accounting, underwriting and fiduciary fees and expenses incurred by the Issuer or the Company in connection with the issuance of the Bonds; (e) expenses incurred in the enforcement of any remedy against any contractor, subcontractor, materialmen, vendor, supplier or surety; (f) interest accruing on indebtedness incurred by the Issuer or the Company (including the Bonds) in connection with the acquisition and construction of, or other work on, the Project for the period ending 24 months after the date the Project is placed in service; (g) fees for an appraisal of the Project; (h) costs of obtaining or maintaining credit enhancement and/or liquidity facilities in respect of the Bonds; and (i) insurance premiums and taxes incurred until the Project is (or was) placed in service. "Project Supervisor" means any employee or agent of the Company now or hereafter authorized in writing, by the President or any Vice President of the Company, to act in connection with matters pertaining to the Project pursuant to the provisions hereof. -6- 10 "Purchase Price" means, with respect to any Bond tendered for purchase by Optional Tender or Mandatory Tender, 100% of the principal amount thereof plus accrued interest thereon, if any, from the last preceding Interest Payment Date to the Tender Date. "Rating Agency" means Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's Corporation ("S&P"), both of New York, New York, their respective successors and assigns and any other nationally recognized securities rating agency. "Realty" means the real estate and interests therein constituting the site of the Building, as described in Exhibit A hereto, less any such real estate, interests in real estate and other rights as may be released from the Lease Agreement and the Mortgages pursuant to the respective provisions thereof or taken by the exercise of the power of eminent domain. "Registrar" means the Trustee in its capacity as Registrar for the Bonds under the Indenture. "Reimbursement Agreement" means the Reimbursement Agreement of even date herewith between the Company and the Bank, as issuer of the Initial Letter of Credit, as the same may hereafter be amended or supplemented, or any comparable agreement relating to a Substitute Letter of Credit or Alternate Credit Facility. "Related Documentation" means the documentation required to accompany a Substitute Letter of Credit or Alternate Credit Facility in accordance with the provisions of Section 5.4 of this Loan Agreement. "Remarketing Agent" means the Remarketing Agent appointed in accordance with Section 518 of the Indenture. "Reserved Rights" means all of the rights of the Issuer to receive Additional Payments or reimbursement pursuant to Section 3.2(a) hereof, to be held harmless and indemnified pursuant to Section 5.2 hereof, to be reimbursed for attorney's fees and expenses pursuant to Section 6.4 hereof, to receive notices hereunder and to give or withhold consent to amendments, supplements, modifications or termination of this Loan Agreement. "SIDA Act" means Act No. 93-851 enacted at the 1993 First Special Session of the Alabama Legislature, as amended. "State" means the State of Alabama. "Stated Termination Date" means the date on which the Letter of Credit is stated to expire, which shall in each case be the 15th day of a calendar month. -7- 11 "Subordinated Mortgages" means three separate subordinated Real Estate Mortgages, Assignments of Lease and Security Agreements from the Company and the IDB to subordinated creditors of the Company. "Substitute Letter of Credit" means an irrevocable letter of credit delivered to the Trustee in substitution for the Existing Letter of Credit, in compliance with the requirements of Section 5.4 of this Loan Agreement and accompanied by the Related Documentation. "Tender Date" means any date on which Bonds are to be purchased pursuant to an Optional Tender or a Mandatory Tender, as the case may be. "Trustee" means the institution serving as such under the Indenture, initially, First Alabama Bank, Montgomery, Alabama. Section 1.2 Interpretation. Any reference herein to the Issuer or to any member of the Board of Directors or officer thereof includes entities or officials succeeding to their respective functions, duties or responsibilities pursuant to or by operation of law or lawfully performing their functions. Any reference to a section or provision of the Constitution of the State or the SIDA Act, or to a section, provision or chapter of the Code of Alabama of 1975 or to any statute of the United States of America, includes that section, provision or chapter as amended, modified, revised, supplemented or superseded from time to time, provided that no amendment, modification, revision, supplement or superseding section, provision or chapter shall be applicable solely by reason of this provision, if it constitutes in any way an impairment of the rights or obligations of the Issuer, the Holders, the Trustee, the Bank, the IDB or the Company under this Loan Agreement, the Note, the Bonds, the Indenture, the Mortgages or any other instrument or document entered into in connection with any of the foregoing, including without limitation, any alteration of the obligation to pay Debt Service on or Purchase price of the Bonds in the amount and manner, at the times, and from the sources provided in the Bonds, except as permitted therein. Unless the context indicates otherwise, words importing the singular number include the plural number, and vice versa; the terms "hereof," "hereby," "herein," "hereto," "hereunder" and similar terms refer to this Loan Agreement, and the term "hereafter" means after, and the term "heretofore" means before, the effective date of this Loan Agreement, which shall be the Issue Date. Words of any gender include the correlative words of the other genders, unless the sense indicates otherwise. -8- 12 Section 1.3 Captions and Headings. The captions and headings in this Loan Agreement are solely for convenience of reference and in no way define, limit or describe the scope or intent of any Articles, Sections, subsections, paragraphs, subparagraphs or clauses hereof. [END OF ARTICLE I] -9- 13 ARTICLE II REPRESENTATIONS AND COVENANTS Section 2.1 Representations by the Issuer. The Issuer makes the following representations as the basis for the undertakings on its part herein contained: (a) The Issuer is a public corporation organized under the laws of the State. Under the provisions of the SIDA Act the Issuer has the power to enter into and consummate the transactions contemplated by the Issuer Documents and to carry out its obligations thereunder. By proper action the Issuer has duly authorized the execution, delivery and performance of the Issuer Documents and the Issuance of the Bonds. (b) The execution, delivery and performance by the Issuer of the Issuer Documents and the issuance of the Bonds are within the Issuer's powers, and each such document, when executed and delivered, will constitute a legal, valid and binding obligation of the issuer enforceable against the Issuer in accordance with its terms, except as enforcement thereof may be limited by applicable bankruptcy, insolvency, moratorium, reorganization or similar laws affecting creditors' rights generally and by the application of general principles of equity. (c) It will do all things in its power in order to maintain its existence or assure the assumption of its obligations under the Issuer Documents by any successor public body, as provided in the Indenture. Section 2.2 Representations and Covenants by the Company - General. The Company represents and covenants that: (a) It is a corporation duly organized and validly existing under the laws of the State of Delaware and qualified to transact business under the laws of the State. (b) The execution, delivery and performance by the Company of the Company Documents and the carrying out of the transactions contemplated thereby are within the Company's corporate powers, have been duly authorized by all necessary corporate action on the part of the Company, and do not violate any provision of law, any order of any court or other governmental agency, the Articles of Incorporation or Bylaws of the Company, or any indenture, agreement or other instrument to which the Company or any Affiliate of the Company is a party or by which the Company or any Affiliate of the Company or any of its or their properties or assets is bound, or conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under, any such indenture, agreement or other instrument, or result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the -10- 14 properties or assets of the Company or any Affiliate of the Company (other than the liens of the Mortgages). (c) The Company has, to the best of its knowledge, obtained and will use its reasonable efforts to maintain all Necessary Authorizations for the acquisition, construction and equipping of the Project, and has, to the best of its knowledge, obtained or will promptly obtain and will use its reasonable efforts to maintain all Necessary Authorizations for the operation of the Project and for the due execution, delivery and performance by the Company of each of the Company Documents. In particular, all building permits required for the construction or renovation of the Building have been or will when and as necessary be obtained and, once obtained, will be maintained in full force and effect, and all utility services (including water supply, storm and sanitary sewerage, electric and telephone facilities) necessary for the construction or renovation and operation of the Building for the intended purposes are or will be available. (d) Each of the Company Documents, when executed and delivered, will constitute a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally and by the application of general principles of equity. (e) There is no pending or, to the best of its knowledge, threatened action, investigation or proceeding before any court, governmental agency or arbitrator against or affecting the Company or any Affiliate of the Company (i) in any way contesting or affecting the Project, the validity of this Loan Agreement or any of the other Company Documents, (ii) in any way contesting the existence or powers of the Company as a limited liability company, or (iii) in any material way affecting the ability of the Company to discharge its obligations under any of the Company Documents. Section 2.3 Representations and Covenants by the Company - SIDA Act. (a) The Company expects that the Project will be used in a trade or business described in SIC Code No. 3339 throughout the term of the Bonds. If, in the future, there is a cessation of that operation, the Company may in its discretion resume that operation or accomplish an alternate use by the Company or others which will be consistent with the SIDA Act and the IDB Act. (b) Either (i) the average hourly wage for full-time hourly wage paid employees at the Project will be at least $8.00 per hour or (ii) average total compensation (including benefits) for full time paid employees at the Project will be at least equivalent to $10.00 per hour. -11- 15 (c) The Company expects and agrees to invest not less than $6,000,000 on Project Costs on or before March 1, 1998. (d) The Company expects to employ at least 130 full time new employees at the Project within 18 months after the date that the Project is placed in service by the Company. The Company has not laid off any employees in the State during the two years preceding the Issue Date. This term "new employees" includes only those individuals (i) who have not previously been employed by the Company in the State; (ii) will be employed at the Project; and (iii) will be subject to the personal income tax imposed by Section 40-18-2 of the Code of Alabama of 1975, as amended, upon commencement of employment by the Company at the Project. (e) The Company did not commence the acquisition or construction of the Project prior to the date of the Preliminary Agreement. For purposes of this paragraph, preliminary expenditures not exceeding 10% of the total cost of the Project for items such as architectural, engineering, surveying, soil testing, feasibility and similar costs shall not be considered as the commencement of acquisition or construction. (f) The amount of Job Development Fees (as defined in the SIDA Act) assessed by the Company and withheld from the gross wages of its new employees at the Project shall not exceed the amount permitted by the SIDA Act and the rules and regulations of the Issuer and the Department in existence on the Issue Date. (g) The Company has complied and will comply with all of the provisions of the SIDA Act and the Issuer's rules and regulations applicable to it. Failure to comply with the representations and warranties contained in this Section 2.3 shall not constitute an Event of Default under Section 6.1 hereof but may constitute grounds for the reduction, suspension or denial by the Department of the right to collect Job Development Fees and the credits against corporate income taxes granted by the SIDA Act. [END OF ARTICLE II] -12- 16 ARTICLE III LOAN PROVISIONS Section 3.1 Loan; Loan Payments. (a) Simultaneously with the execution and delivery hereof, the Issuer will issue the Bonds and will make the Loan by causing the proceeds from the sale of the Bonds to be deposited with the Trustee into the Construction Fund in the name of the IDB for the benefit of the Company, in accordance with the provisions of the Lease Agreement and the Indenture, in order (i) to reimburse the Company for any amounts advanced by the Company to pay Project Costs subsequent to the date of the Preliminary Agreement and (ii) to pay Project Costs. In consideration of the Loan, the Company and the IDB shall, concurrently with the issuance of the Bonds, execute and deliver the Note (evidencing the obligation to make Loan Payments in respect of Debt Service on or Purchase Price of the Bonds) to the Trustee, the First Mortgage to the guarantor of the Company's obligations to the Bank under the Reimbursement Agreement and the Subordinated Mortgages to certain other creditors of the Company in respect of the Project. (b) The Company shall make Loan Payments in repayment of the Loan by 12:00 p.m. Montgomery, Alabama time on each Loan Payment Date, in the amount necessary to pay the Debt Service on or Purchase Price of the Bonds which is due and payable on that date. The IDB's obligations under this Loan Agreement and the Note shall be limited solely to the Basic Rent and any other revenues and receipts derived from the leasing of the Project to the Company under the Lease Agreement (excluding, however, any such revenues and receipts payable to the IDB as part of its Unassigned Rights as therein defined). (c) All Loan Payments shall be paid directly to the Trustee for the account of the Issuer for application to the payment of Debt Service on or Purchase Price of the Bonds or the reimbursement to the Bank of amounts drawn under the Letter of Credit. (d) Upon payment in full of the Debt Service on the Bonds, whether at maturity or upon redemption or otherwise, the Note shall be deemed fully paid, the obligations of the Company and the IDB thereunder shall be terminated and the Note shall be surrendered by the Trustee to the Company for cancellation. Section 3.2 Additional Payments. (a) In further consideration of the Loan by the Issuer, the Company covenants and agrees to pay as Additional Payments hereunder the reasonable expenses of the Issuer Incurred at the request of the Company, or in the performance of its duties under this Loan Agreement, or in connection with any litigation which may at any time be instituted involving the Project, this Loan Agreement or the Indenture, or in the pursuit of any remedies under this Loan Agreement or the Indenture. -13- 17 The Issuer reserves the right to adopt and impose an administrative fee to be paid annually by the Company to the Issuer during the term of the Bonds (such fee not to exceed 1/10th of 1% of the principal amount of such Bonds outstanding) and the Company agrees to pay such administrative fee to the Issuer if, as and when requested. The Company shall make such Additional Payments within ten days after receipt of an invoice therefor. (b) The Company covenants and agrees to pay as further Additional Payments hereunder the fees, charges and expenses of the Trustee and the other Fiduciaries (as defined in the Indenture) for acting as such under the Indenture, as and when the same become due, provided that the Company may, without creating a default hereunder, contest in good faith the necessity for any extraordinary services or extraordinary expenses and the reasonableness of any such fees, charges or expenses. Following the payment or incurring of any such costs, expenses or liabilities, such Additional Payments are payable by the Company upon written demand therefor, and if not paid upon such demand shall bear interest from the date of demand at the Interest Rate for Advances. Section 3.3 Obligations of Company Unconditional. The obligation of the Company to pay the Loan Payments and to perform and observe the other agreements and covenants on its part herein contained shall be absolute and unconditional, irrespective of any rights of setoff, recoupment or counterclaim it might otherwise have against the Issuer, the Trustee, the Bank or any other Person. The Company will not suspend or discontinue such Loan Payments or fail to perform and observe any of its other agreements and covenants contained herein or terminate this Loan Agreement for any cause whatsoever, including, without limiting the generality of the foregoing, failure to complete the Project, any acts or circumstances that may constitute an eviction or constructive eviction, failure of consideration or commercial frustration of purpose, any damage to or destruction of the Project, the Invalidity of any provision of this Loan Agreement, the taking by eminent domain of title to or the right to temporary use of all or any of the Project, any change in the tax or other laws of the United States of America or of the State or any political subdivision thereof, or any failure of the Issuer to perform and observe any agreement or covenant, whether express or implied, or any duty, liability or obligation arising out of or connected with this Loan Agreement. Notwithstanding the foregoing, the Company may, at its own cost and expense and in its own name or in the name of the Issuer, prosecute or defend any action or proceeding, or take any other action involving third persons which the Company deems reasonably necessary, in order to secure or protect its rights of use and occupancy of the Project and its other rights hereunder. Nothing contained herein shall be construed to be a waiver of any rights which the Company may have against the Issuer under this Loan Agreement or under any provision of law. Section 3.4 Assignment of Loan Agreement. Except for Reserved Rights, the Issuer has in the Indenture assigned all its right title and interest in and to this Loan Agreement and the Loan Payments to the Trustee as security for payment of the Debt Service and Purchase Price of the Bonds. The Trustee shall have all rights and remedies -14- 18 herein accorded to the Issuer (except for Reserved Rights), and any reference herein to the Issuer shall be deemed, with the necessary changes in detail, to include the Trustee, and the Trustee and any Holders are deemed to be third party beneficiaries of the covenants and agreements of the Company herein contained. The Company hereby agrees and consents to the Indenture. [END OF ARTICLE III] -15- 19 ARTICLE IV PROVISIONS RESPECTING THE PROJECT Section 4.1 Agreement to Complete Project. The Company will use its reasonable efforts to cause the acquisition, construction and equipping of the Project to be completed as soon as practicable in accordance with such plans and specifications for the Project as the Company has caused to be prepared. The Company may cause changes or amendments to be made in such plans and specifications for the Project, provided no such change or amendment will alter the character of the Project to such an extent that it ceases to be a "project" under the SIDA Act or the IDB Act. The Issuer hereby authorizes and directs the Company to requisition disbursements of amounts in the Construction Fund to pay or reimburse the prior payment of Project Costs, all as more fully described in Section 405 of the Indenture. Section 4.2 No Warranty of Suitability by Issuer. The Company recognizes that since any plans and specifications for the Project have been prepared to its order, and that since the Equipment has been and is to be selected by it, the Issuer can make no warranty, either express or implied, or offer any assurances, that the Project will be suitable for the Company's purposes or needs. Section 4.3 Completion of the Project The Company shall notify the Trustee and the Issuer of the Completion Date of the Project by a certificate signed by a Project Supervisor stating, as appropriate: (1) the date on which the acquisition, construction and equipping of the Project were substantially completed (the "Completion Date"); (ii) that all other facilities necessary in connection with the Project have been acquired, constructed, improved and equipped; (iii) that the acquisition, construction, improvement and equipping of the Project and those other facilities have been accomplished in such a manner as to conform with all applicable zoning, planning, buildings, environmental and other similar governmental regulations; (iv) that all costs of that acquisition, construction, improvement and equipping then or theretofore due and payable have been paid; and (v) the amounts (if any) of Project Costs not yet due or of liabilities which the Company is contesting. Such certificate may state that it is given without prejudice to any rights against third parties which exist at the date of such certificate or which may subsequently come into being. [END OF ARTICLE IV] -16- 20 ARTICLE V ADDITIONAL AGREEMENTS AND COVENANTS Section 5.1 General Covenants. The Company will not do or permit anything to be done on or about the Project that will affect, impair or contravene any policies of Insurance that may be carried on the Project or any part thereof against loss or damage by fire, casualty or otherwise. The Company will, in the use of the Project and the public ways abutting the same, comply with all lawful requirements of all Governmental Authorities; provided, however, the Company may, at its own expense and in good faith, contest the validity or applicability of any such requirement Section 5.2 Indemnification. To the extent permitted by law, the Company agrees to indemnify the Issuer for, and hold it harmless against any loss, liability or expense (including reasonable attorneys' fees) incurred without negligence, bad faith or willful misconduct on its part, arising out of or in connection with the issuance of the Bonds, the acceptance of its duties and responsibilities under the Issuer Documents, or its performance or observance of any agreement or covenant on its part to be observed or performed under the Indenture or this Loan Agreement, including without limitation (i) the offer and sale of the Bonds or a subsequent sale or distribution of any of the Bonds and (ii) the exercise, or failure to exercise, any right, privilege or power of the Issuer under the Issuer Documents. The covenant of indemnity by the Company contained in this Section shall survive the termination of this Loan Agreement. Section 5.3 Compliance with Other Documents. The Company shall comply and shall cause any lessee, licensee or invitee of the Project to comply with the terms and provisions of the Lease Agreement, this Loan Agreement and the Mortgages respecting the Project. Section 5.4 Letter of Credit; Alternate Credit Facility. (a) On or before the Issue Date, the Company shall cause to be delivered to the Trustee the Initial Letter of Credit. The Company may at any time and from time to time, but shall not be required to, deliver a Substitute Letter of Credit to the Trustee in substitution for the Existing Letter of Credit (b) The Company shall give the Trustee at least 30 days' prior written notice of its intention to deliver a Substitute Letter of Credit not fewer than 21 days prior to the date on which such Substitute Letter of Credit is proposed to be delivered, which date shall be a Business Day, the Company shall deliver to the Trustee a binding commitment for the issuance of such Substitute Letter of Credit and the Related Documentation described in subsection (d)(i) of this Section. (c) Each Substitute Letter of Credit delivered to the Trustee pursuant to this Section must meet the following criteria: -17- 21 (i) if such Substitute Letter of Credit will be effective during a Seven Day Rate Period (as defined in the Indenture), such Substitute Letter of Credit shall be substantially in the same form and of the same tenor as the Initial Letter of Credit, including provision for the payment of interest on the Bonds (or the interest portion of the purchase price of Bonds tendered, or deemed tendered, for purchase) for a period of 60 days at the maximum rate per annum, specified in such Substitute Letter of Credit, at which there has been calculated the amount available to be drawn thereunder with respect to interest on the Bonds; (ii) If such Substitute Letter of Credit will be effective during a Yearly Fixed Rate Period or the Permanent Fixed Rate Period (both as defined In the Indenture), such Substitute Letter of Credit shall be substantially in the same form and of the same tenor as the Initial Letter of Credit except this such Substitute Letter of Credit must provide for the payment of (A) interest on the Bonds (or the interest portion of the purchase price of Bonds tendered, or deemed tendered, for purchase) for a period of 210 days at the rate per annum to be borne by the Bonds during such Yearly Fixed Rate Period or Permanent Fixed Rate Period, plus (B) an amount equal to 2% of the then principal amount of the Bonds, to enable the Trustee to pay the redemption premium on the Bonds in the event of the optional redemption thereof, (iii) if such Substitute Letter of Credit is being delivered in connection with a Letter of Credit Substitution Date or with a conversion of the Interest rate borne by the Bonds on a Conversion Date or Seven-Day Rate Recommencement Date (all as defined in the Indenture), then the effective date of such Substitute Letter of Credit shall be such Letter of Credit Substitution Date, Conversion Date or Seven-Day Rate Recommencement Date, as the case may be; and if such Substitute Letter of Credit is being delivered in connection with the Stated Termination Date of the Existing Letter of Credit, then the effective date of such Substitute Letter of Credit shall be the first Business Day of the calendar month in which such Stated Termination Date is to occur, and (iv) such Substitute Letter of Credit must have a Stated Termination Date that is (A) the 15th day of a calendar month and (B) not sooner than one year after its effective date. (d) Each Substitute Letter of Credit (other than any Extension Letter of Credit) delivered to the Trustee must be accompanied by the following Related Documentation, to the extent applicable: -18- 22 (i) written evidence from each Rating Agency that maintains a rating with respect to the Bonds of (A) the fact that such Rating Agency has reviewed the proposed Substitute Letter of Credit (B) the rating or ratings, if any, assigned or to be assigned by such Rating Agency to the Issuer of the proposed Substitute Letter of Credit and (C) the rating or ratings, if any, that such Rating Agency has assigned or would assign to the Bonds by reason of the substitution; (ii) an opinion of Bond Counsel to the effect that such Substitute Letter of Credit is authorized by this Loan Agreement and the Indenture; and (iii) an opinion of counsel for the issuer of such Substitute Letter of Credit to the effect that (A) such Substitute Letter of Credit is a valid, binding and enforceable obligation of the issuer thereof (B) use of the proceeds of a drawing on such Substitute Letter of Credit to pay Debt Service on the Bonds would not be avoidable as a preferential payment under Section 547 of the Bankruptcy Code recoverable under Section 550 thereof should the Company or the Issuer become a debtor in a proceeding commenced thereunder, and (C) the Substitute Letter of Credit and the Bonds are not required to be registered under the Securities Act of 1933, as amended, and the Indenture is not required to be qualified under the Trust Indenture Act of 1939, as amended. (e) At the close of business on the effective date of any Substitute Letter of Credit, the Trustee shall return the Existing Letter or Credit to the issuer thereof, provided that any draws on such Existing Letter of Credit made on or prior to such date have been honored. Any draws that under the terms of the Indenture, are to be made on the Letter of Credit on or prior to the effective date of a Substitute Letter of Credit shall be made under the Existing Letter of Credit not later than the close of business on the effective date of a Substitute Letter of Credit, the Bank shall deliver to the Trustee written evidence that all obligations of the Company to the issuer of the Existing Letter of Credit for reimbursement of amounts drawn thereunder shall have been satisfied, and upon receipt of such evidence any Bank Bonds held by the Tender Agent (as both said terms are defined in the Indenture) under the Indenture for the benefit of the issuer of the Existing Letter of Credit shall be delivered to, or upon the order of, the Company. -19- 23 (f) The Company may, at its option, provide for the delivery to the Trustee of an Alternate Credit Facility to supplement the Letter of Credit or to provide credit enhancement In place of a Letter of Credit. Any such Alternate Credit Facility shall be payable to the Trustee for the benefit of the Holders of the Bonds and shall have administrative provisions satisfactory to the Trustee. The preconditions for delivery of an Alternate Credit Facility shall be identical in substance to those detailed in this Section for delivery of a Substitute Letter of Credit with such modifications, however, as shall be appropriate to comport with the form and character of the Alternate Credit Facility. [END OF ARTICLE V] -20- 24 ARTICLE VI EVENTS OF DEFAULT AND REMEDIES Section 6.1 Events of Default. Any one or more of the following shall be an Event of Default under this Loan Agreement: (a) Failure by the Company to pay when due any Loan Payment or portion thereof. (b) Failure by the Company to observe or perform any other covenant, condition or agreement on its part to be observed or performed and continuation of such failure for a period of 30 days after receipt of notice thereof from the Trustee or the Issuer, or such longer period as may be reasonably necessary to cure such default so long as the Company is diligently pursuing such cure. (c) The occurrence and continuation of an "Event of Default" under and as defined in the Indenture or Reimbursement Agreement. (d) Any representation or warranty made by the Company herein (other than in Section 2.3 hereof) or in any document, certificate, or other instrument furnished in connection with this Loan Agreement or with the issuance and sale of the Bonds shall at any time prove to have been false or misleading in any material respect as of the time made. Section 6.2 Remedies on Default. Whenever any such Event of Default shall have happened and be continuing, the Trustee, as assignee of the Issuer and on its behalf, or (but only as to any Reserved Rights) the Issuer, may: (a) declare all Loan Payments payable under this Loan Agreement for the remainder of the term hereof to be immediately due and payable; (b) exercise any or all or any combination of the remedies specified in the Indenture; or (c) take whatever action at law or in equity may appear necessary or desirable to collect the Loan Payments, Additional Payments or other amounts then due hereunder, whether by declaration or otherwise, or to enforce any obligation, covenant or agreement of the Company under this Loan Agreement or arising by law. The Issuer may, without consent of the Trustee, waive any Event of Default hereunder with respect to Reserved Rights, and the Trustee may not, without the written consent of the Issuer, waive any Event of Default hereunder with respect to Reserved Rights. -21- 25 The provisions of this Section are subject to the limitation that any rescission by the Trustee, pursuant to Section 602 of the Indenture, of its declaration that all of the Bonds are immediately due and payable also shall constitute an annulment of any corresponding declaration made pursuant to paragraph (a) of this Section and a waiver and rescission of the consequences of that declaration and of the Event of Default with respect to which that declaration had been made; provided that no such waiver or rescission shall extend to or affect any subsequent or other default or impair any right consequent thereon. Section 6.3 No Remedy Exclusive. No remedy herein conferred upon or reserved to the Issuer or the Trustee is intended to be exclusive of any other available remedy or remedies, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given under this Loan Agreement or any related document or now or hereafter existing at law or in equity or by statute. No delay or omission to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to be a waiver thereof but any such right or power may be exercised from time to time and as often as may be deemed expedient. Section 6.4 Agreement to Pay Attorneys' Fees and Expenses. In the event the Company should default under any of the provisions of this Loan Agreement and the Issuer or the Trustee should employ attorneys or incur other expenses for the collection of Loan Payments or other sums due under this Loan Agreement or the enforcement of performance or observance of any obligation or agreement on the part of the Company herein contained, the Company will on demand therefor pay to the Issuer and the Trustee the reasonable fees of such attorneys and such other expenses so incurred; and such amounts shall bear interest at the Interest Rate for Advances from the date of demand to the date of payment Section 6.5 No Additional Waiver Implied by One Waiver. In the event any agreement contained in this Loan Agreement should be breached by either party and thereafter waived by the other party, such waiver shall be limited to the particular breach so waived and shall not be deemed to waive any other breach hereunder. [END OF ARTICLE VI] -22- 26 ARTICLE VII MISCELLANEOUS Section 7.1 Limitation of Issuer's Liability. (a) The covenants and agreements contained in this Loan Agreement shall never constitute or give rise to a personal or pecuniary liability or charge against the general credit of the Issuer, and in the event of a breach of any such covenant or agreement no personal or pecuniary liability or charge payable directly or indirectly from the general assets or revenues of the Issuer shall arise therefrom. Nothing contained in this Section, however, shall relieve the Issuer from the observance and performance of the covenants and agreements on its part contained herein. (b) Other than for willful or wanton acts: no recourse under or upon any covenant or agreement of this Loan Agreement shall be had against any past, present or future incorporator, officer or member of the Board of Directors of the Issuer, or any of its servants, agents or employees, or of any successor corporation, either directly or through the Issuer, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise; it being expressly understood that this Loan Agreement Is solely a corporate obligation, and that no personal liability whatever shall attach to, or is or shall be incurred by, any Incorporator, officer or member of the Board of Directors of the Issuer or any successor corporation, or any of them, under or by reason of the covenants or agreements contained in this Loan Agreement Section 7.2 Limitation of IDB's Liability. (a) The covenants and agreements contained in this Loan Agreement shall never constitute or give rise to a personal or pecuniary liability or charge against the general credit of the IDB, and in the event of a breach of any such covenant or agreement, no personal or pecuniary liability or charge payable directly or indirectly from the general assets or revenues of the IDB shall arise therefrom. Nothing contained in this Section, however, shall relieve the IDB from the observance and performance of the covenants and agreements on its part contained herein. (b) Other than for willful or wanton acts, no recourse under or upon any covenant or agreement of this Loan Agreement shall be had against any past, present or future incorporator, officer or member of the Board of Directors of the IDB, or any of its servants, agents or employees, or of any successor corporation, either directly or through the IDB, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise; it being expressly understood that this Loan Agreement is solely a corporate -23- 27 obligation, and that no personal liability whatever shall attach to, or is or shall be incurred by, any incorporator, officer or member of the Board of Directors of the IDB or any of its servants, agents or employees, or any successor corporation, or any of them, under or by reason of the covenants or agreements contained in this Loan Agreement. Section 7.3 Execution Counterparts. This Loan Agreement may be simultaneously executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument Section 7.4 Binding Effect; Assignability. This Loan Agreement shall inure to the benefit of, and shall be binding upon, the Issuer, the Company, the IDB and their respective successors and assigns. This Loan Agreement is assignable by the Company provided the Company remains primarily liable hereunder and under the Note, but may not be assigned by the Issuer except to the Trustee pursuant to the Indenture or as may otherwise be necessary to enforce or secure payment of Debt Service on and Purchase Price of the Bonds. Section 7.5 Amendments. So long as any of the Bonds are outstanding, this Loan Agreement may be amended only in writing signed by the parties hereto with the written consent of the Trustee and the Bank. Section 7.6 Severability. In the event any provision of this Loan Agreement shall be held invalid or unenforceable by any court of competent jurisdiction, such provision shall be deemed severed herefrom and such holding shall not invalidate or render unenforceable any other provision hereof. Section 7.7 Notices. Unless otherwise provided herein, all notices, certificates or other communications hereunder shall be sufficiently given and shall be deemed given when delivered or mailed by first class mail, postage prepaid, or overnight courier service, or sent by telegram, telex, telefax or other instantaneous transmission device (with hard copy via first class mail or overnight courier service), addressed as follows: (a) If to the Issuer, at State Industrial Development Authority, Alabama Center for Commerce, 401 Adams Avenue, Montgomery, Alabama 36130, Attention: President, Telefax No. (334) 242-2414; (b) If to the Trustee, at First Alabama Bank, Post Office Box 511 (zip 36101-0511), 8 Commerce Street (zip 36104), Montgomery, Alabama, Attention: Bruce Rinehart, Telefax No. (334) 832-8560; (c) If to the Company, (1) by mail or telegram, at c/o Capital One Partners, 1111 Chester Avenue, Cleveland, Ohio 44114, Attention: James M. Petras, Partner, and (ii) by Telefax, at (216) 781-0158; and -24- 28 (d) If to the IDB, at The Industrial Development Board of the City of Montgomery, Post Office Box 79, Montgomery, Alabama 36101, Attention: Chairman of the Board of Directors, Telefax No. (334) 265-4745. Any of the foregoing parties may, by notice given hereunder, designate any further or different addresses to which subsequent notices, certificates or other communications shall be sent. Section 7.8 Governing Law. This Loan Agreement shall be deemed to be a contract made under the laws of the State and for all purposes shall be governed by and construed in accordance with the laws of the State. Section 7.9 Term of Loan Agreement. Unless sooner terminated in accordance with the provisions hereof, this Loan Agreement will terminate on the date of payment in full of the Debt Service on the Bonds, whether at maturity or upon redemption or otherwise, provided (a) certain expenses (including Additional Payments then due) shall have been paid or provided for and (b) the covenant of the Company set forth in Section 5.2 hereof shall survive such termination. [END OF ARTICLE VII] -25- 29 IN WITNESS WHEREOF, the Issuer, the Company and the IDS applicable, caused this Loan Agreement to be executed in their respective names have caused their respective seals to be hereunto affixed, and have caused this Loan Agreement to be attested, all by their respective duly authorized officers, as of the date first hereinabove stated. STATE INDUSTRIAL DEVELOPMENT AUTHORITY (SEAL) ATTEST: By: /s/ -------------------------------------- Its [Vice] President /s/ - --------------------------- Secretary (SEAL) SIMCALA, INC. ATTEST: By: /s/ -------------------------------------- Name: ------------------------------- /s/ Title: - --------------------------- ------------------------------ Secretary (SEAL) THE INDUSTRIAL DEVELOPMENT BOARD OF THE CITY OF MONTGOMERY ATTEST: /s/ By: /s/ - --------------------------- -------------------------------------- Its [Assistant] Secretary Chairman of the Board of Directors -26- 30 ACKNOWLEDGMENT OF ISSUER STATE OF ALABAMA ) : MONTGOMERY COUNTY ) I, the undersigned Notary Public in and for said County in said State, hereby certify that Charles S. Snider, Jr., whose name as President of the State Industrial Development Authority is signed to the foregoing Loan Agreement and who is known to me and known to be such officer, acknowledged before me on this day that, being informed of the contents of said Loan Agreement, he, as such officer and with full authority, executed the same voluntarily for and as the act of the Authority. Given under my hand and official seal of office this 8th day of February, 1995. /s/ ------------------------------------ Notary Public My Commission Expires: 12-28/98 -------------- (SEAL) -27- 31 ACKNOWLEDGMENT OF COMPANY STATE OF ALABAMA ) : MONTGOMERY COUNTY ) I, the undersigned authority, a Notary Public in and for said County in said State, hereby certify that James M. Petras, whose name as President of SIMCALA, Inc., a Delaware corporation, is signed to the foregoing Loan Agreement and who is known to me, acknowledged before me on this day that, being informed of the contents of the Loan Agreement, he, as said officer and with full authority, executed the same on behalf of said corporation on the day same bears date. Given under my hand and official seal of office this 9th day of February, 1995. /s/ ------------------------------------ Notary Public My Commission Expires: 11-30-96 (SEAL) -28- 32 ACKNOWLEDGMENT OF IDB STATE OF ALABAMA ) : MONTGOMERY COUNTY ) I, the undersigned Notary Public in and for said County in said State, hereby certify that R. E. Thornton, Jr., whose signature as the Chairman of the Board of Directors of The Industrial Development Board of the City of Montgomery is signed to the foregoing Loan Agreement and who is known to me and known to be such officer, acknowledged before me on this day that being informed of the contents of said Loan Agreement, he, as such officer and with full authority, executed the same voluntarily for and as the act of said Board. Given under my hand and seal of office this 8th day of February, 1995. /s/ ------------------------------------ Notary Public My Commission Expires: Oct. 8, 1995 THIS INSTRUMENT WAS PREPARED BY: Roy S. Goldfinger, Esq. Kaufman & Rothfeder, P.C. 2740 Zelda Road, 3rd Floor Post Office Drawer 4540 Montgomery, Alabama 36103-4540 -29- 33 EXHIBIT A DESCRIPTION OF REALTY PARCEL 1 Begin at the Southeast Comer of Section 5, T-16-N, R-20-E, Montgomery County, Alabama; thence run along the South Line of said Section 5, S 87(degree) 05' 57' W, 1818.81 feet to a point, thence run N 01(degree) 53' 50" W, 1623.33 feet to an iron pin; thence run N 03(degree) 50' 08" E, 1038.55 feet to a concrete monument lying on the North Line of the Southeast Quarter of said Section; thence run N 87(degree) 34' 04" E, 1990.78 feet to a point at the Northeast Corner of the Southeast Quarter of said Section 5; thence run along the East Line of said Section, S 04(degree) 03' 41" W, 2657.77 feet to the point of beginning. Said described property lying and being situated in the Southeast Quarter of Section 5, T-16-N, R-20-E, Montgomery County, Alabama, and contains 117.693 acres, more or less. PARCEL 2 Begin at the Northeast Comer of the Southeast Quarter of Section 5, T-16-N, R-20-E, Montgomery County, Alabama; thence run along the North Line of the Southeast Quarter of Said Section, S 87(degree) 34' 04" W, 1990.78 feet to a concrete monument;, thence continue, S 87(degree) 34' 04" W, 663.34 feet to a concrete monument lying at the Northwest Comer of the Southeast Quarter of said Section 5; thence run N 04(degree) 03' 41" E, 90.10 feet to a point lying on the South right of way of CSX Railroad (100' ROW); thence run along said South right of way, N 87(degree) 00' 00" E, 2657.34 feet to a point lying on the East Line of said Section 5; thence run along said East Line, S 04(degree) 03' 41" W, 117.34 feet to the point of beginning. Said described property lying and being situated in the Northeast Quarter of Section 5, T-16-N, R-20-E, Montgomery County, Alabama, and contains 6.279 acres, more or less. PARCEL 3 Begin at a concrete monument at the Northwest Comer of the Southeast Quarter of Section 5. T-16-N, R-20-E, Montgomery County, Alabama, thence run S 87(degree) 33' 07" W, 661.96 feet to an iron pin; thence run S 87(degree) 33' 21" W, 671.78 feet to an iron pin; thence run N 04(degree) 03' 41" E 76.74 feet to a point lying on the South right of way of CSX Railroad; thence run along said South right of way, N 87(degree) 00' 00" E, 1335.32 feet to a point, thence run S 04(degree) 03' 41" W, 90.10 feet to the point of beginning. Said described parcel lying and being situated In the Northwest Quarter of Section 5, T-16-N, R-20-E, Montgomery County, Alabama, and contains 2.487 acres, more or less. -30- 34 EXHIBIT B FORM OF NOTE SIMCALA, Inc., a corporation duly organized and validly existing under the laws of the State of Delaware and qualified to transact business under the laws of the State of Alabama (the "Company"), and The Industrial Development Board of the City of Montgomery, a public corporation organized under the laws of the State of Alabama (the "IDB"), for value received, promise to pay (but in the case of the IDB, solely from the sources hereinafter provided) to First Alabama Bank, Montgomery, Alabama (the "Trustee") the principal sum of SIX MILLION AND NO/100 DOLLARS ($6,000,000) and to pay interest on the unpaid balance of such principal sum from and after the date of execution and delivery hereof at the rate per annum from time to time borne by the Bonds hereinafter defined until the payment of such principal sum has been made or provided for. This Note has been executed and delivered by the Company and the IDB to the Trustee pursuant to, a certain Loan Agreement dated as of January 1, 1995 (the "Agreement") between the State Industrial Development Authority (the "Issuer" and the Company and the IDB. Terms used but not defined herein shall have the meanings given to them in the Agreement. Under the Agreement, the Issuer has loaned the Company the principal proceeds received from the sale of the Issuers $6,000,000 aggregate principal amount of Taxable Industrial Revenue Bonds (SIMCALA, Inc. Project) Series 1995 (the "Bonds"') to assist in the financing of the Project, and the Company has agreed to repay such loan by making payments ("Loan Payments") at such times and in such amounts as shall be sufficient to pay when due (whether at maturity or upon redemption or acceleration) the principal of and interest on ("Debt Service") the Bonds and the Purchase Price of Bonds due on any Tender Date. Pursuant to the Indenture, the Issuer has assigned to the Trustee all its rights under the Agreement other than the Reserved Rights. All Loan Payments shall be payable in lawful money of the United States of America and shall be made to the Trustee, for the account of the Issuer, and applied by the Trustee to pay the Debt Service on or Purchase Price of the Bonds as and when due or to reimburse the Bank for amounts drawn under the Letter of Credit to pay such Debt Service or Purchase Price. The obligation of the Company to make the Loan Payments shall be absolute and unconditional and the Company shall make such payments without abatement, diminution or deduction, regardless of any cause or circumstances whatsoever, including without limitation any defense, set-off, recoupment or counterclaim which the Company may have or assert against the Issuer, the Bank, the Trustee, to IDS or any other person. The obligation of the IDS to make Loan Payments under the Agreement and this Note is -31- 35 limited solely to the Basic Rent payable by the Company to the IDS under the Lease Agreement and any other revenues and receipts derived from the leasing of the Project under the Lease Agreement (excluding, however, any such revenues and receipts payable to the IDS as part of its Unassigned Rights, as defined in the Lease Agreement). This Note shall be subject to prepayment prior to maturity at times and in amounts corresponding to the redemption provisions of the Bonds. Any notice or redemption of the Bonds shall be deemed to be a notice of prepayment of the Note. If an Event of Default occurs and is continuing under the terms of the Agreement the principal of this Note and the interest accrued hereon may be declared due and payable in the manner and with the effect provided in the Agreement. [BALANCE OF PAGE INTENTIONALLY LEFT BLANK] -32- 36 IN WITNESS WHEREOF, each of the Company and the IDB has caused this Note to be executed in its name by its duly authorized officer, as of this ____ day of February, 1995. SIMCALA, INC. (SEAL) By: ------------------------------------------- President ATTEST: - --------------------------- Assistant Secretary THE INDUSTRIAL DEVELOPMENT BOARD OF THE CITY OF MONTGOMERY (SEAL) By: ------------------------------------------- Chairman of the Board of Directors ATTEST: - --------------------------- Its [Assistant] Secretary -33- EX-10.9 20 CONTRACT FOR ELECTRIC POWER 1 EXHIBIT 10.9 Certain portions of this exhibit have been deleted and confidentially filed with the Securities and Exchange Commission pursuant to a confidential treatment request under Rule 406 under the Securities Act of 1933, as amended. The confidential portions of the exhibit that have been deleted are indicated by "[*****]" inserted in place of such confidential information. Contract for Electric Power Rate HLF, Transmission Delivery AGREEMENT made this ______ day of February, 1995, by and between ALABAMA POWER COMPANY, hereinafter called the Company, and SIMCALA, INC., a Delaware corporation, hereinafter called the Consumer. IN CONSIDERATION of the mutual agreements hereinafter contained, IT IS AGREED: FIRST: That during the term of five (5) years from the beginning of service (not later than the 8th day of February, 1995), and thereafter until the expiration of at least one (1) year written notice by either party to the other party of its intention to terminate this agreement. The Company shall maintain sufficient line and transformer capacity to enable it to sell and deliver electric power to the Consumer at a delivery point in Montgomery County, Alabama described a follows: The point of connection between the Company's 115,000 volt conductors and the Consumer's 115,000 volt conductors at the Consumer's silicon metal plant premises near Mt. Meigs. Service provided shall be for a capacity of [****] kilowatts in the form of three-phase alternating current at approximately sixty hertz, from the Company's 110,000 volt Transmission line. SECOND: The Consumer's capacity (KVA or KW) and energy (KWH) used by the Consumer shall be measured by meters and instruments installed and owned by the Company. The Consumer shall pay a charge based on capacity established and energy used each month in accordance with the rate schedule attached hereto and made a part hereof or the lawful rate schedule which may replace the same pursuant to regulation by the Alabama Public Service Commission or its successor in function. Unless otherwise expressly provided, the words "month" and "monthly" as used herein and in the applicable rate schedule shall not mean or refer to a calendar month, but shall mean and refer to the period between consecutive meter readings. Meters will be read by the Company at appropriate intervals to determine the Consumer's capacity and the amount of energy used for billing in accordance with the applicable rate schedule. [*] Confidential treatment requested 2 THIRD: A bill for the service supplied hereunder shall be rendered by the Company for each month, and, if not paid at the Company's office within ten (10) days next succeeding the due date of such bill, the Company may, at any time thereafter, upon five days' written notice, suspend service, and, if not paid within another period of fifteen (15) days, the Company may, at its option, treat this agreement as terminated, and at an end, whereupon all rights of the Consumer hereunder shall cease. The Consumer shall make weekly advance payments of an estimated one (1) week power bill, until such time as Consumer's credit is approved by the Company. The Company may, at its discretion, allow the Consumer to make advance payments on other terms, such as bimonthly, during the period prior to approval of the Consumer's credit by the Company. The Company may however, extend the time for paying any one or more bills, or any part thereof, and its action in so doing, whether by taking note of the Consumer or anyone else with or without security or merely extending the time for paying such bill or bills, shall be without prejudice, and by so doing the Company shall not be held or considered as waiving any of its rights hereunder, including its right at its option, thereafter to suspend service and/or to treat this agreement as terminated and at an end. FOURTH: All transformers, lines, wiring, switches, apparatus, appliances, materials and equipment essential to render service (hereinafter "equipment") up to the delivery point described in Article FIRST hereof, and all the Company's metering equipment wherever placed, shall be owned, maintained and operated by the Company, and shall at all times be subject to its inspection, repair, replacement or alteration, and removable at its option. The Consumer shall supply and prepare without charge to the Company a suitable site or sites for such transformer substation as may be needed and shall also supply, without charge to the Company, suitable accommodations for the Company's metering equipment. All equipment on the Consumer's side of said delivery point shall be supplied, owned, maintained and operated by and at the expense of the Consumer with a view of securing a power factor as near 90% lagging as may be deemed satisfactory for the Company. The Consumer shall be responsible for the maintenance, repair and replacement of all equipment located an the Consumer's side of said delivery point, and the Consumer agrees to keep Company's equipment safe and in good operating condition and the Company shall not be held liable for accidents or injuries or damages of any kind due to the condition of the Consumer's equipment and the operation, maintenance and repair and replacement thereof. The Company shall not be in any way responsible for the transmission or control of said electric energy on the Consumer's side of said delivery point and the Company shall not be liable on account of injuries to persons or damages to property resulting in any manner from the receipt, use or application by the Consumer of such electric energy. The Company may, however, refuse to render service or may discontinue service at any time and from time to time if the Consumer's equipment is hazardous, or if the operation of such equipment adversely affects the safe and economical operation of the Company's system, or if the operation of such equipment adversely affects service to other Consumers. - 2 - 3 Each party hereto shall use reasonable diligence not to damage the electrical equipment of the other and each party hereto shall reimburse the other party for any injury to employees of the other party or damage to the electrical equipment of the other party resulting from defects in the operation and maintenance of its own electrical equipment or resulting from its negligence or that of its agents or employees, and each party hereto shall indemnify the other party against liability for injury or damage suffered by third parties from any such defects and/or negligence. The Consumer shall allow the Company free access and entry to the Consumer's properties and premises and the Consumer hereby agrees to convey to the Company such rights of way for transmission lines and easements for such transformer substations on, over, and across the Consumer's property and premises as may be required for the purpose of rendering service to the Consumer and to others who may be economically served from such transmission lines and substations. FIFTH: If at any time the Consumer desires to increase the capacity required to be maintained by the Company pursuant to the provisions of Article FIRST hereof, ninety days' written notice thereof shall be given to the Company, and the Company shall then make the required increase subject to the availability of equipment and to the rules, regulations and conditions under which the Company may then be operating. Should the capacity herein required to be maintained exceed the Consumer's maximum integrated fifteen-minute capacity by 25% or more for a period of six consecutive months, the Company may upon thirty (30) days' written notice, decrease the said required capacity to approximately the amount of such maximum integrated fifteen-minute capacity, subject to increase again only as above provided. In the event the Consumer's maximum integrated fifteen-minute capacity exceeds the capacity required to be maintained hereunder, the supplying of such capacity by the Company shall not be deemed to constitute a waiver of the aforesaid notice and the Consumer will reduce such maximum capacity to the capacity stated in Article FIRST at any time upon written notice from the Company and will thereafter keep within said capacity until increased as herein provided. The Consumer shall be liable for all damages resulting to the Company by reason of any such excess or excesses. The Company may interrupt the service without notice at any time a momentary overload shall exceed said capacity by more than 50%, but shall be under no duty to do so. SIXTH: Electric energy furnished hereunder may be used by the Consumer for lighting and other purposes incidental and necessary to the primary operations of the Consumer. The Company, however, shall be under no duty or obligation hereunder to render a reduced or regulated voltage suitable for such lighting service or critical leads sensitive to voltage fluctuations. In the event the voltage or the regulation of the energy furnished hereunder is found by the Consumer to be unsatisfactory for such purposes, suitable voltage regulating and transforming apparatus may be installed at the expense of the Consumer. - 3 - 4 The Consumer agrees not to use any electric power at the premises served hereby other than that furnished hereunder without the written consent of the Company, and the Consumer further agrees not to sell or dispose of any power furnished hereunder, or which may be generated directly or indirectly therefrom, without the written consent of the Company. SEVENTH: The obligations of the Company hereunder are dependent upon its securing and retaining the necessary rights, easements, privileges, franchises, permits and equipment and the Company shall not be liable to the Consumer in the event it is delayed in the delivery of power or is prevented from delivering the power herein provided for by its inability to secure and retain such rights, easements, privileges, franchises, permits and equipment. In the event the Company is delayed in delivering power from any of the above causes, the time fixed for the commencement of the term of this Agreement shall be extended for a period equal to such delay. If the delivery of electric power is interrupted due to an act of God or nature, such as but not limited to, wind, lightning, storms or flood, or from injunction or strike, or from riot or invasion, or from fire or accident, or from breakdown or failure of its system or from maintenance or repairs of its system, or temporarily from connecting new customers or from interruption in an emergency threatening the integrity of its system, or from any other cause reasonably beyond the Company's control, the Company shall not be liable to the Consumer for such interruption but shall use its best efforts to restore the service promptly. During such interruptions, the Consumer shall have the right to use such other power as may be available, provided that Company-owned facilities are not energized from another power source. The obligations of the Company under this agreement are subject to all laws, rules and regulations under which the Company may from time to time be operating and are further dependent upon and subject to the demands or priorities of the United States Government and the State of Alabama, and the Company shall not be obligated hereunder to continue the delivery of any quantity of electric power in the event it is required to supply such power to the United States Government or to the State of Alabama or to any person, firm, corporation or governmental entity designated by the United States Government or the State or Alabama. In the event the Consumer shall make an assignment for the benefit of the Consumer's creditors, or voluntary or involuntary proceedings in bankruptcy are initiated seeking to adjudge the Consumer a bankrupt, or if the Consumer be adjudged a bankrupt, or if the Consumer's affairs be placed in the hands of any court for administration or if the Consumer shall fail to comply with the terms hereof, this agreement shall, at the Company's Option, thereupon terminate and be at an end. EIGHTH: A waiver of one or more defaults by either party hereto shall not be considered a waiver of any other or subsequent default by such party. - 4 - 5 NINTH: Before this agreement shall be binding upon the Company it must be approved in writing and endorsed below by an authorized official of the Company. All previous communications between the parties hereto, whether verbal or written, with reference to the subject matter of this agreement are hereby abrogated, and no modification hereof shall be binding unless it shall be in writing duly accepted by the Consumer and approved by an authorized official of the Company. This agreement shall not be assigned by the Consumer without the written consent of the Company. TENTH: Article TENTH consisting of two (2) pages is attached to and made a part of this contract. The information contained in this Article TENTH is customer confidential and proprietary information. ELEVENTH: This contract shall not become effective until it has been filed with and approved by the Alabama Public Service Commission, whereupon it will cancel and supersede the contract between the Company and Ohio Ferro-Alloys Corporation dated February 3, 1987. ALABAMA POWER COMPANY SIMCALA, INC. By: /s/ - ------------------------------------ ------------------------------- Consumer Manager-Power Contracts By: /s/ --------------------------------- Approved: President ALABAMA POWER COMPANY - ------------------------------------ Official Capacity By: /s/ ------------------------------- Its: Vice President - Marketing - 5 - 6 CUSTOMER CONFIDENTIAL ARTICLE TENTH INCREMENTAL ENERGY Attached to and made a part of the Contract for Electric Power between Alabama Power Company (hereinafter called "the Company") and Simcala, Inc. (hereinafter called "the Consumer") dated ______________________________ . WHEREAS, by reason of the Consumer's unusual operations and particularly since the Consumer can, upon notice from the Company, reduce its electric load to a predetermined level and is willing to do so, the Company agrees to supply Incremental Energy in lieu of the HLF Capacity required to be maintained in Article FIRST of this Contract, in accordance with the provisions set forth below. (A) DEFINITIONS (1) "Incremental Energy" or "IE" means that energy consumed by the submerged arc furnaces. These loads are defined as electrothermal loads and may be exempt by the State of Alabama Department of Revenue from certain state utility taxes. (2) "IE Capacity" means the capacity associated with Incremental Energy (IE) and shall be the maximum Integrated fifteen (15) minute capacity during each billing period measured in kilowatts (KW) by an appropriate capacity meter, but not less than [****] KW. (B) CHARGES: The charges for IE effective January 31, 1995 are as follows: BILLING MONTHS OF JUNE THROUGH OCTOBER 10:00 A.M. - 9:00 P.M., Monday through Friday [****] cents/KWH All other hours [****] cents/KWH [*] Confidential treatment requested 7 BILLING MONTHS OF NOVEMBER THROUGH MAY 7:00 A.M. - 9:00 P.M., Monday through Friday [****] cents/KWH All other hours [****] cents/KWH Charges for IE are subject to the provisions of the Company's Rate ECR (Energy Cost Recovery), Rate RSE (Rate Stabilization and Equalization), Rate CNP (Adjustment for Commercial Operation of Certified New Plant), Rate T (Tax Adjustment) or its successor(s) in function. (C) INTERRUPTION OF INCREMENTAL ENERGY SERVICE The delivery of the IE Capacity shall be subject to suspension at the Company's discretion, as set forth below. No credits are associated with the suspension of the delivery of IE Capacity. Upon four (4) hour's advance notice from the Company to the Consumer (except, however, in the event of an emergency on the Company's system, the time specified in the notice shall be for such shorter time period, as little as fifteen (15) minutes, as the emergency circumstances may, in the Company's judgment, require), the delivery of IE shall be subject to suspension for any period or periods of time, except as limited hereinafter. Such notice may be either oral or written, but if given orally shall be promptly confirmed in writing to the Consumer's representative designated to receive such notices. Any continuous period during which the deliver of IE is suspended is hereinafter referred to as a "Suspension Period." The total time of Suspension Periods associated with IE shall not exceed eight (8) hours per day nor six hundred (600) hours per calendar year. There shall be only one (1) such Suspension Period per day, and no more than five (5) such Suspension Periods during any week (Sunday through Saturday). (D) The Consumer agrees that whenever the Company suspends delivery of IE Capacity, it will reduce its load to 2,000 KW or to such lesser amount as the Consumer, at its option, may desire. [*] Confidential treatment requested - 2 - 8 (E) The Consumer shall pay a compliance incentive of [***] for each KW of IE Capacity above 2,000 KW taken by the Consumer during each such Suspension Period imposed during the term of this Contract. (F) The MINIMUM BILL provisions of Rate HLF will apply to the IE Capacity as defined in paragraph (A)(2) above. [*] Confidential treatment requested. - 3 - 9 AMENDMENT NO. 1 TO THE CONTRACT FOR ELECTRIC POWER THIS AMENDMENT is entered into as of July 8, 1997, by and between SIMCALA, INC., a Delaware corporation ("Customer"), and ALABAMA POWER COMPANY ("Company"). WHEREAS, the Company and the Customer have entered into a Contract for Electric Power dated February 8, 1995 for electric service to the Customer's silicon metal plant located near Mt. Meigs; and WHEREAS, the Customer desires to change the Contract capacity requirements of the plant to incorporate an additional furnace at the plant; and WHEREAS, the Company is willing to make such changes under the terms and conditions set forth below: NOW THEREFORE, in consideration of the premises and the mutual covenants of the parties, the parties agree as follows: 1. As of the effective date set forth above, the Capacity references in Article FIRST and TENTH of the Contract shall be revised by deleting the reference to [****] KW and substituting [****] KW. Except as modified by this Amendment No. 1, all terms and conditions of the Contract shall remain in full force and effect. WHEREFORE, each of the parties has executed this Amendment as of the effective date hereof by its duly authorized representatives. SIMCALA, INC. ALABAMA POWER COMPANY By: /s/ By: /s/ -------------------------------- ------------------------------ Its: Pres/CEO Its: VP - Marketing -------------------------------- ------------------------------- [*] Confidential treatment requested EX-10.10 21 SUPPLY AGREEMENT DATED 8/3/97 1 EXHIBIT 10.10 Certain portions of this exhibit have been deleted and confidentially filed with the Securities and Exchange Commission pursuant to a confidential treatment request under Rule 406 under the Securities Act of 1933, as amended. The confidential portions of the exhibit that have been deleted are indicted by "[*****]" inserted in place of such confidential information. SUPPLY AGREEMENT 1. CONTRACT DURATION: This Agreement shall be effective January 1, 1997 and continue for a period of three years through December 31, 1999 and year to year thereafter unless canceled by either party upon 180 days written notice prior to the expiry of the initial term or any renewal thereof. 2. Simcala, Inc. agrees to sell and Alcan agrees to buy effective January 1, 1997 [********************************************] of silicon metal per year. This tonnage [**********************************************] for Alcan Sebree. Shipments will be in approximately equal monthly increments. One month prior to the start of each quarter, the Alcan and Simcala representatives [********************************************** *********************************************************************** **********************************************************************] one month prior to the start of each quarter. 3. Shipping terms: [*********************] 4. Pricing: The first quarter 1997 price will be [****]/pound of [*******] silicon metal. [************************************************************** ********************************************]. Simcala and Alcan will exchange non-confidential market information to facilitate the pricing process. 5. Quality: [****************************************************] Specification: [** ** **** ** **** ** **** ** **** ** **** ** ****] [********************************************************************** *********************************************] [*********************************************************] Shipments in bulk truckload quantities. [*] Confidential treatment requested 2 Reference the attached Alcan General Purchasing Specification for silicon metal - GP-S-3 Rev. #2, effective 4/30/96. 6. Terms: [***************************************************] 7. Above pricing will cover shipments [********************************** **************************************************************]. 8. Asset Disposal: Should Alcan dispose of any of their plants with their demands for silicon covered by this Supply Agreement both Alcan and Simcala agrees to meet to discuss the affected volume. Once an agreement is reached on the volume, an amendment to the Supply Agreement will be issued in writing. If no agreement is reached within 90 days of such asset disposal, an automatic adjustment of the volume equivalent to the average of the last 9 month releases to the Company, the assets of which have been disposed of by Alcan, will be applied to the monthly releases under this Agreement, for the remaining term of it. 9. All and any silicon metal purchased through this contract will be for Alcan's consumption within the United States or any other Alcan location outside the United States, this latter case however only after mutual agreement confirmed in writing by Simcala. 10. Any resale of silicon metal out of this contract is not permitted. 11. Warranties and Claims: Seller warrants that (a) the Product sold hereunder will conform to the description herein set forth, within the tolerances of Buyer's specification as described herein; (b) such Product will not be defective in material or workmanship; (c) the title to such Product which Seller will convey to Buyer will be good and marketable; (d) the transfer of such Product by Seller to Buyer will be rightful and (e) such Product will be delivered free from any security interest or other lien or encumbrance created by, or otherwise arising out of acts or omissions of Seller. In the event of a breach of any warranty by Seller given hereby as to the Product herein. Seller will be notified thereof by Buyer promptly after discovery thereof and in any event within 90 days after receipt of such Product by Buyer or in case of any breach which cannot reasonably be detected by Buyer within 10 days after such detection, and in any event within one year after receipt of such Product by Buyer. If such breach has occurred, and such timely notice has been given, Seller will, at Buyer's option, repair or replace such Product or refund or appropriately adjust the purchase price thereof, or, in the case of a [*] Confidential treatment requested - 2 - 3 breach in warranties (c), (d), or (e) above, take other appropriate action to remedy such breach; disposition of such Product to be repaired or replaced or as to which a refund is to be made shall be pursuant to Buyer's directions and at Seller's expense, Seller will be given a reasonable opportunity to investigate all claims and Buyer will cooperate in any such investigation. 12. Fairness Clause: If for any reason beyond the control of the parties, economic circumstances, including the introduction of any future sales and/or added value taxes in the United States, change in such a way the execution of this Agreement or any part thereof would cause undue hardship to either one or both of the parties, or unduly favor one to the detriment of the other, the parties shall consult with each other to find a mutually acceptable and equitable solution with respect thereto. In the event within ninety days of a claim of hardship of either party, no solution will be agreed to, this agreement can be canceled within a term of further 180 days. 13. Severability of Terms: This Agreement and every provision hereof shall be deemed to be severable, and in the event that any Article, Paragraph, or Provision hereby is invalid or illegal, or in the event any Article, Paragraph or Provision hereof shall be construed as preventing the formation of a valid binding contract between the parties to this Agreement, any such Article, Paragraph or Provision shall be deemed to be stricken from this Agreement, and the remainder of this Agreement shall continue to be in full force and effect as though such Article, Paragraph or Provision was not contained in this Agreement. 14. Assignment: This Agreement shall not be assignable, as to assignment of rights and/or delegation of duties, in whole or in part by either party or by operation of law in any matter whatsoever (including but not limited to voluntary or involuntary bankruptcy, receivership, dissolution, liquidation or death) without the other party's prior written consent which shall not be unreasonably withheld, but otherwise shall be binding upon and shall inure to the benefit of the parties, their representatives, successors and assigns. 15. Force Majure: Neither Alcan nor Simcala shall be liable for any delay or failure in fulfilling their obligations under this Agreement in case such delay or failure is caused by strike or other labor dispute, acts or laws of federal, state, or local governments, war, civil insurrection, Acts of God, or any other reason not subject to Alcan's or Simcala's reasonable control which cannot be prevented or overcome by the reasonable diligence or action of Alcan or Simcala. 16. Additional Terms: This Agreement together with Alcan's "Conditions of Order", a copy of which is on the reverse side of Alcan's Purchase Order, constitute the entire agreement between the parties for the Product. - 3 - 4 All and any of the conditions of this Agreement supersede Alcan's "Conditions of Order" where conflicts exist. No other terms shall be valid unless in writing and signed by the parties hereto. 17. Applicable Law: This Agreement shall be governed as to all matters affecting its validity, construction or performance by the laws of Ohio. Executed as of August 3, 1997. SIMCALA, INC. BY: /s/ --------------------------------- ALCAN ALUMINUM LTD. BY: /s/ --------------------------------- - 4 - EX-10.11 22 SUPPLY AGREEMENT DATED 12/10/96 1 EXHIBIT 10.11 Certain portions of this exhibit have been deleted and confidentially filed with the Securities and Exchange Commission pursuant to a confidential treatment request under Rule 406 under the Securities Act of 1933, as amended. The confidential portions of the exhibit that have been deleted are indicated by "[*****]" inserted in place of such confidential information. SILICON METAL PURCHASE AGREEMENT ITEM: [********************] Silicon Metal [*************************] [***************] Size: [*****************************] Shipped in bulk truckload quantities DURATION: Jan. 1, 1997-Dec. 31, 1998 QUANTITY: A) [*****] tons/month [***********] distributed as: [***] tons [************] [*****] tons [***********************] B) As less [**********] is generated, tonnage lost is converted to additional [*********] tons TERMS: [******************************************** ***************************************************] Review [********************************] (if needed) PRICE: [*****************] is [**] cents/pound. Price [*************************************************** ******************************************************** ******************************************************** ********************************************************] end of the contract. The Wabash price [********************** *************]. [******************] is [***] cents/pound for 1997. Price for 1998 [*********]. CANCEL: Must be written with six (6) month's advance notice. /s/ 12/10/96 - --------------------------------- --------------------------------- Wabash Alloys Date /s/ 12/15/96 - --------------------------------- --------------------------------- SIMCALA Date [*] Confidential treatment requested EX-10.12 23 SUPPLY AGREEMENT DATED 12/10/96 1 EXHIBIT 10.12 Certain portions of this exhibit have been deleted and confidentially filed with the Securities and Exchange Commission pursuant to a confidential treatment request under Rule 406 under the Securities Act of 1933, as amended. The confidential portions of the exhibit that have been deleted are indicated by "[*****]" inserted in place of such confidential information. SILICON METAL PURCHASE AGREEMENT ITEM: [******] Silicon Metal Size: [*************************************] Shipped in bulk truckload quantities DURATION: Jan. 1, 1997-Dec. 31, 1998 QUANTITY: A) [*******] silicon available as generated [*****************************] Delivery schedule to match [***] as generated B) As less [******] is generated, tonnage lost is converted to additional [*********] tons TERMS: [****************************************** *******************************************] Review [******************************] (if needed) PRICE: [******] silicon having a content of up to [**********] priced at [***************************] silicon [*******************************************] on the shipment invoice The Wabash price [*****************************] CANCEL: Must be written with six (6) month's advance notice /s/ 12/10/96 - --------------------------------- --------------------------------- Wabash Alloys Date /s/ 12/15/96 - --------------------------------- --------------------------------- SIMCALA Date [*] Confidential treatment requested EX-10.13 24 EMPLOYMENT AGREEMENT - DWIGHT L. GOFF 1 EXHIBIT 10.13 EMPLOYMENT AND CONFIDENTIALITY AGREEMENT THIS EMPLOYMENT AND CONFIDENTIALITY AGREEMENT (this "Agreement") is made February 10, 1998, between SAC ACQUISITION CORP., a Georgia corporation (the "Company"), and DWIGHT L. GOFF, a resident of the State of Alabama ("Executive"). BACKGROUND On the date of this Agreement and pursuant to that certain Stock Purchase Agreement (the "Stock Purchase Agreement") dated February 10, 1998 by and among the Company, the Executive, Simcala, Inc., a Delaware corporation (the "Target"), Charter Oak Partners, Capital One Investors, Carl Edward Boardwine, R. Myles Cowan, and George W. Rapp, Jr., the Company has agreed to acquire all of the capital stock of the Target. Executive is an employee of the Target, and, subject to the consummation of the transactions contemplated under the Stock Purchase Agreement, the Company desires to cause Target to employ the Executive in the capacities and on the terms and conditions set forth below. Executive desires to accept employment on the terms and conditions set forth below. AGREEMENT NOW, THEREFORE, for and in consideration of the employment and continued employment of Executive by Target, the premises, and the mutual agreements hereinafter set forth, the parties agree as follows: 1. Definitions. The following terms used herein shall have the definitions set forth below: (a) "Affiliate" means any person or entity directly or indirectly controlling, controlled by, or under common control with another person. (b) "Area" means the territorial United States. (c) "Business" or "Business of the Company" means the business of the manufacture, production, development, sale, and distribution of silicon metals. (d) "Cause" means (i) conduct amounting to fraud or dishonesty against the Target or any subsidiary or Affiliate of the Target; (ii) Executive's intentional misconduct or repeated refusal to follow the reasonable directions of the Board of Directors of the Target, provided an officer of the Target, upon the direction of the Board of Directors, notifies Executive of the acts deemed to constitute such intentional misconduct or repeated refusal in writing and Executive fails to correct such acts (or 2 begins such action as may be necessary to correct such acts and thereafter diligently pursues the completion thereof) within five (5) business days after written notice has been given; (iii) repeated absences from work without a reasonable excuse, (iv) repeated intoxication with alcohol or drugs while on Target business during regular business hours; (v) a conviction or plea of guilty or nolo contendere to a felony (other than one arising from the operation of a motor vehicle or resulting from actions taken (or not taken) by Executive in good faith in his capacity as an employee or officer of the Target; or (vi) a breach or violation by the Executive of any material terms of this Agreement or any other agreement to which Executive and the Target are a party. (e) "Competing Enterprise" means any person or any business organization of whatever form, engaged directly or indirectly within the Area in the Business of the Company. (f) "Disability" means (i) the inability of Executive to perform the duties of Executive's employment due to physical or emotional incapacity or illness, where such inability is expected to be of long-continued and indefinite duration, or (ii) Executive shall be entitled to (x) disability retirement benefits under the federal Social Security Act or (y) recover benefits under any long-term disability plan or policy maintained by the Company. In the event of a dispute, the determination of Disability shall be made reasonably by the Board of Directors of the Target and shall be supported by advice of a physician competent in the area to which such Disability relates. (g) "Effective Date of Termination" means the later of the last day on which Executive performs any duties of his employment as a full-time employee of the Target hereunder or the effective date of the termination of Executive's employment hereunder specified in any notice of termination of such employment given by the Target as permitted herein. (h) "Excluded Information" means any data or information that is a Trade Secret hereunder (i) that has been voluntarily disclosed to the public by the Target or any Affiliate thereof or has become generally known to the public (except where such public disclosure has been made by or through Executive or by a third person or entity with the knowledge of Executive without authorization by the Target); (ii) that has been independently developed and disclosed by parties other than Executive or the Target or any Affiliate thereof to Executive or to the public generally without a breach of any obligation of confidentiality by any such person running directly or indirectly to the Target or any Affiliate thereof; or (iii) that otherwise enters the public domain through lawful means. (i) "Subsidiary" means any subsidiary of the Company. (j) "Trade Secrets" means information which derives economic value, actual or potential, from not being generally known and not being readily ascertainable to other persons who can obtain economic value from its disclosure or use and which is the - 2 - 3 subject of efforts that are reasonable under the circumstances to maintain its secrecy or confidentiality. Trade Secrets may include either technical or non-technical data, including without limitation, (i) any useful process, machine, chemical formula, composition of matter, or other device which (A) is new or which Executive has a reasonable basis to believe may be new, (B) is being used or studied by the Target or any Affiliate thereof and is not described in a printed patent or in any literature already published and distributed externally by the Target or any Affiliate thereof, and (C) is not readily ascertainable from inspection of a product of the Target or any Affiliate thereof; (ii) any engineering, technical, or product specifications including those features used in any current product of the Target or any Affiliate thereof or to be used, or the use of which is contemplated, in a future product of the Target or any Affiliate thereof; (iii) any application, operating system, communication system, or other computer software (whether in source or object code) and all flow charts, algorithms, coding sheets, routines, subroutines, compilers, assemblers, design concepts, test data, documentation, or manuals related thereto, whether or not copyrighted, patented or patentable, related to or used in the Business of the Target or any Affiliate thereof; or (iv) information concerning the customers, suppliers, products, pricing strategies of the Target or any Affiliate thereof, personnel assignments and policies of the Target, or matters concerning the financial affairs and management of the Target or any Affiliate thereof; provided however, that Trade Secrets shall not include any Excluded Information. 2. Terms of Engagement; Duties (a) Effective as of the date of the closing of the transactions contemplated by the Agreement (the "Closing Date"), Target employs Executive as Executive Vice President of Target. In such capacity Executive shall report to the President of Target, and shall perform such duties and responsibilities relating to the Business of Target as may be assigned or delegated to him from time to time by the Board of Directors of Target or its designee. (b) Executive accepts such employment and agrees to: (i) devote substantially all of Executive's effort, time, energy, and skill (reasonable vacations and reasonable absences due to illness excepted) during regular business hours to the duties of his employment hereunder; (ii) faithfully, loyally, and industriously perform such duties, subject to the supervision of the Board of Directors of Target; and (iii) diligently follow and implement all lawful management policies and decisions of Target that are communicated to Executive. - 3 - 4 (c) During the Term of this Agreement, Executive shall not engage (whether or not during normal business hours) in any other business or professional activity, whether or not such activity is pursued for gain, profit or other pecuniary advantage; but this shall not be construed as preventing Executive from (i) investing his personal assets in businesses which do not compete with the Business of the Company or any Affiliate thereof in such form or manner as will not require any services on the part of Executive in the operation or the affairs of the entities in which such investments are made and in which his participation is solely that of an investor, or (ii) purchasing securities in any corporation whose securities are regularly traded on a national securities exchange, provided that such purchase does not result in Executive collectively owning beneficially at any time five (5%) percent or more of the voting securities of any Competing Enterprise or any Affiliate thereof. 3. Compensation. (a) In consideration of the services rendered by Executive pursuant to this Agreement, Target shall pay to Executive a base salary of One Hundred Thousand Dollars ($100,000) per annum (the "Base Salary"), which Base Salary will be reviewed periodically and may be increased by Target from time to time. The Base Salary shall be paid in accordance with Target's standard payroll practices in effect from time to time. All amounts payable to Executive hereunder shall be subject to such deductions and withholdings as are required by law or by policies of Target. (b) Executive shall be eligible to receive an annual bonus in the amount of up to 65% of the Base Salary then being paid to Executive, pursuant to an executive incentive plan to be established by Target's Board of Directors. The award and payment of any such bonus, and the amount thereof if awarded and paid, shall be calculated as follows: fifty (50%) percent of the award shall be based upon EBITDA of the Target. During the first three years of the Term, and in the event EBITDA of the Target is equal to or greater than Ten Million Dollars, such fifty percent amount of the award shall be pro-rated on an increasing sliding scale from 0% to 100% of this portion between an EBITDA of at least $9,999,999.00 (whereupon none of the 50% bonus shall be awarded) and a maximum of $13,000,000.00 (whereupon all of the 50% bonus shall be awarded). In subsequent years of the Term, the Target's Board of Directors shall determine in its sole discretion the targeted EBITDA for such fifty (50%) percent portion of the Bonus. The remaining 50% of the bonus shall be awarded and paid in the sole discretion of the Board of Directors of Target. (c) Executive shall also have the right to participate in any medical, hospitalization, dental, disability income, life or other similar insurance plans maintained by Target from time to time to the extent that Executive's position, tenure, salary, age, health and other qualifications make him eligible to participate, and such other fringe benefits as are provided to the other senior management employees of Target, provided that Target shall not be required to adopt or continue any insurance plans or fringe benefit plans. - 4 - 5 (d) Target shall reimburse Executive for all reasonable business expenses incurred by Executive in connection with the business of the Company subject to compliance with the expense reimbursement policies established by Target and in sufficient detail to comply with Internal Revenue Service Regulations. (e) Except for stock incentive awards which may be granted from time to time to Executive, the remuneration and benefits set forth in this Section 3 shall be the only compensation payable to Executive with respect to his employment hereunder, and Executive shall not be entitled to receive any compensation in addition to that set forth in this Section 3 or under such stock incentive awards for any services rendered by him in any capacity to Target, the Company or any Affiliate thereof unless agreed to in writing by the Company, Target, or such Affiliate thereof. 4. Term and Termination of this Agreement. The term of employment of Executive (the "Term") pursuant to this Agreement shall commence on the Closing Date and shall continue for a term of five (5) years from the Closing Date. (a) Executive's employment hereunder shall be terminated during the Term upon the death or Disability of Executive. (b) Executive's employment hereunder may be terminated during the Term by Target (i) with Cause at any time, and (ii) without Cause upon thirty (30) days written notice to Executive, provided that Executive shall immediately cease the performance of his duties hereunder if Target shall so request following the date of such notice. In the event Executive's employment is terminated without Cause, whether pursuant to this Agreement or following the termination or expiration of the Term of this Agreement, Target shall pay to Executive, as severance pay hereunder, an amount equal to the annual Base Salary paid to Executive at the Effective Date of Termination, which amount shall be paid in twelve (12) substantially equal monthly installments (less such deductions and withholdings as are required by law or the policies of Target) commencing with the first day of the calendar month next following. (c) Upon termination of Executive's employment hereunder pursuant to subsection 4(a) or for Cause pursuant to subsection 4(b), or upon voluntary termination by Executive of Executive's employment hereunder, Target shall have no further obligation to Executive or his personal representative with respect to remuneration due under this Agreement, except for Base Salary earned but unpaid at the Effective Date of Termination and, in the case of termination of employment under subsection 4(a), a pro rata portion (based on the number of days of the fiscal year of Target in which such termination occurred during which this Agreement was in effect) of the bonus, if any, payable under Section 3(b) with respect to such fiscal year. Payment of such bonus, if any, shall be made at such time as similar bonuses are paid to other executives of Target with respect to such fiscal year. - 5 - 6 (d) If Executive's employment hereunder is terminated during the Term by Target without Cause pursuant to subsection 4(b), Target shall have no obligation to Employee with respect to renumeration due under this Agreement or such termination other than (i) Base Salary earned but unpaid at the Effective Date of Termination, and (ii) a pro rata portion (based on the number of days of the fiscal year of Target in which the Effective Date of Termination occurred during which this Agreement was in effect) of the bonus, if any, payable under Section 3(b) with respect to such fiscal year, and (iii) the severance pay described in subsection 4(b). Payment pursuant to clause (ii) of the preceding sentence shall be made when such bonuses are paid to other executive officers receiving bonus payments with respect to such fiscal year. (e) Notwithstanding anything to the contrary expressed or implied herein, the covenants and agreements of Executive in Sections 5 and 6 of this Agreement shall survive the termination of Executive's employment hereunder. 5. Ownership, Non-Disclosure, and Non-Use of Trade Secrets. (a) Executive acknowledges and agrees that all Trade Secrets, and all physical embodiments thereof, are confidential to and shall be and remain the sole and exclusive property of the Company and any Affiliate thereof and that any Trade Secrets produced by Executive during the period of Executive's employment by the Company shall be considered "work for hire" as such term is defined in 17 U.S.C. Section 101, the ownership and copyright of which shall be vested solely in Target. Executive agrees (i) immediately to disclose to Target all Trade Secrets developed in whole or part by Executive during the Term of Executive's employment by Target, and (ii) at the request and expense of Target, to do all things and sign all documents or instruments reasonably necessary in the opinion of Target to eliminate any ambiguity as to the rights of Target in such Trade Secrets including, without limitation, providing to Target Executive's full cooperation in any litigation or other proceeding to establish, protect, or obtain such rights. Upon request by Target, and in any event upon termination of Executive's employment by Target for any reason, Executive shall promptly deliver to Target all property belonging to Target or any of its Affiliates, including, without limitation, all Trade Secrets (and all embodiments thereof) then in Executive's custody, control, or possession. (b) Executive agrees that all Trade Secrets of Target or any Affiliate thereof received or developed by Executive as a result of Executive's employment with Target will be held in trust and strictest confidence, that Executive will protect such Trade Secrets from disclosure, and that Executive will make no use of such Trade Secrets, except in connection with Executive's employment hereunder, without Target's prior written consent. The obligations of confidentiality contained in this Agreement will apply during Executive's employment by Target and (i) with respect to all Trade Secrets consisting of scientific or technical data, at any and all times after expiration or termination (for whatever reason) of such employment; and (ii) with respect to all other Trade Secrets, - 6 - 7 for a period of five (5) years after such expiration or termination, unless a longer period of protection is provided by law. 6. Non-Compete: Non-Solicitation Covenants. (a) In consideration of the amounts to be paid to Executive hereunder, Executive covenants that Executive shall, during the Term of this Agreement, and (i) for one (1) year following the termination or expiration of the Term of this Agreement or Executive's employment hereunder, or (ii) for one (1) year following the termination of Executive's employment with the Target without Cause (whether such employment is under this Agreement or not), observe the following separate and independent covenants: (i) Neither Executive nor any Affiliate will, without the prior written consent of the Company, within the Area, either directly or indirectly, (A) become financially interested in a Competing Enterprise (other than as a holder of less than five percent (5%) of the outstanding voting securities of any entity whose voting securities are listed on a national securities exchange or quoted by the National Association of Securities Dealers, Inc. National Market System), or, (B) engage in or be employed by any Competing Enterprise as an executive or managerial employee. (ii) Neither Executive nor any Affiliate will, without the prior written consent of Target, either directly or indirectly, on Executive's own behalf or in the service or on behalf of others, solicit, divert, or appropriate, or attempt to solicit, divert, or appropriate, to any Competing Enterprise within the Area, any person or entity that was a customer of Target during the Term of this Agreement who was solicited or serviced as such by or under the supervision of Executive. (iii) Neither Executive nor any Affiliate will, without Target's prior written consent, either directly or indirectly, on Executive's own behalf or in the service or on behalf of others, solicit, divert, or hire away, or attempt to solicit, divert, or hire away, to any Competing Enterprise, any person employed by Target or one of its Affiliates, whether or not such employee is a full-time or a temporary employee of Target or such Affiliate and whether or not such employment is pursuant to written agreement and whether or not such employment is at will. 7. Remedies. Executive acknowledges and agrees that Target is engaged in the Business of Target in and throughout the Area, that by virtue of the training, duties, - 7 - 8 and responsibilities attendant with Executive's employment by Target and the special knowledge of the Business and operations of Target that Executive will have as a consequence of Executive's employment by Target, great loss and irreparable damage would be suffered by Target if Executive should breach or violate any of the terms or provisions of the covenants and agreements set forth herein, and that by virtue of Executive's senior management position with Target Executive has been and will be throughout the Term of this Agreement directly and indirectly involved in servicing the accounts of Target's customer. Executive further acknowledges and agrees that each such covenant and agreement is reasonably necessary to protect and preserve the interest of Target. Therefore, in addition to all the remedies provided at law or in equity, Executive agrees and consents that Target shall be entitled to a temporary restraining order and a permanent injunction to prevent a breach or threatened breach of any of the covenants or agreements of Executive contained herein. The existence of any claim, demand, action or cause of action of Executive against Target shall not constitute a defense to the enforcement by Target of any of the covenants or agreements herein whether predicated upon this Agreement or otherwise, and shall not constitute a defense to the enforcement by Target of any of its rights hereunder. 8. General Provisions. (a) In the event that any one or more of the provisions, or parts of any provisions, contained in the Agreement shall for any reason be held to be invalid, illegal, or unenforceable in any respect by a court of competent jurisdiction, the same shall not invalidate or otherwise affect any other provision hereof, and this Agreement shall be construed as if such invalid, illegal, or unenforceable provision had never been contained herein. Specifically, but without limiting the foregoing in any way, each of the covenants of the parties to this Agreement contained herein shall be deemed and shall be construed as a separate and independent covenant and should any part or provision of any of such covenants be held or declared invalid by any court of competent jurisdiction, such invalidity shall in no way render invalid or unenforceable any other part or provision thereof or any other covenant of the parties not held or declared invalid. (b) This Agreement and the rights and obligations of Target hereunder may be assigned by the Company to any Subsidiary or to any successor to Target, and shall inure to the benefit of, shall be binding upon, and shall be enforceable by any such assignee, provided that any such assignee shall agree to assume and be bound by this Agreement. This Agreement and the rights and obligations of Executive hereunder may not be assigned by Executive. (c) The waiver by Target of any breach of this Agreement by Executive shall not be effective unless in writing, and no such waiver shall operate or be construed as a waiver of the same or another breach on a subsequent occasion. (d) This Agreement and the rights of the parties hereunder shall be governed by and construed in accordance with the laws of the State of Georgia. - 8 - 9 (e) This Agreement shall automatically terminate upon the termination of the Stock Purchase Agreement pursuant to Article 11 thereof. Upon the termination of this Agreement pursuant to the preceding sentence, this Agreement shall forthwith become null and void, and no party hereto shall have any rights, liabilities or obligations hereunder or with respect hereto. This Agreement embodies the entire agreement of the parties relating to the employment of Executive by Target. No amendment or modification of this Agreement shall be valid or binding upon Target or Executive unless made in writing and signed by the parties. All prior understandings and agreements relating to the employment of Executive by Target are hereby expressly terminated, including, without limitation, that certain Employment Agreement with Executive dated February 9, 1995. (f) Any notice, request, demand, or other communication required to be given hereunder shall be made in writing and shall be deemed to have been fully given if personally delivered or if mailed by overnight delivery (the date on which such notice, request, demand, or other communication is received shall be the date of delivery) to the parties at the following addresses (or at such other addresses as shall be given in writing by any party to the other party hereto): If to Executive: Dwight L. Goff 1665 Minnie Knight Road Titus, Alabama 36080 If to Company: SAC Acquisition Corp. c/o CGW Southeast Partners III, L.P. Suite 210 Twelve Piedmont Center Atlanta, Georgia 30305 Telephone: (404) 816-3255 Telecopy: (404) 816-3258 - 9 - 10 with a copy (which shall not constitute notice) to: Alston & Bird One Atlantic Center 1201 West Peachtree Street Atlanta, Georgia 30309-3424 Attention: Teri L. McMahon, Esq. Telephone: (404) 881-7266 Telecopy: (404) 881-7777 (g) This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original, and it shall not be necessary for the same counterpart of this agreement to be signed by all of the undersigned in order for the agreements set forth herein to be binding upon all of the undersigned in accordance with the terms hereof. IN WITNESS WHEREOF, the Company and Executive have each executed and delivered this Agreement as of the date first above written. COMPANY: SAC ACQUISITION CORP. By:/s/ William A. Davies ----------------------------------- Name: --------------------------------- Title: -------------------------------- EXECUTIVE: /s/ Dwight L. Goff (SEAL) -------------------------------------- Dwight L. Goff - 10 - EX-10.14 25 EMPLOYMENT AGREEMENT - R. MYLES COWAN 1 EXHIBIT 10.14 EMPLOYMENT AND CONFIDENTIALITY AGREEMENT THIS EMPLOYMENT AND CONFIDENTIALITY AGREEMENT (this "Agreement") is made February 10, 1998, between SAC ACQUISITION CORP., a Georgia corporation (the "Company"), and R. MYLES COWAN, a resident of the State of Alabama ("Executive"). BACKGROUND On the date of this Agreement and pursuant to that certain Stock Purchase Agreement (the "Stock Purchase Agreement") dated February 10, 1998 by and among the Company, the Executive, Simcala, Inc., a Delaware corporation (the "Target"), Charter Oak Partners, Capital One Investors, Carl Edward Boardwine, Dwight L. Goff, and George W. Rapp, Jr., the Company has agreed to acquire all of the capital stock of the Target. Executive is an employee of the Target, and, subject to the consummation of the transactions contemplated under the Stock Purchase Agreement, the Company desires to cause Target to employ the Executive in the capacities and on the terms and conditions set forth below. Executive desires to accept employment on the terms and conditions set forth below. AGREEMENT NOW, THEREFORE, for and in consideration of the employment and continued employment of Executive by Target, the premises, and the mutual agreements hereinafter set forth, the parties agree as follows: 1. Definitions. The following terms used herein shall have the definitions set forth below: (a) "Affiliate" means any person or entity directly or indirectly controlling, controlled by, or under common control with another person. (b) "Area" means the territorial United States. (c) "Business" or "Business of the Company" means the business of the manufacture, production, development, sale, and distribution of silicon metals. (d) "Cause" means (i) conduct amounting to fraud or dishonesty against the Target or any subsidiary or Affiliate of the Target; (ii) Executive's intentional misconduct or repeated refusal to follow the reasonable directions of the Board of Directors of the Target, provided an officer of the Target, upon the direction of the Board of Directors, notifies Executive of the acts deemed to constitute such intentional misconduct or repeated refusal in writing and Executive fails to correct such acts (or 2 begins such action as may be necessary to correct such acts and thereafter diligently pursues the completion thereof) within five (5) business days after written notice has been given; (iii) repeated absences from work without a reasonable excuse, (iv) repeated intoxication with alcohol or drugs while on Target business during regular business hours; (v) a conviction or plea of guilty or nolo contendere to a felony (other than one arising from the operation of a motor vehicle or resulting from actions taken (or not taken) by Executive in good faith in his capacity as an employee or officer of the Target; or (vi) a breach or violation by the Executive of any material terms of this Agreement or any other agreement to which Executive and the Target are a party. (e) "Competing Enterprise" means any person or any business organization of whatever form, engaged directly or indirectly within the Area in the Business of the Company. (f) "Disability" means (i) the inability of Executive to perform the duties of Executive's employment due to physical or emotional incapacity or illness, where such inability is expected to be of long-continued and indefinite duration, or (ii) Executive shall be entitled to (x) disability retirement benefits under the federal Social Security Act or (y) recover benefits under any long-term disability plan or policy maintained by the Company. In the event of a dispute, the determination of Disability shall be made reasonably by the Board of Directors of the Target and shall be supported by advice of a physician competent in the area to which such Disability relates. (g) "Effective Date of Termination" means the later of the last day on which Executive performs any duties of his employment as a full-time employee of the Target hereunder or the effective date of the termination of Executive's employment hereunder specified in any notice of termination of such employment given by the Target as permitted herein. (h) "Excluded Information" means any data or information that is a Trade Secret hereunder (i) that has been voluntarily disclosed to the public by the Target or any Affiliate thereof or has become generally known to the public (except where such public disclosure has been made by or through Executive or by a third person or entity with the knowledge of Executive without authorization by the Target); (ii) that has been independently developed and disclosed by parties other than Executive or the Target or any Affiliate thereof to Executive or to the public generally without a breach of any obligation of confidentiality by any such person running directly or indirectly to the Target or any Affiliate thereof; or (iii) that otherwise enters the public domain through lawful means. (i) "Subsidiary" means any subsidiary of the Company. (j) "Trade Secrets" means information which derives economic value, actual or potential, from not being generally known and not being readily ascertainable to other persons who can obtain economic value from its disclosure or use and which is the - 2 - 3 subject of efforts that are reasonable under the circumstances to maintain its secrecy or confidentiality. Trade Secrets may include either technical or non-technical data, including without limitation, (i) any useful process, machine, chemical formula, composition of matter, or other device which (A) is new or which Executive has a reasonable basis to believe may be new, (B) is being used or studied by the Target or any Affiliate thereof and is not described in a printed patent or in any literature already published and distributed externally by the Target or any Affiliate thereof, and (C) is not readily ascertainable from inspection of a product of the Target or any Affiliate thereof; (ii) any engineering, technical, or product specifications including those features used in any current product of the Target or any Affiliate thereof or to be used, or the use of which is contemplated, in a future product of the Target or any Affiliate thereof; (iii) any application, operating system, communication system, or other computer software (whether in source or object code) and all flow charts, algorithms, coding sheets, routines, subroutines, compilers, assemblers, design concepts, test data, documentation, or manuals related thereto, whether or not copyrighted, patented or patentable, related to or used in the Business of the Target or any Affiliate thereof; or (iv) information concerning the customers, suppliers, products, pricing strategies of the Target or any Affiliate thereof, personnel assignments and policies of the Target, or matters concerning the financial affairs and management of the Target or any Affiliate thereof; provided however, that Trade Secrets shall not include any Excluded Information. 2. Terms of Engagement; Duties (a) Effective as of the date of the closing of the transactions contemplated by the Agreement (the "Closing Date"), Target employs Executive as Chief Financial Officer of Target. In such capacity Executive shall report to the President of Target, and shall perform such duties and responsibilities relating to the Business of Target as may be assigned or delegated to him from time to time by the Board of Directors of Target or its designee. (b) Executive accepts such employment and agrees to: (i) devote substantially all of Executive's effort, time, energy, and skill (reasonable vacations and reasonable absences due to illness excepted) during regular business hours to the duties of his employment hereunder; (ii) faithfully, loyally, and industriously perform such duties, subject to the supervision of the Board of Directors of Target; and (iii) diligently follow and implement all lawful management policies and decisions of Target that are communicated to Executive. - 3 - 4 (c) During the Term of this Agreement, Executive shall not engage (whether or not during normal business hours) in any other business or professional activity, whether or not such activity is pursued for gain, profit or other pecuniary advantage; but this shall not be construed as preventing Executive from (i) investing his personal assets in businesses which do not compete with the Business of the Company or any Affiliate thereof in such form or manner as will not require any services on the part of Executive in the operation or the affairs of the entities in which such investments are made and in which his participation is solely that of an investor, or (ii) purchasing securities in any corporation whose securities are regularly traded on a national securities exchange, provided that such purchase does not result in Executive collectively owning beneficially at any time five (5%) percent or more of the voting securities of any Competing Enterprise or any Affiliate thereof. 3. Compensation. (a) In consideration of the services rendered by Executive pursuant to this Agreement, Target shall pay to Executive a base salary of Ninety Thousand Dollars ($90,000) per annum (the "Base Salary"), which Base Salary will be reviewed periodically and may be increased by Target from time to time. The Base Salary shall be paid in accordance with Target's standard payroll practices in effect from time to time. All amounts payable to Executive hereunder shall be subject to such deductions and withholdings as are required by law or by policies of Target. (b) Executive shall be eligible to receive an annual bonus in the amount of up to 65% of the Base Salary then being paid to Executive, pursuant to an executive incentive plan to be established by Target's Board of Directors. The award and payment of any such bonus, and the amount thereof if awarded and paid, shall be calculated as follows: fifty (50%) percent of the award shall be based upon EBITDA of the Target. During the first three years of the Term, and in the event EBITDA of the Target is equal to or greater than Ten Million Dollars, such fifty percent amount of the award shall be pro-rated on an increasing sliding scale from 0% to 100% of this portion between an EBITDA of at least $9,999,999.00 (whereupon none of the 50% bonus shall be awarded) and a maximum of $13,000,000.00 (whereupon all of the 50% bonus shall be awarded). In subsequent years of the Term, the Target's Board of Directors shall determine in its sole discretion the targeted EBITDA for such fifty (50%) percent portion of the Bonus. The remaining 50% of the bonus shall be awarded and paid in the sole discretion of the Board of Directors of Target. (c) Executive shall also have the right to participate in any medical, hospitalization, dental, disability income, life or other similar insurance plans maintained by Target from time to time to the extent that Executive's position, tenure, salary, age, health and other qualifications make him eligible to participate, and such other fringe benefits as are provided to the other senior management employees of Target, provided that Target shall not be required to adopt or continue any insurance plans or fringe benefit plans. - 4 - 5 (d) Target shall reimburse Executive for all reasonable business expenses incurred by Executive in connection with the business of the Company subject to compliance with the expense reimbursement policies established by Target and in sufficient detail to comply with Internal Revenue Service Regulations. (e) Except for stock incentive awards which may be granted from time to time to Executive, the remuneration and benefits set forth in this Section 3 shall be the only compensation payable to Executive with respect to his employment hereunder, and Executive shall not be entitled to receive any compensation in addition to that set forth in this Section 3 or under such stock incentive awards for any services rendered by him in any capacity to Target, the Company or any Affiliate thereof unless agreed to in writing by the Company, Target, or such Affiliate thereof. 4. Term and Termination of this Agreement. The term of employment of Executive (the "Term") pursuant to this Agreement shall commence on the Closing Date and shall continue for a term of five (5) years from the Closing Date. (a) Executive's employment hereunder shall be terminated during the Term upon the death or Disability of Executive. (b) Executive's employment hereunder may be terminated during the Term by Target (i) with Cause at any time, and (ii) without Cause upon thirty (30) days written notice to Executive, provided that Executive shall immediately cease the performance of his duties hereunder if Target shall so request following the date of such notice. In the event Executive's employment is terminated without Cause, whether pursuant to this Agreement or following the termination or expiration of the Term of this Agreement, Target shall pay to Executive, as severance pay hereunder, an amount equal to the annual Base Salary paid to Executive at the Effective Date of Termination, which amount shall be paid in twelve (12) substantially equal monthly installments (less such deductions and withholdings as are required by law or the policies of Target) commencing with the first day of the calendar month next following. (c) Upon termination of Executive's employment hereunder pursuant to subsection 4(a) or for Cause pursuant to subsection 4(b), or upon voluntary termination by Executive of Executive's employment hereunder, Target shall have no further obligation to Executive or his personal representative with respect to remuneration due under this Agreement, except for Base Salary earned but unpaid at the Effective Date of Termination and, in the case of termination of employment under subsection 4(a), a pro rata portion (based on the number of days of the fiscal year of Target in which such termination occurred during which this Agreement was in effect) of the bonus, if any, payable under Section 3(b) with respect to such fiscal year. Payment of such bonus, if any, shall be made at such time as similar bonuses are paid to other executives of Target with respect to such fiscal year. - 5 - 6 (d) If Executive's employment hereunder is terminated during the Term by Target without Cause pursuant to subsection 4(b), Target shall have no obligation to Employee with respect to renumeration due under this Agreement or such termination other than (i) Base Salary earned but unpaid at the Effective Date of Termination, and (ii) a pro rata portion (based on the number of days of the fiscal year of Target in which the Effective Date of Termination occurred during which this Agreement was in effect) of the bonus, if any, payable under Section 3(b) with respect to such fiscal year, and (iii) the severance pay described in subsection 4(b). Payment pursuant to clause (ii) of the preceding sentence shall be made when such bonuses are paid to other executive officers receiving bonus payments with respect to such fiscal year. (e) Notwithstanding anything to the contrary expressed or implied herein, the covenants and agreements of Executive in Sections 5 and 6 of this Agreement shall survive the termination of Executive's employment hereunder. 5. Ownership, Non-Disclosure, and Non-Use of Trade Secrets. (a) Executive acknowledges and agrees that all Trade Secrets, and all physical embodiments thereof, are confidential to and shall be and remain the sole and exclusive property of the Company and any Affiliate thereof and that any Trade Secrets produced by Executive during the period of Executive's employment by the Company shall be considered "work for hire" as such term is defined in 17 U.S.C. Section 101, the ownership and copyright of which shall be vested solely in Target. Executive agrees (i) immediately to disclose to Target all Trade Secrets developed in whole or part by Executive during the Term of Executive's employment by Target, and (ii) at the request and expense of Target, to do all things and sign all documents or instruments reasonably necessary in the opinion of Target to eliminate any ambiguity as to the rights of Target in such Trade Secrets including, without limitation, providing to Target Executive's full cooperation in any litigation or other proceeding to establish, protect, or obtain such rights. Upon request by Target, and in any event upon termination of Executive's employment by Target for any reason, Executive shall promptly deliver to Target all property belonging to Target or any of its Affiliates, including, without limitation, all Trade Secrets (and all embodiments thereof) then in Executive's custody, control, or possession. (b) Executive agrees that all Trade Secrets of Target or any Affiliate thereof received or developed by Executive as a result of Executive's employment with Target will be held in trust and strictest confidence, that Executive will protect such Trade Secrets from disclosure, and that Executive will make no use of such Trade Secrets, except in connection with Executive's employment hereunder, without Target's prior written consent. The obligations of confidentiality contained in this Agreement will apply during Executive's employment by Target and (i) with respect to all Trade Secrets consisting of scientific or technical data, at any and all times after expiration or termination (for whatever reason) of such employment; and (ii) with respect to all other Trade Secrets, - 6 - 7 for a period of five (5) years after such expiration or termination, unless a longer period of protection is provided by law. 6. Non-Compete: Non-Solicitation Covenants. (a) In consideration of the amounts to be paid to Executive hereunder, Executive covenants that Executive shall, during the Term of this Agreement, and (i) for one (1) year following the termination or expiration of the Term of this Agreement or Executive's employment hereunder, or (ii) for one (1) year following the termination of Executive's employment with the Target without Cause (whether such employment is under this Agreement or not), observe the following separate and independent covenants: (i) Neither Executive nor any Affiliate will, without the prior written consent of the Company, within the Area, either directly or indirectly, (A) become financially interested in a Competing Enterprise (other than as a holder of less than five percent (5%) of the outstanding voting securities of any entity whose voting securities are listed on a national securities exchange or quoted by the National Association of Securities Dealers, Inc. National Market System), or, (B) engage in or be employed by any Competing Enterprise as an executive or managerial employee. (ii) Neither Executive nor any Affiliate will, without the prior written consent of Target, either directly or indirectly, on Executive's own behalf or in the service or on behalf of others, solicit, divert, or appropriate, or attempt to solicit, divert, or appropriate, to any Competing Enterprise within the Area, any person or entity that was a customer of Target during the Term of this Agreement who was solicited or serviced as such by or under the supervision of Executive. (iii) Neither Executive nor any Affiliate will, without Target's prior written consent, either directly or indirectly, on Executive's own behalf or in the service or on behalf of others, solicit, divert, or hire away, or attempt to solicit, divert, or hire away, to any Competing Enterprise, any person employed by Target or one of its Affiliates, whether or not such employee is a full-time or a temporary employee of Target or such Affiliate and whether or not such employment is pursuant to written agreement and whether or not such employment is at will. 7. Remedies. Executive acknowledges and agrees that Target is engaged in the Business of Target in and throughout the Area, that by virtue of the training, duties, - 7 - 8 and responsibilities attendant with Executive's employment by Target and the special knowledge of the Business and operations of Target that Executive will have as a consequence of Executive's employment by Target, great loss and irreparable damage would be suffered by Target if Executive should breach or violate any of the terms or provisions of the covenants and agreements set forth herein, and that by virtue of Executive's senior management position with Target Executive has been and will be throughout the Term of this Agreement directly and indirectly involved in servicing the accounts of Target's customer. Executive further acknowledges and agrees that each such covenant and agreement is reasonably necessary to protect and preserve the interest of Target. Therefore, in addition to all the remedies provided at law or in equity, Executive agrees and consents that Target shall be entitled to a temporary restraining order and a permanent injunction to prevent a breach or threatened breach of any of the covenants or agreements of Executive contained herein. The existence of any claim, demand, action or cause of action of Executive against Target shall not constitute a defense to the enforcement by Target of any of the covenants or agreements herein whether predicated upon this Agreement or otherwise, and shall not constitute a defense to the enforcement by Target of any of its rights hereunder. 8. General Provisions. (a) In the event that any one or more of the provisions, or parts of any provisions, contained in the Agreement shall for any reason be held to be invalid, illegal, or unenforceable in any respect by a court of competent jurisdiction, the same shall not invalidate or otherwise affect any other provision hereof, and this Agreement shall be construed as if such invalid, illegal, or unenforceable provision had never been contained herein. Specifically, but without limiting the foregoing in any way, each of the covenants of the parties to this Agreement contained herein shall be deemed and shall be construed as a separate and independent covenant and should any part or provision of any of such covenants be held or declared invalid by any court of competent jurisdiction, such invalidity shall in no way render invalid or unenforceable any other part or provision thereof or any other covenant of the parties not held or declared invalid. (b) This Agreement and the rights and obligations of Target hereunder may be assigned by the Company to any Subsidiary or to any successor to Target, and shall inure to the benefit of, shall be binding upon, and shall be enforceable by any such assignee, provided that any such assignee shall agree to assume and be bound by this Agreement. This Agreement and the rights and obligations of Executive hereunder may not be assigned by Executive. (c) The waiver by Target of any breach of this Agreement by Executive shall not be effective unless in writing, and no such waiver shall operate or be construed as a waiver of the same or another breach on a subsequent occasion. (d) This Agreement and the rights of the parties hereunder shall be governed by and construed in accordance with the laws of the State of Georgia. - 8 - 9 (e) This Agreement shall automatically terminate upon the termination of the Stock Purchase Agreement pursuant to Article 11 thereof. Upon the termination of this Agreement pursuant to the preceding sentence, this Agreement shall forthwith become null and void, and no party hereto shall have any rights, liabilities or obligations hereunder or with respect hereto. This Agreement embodies the entire agreement of the parties relating to the employment of Executive by Target. No amendment or modification of this Agreement shall be valid or binding upon Target or Executive unless made in writing and signed by the parties. All prior understandings and agreements relating to the employment of Executive by Target are hereby expressly terminated. (f) Any notice, request, demand, or other communication required to be given hereunder shall be made in writing and shall be deemed to have been fully given if personally delivered or if mailed by overnight delivery (the date on which such notice, request, demand, or other communication is received shall be the date of delivery) to the parties at the following addresses (or at such other addresses as shall be given in writing by any party to the other party hereto): If to Executive: R. Myles Cowan 3640 Narrow Lane Road Montgomery, Alabama 36111 If to Company: SAC Acquisition Corp. c/o CGW Southeast Partners III, L.P. Suite 210 Twelve Piedmont Center Atlanta, Georgia 30305 Telephone: (404) 816-3255 Telecopy: (404) 816-3258 - 9 - 10 with a copy (which shall not constitute notice) to: Alston & Bird One Atlantic Center 1201 West Peachtree Street Atlanta, Georgia 30309-3424 Attention: Teri L. McMahon, Esq. Telephone: (404) 881-7266 Telecopy: (404) 881-7777 (g) This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original, and it shall not be necessary for the same counterpart of this agreement to be signed by all of the undersigned in order for the agreements set forth herein to be binding upon all of the undersigned in accordance with the terms hereof. IN WITNESS WHEREOF, the Company and Executive have each executed and delivered this Agreement as of the date first above written. COMPANY: SAC ACQUISITION CORP. By: /s/ William A. Davies ----------------------------------- Name: --------------------------------- Title: -------------------------------- EXECUTIVE: /s/ R. Myles Cowan (SEAL) -------------------------------------- R. Myles Cowan - 10 - EX-10.15 26 EMPLOYMENT AGREEMENT - C. EDWARD BOARDWINE 1 EXHIBIT 10.15 EMPLOYMENT AND CONFIDENTIALITY AGREEMENT THIS EMPLOYMENT AND CONFIDENTIALITY AGREEMENT (this "Agreement") is made February 10, 1998, between SAC ACQUISITION CORP., a Georgia corporation (the "Company"), and CARL EDWARD BOARDWINE, a resident of the State of Alabama ("Executive"). BACKGROUND On the date of this Agreement and pursuant to that certain Stock Purchase Agreement (the "Stock Purchase Agreement") dated February 10, 1998 by and among the Company, the Executive, Simcala, Inc., a Delaware corporation (the "Target"), Charter Oak Partners, Capital One Investors, Dwight L. Goff, R. Myles Cowan, and George W. Rapp, Jr., the Company has agreed to acquire all of the capital stock of the Target. Executive is an employee of the Target, and, subject to the consummation of the transactions contemplated under the Stock Purchase Agreement, the Company desires to cause Target to employ the Executive in the capacities and on the terms and conditions set forth below. Executive desires to accept employment on the terms and conditions set forth below. AGREEMENT NOW, THEREFORE, for and in consideration of the employment and continued employment of Executive by Target, the premises, and the mutual agreements hereinafter set forth, the parties agree as follows: 1. Definitions. The following terms used herein shall have the definitions set forth below: (a) "Affiliate" means any person or entity directly or indirectly controlling, controlled by, or under common control with another person. (b) "Area" means the territorial United States. (c) "Business" or "Business of the Company" means the business of the manufacture, production, development, sale, and distribution of silicon metals. (d) "Cause" means (i) conduct amounting to fraud or dishonesty against the Target or any subsidiary or Affiliate of the Target; (ii) Executive's intentional misconduct or repeated refusal to follow the reasonable directions of the Board of Directors of the Target, provided an officer of the Target, upon the direction of the Board of Directors, notifies Executive of the acts deemed to constitute such intentional misconduct or repeated refusal in writing and Executive fails to correct such acts (or 2 begins such action as may be necessary to correct such acts and thereafter diligently pursues the completion thereof) within five (5) business days after written notice has been given; (iii) repeated absences from work without a reasonable excuse, (iv) repeated intoxication with alcohol or drugs while on Target business during regular business hours; (v) a conviction or plea of guilty or nolo contendere to a felony (other than one arising from the operation of a motor vehicle or resulting from actions taken (or not taken) by Executive in good faith in his capacity as an employee or officer of the Target; or (vi) a breach or violation by the Executive of any material terms of this Agreement or any other agreement to which Executive and the Target are a party. (e) "Competing Enterprise" means any person or any business organization of whatever form, engaged directly or indirectly within the Area in the Business of the Company. (f) "Disability" means (i) the inability of Executive to perform the duties of Executive's employment due to physical or emotional incapacity or illness, where such inability is expected to be of long-continued and indefinite duration, or (ii) Executive shall be entitled to (x) disability retirement benefits under the federal Social Security Act or (y) recover benefits under any long-term disability plan or policy maintained by the Company. In the event of a dispute, the determination of Disability shall be made reasonably by the Board of Directors of the Target and shall be supported by advice of a physician competent in the area to which such Disability relates. (g) "Effective Date of Termination" means the later of the last day on which Executive performs any duties of his employment as a full-time employee of the Target hereunder or the effective date of the termination of Executive's employment hereunder specified in any notice of termination of such employment given by the Target as permitted herein. (h) "Excluded Information" means any data or information that is a Trade Secret hereunder (i) that has been voluntarily disclosed to the public by the Target or any Affiliate thereof or has become generally known to the public (except where such public disclosure has been made by or through Executive or by a third person or entity with the knowledge of Executive without authorization by the Target); (ii) that has been independently developed and disclosed by parties other than Executive or the Target or any Affiliate thereof to Executive or to the public generally without a breach of any obligation of confidentiality by any such person running directly or indirectly to the Target or any Affiliate thereof; or (iii) that otherwise enters the public domain through lawful means. (i) "Subsidiary" means any subsidiary of the Company. (j) "Trade Secrets" means information which derives economic value, actual or potential, from not being generally known and not being readily ascertainable to other persons who can obtain economic value from its disclosure or use and which is the - 2 - 3 subject of efforts that are reasonable under the circumstances to maintain its secrecy or confidentiality. Trade Secrets may include either technical or non-technical data, including without limitation, (i) any useful process, machine, chemical formula, composition of matter, or other device which (A) is new or which Executive has a reasonable basis to believe may be new, (B) is being used or studied by the Target or any Affiliate thereof and is not described in a printed patent or in any literature already published and distributed externally by the Target or any Affiliate thereof, and (C) is not readily ascertainable from inspection of a product of the Target or any Affiliate thereof; (ii) any engineering, technical, or product specifications including those features used in any current product of the Target or any Affiliate thereof or to be used, or the use of which is contemplated, in a future product of the Target or any Affiliate thereof; (iii) any application, operating system, communication system, or other computer software (whether in source or object code) and all flow charts, algorithms, coding sheets, routines, subroutines, compilers, assemblers, design concepts, test data, documentation, or manuals related thereto, whether or not copyrighted, patented or patentable, related to or used in the Business of the Target or any Affiliate thereof; or (iv) information concerning the customers, suppliers, products, pricing strategies of the Target or any Affiliate thereof, personnel assignments and policies of the Target, or matters concerning the financial affairs and management of the Target or any Affiliate thereof; provided however, that Trade Secrets shall not include any Excluded Information. 2. Terms of Engagement; Duties (a) Effective as of the date of the closing of the transactions contemplated by the Agreement (the "Closing Date"), Target employs Executive as President and Chief Executive Officer of Target. In such capacity Executive shall report to the Board of Directors of Target, and shall perform such duties and responsibilities relating to the Business of Target as may be assigned or delegated to him from time to time by the Board of Directors of Target or its designee. (b) Executive accepts such employment and agrees to: (i) devote substantially all of Executive's effort, time, energy, and skill (reasonable vacations and reasonable absences due to illness excepted) during regular business hours to the duties of his employment hereunder; (ii) faithfully, loyally, and industriously perform such duties, subject to the supervision of the Board of Directors of Target; and (iii) diligently follow and implement all lawful management policies and decisions of Target that are communicated to Executive. - 3 - 4 (c) During the Term of this Agreement, Executive shall not engage (whether or not during normal business hours) in any other business or professional activity, whether or not such activity is pursued for gain, profit or other pecuniary advantage; but this shall not be construed as preventing Executive from (i) investing his personal assets in businesses which do not compete with the Business of the Company or any Affiliate thereof in such form or manner as will not require any services on the part of Executive in the operation or the affairs of the entities in which such investments are made and in which his participation is solely that of an investor, or (ii) purchasing securities in any corporation whose securities are regularly traded on a national securities exchange, provided that such purchase does not result in Executive collectively owning beneficially at any time five (5%) percent or more of the voting securities of any Competing Enterprise or any Affiliate thereof. 3. Compensation. (a) In consideration of the services rendered by Executive pursuant to this Agreement, Target shall pay to Executive a base salary of Two Hundred Five Thousand Dollars ($205,000) per annum (the "Base Salary"), which Base Salary will be reviewed periodically and may be increased by Target from time to time. The Base Salary shall be paid in accordance with Target's standard payroll practices in effect from time to time. All amounts payable to Executive hereunder shall be subject to such deductions and withholdings as are required by law or by policies of Target. (b) Executive shall be eligible to receive an annual bonus in the amount of up to 75% of the Base Salary then being paid to Executive, pursuant to an executive incentive plan to be established by Target's Board of Directors. The award and payment of any such bonus, and the amount thereof if awarded and paid, shall be calculated as follows: fifty (50%) percent of the award shall be based upon EBITDA of the Target. During the first three years of the Term, and in the event EBITDA of the Target is equal to or greater than Ten Million Dollars, such fifty percent amount of the award shall be pro-rated on an increasing sliding scale from 0% to 100% of this portion between an EBITDA of at least $9,999,999.00 (whereupon none of the 50% bonus shall be awarded) and a maximum of $13,000,000.00 (whereupon all of the 50% bonus shall be awarded). In subsequent years of the Term, the Target's Board of Directors shall determine in its sole discretion the targeted EBITDA for such fifty (50%) percent portion of the Bonus. The remaining 50% of the bonus shall be awarded and paid in the sole discretion of the Board of Directors of Target. (c) Executive shall also have the right to participate in any medical, hospitalization, dental, disability income, life or other similar insurance plans maintained by Target from time to time to the extent that Executive's position, tenure, salary, age, health and other qualifications make him eligible to participate, and such other fringe benefits as are currently provided to Executive under his existing contract with Target. - 4 - 5 (d) Target shall reimburse Executive for all reasonable business expenses incurred by Executive in connection with the business of the Company subject to compliance with the expense reimbursement policies established by Target and in sufficient detail to comply with Internal Revenue Service Regulations. (e) Except for stock incentive awards which may be granted from time to time to Executive, the remuneration and benefits set forth in this Section 3 shall be the only compensation payable to Executive with respect to his employment hereunder, and Executive shall not be entitled to receive any compensation in addition to that set forth in this Section 3 or under such stock incentive awards for any services rendered by him in any capacity to Target, the Company or any Affiliate thereof unless agreed to in writing by the Company, Target, or such Affiliate thereof. 4. Term and Termination of this Agreement. The term of employment of Executive (the "Term") pursuant to this Agreement shall commence on the Closing Date and shall continue for a term of five (5) years from the Closing Date. (a) Executive's employment hereunder shall be terminated during the Term upon the death or Disability of Executive. (b) Executive's employment hereunder may be terminated during the Term by Target (i) with Cause at any time, and (ii) without Cause upon thirty (30) days written notice to Executive, provided that Executive shall immediately cease the performance of his duties hereunder if Target shall so request following the date of such notice. In the event Executive's employment is terminated without Cause, whether pursuant to this Agreement or following the termination or expiration of the Term of this Agreement, Target shall pay to Executive, as severance pay hereunder, an amount equal to the annual Base Salary paid to Executive at the Effective Date of Termination, which amount shall be paid in twelve (12) substantially equal monthly installments (less such deductions and withholdings as are required by law or the policies of Target) commencing with the first day of the calendar month next following. (c) Upon termination of Executive's employment hereunder pursuant to subsection 4(a) or for Cause pursuant to subsection 4(b), or upon voluntary termination by Executive of Executive's employment hereunder, Target shall have no further obligation to Executive or his personal representative with respect to remuneration due under this Agreement, except for Base Salary earned but unpaid at the Effective Date of Termination and, in the case of termination of employment under subsection 4(a), a pro rata portion (based on the number of days of the fiscal year of Target in which such termination occurred during which this Agreement was in effect) of the bonus, if any, payable under Section 3(b) with respect to such fiscal year. Payment of such bonus, if any, shall be made at such time as similar bonuses are paid to other executives of Target with respect to such fiscal year. - 5 - 6 (d) If Executive's employment hereunder is terminated during the Term by Target without Cause pursuant to subsection 4(b), Target shall have no obligation to Employee with respect to renumeration due under this Agreement or such termination other than (i) Base Salary earned but unpaid at the Effective Date of Termination, and (ii) a pro rata portion (based on the number of days of the fiscal year of Target in which the Effective Date of Termination occurred during which this Agreement was in effect) of the bonus, if any, payable under Section 3(b) with respect to such fiscal year, and (iii) the severance pay described in subsection 4(b). Payment pursuant to clause (ii) of the preceding sentence shall be made when such bonuses are paid to other executive officers receiving bonus payments with respect to such fiscal year. (e) Notwithstanding anything to the contrary expressed or implied herein, the covenants and agreements of Executive in Sections 5 and 6 of this Agreement shall survive the termination of Executive's employment hereunder. 5. Ownership, Non-Disclosure, and Non-Use of Trade Secrets. (a) Executive acknowledges and agrees that all Trade Secrets, and all physical embodiments thereof, are confidential to and shall be and remain the sole and exclusive property of the Company and any Affiliate thereof and that any Trade Secrets produced by Executive during the period of Executive's employment by the Company shall be considered "work for hire" as such term is defined in 17 U.S.C. Section 101, the ownership and copyright of which shall be vested solely in Target. Executive agrees (i) immediately to disclose to Target all Trade Secrets developed in whole or part by Executive during the Term of Executive's employment by Target, and (ii) at the request and expense of Target, to do all things and sign all documents or instruments reasonably necessary in the opinion of Target to eliminate any ambiguity as to the rights of Target in such Trade Secrets including, without limitation, providing to Target Executive's full cooperation in any litigation or other proceeding to establish, protect, or obtain such rights. Upon request by Target, and in any event upon termination of Executive's employment by Target for any reason, Executive shall promptly deliver to Target all property belonging to Target or any of its Affiliates, including, without limitation, all Trade Secrets (and all embodiments thereof) then in Executive's custody, control, or possession. (b) Executive agrees that all Trade Secrets of Target or any Affiliate thereof received or developed by Executive as a result of Executive's employment with Target will be held in trust and strictest confidence, that Executive will protect such Trade Secrets from disclosure, and that Executive will make no use of such Trade Secrets, - 6 - 7 except in connection with Executive's employment hereunder, without Target's prior written consent. The obligations of confidentiality contained in this Agreement will apply during Executive's employment by Target and (i) with respect to all Trade Secrets consisting of scientific or technical data, at any and all times after expiration or termination (for whatever reason) of such employment; and (ii) with respect to all other Trade Secrets, for a period of five (5) years after such expiration or termination, unless a longer period of protection is provided by law. 6. Non-Compete: Non-Solicitation Covenants. (a) In consideration of the amounts to be paid to Executive hereunder, Executive covenants that Executive shall, during the Term of this Agreement, and (i) for one (1) year following the termination or expiration of the Term of this Agreement or Executive's employment hereunder, or (ii) for one (1) year following the termination of Executive's employment with the Target without Cause (whether such employment is under this Agreement or not), observe the following separate and independent covenants: (i) Neither Executive nor any Affiliate will, without the prior written consent of the Company, within the Area, either directly or indirectly, (A) become financially interested in a Competing Enterprise (other than as a holder of less than five percent (5%) of the outstanding voting securities of any entity whose voting securities are listed on a national securities exchange or quoted by the National Association of Securities Dealers, Inc. National Market System), or, (B) engage in or be employed by any Competing Enterprise as an executive or managerial employee. (ii) Neither Executive nor any Affiliate will, without the prior written consent of Target, either directly or indirectly, on Executive's own behalf or in the service or on behalf of others, solicit, divert, or appropriate, or attempt to solicit, divert, or appropriate, to any Competing Enterprise within the Area, any person or entity that was a customer of Target during the Term of this Agreement who was solicited or serviced as such by or under the supervision of Executive. (iii) Neither Executive nor any Affiliate will, without Target's prior written consent, either directly or indirectly, on Executive's own behalf or in the service or on behalf of others, solicit, divert, or hire away, or attempt to solicit, divert, or hire away, to any Competing Enterprise, any person employed by Target or one of its Affiliates, whether or not such employee is a full-time or a temporary employee of Target or such Affiliate and whether or not such employment is pursuant to written agreement and whether or not such employment is at will. 7. Remedies. Executive acknowledges and agrees that Target is engaged in the Business of Target in and throughout the Area, that by virtue of the training, duties, - 7 - 8 and responsibilities attendant with Executive's employment by Target and the special knowledge of the Business and operations of Target that Executive will have as a consequence of Executive's employment by Target, great loss and irreparable damage would be suffered by Target if Executive should breach or violate any of the terms or provisions of the covenants and agreements set forth herein, and that by virtue of Executive's senior management position with Target Executive has been and will be throughout the Term of this Agreement directly and indirectly involved in servicing the accounts of Target's customer. Executive further acknowledges and agrees that each such covenant and agreement is reasonably necessary to protect and preserve the interest of Target. Therefore, in addition to all the remedies provided at law or in equity, Executive agrees and consents that Target shall be entitled to a temporary restraining order and a permanent injunction to prevent a breach or threatened breach of any of the covenants or agreements of Executive contained herein. The existence of any claim, demand, action or cause of action of Executive against Target shall not constitute a defense to the enforcement by Target of any of the covenants or agreements herein whether predicated upon this Agreement or otherwise, and shall not constitute a defense to the enforcement by Target of any of its rights hereunder. 8. General Provisions. (a) In the event that any one or more of the provisions, or parts of any provisions, contained in the Agreement shall for any reason be held to be invalid, illegal, or unenforceable in any respect by a court of competent jurisdiction, the same shall not invalidate or otherwise affect any other provision hereof, and this Agreement shall be construed as if such invalid, illegal, or unenforceable provision had never been contained herein. Specifically, but without limiting the foregoing in any way, each of the covenants of the parties to this Agreement contained herein shall be deemed and shall be construed as a separate and independent covenant and should any part or provision of any of such covenants be held or declared invalid by any court of competent jurisdiction, such invalidity shall in no way render invalid or unenforceable any other part or provision thereof or any other covenant of the parties not held or declared invalid. (b) This Agreement and the rights and obligations of Target hereunder may be assigned by the Company to any Subsidiary or to any successor to Target, and shall inure to the benefit of, shall be binding upon, and shall be enforceable by any such assignee, provided that any such assignee shall agree to assume and be bound by this Agreement. This Agreement and the rights and obligations of Executive hereunder may not be assigned by Executive. (c) The waiver by Target of any breach of this Agreement by Executive shall not be effective unless in writing, and no such waiver shall operate or be construed as a waiver of the same or another breach on a subsequent occasion. (d) This Agreement and the rights of the parties hereunder shall be governed by and construed in accordance with the laws of the State of Georgia. - 8 - 9 (e) This Agreement shall automatically terminate upon the termination of the Stock Purchase Agreement pursuant to Article 11 thereof. Upon the termination of this Agreement pursuant to the preceding sentence, this Agreement shall forthwith become null and void, and no party hereto shall have any rights, liabilities or obligations hereunder or with respect hereto. This Agreement embodies the entire agreement of the parties relating to the employment of Executive by Target. No amendment or modification of this Agreement shall be valid or binding upon Target or Executive unless made in writing and signed by the parties. All prior understandings and agreements relating to the employment of Executive by Target are hereby expressly terminated, including, without limitation, that certain Employment Agreement with Executive dated February 9, 1995. (f) Any notice, request, demand, or other communication required to be given hereunder shall be made in writing and shall be deemed to have been fully given if personally delivered or if mailed by overnight delivery (the date on which such notice, request, demand, or other communication is received shall be the date of delivery) to the parties at the following addresses (or at such other addresses as shall be given in writing by any party to the other party hereto): If to Executive: Carl Edward Boardwine 125 Bald Cyprus E. Eclectic Alabama 36024 If to Company: SAC Acquisition Corp. c/o CGW Southeast Partners III, L.P. Suite 210 Twelve Piedmont Center Atlanta, Georgia 30305 Telephone: (404) 816-3255 Telecopy: (404) 816-3258 - 9 - 10 with a copy (which shall not constitute notice) to: Alston & Bird One Atlantic Center 1201 West Peachtree Street Atlanta, Georgia 30309-3424 Attention: Teri L. McMahon, Esq. Telephone: (404) 881-7266 Telecopy: (404) 881-7777 (g) This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original, and it shall not be necessary for the same counterpart of this agreement to be signed by all of the undersigned in order for the agreements set forth herein to be binding upon all of the undersigned in accordance with the terms hereof. IN WITNESS WHEREOF, the Company and Executive have each executed and delivered this Agreement as of the date first above written. COMPANY: SAC ACQUISITION CORP. By: /s/ William A. Davies ----------------------------------- Name: --------------------------------- Title: -------------------------------- EXECUTIVE: /s/ Carl Edward Boardwine (SEAL) -------------------------------------- Carl Edward Boardwine - 10 - EX-10.16 27 1995-2000 BASIC LABOR AGREEMENT 1 EXHIBIT 10.16 1995 - 2000 BASIC LABOR AGREEMENT AND SENIORITY RULES AND REGULATIONS between SIMCALA, INC. and UNITED STEELWORKERS OF AMERICA (AFL-CIO) August 8, 1995 2 1995-2000 LABOR AGREEMENT INDEX
ARTICLE SUBJECT PAGE PREAMBLE........................................................................................ 1 I RECOGNITION..................................................................................... 1 II PURPOSE AND SCOPE............................................................................... 1 2.1 Purpose................................................................................ 1 2.2 Employees Defined...................................................................... 1 2.3 Unit Change............................................................................ 1 2.4 Excluded Personnel..................................................................... 1 2.5 Contracting Work....................................................................... 2 III CHECKOFF........................................................................................ 2 3.1 Monthly Reports........................................................................ 2 3.2 Initiation Fees and Dues............................................................... 2 3.3 Remittance............................................................................. 2 3.4 Preference............................................................................. 2 3.5 Indemnity Clause....................................................................... 2 3.6 Report to Union........................................................................ 2 3.7 Dues Exemption......................................................................... 2 IV MANAGEMENT...................................................................................... 3 V STRIKES AND LOCKOUTS............................................................................ 3 VI RATES OF PAY.................................................................................... 3 6.1 The Standard Hourly Wage Scale......................................................... 3 6.2 New or Changed Job..................................................................... 3 6.3 Inequity Grievances Prohibited......................................................... 4 6.4 Shift Premium.......................................................................... 4 6.5 Sunday Premium Pay..................................................................... 5 6.6 Funeral Pay............................................................................ 5 VII HOURS OF WORK................................................................................... 5 7.1 Definitions............................................................................ 5 7.2 Normal Hours........................................................................... 6 7.3 Scheduling............................................................................. 6 7.4 Allowance for Jury Service............................................................. 7 7.5 Overtime Hours and Pay................................................................. 7 7.6 Attendance and Absenteeism............................................................. 8 VIII VACATIONS....................................................................................... 10 8.1 Intent................................................................................. 10 8.2 Qualifying Services.................................................................... 10
- 1 - 3 8.3 Eligibility Requirements for Vacation with Pay......................................... 11 8.4 Allowance.............................................................................. 12 8.5 Pay.................................................................................... 12 8.6 Forfeit................................................................................ 13 IX HOLIDAYS........................................................................................ 13 9.1 Production Optional With Company....................................................... 13 9.2 Holidays............................................................................... 13 9.3 Employees Not Working.................................................................. 13 9.4 Employees Scheduled.................................................................... 14 9.5 Holiday Pay............................................................................ 14 9.6 Maximum Pay............................................................................ 14 X INJURY PAY...................................................................................... 14 10.1 Allowed Time for Injury.............................................................. 14 XI ADJUSTMENT OF GRIEVANCES........................................................................ 15 11.1 Step 1............................................................................... 15 Step 2...................................................................................... 15 Step 3...................................................................................... 16 Step 4...................................................................................... 16 11.2 Statement of Facts................................................................... 17 11.3 Rules of Appeal and Answer........................................................... 17 11.4 Witnesses............................................................................ 18 11.5 Grievance Committee.................................................................. 18 11.6 List of Union Representatives........................................................ 18 XII SUSPENSION AND DISCHARGE........................................................................ 18 12.1 Procedure............................................................................ 18 12.2 Reinstatement Pay.................................................................... 19 XIII SAFETY.......................................................................................... 20 13.1 Company Provisions................................................................... 20 13.2 Joint Safety Committee............................................................... 20 13.3 Safety Rules......................................................................... 20 13.4 Unsafe Conditions-Practices.......................................................... 20 13.5 Life Endangered...................................................................... 20 13.6 Annual Physical...................................................................... 21 XIV LEAVE OF ABSENCE................................................................................ 21 14.1 Personal, Medical or Family Leave.................................................... 21 14.2 Union Absence........................................................................ 21 14.3 Military............................................................................. 21 14.4 Personal Leave....................................................................... 22 XV SENIORITY....................................................................................... 22 15.1 Acquisition of Seniority............................................................. 22 15.2 Excluded Personnel................................................................... 22 15.3 Loss of Seniority.................................................................... 23 15.4 Seniority Factors.................................................................... 24
- 2 - 4 15.5 Seniority Units...................................................................... 25 15.6 Permanent Vacancies.................................................................. 25 15.7 Filling Temporary Vacancies.......................................................... 27 15.8 Promotions, Reductions in Forces..................................................... 28 15.9 Transfers and Retaining Seniority Rights............................................. 29 15.10 Temporary Transfer at Management's Direction......................................... 29 15.11 Loss of Work Arising from Work Stoppages or Strikes.................................. 30 15.12 Manning New Facilities............................................................... 30 XVI TERMINATION.................................................................................... 30 XVII TRAINING....................................................................................... 30 XVIII ENTIRE AGREEMENT............................................................................... 32 SCHEDULE 'A' -- Standard Hourly Wage Scale.................................................. 34 Simcala Inc. 401-K Plan..................................................................... 35 Simcala Inc. Profit-Sharing Agreement....................................................... 36 Local Agreements............................................................................ 39 Exhibit 'A' -- Line of Progression.......................................................... 40
- 3 - 5 AGREEMENT This Basic Agreement dated as of August 5, 1995 is between SIMCALA, INC. or its successors and assigns (hereinafter referred to as the "Company") and the UNITED STEELWORKERS OF AMERICA, AFL/CIO or its successors and assigns (hereinafter referred to as the "Union") on behalf of its members employed by the Company at its Montgomery, Alabama Plant. ARTICLE 1 - RECOGNITION 1.1 In accordance with and subject to the provisions of the Labor Management Relations Act, 1947, as amended, the Company recognizes the Union as the sole exclusive bargaining agency of the production and maintenance employees of the Company at the above-named plant of the Company for the purpose of collective bargaining in respect to rates of pay, hours of work, and conditions of employment. 1.2 The Union agrees to keep the Company advised at all times of the names of its duly elected officers and committeemen with whom the Company will deal to carry out the provisions of this Agreement. ARTICLE 2 - PURPOSE AND SCOPE 2.1 Purpose - It is the intent and purpose of the parties hereto that this Agreement will set forth herein the basic understanding covering rates of pay, hours of work, and conditions of employment to be observed by the parties hereto so as to maintain uninterrupted operations in the plant and to achieve the highest level of employee performance and efficiency through ongoing training and consistent with safety, good health, and sustained effort. 2.2 Employees Defined - Whenever the terms "employee" or "employees" are used in this Basic Agreement, they shall be regarded as including all employees of the plant named above, and shall not include office clerical employees, professional employees, guards, foremen, or any supervisory positions, salaried employees, lab technicians and analysts, chemists, research employees, and certain other technical employees. 2.3 Unit Change - Any change in the bargaining unit shall be by mutual agreement. 2.4 Excluded Personnel A. Supervisors are not within the definition of "employee," but may perform bargaining unit work from time-to-time, however, B. A grievance if granted under this section will provide four (4) pay to an employee or employees off injured or sick as designated by the Grievance Committee and Plant Manager. 6 2.5 Contracting Work A. Contracting out of work will not be done to replace or displace a bargaining unit employee. B. The Company agrees to notify the Union of its intent to contract out work. ARTICLE 3 - CHECKOFF 3.1 Monthly Reports - On or before the fifteenth day of each calendar month the Company shall submit to the Union a list showing the name, address and employee number of each new employee hired during the preceding month. 3.2 Initiation Fees and Dues - The Company agrees to deduct from each employee's first pay of the succeeding calendar month next following the receipt of a voluntary union dues checkoff authorization card executed by that employee, the monthly union dues for the preceding month and shall also deduct any assessments against the employee which are general and uniform among all employees who at the time are members of the union, and also if owed an initiation fee in the amount designated by the union. 3.3 Remittance - The Company shall promptly remit any and all amounts so deducted as a result of receipt of aforesaid assignments to the International Treasurer, United Steelworkers of America, 6200 E.J. Oliver Blvd., Suite 44, Fairfield, AL 35064, or to wherever designated by the Treasurer. 3.4 Preference - It is understood and agreed that deductions for Old Age Benefits, Withholding Tax, Insurance, Company Property, and Court Assignments shall have preference over the aforesaid deductions. 3.5 Indemnity Clause - In consideration of the Company's deducting dues under the foregoing arrangement, the Union agrees that it shall indemnify and hold the Company harmless against any and all claims, demands, civil suits or other forms of liability that may arise out of or by reason of any action taken or not taken by the Company for the purposes of complying with any of the provisions of this Article 3 or any information furnished to the Company by the Union or any of its duly authorized representatives. 3.6 Report to Union - A list of employees names from whom dues, initiation fees and assessments have been deducted shall be furnished to the Financial Secretary of the Local Union each month. Included in the list of names of employees from whom dues were deducted shall be the names of those from whom it was impossible to deduct dues and a statement of the reason. 3.7 Dues Exemption - The constitution of the Union provides that members who have not received forty (40) hours pay in any one month, through no fault of their own, shall be exonerated from the payment of dues. It is agreed that in cases where employees do not - 2 - 7 have earnings in the pay period from which dues are customarily deducted, but did have forty (40) hours pay or more in the month, the Company will deduct the dues for the particular month from the next pay period in which the employee has earnings. It is understood that the above exemption does not apply when the time lost is due to earned vacation. The provisions of this paragraph will be changed only as a result of official notice from the International Treasurer of the Union. ARTICLE 4 - MANAGEMENT 4.1 Subject to the provisions of the Agreement, the Union recognizes that the Management of the works and the direction of the working forces including, but not limited to, introduction of new technologies, equipment and processes, the assigning of work schedules and job duties, and transfer, the right to hire, suspend, or discharge for proper cause including lack of qualification or inability to achieve minimum levels of competence during the initial probationary period of employment, and thereafter, and proper attendance, and successful completion of training programs, and the right to relieve employees from duty because of lack of work or for other legitimate reasons, is vested exclusively in the Company. ARTICLE 5 - STRIKES AND LOCKOUTS 5.1 There shall be no lockouts on the part of the Company, no suspension of work on the part of the employees. It is agreed between the parties hereto that the procedure provided in the Agreement is adequate, if followed in good faith by both parties, for a fair and expeditious settlement of grievances arising between the parties. It is further agreed that if this procedure is not followed or is disregarded and a strike occurs, all members who are proven to have advocated, instigated, or caused such strike, in violation of this Agreement shall be subject to disciplinary action. The Union officers and committeemen shall work with Company representatives to first, prevent any violation of this Agreement and second, to immediately correct any violation. ARTICLE 6 - RATES OF PAY 6.1 THE STANDARD HOURLY WAGE SCALE It is understood and agreed that the Standard Hourly Wage Scale as shown in Schedule A, attached hereto and made a part of this Agreement, shall be the rates of pay, except as changed under the terms of this Agreement. 6.2 DESCRIPTION AND CLASSIFICATION OF NEW OR CHANGED JOB 6.2.1 To establish a description and classification for a new job at some subsequent date, the Company shall within sixty (60) operating days of the installation of the new job, describe said new job in accordance with the Current Manual and shall submit two copies of such description to the Union; the sixty (60) days may be extended by written agreement. - 3 - 8 6.2.2 After the Company and the Union have agreed upon and signed the job description, the Company shall classify such job and shall submit two copies of such classification to the Union. 6.2.3 If Management and the Union are unable to agree upon the description and/or classification, Management shall install the proposed description and/or classification and the employee or employees affected may, within thirty (30) days after such disagreement, file a grievance alleging that the job description and/or classification is improper under the procedure established in the Procedural Agreement. Such grievance shall be processed under the Grievance Procedure of the Basic Agreement, beginning at the second step. 6.2.4 An existing job shall not be reclassified unless accumulative changes occurring shall alter the requirements of such job. Introduction of new technologies or processes will not be grounds for reclassification. 6.2.5 Jobs will not be combined without mutual agreement of the parties. 6.3 The Company and the Union agree that "inequity" grievances over relative rates of pay among the various job classifications are prohibited. 6.3.1 No basis shall exist for an employee to allege that a wage rate inequity exists and no grievance on behalf of an employee alleging a wage rate inequity shall be filed or processed during the term of the Agreement. 6.4 SHIFT PREMIUM 6.4.1 Effective for the term of this Agreement, shift premiums shall be paid as follows: A. For hours worked which would fall in the prevailing night shift, which includes all shifts regularly scheduled to commence between 10:00 p.m. and 12:00 midnight, there shall be paid a shift premium of thirty (30) cents per hour. B. For hours worked which would fall in the prevailing day shift, which includes all shifts regularly scheduled to commence between 6:00 a.m. and 8:00 a.m., no shift premium will be paid. C. For hours worked which would fall in the prevailing afternoon shift, which includes all shifts regularly scheduled to commence between 2:00 p.m. and 4:00 p.m., there shall be paid a shift premium rate of twenty (20) cents per hour. D. For shifts commencing at times other than covered in A, B, and C above, the afternoon shift premium will be paid for all hours worked between 4:00 p.m. and midnight and the night shift premium will be paid for all hours worked between midnight and 8:00 a.m. - 4 - 9 6.4.2 Shift premiums shall be included in the calculation of overtime compensation. 6.4.3 Shift premiums shall be paid for allowed time or reporting time when the hours for which payment is made would have called for a premium, if worked. 6.5 SUNDAY PREMIUM PAY 6.5.1 For all time worked on Sunday, which is not paid for on an overtime basis, a premium on the regular rate for the job as defined in the Standard Hourly Wage Scale as shown in Schedule A, attached to and made a part of this Agreement, shall be paid as follows: TWENTY-FIVE (25) PERCENT 6.5.2 For the purpose of this provision, Sunday will be deemed to be the twenty four (24) hours beginning with the turn change time nearest to 12:01 a.m. Sunday. 6.6 FUNERAL PAY 6.6.1 Any employee losing work because of the death of the employee's father, mother, brother, sister, father-in-law, mother-in-law, husband, wife, child, grandfather, grandmother, grandchild or step parents and step children (when they have lived with the employee in an immediate family relationship) shall be entitled to maximum of three (3) days' pay, or the day of the funeral in the event of the death of the employee's immediate brother-in-law or sister-in-law or son-in-law or daughter-in-law, if the employee was scheduled to work on any of those days. 6.6.2 In the event of the death of a spouse or child during the employee's vacation, three (3) days of the vacation will be rescheduled at a later date, four (4) days if the funeral is over 100 miles away. 6.6.3 The above days shall not extend beyond the date of the funeral and will require attendance at the funeral, except, that one of the four days may be applied to the first day after the funeral, if the funeral is held at a distance of 100 miles or more from the employee's home, and such day is required for travel. 6.6.4 Proof of relationship, such as an obituary notice, must be attached to the claim for pay. The rate of such "Funeral Pay" shall be the standard hourly wage rate shown in Schedule A, attached hereto, for the job said employee worked on his last day of actual work and shall not include any premium pay for whatever cause. ARTICLE 7 -- HOURS OF WORK 7.1 DEFINITIONS - 5 - 10 7.1.1 A day is the twenty-four (24) hour period from the time an employee commences work. 7.1.2 A week is a calendar week. 7.2 NORMAL HOURS 7.2.1 The normal hours as shown below shall not be construed as a guarantee of hours of work per day or per week, or for days of work per week. 7.2.2 The normal hours per day shall be eight (8) hours of work and sixteen (16) consecutive hours of rest. A. The employee shall not have an established lunch period, shall eat at the convenience of the operation, but shall not be required to eat sooner than three (3) hours nor later than five (5) hours after he commences work, and shall not take time to exceed a total of thirty (30) minutes during any work shift. B. It shall not be considered normal hours and the overtime provisions of Section 7.6 shall not apply when either a local ordinance or State or Federal legislation changes the time and such action forces a short return. 7.2.3 The normal hours per week shall be forty (40) hours of work consisting of five (5) work days and two (2) scheduled rest days. 7.2.4 All hours worked beyond the normal hours as set forth in this Section shall be paid at the overtime rate, as provided in Section 7.5 below. 7.2.5 Where possible, employees will be scheduled to work so they will work five (5) consecutive days in a week and have two (2) consecutive scheduled rest days per week. 7.3 SCHEDULING 7.3.1 Determination of the daily and weekly work schedules shall be made by the Company and such schedules may be changed by the Company from time to time to suit varying conditions of the business or conditions beyond the Company's control; provided, however, that the plant work week shall not be reduced below forty (40) hours without mutual agreement. The Company further agrees that it will return to a forty (40) hour week before hiring any additional employees. 7.3.2 An employee shall not be laid off a day to make up for working his scheduled day off in order to avoid payment of sixth or seventh day overtime. 7.3.3 Schedules of the employees' regular workdays whenever possible shall be posted or otherwise made known to employees by 3:00 P.M. CST Friday. - 6 - 11 7.4 ALLOWANCE FOR JURY SERVICE 7.4.1 An employee who is called for jury service shall be excused from work for the days on which he serves and shall receive for each day of service on which he otherwise would have worked his normal wages and benefits. 7.4.2 The employee will be required to present proof of service. 7.4.3 This allowance shall not apply in the case of a witness when he is being paid for such service as a deputy or peace officer. 7.5 OVERTIME HOURS AND PAY 7.5.1 It is understood and agreed that some overtime is expected. Therefore, it shall be at Management's discretion to assign overtime work, provided: No employee shall work more than sixteen (16) consecutive hours from the time he commences work nor return to work within 8 hours after working 16 consecutive hours nor more than twenty-four (24) overtime hours within one calendar week unless extended by mutual agreement between the affected employee and the Company. 7.5.2 When management determines that overtime is necessary, the following procedure will be used: Offer overtime to personnel on the shift present, in the classification where the vacancy exists first, in seniority order unless the line of progression is fully utilized. 1. Offer overtime to personnel on the shift present, in the classification where the vacancy exists first, in seniority order. 2. If no one accepts, offer the overtime to the personnel in the same classification from the on-coming crew in seniority order. 3. Call all other personnel scheduled in the classification in seniority order. 4. If no one accepts, go directly to the qualified voluntary overtime list for that classification. These lists will be changed quarterly. 5. If no one volunteers from that list, employees at work will be forced to work. A. Should problems arise in the administration of this procedure, the parties agree to discuss them at that time. B. Grievances that arise from the administration of this procedure will be settled by allowing the aggrieved employee or employees to work the same amount of time as missed and paid at the same rate. - 7 - 12 7.5.3 OVERTIME PAY A. The overtime rate to be paid employees for overtime hours shall be one and one-half (1-1/2) times the regular rate of pay for the occupation on which the overtime hours are worked, except as excluded under 7.5.4 and 7.5.5 below. 7.5.4 OVERTIME RATES SHALL BE PAID FOR: A. Hours worked in excess of eight (8) hours within the twenty-four (24) hour period commencing with the time an employee begins work, except that this shall not apply in instances excluded by local agreements. B. Hours worked in excess of forty (40) hours in any calendar week. C. Hours worked by an employee on the sixth or seventh work day in a payroll week (Sunday through Saturday), during which work was performed on employee's scheduled five (5) workdays, except that if laid off by Company on scheduled workday, lost time will be counted. D. Any employee who must bump to a shift involving a short return in order to stay in his classification or preserve his employment. E. Lost time for Union business will be counted as time worked for overtime purposes for officers and grievance committeemen. 7.5.5 NONDUPLICATION A. Payment of overtime rates shall not be duplicated for the same hours worked, but the higher of the applicable rates shall be used. Hours compensated for at overtime rates shall not be counted further for any purpose in determining overtime liability under the same or any other provisions, provided, however, that a holiday, whether worked or not, shall be counted for purposes of computing overtime liability under the provisions of subsection 7.5.4C above and hours worked on a holiday shall be counted for purposes of computing overtime liability under the provisions of subsection 7.5.4A above. B. Except as above provided, hours paid for but not worked shall not be counted in determining overtime liability. 7.6 ATTENDANCE AND ABSENTEEISM 7.6.1 DETERMINATION OF ABSENTEEISM A. An Absentee Rate will be computed for each employee and that rate will be compared to a fixed percentage rate which the Company will tolerate. Any - 8 - 13 employee with a rate higher than the fixed rate will receive the next higher degree of discipline. B. The Absentee Rate will be computed over a time period of a minimum of six weeks since previous discipline (if any) or a minimum of six weeks from the present offense backwards toward the last discipline (if any). If the employee has had no previous discipline, the last six week period (or longer) can be considered. For purposes of the calculation, the six week period shall represent 30 days. The points referred to below shall represent the absentee demerits. Thus, if an employee has three unexcused absences (with proper two hour notification of the absence) during said six week period, his absentee percentage would be 10% (3130) and he would be subject to disciplinary actions as noted below. C. In computing the Absentee Rate, each unexcused absence, unexcused tardy or unexcused "out early" will count as one point towards absence. An unexcused absence with a late call in (less than two hours notice preceding shift) will count as one and one half absences. The sum of the above will be divided by the total number of working days in the period under consideration in B. above. D. Management determines what will be an excused or unexcused absence as follows: EXCUSED ABSENCES: 1. Death in the family (those covered in article 6.6 of the Basic Labor Agreement). 2. Industrial Injury 3. Union Business 4. Jury Duty 5. Extended Illness (for physically incapacitated days accompanied by a doctors certificate). 6. Sickness (when accompanied by a doctor's excuse). Unexcused absences consist of all absences not covered as excused. Tardiness and leaving early, unless for one of the above excused reasons will be considered unexcused. Failure to report off will result in an advancement to the next step, regardless of percentage rate. E. The fixed absentee rate for the Mt. Meigs plant will be 4%. Any employee with a higher rate as prescribed in B, C. and D above will receive the next higher step in the discipline procedure. - 9 - 14 F. The Steps of Discipline are as follows: 1. Written Reprimand 2. 1 Day Suspension 3. 3 Day Suspension 4. 5 Day Suspension pending discharge. G. Any employee who maintains a percentage of less than 4% as computed in B, C, and D above for six months since his last reprimand will back up one step in the procedure. Any employee who maintains a perfect attendance record for six months will completely clear his absenteeism record. 7.6.2 REPORTING ABSENCE OR LATENESS A. In reporting off from a scheduled shift, calls must be made 2 hours prior to the start of that shift, except 1 hour on "B" shift. Failure to meet this time requirement will result in one-half point against the attendance record and one point for one hour or less notice. B. Employees missing their scheduled turn will have one point assessed against attendance record. C. Failure to call in by the start of the shift and then missing scheduled shift will result in advancement to the next step of disciplinary procedure. D. A late report for work without calling to advise of expected lateness will result in an additional one-half point and said employee may be reassigned or sent home. ARTICLE 8 - VACATIONS 8.1 VACATIONS INTENT Vacations are granted as a reward for service, as indicated by the qualifying requirements of this vacation plan. It is the intent of this section to grant vacations, with pay, to those employees who are consistently employed and who have given faithful attendance to their employment. 8.2 QUALIFYING SERVICES A. In determining length of continuous service for the purpose of deciding vacation eligibility of an employee, his total number of years of continuous service shall be calculated from his last date of hire (calendar year). - 10 - 15 B. Continuous service credit will be given an employee who has "Lay- Off Standing," "Leave of Absence Standing" or "Military Standing" on any vacation eligibility date, who returns to the payroll of the Company during the calendar year, who completes one (1) year or more of continuous service during that calendar year, and who otherwise meets the eligibility requirements of this Article 8. 8.3 ELIGIBILITY REQUIREMENTS FOR VACATION WITH PAY To be eligible for a regular vacation in any calendar year during the term of this Agreement, the employee must: A. Have one (1) year or more of continuous service. B. Have received earnings in at least fifty percent (50%) of the pay periods in the preceding calendar year, except that in case of an employee who completes his first year of continuous service in such calendar year, he shall have received earnings in at least fifty percent (50%) of the pay periods during the twelve (12) months following the date of his original employment and still be on the payroll on his first anniversary date. C. No more than one (1) vacation shall be paid during any one (1) calendar year. D. In cases where an employee has been absent from work due to a disability arising out of his employment at the Company's plant, hours worked credit will be granted for vacation purposes for all hours lost due to the disability during the twelve (12) months following the date the injury occurred, but not to exceed eight (8) hours a day or forty (40) hours a week. E. An employee entering the Military Service for his first enrollment, who has completed at least one (1) year of continuous service shall receive, for such year of enrollment, not less than fifty percent (50%) of his vacation allowance, notwithstanding the number of pay periods worked in. F. If an employee does not qualify under the above provisions and has two (2) years of continuous service and has worked at least two hundred sixty (260) hours during the last preceding calendar year, he shall be eligible for a prorated vacation. based on the ratio of his actual hours worked to one thousand forty (1,040) hours. G. All active SiMETCO employees employed on the closing date of the SIMCALA acquisition who are hired by SIMCALA shall be recognized for prior continuous service for purposes of this Section 8 only. H. It is agreed that the purpose of this Article 8, Vacations, is to provide actual time off to all employees; therefore, all vacations shall be taken with the exception that - 11 - 16 the Company may, with the consent of the employee, pay him vacation allowance, in lieu of time off for vacation. 8.4 VACATION ALLOWANCE A. In line with the above eligibility requirements, continuous service shall earn vacation pay allowance as follows provided, however, that no employee shall be entitled to more than two weeks of vacation during the first two years of this Agreement:
Years of Service Weeks of Vacation ---------------- ----------------- 1 but less than 3........................1 3 but less than 15.......................2 15 or more...............................3
B. All vacations shall be taken in full week periods; a one week's vacation shall consist of seven (7) consecutive days, a two weeks' vacation of fourteen (14) consecutive days, a three weeks vacation of twenty-one (21) consecutive days. Each vacation week shall include five (5) regularly scheduled working days. When vacations are split, they shall be paid accordingly. C. Vacations will, as far as possible, be granted at times most desired by employees, but vacations must necessarily be governed by business conditions and the final right to allotment of individual vacation period is exclusively reserved to the Company in order to insure the orderly operation of the plant. 8.5 VACATION PAY A. Each employee requesting vacation time and pay shall fill in and sign a regular Vacation Request Form furnished by Management, and submit to his supervisor for approval. This form will also require approval of the Plant Superintendent or his designated representative, and will then be forwarded to the Payroll Department for execution. In each case, the employee must file such Vacation Request Form at least thirty (30) days ahead of the desired vacation time in order to exercise his seniority for preference on vacation time approval. The Vacation Request Form provides that an employee may list jobs he would be interested in bidding upon should they be posted during his vacation period. B. Each employee granted a vacation under this Section 8 will be paid at his current hourly rate times forty. C. Vacations shall commence after January 1st each calendar year and as near as possible, shall be scheduled on a planned basis of an approximate equal number of employees each month. - 12 - 17 8.6 FORFEIT OF VACATION A. An employee who voluntarily quits will forfeit all rights to eligibility and pay unless he gives two (2) weeks' written notice to Management and continues to work through the notice period, and has met the eligibility requirements of Section 8.3 above. B. An employee who is discharged for cause prior to an eligibility date will forfeit all rights to eligibility and pay. C. Any employee with three years' service who quits after working 50 percent of any pay periods and thereby earning a vacation for the next year shall receive said vacation pay after January 1 subject to the provisions of 8.6A above. ARTICLE 9 - HOLIDAYS 9.1 PRODUCTION OPTIONAL WITH COMPANY Regular production on days defined as holidays shall be optional with the Company. When the plant is scheduled to work on any of these days, those employees scheduled to work shall report on their regular shifts. 9.2 HOLIDAYS For the purpose of this Agreement, the following days shall be considered holidays, and when such holiday falls on Sunday, it shall be observed on Monday, and such Monday shall be construed as the holiday: New Year's Day, Martin Luther King Jr's. Birthday, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, Day before Christmas and Christmas Day. 9.3 EMPLOYEES NOT WORKING A. All employees not required to work on a day on which any of the above holidays occur shall be paid the rate of the job he last worked or his bid rate, whichever is higher, for eight (8) hours, if they worked their last scheduled day prior to the holiday and their first scheduled day after the holiday, except that Management shall waive the work requirement for personal illness (when validated by a doctor's certificate stating the employee's physical inability to work) or death in the immediate family. B. Paragraph A above shall not apply to employees laid off, on leave of absence, or off due to an illness or injury except an employee absent due to such causes who - 13 - 18 works during the pay period in which the holiday occurs. An employee who is on vacation during the week in which a holiday occurs shall be paid as computed in Paragraph A above. 9.4 EMPLOYEES SCHEDULED A. Any employee who is normally scheduled to work on a day on which any of the above holidays occur and who does not report for work for any reason, may not be paid except that this work requirement shall be waived for personal sickness or death in the immediate family. 9.5 HOLIDAY PAY For all hours worked by an employee on any of the holidays specified in Section 9.2 above, Holiday Pay shall be as follows: A. The employee shall receive two (2) times his regular rate of pay. B. If an employee has been scheduled off but then is called to work on his normal schedule on a holiday but works less than eight (8) hours, he shall be entitled to the benefits of Subsection 9.3A of this Article 9 to the extent that the number of hours worked by him on the holiday are less than eight (8). C. An employee scheduled off on a holiday and then called out shall receive the holiday premium pay for hours worked plus the holiday pay as outlined in 9.3A above. D. An employee working his normal scheduled shift on the holiday who is required to work in excess of his normal eight (8) hour shift shall receive no more than the rates outlined in 9.5A above. 9.6 MAXIMUM PAY However, no employee shall receive more than the above specified rates for hours worked on any holiday. ARTICLE 10 - INJURY PAY 10.1 ALLOWED TIME FOR INJURY A. Any employee suffering an injury on the job, requiring the attention of a doctor which in the opinion of the attending doctor or nurse renders him unable to continue work, shall be paid for the balance of that work shift at the rate of the job he was working at the time of said injury. On the date of the employee's injury, if - 14 - 19 such employee returns to work and finds he is unable to work, and such employee then goes home, he shall be paid for the balance of that shift. B. All hours paid for above will count as hours worked for the purpose of overtime calculation under the provision of Article 7. C. When additional visits are required due to injury, and supported by written proof of appointment, such employee will be compensated for lost time for a maximum of two (2) additional visits. Whenever possible doctors visits will be scheduled on the employee's off time. ARTICLE 11 - ADJUSTMENT OF GRIEVANCES 11.1 Should differences arise between the Company and the Union as to the meaning and application of the provisions of this Agreement or should any trouble of any kind arise in the plant, there shall be no suspension of work or refusal to perform the duties assigned, on account of such differences, but an earnest effort shall be made to settle such differences immediately in the following manner. Step 1 A. Grievances or complaints must be reported within five (5) days from the date of occurrence. Grievances or complaints not adjusted within fifteen (15) days of occurrence or within fifteen (15) days (excluding Saturdays, Sundays and Holidays) of the date the employee or employees or Committee become aware of the occurrence, or last occurrence, on which the grievance is based, shall be reduced to writing by the aggrieved employee or employees or the grievance committeeman on suitable forms furnished for this purpose in triplicate, and presented to the immediate supervisor before they will be considered further. B. These written grievances shall be signed and dated by the aggrieved employee and the committeeman. In such grievance, should it be decided by the Personnel Department that it is necessary to consider the merits and demerits of the grievance, the department may do so, but in all cases it shall enter a written disposition of the same within five (5) working days of the date of the presentation of the written grievance. The Personnel Department shall date and sign all three copies of the written grievance and will return two copies to the Chairman of the Grievance Committee. Step 2 A. Grievances not settled in Step 1 above, may be appealed by the Grievance Committee to the Personnel Department, which appeal must be in writing, addressed to the Personnel Department and must be presented to it not later than five (5) days after receipt of the written disposition by the Personnel Department. - 15 - 20 B. Within five (5) days from the date of the presentation of such written grievance, a representative of the Personnel Department shall meet with the General Grievance Committee for a discussion of said appeal and attempt to settle such grievance. C. It is understood, by the above paragraph, that the Grievance Committee will investigate all alleged grievances before processing them to Step 2 of this Grievance Procedure and any alleged grievance found not to be based on fact will not be affirmed by the Committee and will be withdrawn. D. If no agreement is reached during the discussion of such appeal, the Personnel Department will submit its written disposition of such grievance within five (5) days from the date of the hearing. Grievances not appealed in writing from the decision in Step 1 within five (5) days from the date of such decision shall be considered settled on the basis of the decision last made and shall not be eligible for further appeal. Step 3 A. Grievances not settled in Step 2 may be appealed to the representatives of the International Union and representatives of the Company, which appeal shall be in writing and shall be made within five (5) days from the date of the last decision. B. Within another fifteen (15) days from such appeal, the representatives of the International Union of his designees shall contact representatives of the Company, in writing, to request a meeting on the grievance, or advise that he has not affirmed the grievance, and same has been withdrawn. After such written appeal, a Management representative shall make verbal or written contact, within ten (10) days, to arrange a date for a meeting. C. Management must answer in ten (10) days (excluding Saturdays, Sundays, and Holidays) from the date of the meeting or from the date of the last meeting if several meetings are held. Step 4 A. If the Union wishes to appeal the disposition made in Step 3 of any grievance, a representative of the Union shall mail to the Company a written notice of appeal of such grievance to arbitration, within ten (10) days from such disposition. B. When he deems it advisable, and prior to proceeding into arbitration, even though appealed, the Union Staff Representative may appeal a case in this Step 4, in writing, to an Executive of the Company and the District Director of the Union for the District involved, for review and an attempt to solve. The Executive of the Company and the District Director, or their respective designees, shall arrange to - 16 - 21 meet at their convenience to review the case and develop all facts in an effort to find a solution. Either party may call in witnesses who can contribute to a better understanding or development of facts. The stipulated officials of the parties will then proceed in their own method toward reaching a solution. If, after a thorough examination of the facts, no agreement can be reached in this case, it may be withdrawn or may be referred back to the Union Staff Representative to process on into arbitration. In either instance, the Company shall be notified in writing within fifteen (15) days after the final meeting of the officials referred to above. C. 1. The Union upon the filing of an appeal to arbitration will simultaneously request from the Federal Mediation and Conciliation Service (FMCS) a panel of not more than five impartial arbitrators. The Union and the Company within 14 days of receipt of the FMCS panel will select an arbitrator by alternating strikes. The Union and the Company may agree to request a second FMCS panel if the first panel is deemed for any reason unacceptable to both. 2. No new evidence shall be submitted in Step 4; however, should any new facts develop after the Third Step, said case shall be referred back to the Third Step. 3. Post hearing briefs will only be filed by mutual agreement. D. The said umpire shall not have the power to add to, subtract from or modify the terms of this Labor Agreement or any Agreement supplemental thereto. The decision of the umpire shall be final and binding on both parties. The fees and expenses (including the cost of the original copy of any stenographic record) shall be paid equally and jointly if jointly requested by the Company and the Union. It shall be the duty of the umpire to make his decision within thirty (30) days after final submission of the case to him, which includes receipt of the transcript and post hearing briefs. 11.2 The employee or the committeeman in reducing any grievances to writing shall state clearly and concisely in writing all fads known to him which are the basis of his grievance and, if he claims that any Article or Articles of this Agreement are involved, he shall specify such Article or Articles on such grievance form. 11.3 Unless an extension of time has been mutually agreed upon by and between the parties: 11.3.1 The parties shall not be under any obligation to discuss any difference unless such difference is submitted within the time limits specified in Article 11. - 17 - 22 11.3.2 If a grievance is not appealed from one stage of negotiation to the next higher stage of negotiation within the specified time limits, or if a written notice of intention to appeal a grievance has not been given within such time limits, such grievance shall be considered settled on the basis of the last answer which has been made; provided, however, that such settlement shall not constitute a precedent in any other case. 11.3.3 If a grievance is not answered within the specified time limits, the grievance shall be considered by the parties to have been granted; provided, however, that the disposition of such grievance shall not constitute a precedent in any case. 11.4 In all grievance hearings it shall be permissible for either party to bring in employees of the Corporation, who are involved in the grievance or other witnesses who may present direct evidence to the grievance. 11.5 The General Grievance Committee shall consist of three (3) employees designated by the Local Union. The lost time involved for a maximum of one Third Step meeting per month, if held, will be paid by the Company. Additional time off will be afforded without pay as may be required: To attend regularly scheduled or special committee meetings with Management; and to attend meetings pertaining to discharges or other matters which cannot be reasonably postponed until the time of the next regular meeting with Management. 11.5.1 Any officer or Grievance Committeeman of the Union required to attend meetings outside the plant property shall notify in writing the Personnel Department two (2) days in advance of such meetings so that necessary arrangements can be made for his replacement. 11.6 The Union, from time to time, shall furnish the Company with a list showing the names of the Officers of the Local Union, General Grievance Committee and Shop Stewards, and the Company shall recognize as Officers, Committeemen and Shop Stewards only such persons as are named on the most recent list certified. ARTICLE 12 - SUSPENSION AND DISCHARGE 12.1. PROCEDURE A. In the exercise of its right as set forth in Article 4, Management, of this Agreement, the Company agrees that no employee shall be peremptorily discharged from and after the date thereof, but that in all instances in which the Company may conclude that an employee's conduct may justify discharge, he must be first suspended. Such suspension shall be for not more then five (5) calendar days excluding Saturdays, Sundays, and Holidays). In all cases of suspension, a Union representative and the employee's Foreman will be present at the time of such action. - 18 - 23 B. The employee will be advised of his rights for a hearing during this period of suspension, and the employee or the Grievance Committee may, if he believes that he has been unjustly dealt with, request a hearing and a statement of the offense before the Personnel Department with or without the member or members of the Grievance committee present as he may choose. Such hearing shall be held within five (5) calendar days (excluding Saturdays, Sundays, and Holidays) after the date of such request. If any such employee shall not request a hearing within the five (5) day provisional discharge period, his discharge shall become final. Reprimands, docking, suspensions or anything detrimental (excluding absenteeism) to the employee's work record will be removed from the employee's record after twenty-four (24) months and shall not be used against him or cited in arbitration. C. At any such hearings all of the known facts concerning the case shall be made available to both parties. After such hearing, the Company shall conclude within five (5) calendar days (excluding Saturdays, Sundays, and Holidays) whether the discharge shall become final or, dependent upon the facts of the case, that such discharge shall be revoked. If the discharge is revoked, the employee shall be returned to employment and shall receive such compensation, if any, as provided in Section 12. 2 below. D. If the discharge of the employee is affirmed, the employee may within five (5 calendar days (excluding Saturdays, Sundays, and Holidays); after such disposition, file a grievance under the procedure for the adjustment of grievances set forth in Article 11 of this Agreement, and such grievance shall be filed at Step 3. If any such employee shall not file a grievance within such five (5) day period, his discharge shall become final. No new evidence shall be used after the Third Step. However, should any new facts develop after the Third Step, said case shall be referred back to the Third Step. E. The Grievance Committee shall be notified of all such suspensions and reason for same and shall, following a requested hearing, receive a copy of the decision of the local Management of the Company. However, Management shall be relieved of all requirements if a strike, work stoppage, or other impeding of production in violation of this Agreement is in progress. 12.2 REINSTATEMENT PAY A. If it is agreed by the parties or determined in arbitration, as provided in Article 11 of this Agreement, that an employee was unjustly discharged, such employee shall be reinstated to his job, with no loss of seniority, and shall be paid such amount, if any, as may be agreed upon by the parties or determined in arbitration, to be fair and just. B. Said employee shall be paid the amount of what would have been his normal earnings including overtime shift premium, holiday pay and all other earnings and - 19 - 24 benefits for his normally scheduled work during the period from his discharge to his reinstatement, less any unemployment compensation received during said period. C. In the event a grievance concerning suspension or discharge goes to arbitration, the arbitrator shall have the authority to modify the penalty. The arbitrator may substitute his judgment for that of the Company on appropriate discipline. ARTICLE 13 -SAFETY 13.1 The Company shall continue to make reasonable provisions for the safety and health of its employees at the plant during the hours of their employment. Protective devices, special wearing apparel and other equipment necessary to properly protect employees from injury shall be provided by the Company, and such equipment shall be used by the employees. The wearing of appropriate safety apparel is mandatory. 13.2 A joint Management and Union Safety Committee shall be established for the plant. The committee shall be composed of one Management Representative and one Union Representative for each 150 employees; however, the minimum shall be four members, two being appointed by Management and two being appointed by the Union. Time spent on committee work by the members shall be compensated by the Company for time lost. The Committee shall hold regular monthly meetings, at times determined by the Committee, and shall be compensated for lost time. The duties of the Committee shall be: A. To advise plant Management concerning safety and health matters. B. To make requested inspections of safety and health conditions and participate in the investigation of all accidents. C. To maintain a safety standard and a safety program for the plant. 13.3 The purpose of the plant safety rules shall be for the protection of our employees, and flagrant or intentional violation of such rules shall subject an employee to immediate discharge. 13.4 Any unsafe condition or practice, alleged to be existing in the plant, shall be brought to the attention of the Supervisor immediately by the employee noticing said condition or practice. The Company will take appropriate action necessary to correct the condition within a reasonable time. 13.5 In case any employee alleges a condition to be dangerous over and beyond the inherent hazards of the job, to the extent of endangering the life or limb of an employee, the employee will immediately report the matter to the employee's Supervisor. - 20 - 25 13.6 The company shall retain the right to require all employees to take annual physical examinations and bi-annual vision and hearing tests with the costs of such tests to be borne by the company. ARTICLE 14 - LEAVE OF ABSENCE 14.1 The Company agrees to conform to the terms and conditions of the Family and Medical Leave Act. 14.2 UNION ABSENCE 14.2.1 An employee who has two (2) years or more of continuous service with the Company and who is duly elected or selected by the Union to an office of the Union which is the bargaining unit shall be granted a leave of absence for a period not to exceed two (2) years. 14.3 MILITARY AND NAVAL SERVICE 14.3.1 The parties agree to follow the Universal Military Training and Service Act, as amended, in connection with the reinstatement and employment of former employees of the Company, who have been honorably discharged from military and naval service of the United States, who have seniority rights under this Agreement. 14.3.2 An employee who meets the requirements of 14.4.1 above shall be granted time and military allowance or military allowance in lieu of time for the year of his reinstatement and employment, following such service, notwithstanding any eligibility requirements of Article 8, Vacations, of the Agreement. 14.3.3 An employee required to lose work in order to report for pre-induction physical shall be paid a maximum of eight (8) hours, provided he resumes work on his next scheduled workday. 14.3.4 An employee with one or more years of continuous service who is required to attend an encampment of the Reserve Armed Forces, shall be paid, for a period not to exceed two (2) weeks in any calendar year, the difference between the amount paid by the Government (not including travel, subsistence and quarters allowance) and the amount calculated by the Company in accordance with the following formula. Such pay shall be based on the number of days such employee would have worked had he not been attending such encampment during such two weeks (plus any holiday in such two weeks which he would not have worked) and the pay for each such day shall be eight (8) times his average straight-time hourly rate of earnings (excluding shift differentials and Sunday and overtime premiums) during the last payroll period worked prior to the encampment. If the period of such encampment exceeds two weeks in any calendar year, the period on which such pay shall be based shall be the first two weeks he would have worked during such period. Riot and National Guard duty are excluded from this allowance. - 21 - 26 14.4 PERSONAL LEAVE A. An employee who desires to pursue a course of study at an accredited school of learning shall be granted such leave, not to exceed four (4) years, provided: 1. The employee advises the Company in writing at least thirty (30) days prior to the start of such course of his desire for a leave. 2. The employee must notify the Company and the Union in writing at least once a year of his continued interest to resume active employment with the Company upon completion or terminating such course of study. 3. The employee must report for reemployment within thirty (30) days after completion or termination of such course of study. B. Such personal leave of absence, outlined in A above, shall not constitute a break in the record of continuous service of such employee if he meets the requirements outlined therein. No more than two (2) such leaves shall be granted at one time except as may be mutually agreed to. ARTICLE 15 -- SENIORITY RULES AND REGULATIONS 15.1 PREAMBLE A. The Seniority Rules hereafter set forth, which implement the seniority provisions of the Production and Maintenance Labor Agreement, shall be used to govern the application of seniority from and after August 8, 1995, as it relates to hourly-paid production and maintenance employees represented by the United Steelworkers of America. B. These rules shall remain in effect unless and until modified by written agreement signed by Management representatives and appropriate representatives of the United Steelworkers, including the Chairman and Secretary of the Grievance Committee. C. The intent and spirit of these Seniority Rules and Regulations is to insure the placement and retention of the most qualified employees with the longest continuous service. 15.2 PROBATION A. Any person having one hundred-eighty (180) calendar days or less of continuous service shall be deemed to be a probationary employee. During such probationary period, the Company may separate said probationary employee at its discretion. - 22 - 27 B. Any employee retained after sold one hundred-eighty (180) calendar days shall become a regular employee. C. Should a new hire be laid off prior to the end of his probationary period and then recalled at a later date (not to exceed one hundred eighty (180) days), previous probationary time will be used in determining the completion of the probationary period only. D. Should the layoff continue past the one hundred-eighty (180) day period, the employee shall be considered as a new hire and a new probationary period shall be served. E. Those former employees of SiMETCO who were rehired by SIMCALA, INC. shall not suffer a break in continuous service. 15.3 LOSS OF SENIORITY A. Voluntary quit. B. Discharge for proper cause. C. Failure to report for work or failure to report reason for absence for four (4) consecutive days. D. Failure to report for work or report intent following a layoff: (a) if notified of recall to work, either in person or by a person-to--person telephone call, he will report intent to return and, if he refuses, he will be sent a notice by registered or certified mail, and failing to report within twenty-four (24) hours after receiving notice, he will be terminated. (b) Should the Company be unable to reach you by telephone, you will have four (4) calendar days to report to work after receipt of notice by registered or certified mail. E. Absence in excess of any leave of absence granted under Article 14. F. If an employee shall be absent because of layoff or physical disability, he shall continue to accumulate continuous service during such absence for two (2) years, and shall be eligible for recall for an additional period equal to (a) two (2) years, or (b) the excess, if any, of his length of continuous service at commencement of such absence over two (2) years, whichever is less. Any accumulation in excess of two (2) years during such absence shall be counted, however, only for the purposes of this Article 15, including local agreements thereunder, and shall not be counted for any other purpose under this or any other agreement between the Company and - 23 - 28 the Union. In order to avoid a break in service after an absence of two (2) years, the employee must give the Company annual written notice that he intends to return to employment when called, if the Company at least thirty (30) days prior thereto has mailed him a notice at the most recent address furnished by him to the Company that he must file such written notices. G. Absence due to a compensable disability incurred during the course of employment shall not break continuous service, provided such individual is returned to work within thirty (30) days after final payment of statutory compensation for such disability or after the end of the period used in calculating a lump sum payment. 15.4 SENIORITY FACTORS A. The parties recognize that promotional opportunity and job security in event of promotions, decrease of forces, and recalls after layoffs should increase in proportion to length of continuous service, and that in the administration of this section the intent will be that wherever practicable full consideration shall be given continuous service in such cases. In recognition of the responsibility of Management for the efficient operation of the works, it is understood and agreed that in all cases of promotion, layoff and recall the following factors will apply: (a) Ability to perform the work. (b) Training, experience and education. (c) Prior job performance. (d) Continuous Service (Plant Service). Where (a), (b) and (c) are relatively equal, (d) will be the determining factor. B. Nothing in this Subsection "B" shall prevent Plant Management and the Grievance Committee from mutually agreeing to fill an equal or lower job in a promotional sequence with a senior employee, nor shall anything in this Subsection "B" prevent Plant Management and the Grievance Committee from executing an agreement in writing to provide an opportunity to any employee displaced in the course of a reduction of forces to exercise his seniority to the extent appropriate to obtain a job paying higher earnings; provided, such employee is otherwise qualified with respect to relative ability to perform the work and relative physical fitness as provided above. Plant Management and the Grievance Committee may mutually agree to provide training for employees disabled in the plant and to assign them to vacancies for which they are qualified on the basis of such seniority arrangements as they may determine. - 24 - 29 C. Wherever used in these rules (unless expressly defined otherwise) "continuous service" shall mean an employee's length of continuous service within the plant, calculated from the first day worked on any occupation in the plant or his first day worked upon re-employment following a break in continuous service in the plant, whichever is later. D. If the plant continuous service dates for two (2) or more employees are the same, then the employee with the lowest dock number will be accorded benefits to be derived from having the greater plant continuous service date. 15.5 SENIORITY UNITS A. The units to which the seniority factors, as set forth above, shall be applied are the lines of promotion, also referred to as "seniority units" which are attached as an Appendix hereto. These units may be changed or now units established from time to time by written agreement, on chart form, signed by Local Plant Management and by the Chairman of the Grievance Committee of the Local Union. B. The seniority unit in which an employee has status on a permanent basis is referred to hereinafter as the employee's "home seniority unit." 15.6 PERMANENT VACANCIES A. Appointments to fill permanent vacancy in a line of promotion (including a permanent vacancy in a regular relief assignment) created by an employee promotion, demotion, death, discharge, quit, retirement or transfer out of the seniority unit shall be made in the following order of priority: 1. Employee(s) with the greatest seniority occupying the immediately preceding occupation to the vacant occupation in the line of promotion, or occupying an occupation of equal rank in the line of promotion where lateral movement is provided for by connecting lines on the chart will be offered the promotion. 2. In the event that the candidate above refuses a promotion, then employees on successively lower ranking occupations in the line of promotion will be similarly considered for promotion. 3. Each successive lower ranking job in the line of promotion is filled in the same manner with the employees present, then employees who have recall rights to the line of promotion shall be recalled in order of their plant continuous service to fill the remaining vacancies. 4. After all employees with seniority rights in the line of promotion have been recalled, then the vacancy will be filled by the following bid procedure: - 25 - 30 a. When it becomes necessary to fill a job vacancy through the posting of a bid the senior employee(s) within the classification will be permitted the option of moving to the vacancy before the bid is posted. The vacancy remaining will then be subject to the bid award. b. Notice of the permanent vacancy shall be posted in the clock room. Such notice shall show the department, job title, job class, estimated number of employees required, date of posting, designed location where bid is to be filed, and shall remain posted for seven (7) calendar days. c. Any employee holding plant continuous service in the plant may bid for the job in writing on forms furnished by the Company, and bids shall be received by Management during the seven (7) calendar day period provided above. When the employee presents his bid at the designated location in the plant, his bid shall be recorded as received and the employee shall be given a copy as evidence of receipt of his bid. d. Management shall have seven (7) days (longer periods than seven (7) days may be required if there is a large volume of bids received) following the seven (7) day posting period in which to make an evaluation of all bidders, the selection will be made on the basis of: (a) Ability to perform the work. (b) Training, experience and education. (c) Prior job performance. (d) Continuous Service (Plant Service). Where (a), (b) and (c) are relatively equal, (d) will be the deciding factor. B. Promptly upon selection management, notice of the employee selected by Management to fill a permanent vacancy shall be posted for ten (10) days on the same bulletin boards, as the notice of vacancy was posted. The notice shall show the name, badge number, plant continuous service date of the employee appointed, department, occupation title, the effective day of the appointment, and the day of posting. In the event Management determines not to fill a vacancy that has been posted for bidding, a cancellation notice will be posted in the same manner. - 26 - 31 1. Any complaint or grievance contesting Management's selection must be filed in writing with the department Superintendent or his designated representative during the ten (10) day period that the notice of appointment is posted. If no grievance is filed within the ten (10) day period as above provided, no grievance will thereafter be entertained either by the Union or the Company unless an employee was temporarily absent during the entire ten (10) day period that the notice of appointment was posted because of vacation, illness, injury, and in such event in order to be considered, such employee must file a grievance within the ten (10) day period after the date he returns to work. 2. If a grievance protesting the appointment to fill a permanent vacancy is settled in favor of the aggrieved employee, he shall displace the employee assigned to the occupation in question; and all other affected employees shall be returned to their former positions. If additional employees are needed, the job will again be posted for bids. C. New jobs may be filled directly by the bid procedure or may be inserted into an existing line of promotion and then filled by candidates occupying the immediately preceding occupation to the new job after it is inserted in the line of promotion. In the event that the Union and the Company fail to agree on the appropriate position in the line of promotion, Management may insert the job in the position they deem appropriate subject to challenge in the Grievance Procedure, including Arbitration. D. Should an employee in the seniority unit eligible for promotion be unable to accept such assignment because of temporary absence due to vacation, illness, injury or leave of absence, another employee may be temporarily assigned to the vacant occupation, pending return to work of the employee initially eligible for promotion. The Company may fill an occupation on a temporary basis during the time required to determine the successful candidate by the bid procedure. E. An employee who refuses a permanent promotion shall be required to sign a waiver form. Such waiver shall be binding on the employee until revoked by the employee in writing, when he will again be considered for such promotion. 15.7 FILLING TEMPORARY VACANCIES A. VACANCIES OF THREE WEEKS (21 DAYS OR LESS). In filling a temporary vacancy in an occupation within a line of promotion for a period of three (3) weeks or less, the employee on the same turn occupying the occupation immediately preceding the vacant occupation with the greatest length of plant continuous service shall be offered the temporary promotion. In other words, in filling all temporary vacancies in a line of promotion, each turn shall stand on its own. - 27 - 32 B. VACANCIES OVER THREE WEEKS (21) DAYS In filling a temporary vacancy within a line of promotion, other than one caused by an employee vacation that continues beyond the initial three week period, the vacancy will be filled as though it was permanent (A.1.). The employee with the greatest length of plant continuous service occupying the occupation immediately preceding the temporarily vacant occupation regardless of the shift he is working. Such assignments shall be posted. C. STATUS OF EMPLOYEES AT THE END OF A TEMPORARY VACANCY 1. When an absent employee gives notice at least two (2) hours in advance of his intention to return to work at the end of a temporary vacancy (that was filled on the turn), he will on reporting displace the employee promoted in his place and, in turn, the temporary incumbents will be returned to the occupations from which they came in the line of promotion if their plant continuous service still entitles them to be retained in such jobs; otherwise they will exercise their plant continuous service on successively lower ranking jobs. 2. When an absent employee is to return to work following an extended period wherein the temporary vacancies were filled by crossing turns, then displacement of all temporary incumbents and their returning to the occupations from which they came will take place for the next payroll week covered by the posting of the weekly work schedule if their plant continuous service still entitles them to be retained in such jobs; otherwise, they will exercise their plant continuous service on successively lower ranking jobs. In the interim, employees returning from extended periods of absence will be offered whatever jobs are available without displacement in their home line of promotion. D. When it is necessary to supplement the regular scheduled crews by doubling over employees for a period estimated at less than a full turn, the employees doubled over will be assigned independently of the regular scheduled crews. This does not affect the filling of temporary vacancies created by absences of any member of the regular scheduled crews. 15.8 PROMOTIONS, REDUCTION IN FORCES AND RECALLS AFTER LAYOFFS A. A qualified employee may exercise his plant continuous service to displace a junior employee on lower ranking occupations or occupations of equal rank where lateral movement is provided for by connecting lines on the he line of promotion charts only under the conditions listed below, provided he will move laterally or downward in the line of promotion only until he reaches the highest occupation where his qualifications and his plant continuous service is sufficient for him to - 28 - 33 hold. Employees displaced by more senior employees in a reduction in force will move likewise. 1. In a reduction in forces. 2. If the occupation to which he is assigned is eliminated. 3. If he is demoted because of inability to meet satisfactorily the requirements of the occupation to which he is assigned. When an employee's position is filled following a reduction in force, he will be required to return to that position (unless the employee has since bid into another line of promotion). B. If an employee would otherwise be laid off due to a reduction in force, or the elimination of the occupation to which he is assigned, he may be retained in the line of promotion if he has sufficient plant continuous service to displace a junior employee on the occupation that is next above the occupation to which he was last permanently assigned; provided, however, the employee with the greatest seniority similarly located will get the benefits of the promotion provided he is qualified. C. Employees who are the successful bidders for a job in a line of promotion will enter the line of promotion with their entire plant continuous service date for promotional purposes. D. Employees may be promoted on increases in forces to an occupation of higher rank in the line of promotion or an occupation of equal rank in the line of promotion where lateral movement is provided by connecting lines on the chart, only when a vacancy is to be filled in such occupation. 15.9 TRANSFERS AND RETAINING SENIORITY RIGHTS A. When an employee temporarily transferred is recalled for regular assignment to a job in his home line of promotion, he shall return to his home line of promotion on the next weekly schedule. 15.10 TEMPORARY TRANSFER AT MANAGEMENT'S DIRECTION A. An employee, who is temporarily transferred at Management's direction will be considered in filling permanent vacancies in higher ranking jobs in his home line of promotion the same as if he were still actively employed in that line of promotion on the job from which temporarily transferred. B. If at any time during the term of a temporary transfer, the services of an employee are no longer required by Management, his temporary transfer will be terminated. - 29 - 34 C. Senior employees, on rotating or frozen shift jobs, will be given preference once every year for changing shifts on January 1. 15.11 TEMPORARY LOSS OF WORK ARISING OUT OF STRIKES OR WORK STOPPAGES A. Because of the difficulties of reopening the plants, no claims for violation of seniority provisions shall be made or processed in the grievance procedure with respect to the first two (2) weeks after the ending of a strike or work stoppage. 15.12 MANNING NEW FACILITIES A. Prior to the manning of a new or expanded department at the Mt. Meigs Plant, Management and Plant Grievance Committee shall meet to seek agreement in accordance with the Labor Agreement to facilitate efficient manning and preserve job security for longer service employees. ARTICLE 16 - TERMINATION 16.1 This Agreement shall terminate at the expiration of sixty (60) days after either party shall give written notice of termination to the other party but in any event shall not terminate earlier than August 8, 2000. The company agrees to sit down with the union and discuss wages after thirty (30) months. 16.2 It is understood and agreed herewith that with the signing of this Agreement, both parties waive or withdraw all other questions raised and/or discussed during negotiations but which have not been written into this Agreement specified parts hereof or agreed to by other action. 16.3 Any notice given under this Article 16, shall be given by registered or certified mail, and, if given by the Company, shall be addressed to the United Steelworkers of America, 6200 E. J. Oliver Blvd., Suite 44, Fairfield, AL 35054, and, if given by the Union, shall be addressed to SIMCALA, Inc., P.O. Box 68, Mt. Meigs, Alabama 36057. Either party shall, by like written notice, advise the other of any change in address. 16.4 It is the continuing policy of the Company and the Union that the provisions of this Agreement shall be applied to all employees without regard to race, color, religious creed, national origin, age, sex, handicap or veteran status. ARTICLE 17 - TRAINING It is the intent of the Company to provide all of its employees with the training required to evaluate, control and continuously improve all production and support service processes and to maintain and upgrade the Plant to ensure efficient production. This will enable the Company to provide its customers with products and services which meet or exceed the customers' requirements and expectations. - 30 - 35 The following types of training will be required for all hourly employees: Basics of Statistical Process Control -- Training approach is to include: -- Use of SIMCALA historical data in training programs. -- Specific applications data used for special functional areas: -- Shipping data used to train Shipping employees. -- Production data to train Production employees. -- Raw material data to train Maintenance employees. -- Training in Statistical Process Control techniques -- Gathering data, averaging numbers, SPC chart production. -- Determination of SPC control limits. -- Recognition of out--of--control conditions and appropriate actions. Problem--Solving Skills -- Training is to include: -- Trend, Gap, Pareto and Ishikawa (Fishbone) Minimum Competency Training (for employees below high--school competency) -- Training approach is to include: -- Needs analysis for each employee. -- Specific training as needed. ESTIMATED TRAINING HOURS Basics of Statistical Process Control: 6 Hours per Employee Problem Solving Skills: 2 Hours per Employee Minimum Competency Training: Structured to Individual's Needs Other training for electricians shall be developed by the Company to ensure adequate levels of competency when considering the electrical complexity of the Plant. - 31 - 36 TRAINING DELIVERY APPROACH - All training is to be delivered by qualified trainers at either the SIMCALA conference room or off-site. Employees will be compensated at the bid hourly rate for all training hours. ARTICLE 18 - ENTIRE AGREEMENT Section 1. This Agreement contains the sole and entire agreement and understanding of the Company and the Union with respect to the entire subject matter hereof, all prior discussions, negotiations, commitments, and undertakings being merged herein. During the negotiations which resulted in this Agreement, both the Company and the Union had the unlimited right and opportunity to make demands and proposals with respect to any subject matter not removed by law from the area of collective bargaining, and the understandings and agreements arrived at by the parties hereto after the exercise of that right and opportunity are set forth in this Agreement. The Company and the Union, for the life of this Agreement, each voluntarily and unqualifiedly waives the right, and each agrees that the other shall not be obligated, to bargain collectively with respect to any subject or matter whether or not such subject or matter is specifically referred to or covered in this Agreement. Section 2. No Local Agreements, Bargaining History of Assumption of Liability. It is understood and agreed that no "local" agreements, letter agreements, or understandings, bargaining, history, arbitral or grievance precedent, plant practices or "traditions," which were or may have been observed prior to the date of this Agreement shall have any force or effect on the parties hereto. The Union understands and agrees that the Company by this Agreement is not assuming liability for any wages, benefits, vacations or other rights which may have accrued prior to the date of acquisition of the Plant by SIMCALA. Section 3. This Agreement may not be modified of terminated orally, and no modification, termination, or waiver shall be valid in writing and signed by the party against whom the same is sought to be enforced. - 32 - 37 IN WITNESS of the foregoing, the Company and the Union have caused this Agreement to be executed by their duly authorized representatives, all on the 8th day of August, 1995. SIMCALA, INC. UNITED STEELWORKERS OF AMERICA AFL--CIO--CLC BY: BY: /s/ C.E. Boardwine /s/ George Becker - -------------------------------- ------------------------------------ C.E. Boardwine, President/C.E.O. George Becker, Intl. President /s/ Donald J. Williams /s/ Leo W. Gerard - -------------------------------- ------------------------------------ Donald J. Williams, Corp. Dir. Leo W. Gerard, Intl. Sec.-Treasurer Human Resources /s/ Arthur M. Danison /s/ Richard H. Davis - -------------------------------- ------------------------------------ Arthur M. Danison, Plant Mgr. Richard H. Davis, Intl. V.P. Adm. /s/ Leon Lynch ------------------------------------ Leon Lynch, Intl. V.P. Human Affairs /s/ Joe L. Kiker ------------------------------------ Joe L. Kiker, Director, District 9 /s/ David L. Newell ------------------------------------ David L. Newell, Staff Rep. LOCAL 8538 NEGOTIATING COMMITTEE /s/ Clarence W. Hellums, Jr. ------------------------------------ Clarence W. Hellums, Jr., Pres. /s/ Johnny L. Ross ------------------------------------ Johnny L. Ross, Vice Pres. /s/ T. H. Hatfield ------------------------------------ T. H. Hatfield, Chairman /s/ Kyle King ------------------------------------ Kyle King, Committeeman - 33 - 38 SCHEDULE 'A' STANDARD HOURLY WAGE SCALE
Job Class '95 Effective ----------------------------------------------------------------- 1-2 $11.485 3 $11.602 4 $11.719 5 $11.836 6 $11.953 7 $12.070 8 $12.187 9 $12.304 10 $12.421 11 $12.538 12 $12.655 13 $12.772 14 $12.889 15 $13.006 16 $13.123 17 $13.240 18 $13.357
- 34 - 39 SIMCALA INC. 401-K PLAN SIMCALA, Inc. and United Steelworkers of America have agreed upon the following provisions in regard to establishing a 401 (k) plan for the benefit of hourly employees at the Montgomery, Alabama plant: a. The 401 (k) plan will be established no later than March 1, 1995. b. Each hourly employee has the option of participating in the plan by contributing, from each pay, a percentage of their compensation. c. The Company has agreed to match 100% of the first 2% of employee contributions. d. Employee contributions are not now subject to Federal and/or State income tax. e. A choice of investment options will be offered for each participant. f. Employee contributions are 100% vested. g. Employer contributions are 100% vested after five years of service, including plant service prior to enrolling in the plan. h. SIMCALA, Inc. will pay the administration charges necessary to maintain the plan. i. SIMCALA agrees to fund any employee contributions which were deducted from an employee's payroll check but not paid by SiMETCO, Inc. (under its old plan date: __/10/90), as of September 17, 1993. Such amounts shall be funded plus 5% interest from the date signed below over the first twenty (20) days after the establishment of the plan. SIMCALA, INC. UNITED STEELWORKERS OF AMERICA Local 8538 /s/ /s/ - -------------------------------- ----------------------------------- /s/ /s/ - -------------------------------- ----------------------------------- /s/ /s/ - -------------------------------- ----------------------------------- /s/ - -------------------------------- ----------------------------------- - 35 - 40 SIMCALA, INC. PROFIT SHARING AGREEMENT Section 1. Effective August 8, 1995, the operating profit of the Mt. Meigs plant will be considered in the derivation of a Profit Sharing Bonus for all employees of the plant. The term "operating profit" is defined as the Mt. Meigs Plant profit before interest expenses and taxes ("Profit"). Section 2. A Profit Sharing Pool is established and will include the total amount of funds that will be distributed to the hourly employees of the plant at various levels of operating profit. All active plant hourly employees who satisfy the eligibility requirements of Section 5 of this Appendix will share equally in the funds provided at the appropriate level of the Distribution Pool (the "Pool") for the amount of the operating profit earned. The Pool will remain a fixed amount for the life of the 1994-199_ Agreement. As necessary, the monthly bonus will be calculated through interpolation within the Pool. Section 3. The Profit Sharing Bonus, if earned, will be distributed on a quarterly basis. The first quarter of the Plan will be the three month period beginning fiscal January. 1995 and concluding at the end of fiscal September, 1999. The last quarter of the Plan will be the quarter ending fiscal December, 1999. Section 4. The Company will provide to the Union on a timely basis at the end of each quarter information, including P&L statements and pertinent data from outside audits regarding the Mt. Meigs Plant operating profit and the derivation and calculation of the quarterly Profit Sharing Bonus. Checks for the Bonus will be issued promptly upon calculation of the Bonus. Section 5. To be eligible to receive a Profit Sharing Bonus for a particular quarter, an employee must meet the following requirements: (a) The employee must have satisfied his probationary period by the beginning of the quarter being considered. (b) The employee must have worked at least two hundred forty (240) hours within the quarter, or have been off work due to an on-the-job-injury. Hours will be considered as worked for all paid time away from the job. Union leave and S&A. - 36 - 41 Section 6. A cap of $150,000 is provided on the Profit Sharing Pool.
QUARTERLY PROFIT DISTRIBUTION POOL ---------------- ----------------- $3,000,000 $150,000 $2,500,000 $120,000 $2,000,000 $ 90,000 $1,500,000 $ 65,000 $1,000,000 $ 40,000 $ 500,000 $ 20,000
- 37 - 42 SIGNATURE SHEET PROFIT SHARING AGREEMENT SIMCALA, INC. UNITED STEELWORKERS OF AMERICA Local 8538 /s/ - -------------------------------- ----------------------------------- /s/ - -------------------------------- ----------------------------------- /s/ - -------------------------------- ----------------------------------- /s/ ----------------------------------- /s/ ----------------------------------- /s/ ----------------------------------- /s/ ----------------------------------- /s/ ----------------------------------- Dated: ------------------------ - 38 - 43 SIMCALA, INC. LOCAL AGREEMENTS - MONTGOMERY PLANT AUGUST 8, 1995 1. Safety shoe allowance will be $50.00 per calendar year. Allowance not used during the year of entitlement may be carried over into the next year with the total accumulation not to exceed two allowances during any calendar year. 2. Overtime meal allowance will be set at $2.00 and $5.00. SIMCALA, INC. UNITED STEELWORKERS OF AMERICA Local 8538 /s/ - -------------------------------- ----------------------------------- /s/ - -------------------------------- ----------------------------------- /s/ - -------------------------------- ----------------------------------- /s/ - -------------------------------- ----------------------------------- /s/ ----------------------------------- /s/ ----------------------------------- /s/ ----------------------------------- /s/ ----------------------------------- - 39 - 44 Exhibit 'A' 1. Maintenance Department Progression: Certified Electrician | Shift Maintenance Man | Welder / Maintenance | Blacksmith | Oilier / Helper 2. V.S. Department Progression: Raw Material Handler | Stores Attendant | V.S. Attendant | V.S. Bagger 3. Shipping Department Progression: Finished Material Handler | Shipping Labor 4. Furnace Department Progression: Head Furnaceman | Furnaceman | Head Tapper | Tapper | Furnace Crane | Ladle Repairman | Metal Breaker | Furnace Labor | Electrode Installer - 40 - EX-10.17 28 ESCROW AGREEMENT 3/31/98 1 EXHIBIT 10.17 ESCROW AGREEMENT THIS ESCROW AGREEMENT (this "Agreement") is made as of March 31, 1998 by and among Simcala, Inc., a Delaware corporation (the "Company") and successor by merger with SAC ACQUISITION CORP., a Georgia corporation ("Buyer"), each of the individuals and entities listed on SCHEDULE B hereto (each being a "Seller," and all of them together being the "Sellers"), and SunTrust Bank, Atlanta, a Georgia banking corporation ("Escrow Agent"). BACKGROUND A. Immediately prior to the execution and delivery hereof, Buyer became the owner of 100% of the issued and outstanding shares of capital stock of (the Company), pursuant to the terms of that certain Stock Purchase Agreement, dated as of February 10, 1998 (the "Purchase Agreement") among Buyer, the Company, and the Sellers and Buyer merged with and into the Company, with the Company being the surviving corporation. B. The Purchase Agreement contemplates the establishment of an escrow fund for the purposes stated therein. C. Escrow Agent is willing to accept the escrow fund and to hold and distribute the escrow fund in accordance with the terms and conditions set forth herein. AGREEMENT NOW, THEREFORE, in consideration of the mutual promises contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. Appointment of Escrow Agent. The Company and each of the Sellers hereby designate and appoint Escrow Agent to serve as escrow agent hereunder, and Escrow Agent hereby confirms its agreement to act as escrow agent upon the terms, conditions, and provisions of this Agreement. 2. Creation of Escrow Fund. (a) Concurrently with the execution and delivery of this Agreement, the Buyer has deposited with Escrow Agent the sum of Four Million Dollars ($4,000,000) (the "Escrow Deposit"). (b) Escrow Agent agrees to hold, administer, invest and dispose of the Escrow Deposit and any interest, dividends, distributions or other income or capital appreciation earned and realized from the Escrow Deposit and the realized earnings thereof (hereinafter collectively referred to as the "Earnings"; the sum of the Escrow Deposit plus the Earnings less any distributions pursuant to Section 5 is hereinafter referred to as the "Escrow Fund") in accordance with the terms and conditions of this Escrow Agreement and not permit any withdrawal thereof except pursuant to the terms hereof. 2 (c) Escrow Agent shall invest and reinvest any or all of the Escrow Fund in any of the following: (i) obligations issued or guaranteed by the United States of America or any agency or instrumentality thereof with a remaining term of one year or less; (ii) certificates of deposit of, or accounts with, national banks or corporations endowed with trust powers having capital and surplus in excess of $100,000,000; (iii) commercial paper at the time of investment rated A-1 by Standard & Poor's Corporation or Prime-1 by Moody's Investor's Service, Inc.; or (iv) obligations issued by any state or municipality of the United States with a remaining term of one year or less. The parties agree that the Sellers will include any Earnings in respect of the Escrow Fund in their respective incomes. (d) Escrow Agent shall maintain a ledger (the "Escrow Ledger") setting forth (i) the name and address of each Seller, (ii) investments and reinvestments of the Escrow Fund, (iii) the amount of the Escrow Fund attributable to the remainder of the Escrow Deposit, (iv) the amount of the remainder of the Escrow Deposit attributable to each Seller, determined initially based on his or its Proportionate Share, (v) the amount of the Escrow Fund attributable to the Earnings, and (vi) each Seller's share of the Earnings based on such Seller's respective percentage interest in the Escrow Fund on the date the Earnings are realized, and (vii) the amount of the Escrow Fund attributable to each Seller, and (viii) such other information as may be required from time to time in writing by the Company or the Sellers for the administration of this Agreement. Copies of each updated version of the Escrow Ledger shall be sent to the Company and all Sellers as soon as practicable following each such update and each March 31, June 30, September 30 and December 31 during the term of this Agreement. 3. Disposition of Claims Amount. At any time prior to the close of business on September 15, 2002, the Company may deliver to Escrow Agent an Indemnification Claim, with a copy being contemporaneously delivered to the Seller(s) named therein (the "Seller Indemnitor(s)"). Each Seller Indemnitor shall have thirty (30) days following receipt of such Indemnification Claim to deliver to Escrow Agent a written objection thereto specifying in reasonable detail the basis for such objection (the "Objection"), with a copy being contemporaneously delivered to the Company. If an Objection is not timely filed with Escrow Agent by a Seller Indemnitor, the Indemnification Claim against such Seller Indemnitor is an 2 3 "Uncontested Claim." If an Objection is timely filed with Escrow Agent by a Seller Indemnitor, the Indemnification Claim against such Seller Indemnitor is a "Contested Claim." 4. Tentatively Impounded Funds. With respect to each Indemnification Claim received by Escrow Agent, Escrow Agent shall make a notation on the Escrow Ledger setting aside from the Escrow Fund (and each Seller Indemnitor's share of the Escrow Fund) the amount asserted by the Company as a Loss (the "Tentatively Impounded Funds"). In connection with any asserted Loss in respect of a Company Related Claim, such notation shall be made against each Seller Indemnitor's share of the Escrow Fund pro rata based on his or its respective Proportionate Shares, and any payment with respect thereto shall also be made from each Seller Indemnitor's share of the Escrow Fund based on his or its Proportionate Share. Upon notification of determination of the exact amount of the Loss with respect to each Indemnification Claim (whether by Notice of Release or by Award Notice), the Tentatively Impounded Funds shall be decreased or increased by Escrow Agent as necessary to reflect the difference (if any) between the amount of the Loss asserted in the Indemnification Claim and the amount of the Loss actually payable to the Company pursuant to Section 5 hereof. Upon payment by Escrow Agent to the Company of any amount in respect of any such Loss or upon receipt of a Withdrawal Notice from the Company, any remaining Tentatively Impounded Funds with respect to such Loss or Withdrawal Notice shall be reduced by the amount of such payments or the amount stated in such Withdrawal Notice. 5. Distributions from Escrow Fund. Escrow Agent shall pay and disburse from the Escrow Fund: (a) To the Company the amount specified as an "Adjustment Amount" in a written declaration executed by the Company and each of the Sellers; (b) All accrued Earnings (net of amounts paid as the Sellers' share of the expenses of Escrow Agent) on the Escrow Deposit will be distributed by Escrow Agent beginning June 30, 1998 and, thereafter, quarterly to the Sellers based on each of their respective shares of the Earnings as reflected in the Escrow Ledger on the date of distribution of the Earnings; (c) To the Company the amount of Loss asserted if the Indemnification Claim is an Uncontested Claim; (d) To the Company the amount of Loss asserted if the Indemnification Claim is a Contested Claim and the Seller Indemnitor shall have delivered a Withdrawal Notice to Escrow Agent with respect to such Contested Claim; (e) To the Company the amount specified in any Notice of Release with respect to an Indemnification Claim; (f) To the Company the amount specified in any Award Notice with respect to an Indemnification Claim; -3- 4 (g) Pursuant to written notice received from the Sellers, to each of the Sellers in Proportionate Shares, on the next business day following September 30, 1998 an amount equal to Five Hundred Thousand Dollars ($500,000); provided, however, that the amount distributed to each Seller shall be reduced by the sum of (i) the amount of Tentatively Impounded Funds attributable to such Seller on such date, (ii) the amount of such Seller's Proportionate Share of any Adjustment Amount paid from the Escrow Fund, and (iii) the amount of any and all Losses attributable to such Seller paid from the Escrow Fund. (h) Pursuant to written notice received from the Sellers, to each of the Sellers in Proportionate Shares, on the next business day following March 31, 1999 an amount equal to One Million Dollars ($1,000,000); provided, however, that the amount distributed to each Seller shall be reduced by the sum of (i) the amount of Tentatively Impounded Funds attributable to such Seller on such date, (ii) the amount of such Seller's Proportionate Share of any Adjustment Amount paid from the Escrow Fund (but only to the extent that such amount was not withheld from the funds released pursuant to subparagraph (g) above), and (iii) the amount of any and all Losses attributable to such Seller paid from the Escrow Fund (but, in each case, only to the extent that such amount was not withheld from the funds released pursuant to subparagraph (g) above). (i) Pursuant to written notice received from the Sellers, to each of the Sellers in Proportionate Shares, on the next business day following September 30, 1999 an amount equal to One Million Dollars ($1,000,000); provided, however, that the amount distributed to each Seller shall be reduced by the sum of (i) the amount of Tentatively Impounded Funds attributable to such Seller on such date, (ii) the amount of such Seller's Proportionate Share of any Adjustment Amount paid from the Escrow Fund (but only to the extent that such amount was not withheld from the funds released pursuant to subparagraphs (g) and (h) above), and (iii) the amount of any and all Losses attributable to such Seller paid from the Escrow Fund (but, in each case, only to the extent that such amount was not withheld from the funds released pursuant to subparagraphs (g) and (h) above). (j) If there are Tentatively Impounded Funds with respect to a particular asserted Loss on any of the dates specified in (g), (h) or (i) above, and the amount of the asserted Loss exceeds the amount of the Loss actually paid to the Company pursuant to this Section 5, to each Seller in an amount equal to his or its share of such excess (or, if less, such Seller's remaining interest in the Escrow Fund). (k) Pursuant to written notice received from the Sellers, to each of the Sellers, on the next business day following September 15, 2002, the amounts equal to the amounts by which the then remaining balance of each Seller's interest in the Escrow Fund exceeds the amount of Tentatively Impounded Funds attributable to such Seller on such date; and -4- 5 (l) If there are Tentatively Impounded Funds with respect to a particular asserted Loss on September 15, 2002, to the Seller to whom or which the Tentatively Impounded Funds were attributable on September 15, 2002, on the next business day following the first day when the Tentatively Impounded Funds attributable to such Seller with respect to such Loss are equal to zero, an amount equal to the excess of the remaining balance of such Seller's interest in the Escrow Deposit over any remaining Tentatively Impounded Funds with respect to such Seller. With respect to a disbursement made pursuant to subparagraph (f) above, not less than 20 days before such disbursement, Escrow Agent shall give notice of such pending disbursement to each of the Company and the relevant Seller(s). All other disbursements described hereunder shall be made by Escrow Agent within three (3) business days following the events described above by wire transfer to an account designated in writing by the recipient(s) of the disbursement. A Seller's share of the Escrow Fund shall be reduced by (and such reduction shall be reflected on the Escrow Ledger) (i) the amount of all distributions to such Seller, (ii) such Seller's Proportionate Share of any Adjustment Amount distributed to the Company, and (iii) in accordance with Section 4 of this Agreement, by the amount of payments made to the Company under subparagraphs (c), (d), (e) and (f) of this Section 5 for Indemnification Claims for which such Seller was the Seller Indemnitor. If at any time the amount of any payment required to be made by Escrow Agent to the Company in respect of a particular Seller exceeds such Seller's remaining share of the Escrow Fund, Escrow Agent shall pay to the Company the entire Escrow Fund with respect to such Seller. 6. Escrow Agent's Duties. Escrow Agent shall be obligated to perform only such duties as expressly set forth in this Agreement and the Schedules hereto, and shall not be required, in carrying out its duties under this Agreement, to refer to the Purchase Agreement or any other agreement between the parties or any of them or among the parties or any of them and any other person or entity. 7. Remedies of Escrow Agent. In the event of any disagreement or controversy hereunder, or if conflicting demands or notices are made upon Escrow Agent, or in the event Escrow Agent in good faith is in doubt as to what action it should take hereunder, the parties expressly agree and consent that Escrow Agent shall have the absolute right, at its option, to file a suit in interpleader and obtain an order from a court of competent jurisdiction requiring all persons involved to interplead their several claims and rights among themselves and with Escrow Agent. 8. Reliance on Counsel. The Escrow Agent may from time to time consult with legal counsel of its own choosing in the event of any disagreement, or controversy, or question or doubt as to the construction of any of the provisions hereof or its duties hereunder, and it shall incur no liability and shall be fully protected in acting in good faith in accordance with the opinion or instructions of such counsel, unless such opinion or instructions constitute gross negligence or willful misconduct. Any such fees and expenses of such legal counsel shall be considered part of the fees and expenses of the Escrow Agent described within this Escrow Agreement. -5- 6 9. Escrow Agent's Fees and Expenses. The Company hereby remits to Escrow Agent the sum of $2,500, and the Sellers hereby remit to Escrow Agent the sum of $2,500 based on their Proportionate Shares, in partial consideration for carrying out the Escrow Agent's duties hereunder. All additional reasonable compensation of Escrow Agent as set forth in SCHEDULE A hereto and all expenses, disbursements and advances (including reasonable attorneys' fees and expenses) incurred in carrying out Escrow Agent's duties hereunder shall be paid one-half by the Company and one-half from the Escrow Fund (first from Earnings, then, if necessary, from the Escrow Deposit) pro rata according to the Sellers' Proportionate Shares. If Escrow Agent resigns or is terminated pursuant to Section 11 of this Agreement, Escrow Agent shall be entitled to its compensation earned prior to such resignation or termination. 10. Indemnification. The Company and each of the Sellers severally shall indemnify, protect and save and hold Escrow Agent and its successors and permitted assigns harmless from all liabilities, obligations, losses, damages, penalties, claims, actions, suits, costs and expenses (including reasonable attorneys' fees and expenses) of whatsoever kind or nature imposed on, incurred by or asserted against Escrow Agent which in any way relate to or arise out of the execution and delivery of this Agreement or any action taken hereunder; provided, however, that the Company and the Sellers shall have no obligation to indemnify and save and hold Escrow Agent harmless from any liability incurred by, imposed upon or asserted against Escrow Agent resulting from the gross negligence or willful misconduct of Escrow Agent The Company shall indemnify Escrow Agent for up to one-half of the amount of any indemnification obligations owing by the Company under this Section 10, and all of the Sellers shall indemnify Escrow Agent for up to one-half of the amount of any indemnification obligations owing under this Section 10, with each Seller being jointly and severally liable for the Sellers' aggregate one-half share of any such indemnification obligations. The provisions of this Section 10 shall survive the term of this Agreement. 11. Resignation by or Termination of Escrow Agent. Escrow Agent may resign as such by delivering written notice to such effect at least thirty (30) days prior to the effective date of such resignation to each of the Sellers and the Company. The Company and the Sellers, acting jointly, may terminate Escrow Agent from its position as such by delivering written notice to Escrow Agent to such effect executed by the Company and the Sellers at least thirty (30) days prior to the effective date of such termination (unless such termination is as a result of Escrow Agent's breach of its obligations hereunder, in which case the effective date of such termination shall be any date specified in such notice by the Company and the Sellers). In the event of such resignation by or termination of Escrow Agent, a successor Escrow Agent shall be appointed by mutual written agreement between the Company and the Sellers. Escrow Agent which has been so terminated or has so resigned shall promptly deliver to the successor Escrow Agent the entire balance of the Escrow Fund (together with copies of all records pertaining thereto) upon presentation of evidence reasonably satisfactory to it of the appointment and authorization of such successor Escrow Agent by the Company and the Sellers. Upon receipt of the amounts in the Escrow Fund, such successor Escrow Agent shall thereupon be bound by all of the provisions hereof. From and after the appointment of a successor Escrow Agent pursuant to this Section 11, all references herein to Escrow Agent shall be deemed to be to such successor Escrow Agent. Should the Company and the Sellers fail to appoint a successor Escrow Agent within thirty (30) -6- 7 days of the effective date of any resignation or termination pursuant to this Section 11, then Escrow Agent may institute suit in a court of competent jurisdiction to have a successor Escrow Agent appointed and tender into the custody of that court all of the remaining portion of the Escrow Fund. 12. Definitions. As used herein: (a) "AWARD NOTICE" means a true copy of the final unappealable order (or an order for which the time to appeal has expired without an appeal having been made) of a court of competent jurisdiction. (b) "COMPANY RELATED CLAIM" means an asserted Loss in respect of an alleged breach of a representation, warranty, covenant or agreement of the Company in the Purchase Agreement or certain other documents referenced in Section 12.2(a) of the Purchase Agreement or a claim under Section 8.7 of the Purchase Agreement. (c) "INDEMNIFICATION CLAIM" means a written declaration by the Company as successor in interest to the Buyer, stating (i) that the Company as successor in interest to the Buyer has suffered a Loss, (ii) the identity of the Seller Indemnitor(s) to whom or which the Loss is attributable which, in the case of a Company Related Claim, shall be all Sellers, (iii) the facts, circumstances and events giving rise to such Loss, each specified in reasonable detail, (iv) the amount of the asserted Loss, (v) that the amount of such Loss or portion thereof is a reasonable estimate, and (vi) whether the Indemnification Claim is a Company Related Claim. If the asserted Loss is a Company Related Claim, the Company as successor in interest to the Buyer must name all Sellers as Seller Indemnitors and allocate the Loss to each Seller Indemnitor according to his or its Proportionate Share. (d) "LOSS" means any and all demands, claims, actions or causes of action, assessments, losses, fines, judgments, costs, damages (including special and consequential damages), liabilities, costs, removal and remediation requirements and expenses, including without limitation, interest, penalties, cost of investigation and defense, and reasonable attorneys' and other professional fees and expenses asserted against, paid, suffered or incurred by the Company as successor in interest to the Buyer. (e) "NOTICE OF RELEASE" means a written declaration, executed by the Company and the appropriate Seller Indemnitee, (which, in the case of a Company Related Claim, must be executed by all Sellers), specifying the resolution of an Indemnification Claim and the disposition to be made of the Escrow Fund or any portion thereof that was the subject of such Indemnification Claim. (f) "OBJECTION" means a written objection by the appropriate Seller Indemnitee to an Indemnification Claim stating in reasonable detail the basis for such objection. -7- 8 (g) "PROPORTIONATE SHARE" means the respective percentage interest of each Seller in the Escrow Deposit and in certain amounts disbursed to the Sellers hereunder, which percentage interest is set forth on SCHEDULE B hereto. (h) "WITHDRAWAL NOTICE" means an irrevocable written declaration (x) withdrawing an Indemnification Claim executed by the Company as successor in interest to the Buyer (which, in the case of a Company Related Claim, must be a complete withdrawal against all Sellers), or (y) executed by the appropriate Seller Indemnitee withdrawing an Objection (which, in the case of a Company Related Claim, must be executed by all Sellers). 13. General Provisions. (a) Assignment. This Agreement shall be binding upon the successors and permitted assigns of the parties. Neither this Agreement nor any right or benefit of any party hereunder may be assigned or transferred by such party without the prior written consent of all other parties hereto, which consent shall not be unreasonably withheld or delayed; provided, however, that the Company may assign its rights, together with its obligations, hereunder (i) to any of its affiliates, (ii) to any lender or lenders providing financing to Buyer, the Company or its affiliates or (iii) in connection with any sale, transfer or other disposition (by operation of law or otherwise) of all or substantially all of its assets or business or stock of the Company, without prior written consent. (b) Amendment. This Agreement may not be amended or modified without the prior written consent of all parties. (c) Waiver. Failure to insist upon strict compliance with any of the terms or conditions of this Agreement at any one time shall not be deemed a waiver of such term or condition at any other time; nor shall any waiver or relinquishment of any right or power granted herein at any time be deemed a waiver or relinquishment of the same or any other right or power at any other time. (d) Governing Law. Notwithstanding the place where this Agreement may be executed by any of the parties, the parties expressly agree that this Agreement shall in all respects be governed by, and construed in accordance with, the laws of the State of Georgia, without regard for its conflict of laws doctrine. (e) Notices. Any notice or other communication to be given hereunder shall be in writing, shall be sent to all parties, and shall be deemed sufficient when (i) mailed by United States certified mail, return receipt requested, (ii) mailed by overnight express mail, or (iii) delivered in person, at the address set forth below, or such other address as a party may provide to the other in accordance with the procedure for notices set forth in this Section: -8- 9 (i) If to the Company: SIMCALA, Inc. c/o CGW Southeast Partners III, L.P. Suite 210 Twelve Piedmont Center Atlanta, Georgia 30305 Attn: Mr. William A. Davies Telephone: (404) 816-3255 Telecopier: (404) 816-3258 Taxpayer Identification Number: 34-1780941 with a copy (which shall not constitute notice) to: Alston & Bird 1201 West Peachtree Street Atlanta, GA 30309-3424 Attn: Teri L. McMahon, Esq. Telephone: 404-881-7266 Telecopier: 404-881-4777 (ii) If to a Seller: (A) If to Charter Oak Partners: 10 Wright Street, Building B Westport, Connecticut 06880 Attn: Anthony J. Dowd Telephone: (203) 221-4752 Telecopier: (203) 222-2720 Taxpayer Identification Number: 13-2869339 (B) If to Capital One Investors: 1111 Chester Avenue, Suite 815 Cleveland, Ohio 44114 Attn: James M. Petras Telephone: (216) 781-5134 Telecopier: (216) 781-0158 Taxpayer Identification Number: 34-17497-09 -9- 10 (C) If to Carl Edward Boardwine: c/o SIMCALA, Inc. Ohio Ferro Alloys Road Mt. Meigs, Alabama 36057 Telephone: (334) 215-7560 Telecopier: (334) 215-8969 Taxpayer Identification Number: ###-##-#### (D) If to Dwight L. Goff: c/o SIMCALA, Inc. Ohio Ferro Alloys Road Mt. Meigs, Alabama 36057 Telephone: (334) 215-7560 Telecopier: (334) 215-8969 Taxpayer Identification Number: ###-##-#### (E) If to R. Myles Cowan: c/o SIMCALA, Inc. Ohio Ferro Alloys Road Mt. Meigs, Alabama 36057 Telephone: (334) 215-7560 Telecopier: (334) 215-8969 Taxpayer Identification Number: ###-##-#### (F) If to George W. Rapp, Jr.: 97 Warrior Road Louisville Kentucky 40207 Telephone: (502) 897-3019 Telecopier: (502) 897-3019 Taxpayer Identification Number: ###-##-#### with a copy (which shall not constitute notice) to: Schulte Roth & Zabel LLP 900 Third Avenue New York, New York 10022 Attn: Andre Weiss, Esq. Telephone: (212) 756-2431 Telecopier: (212) 593-5955 -10- 11 (iii) If to Escrow Agent: SunTrust Bank, Atlanta Corporate Trust Department Room 400 - Annex 58 Edgewood Avenue Atlanta, Georgia 30303 Attn: Ronald C. Painter Telephone: (404) 588-7191 Telecopier: (404) 332-3966 (f) Invalid Provision. If any provision of this Agreement shall be determined to be invalid or unenforceable, this Agreement shall be deemed amended to delete such provision and the remainder of this Agreement shall be enforceable by its terms. (g) Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective permitted successors and assigns. (h) Further Assurances. Each party agrees to execute and deliver all such further instruments and do all such further acts as may be reasonably necessary or appropriate to effectuate this Agreement. (i) Headings. Headings and captions contained in this Agreement are inserted only as a matter of convenience and for reference and in no way define, limit, extend or prescribe the scope of this Agreement or the intent of any provision. (j) Person and Gender. The masculine gender shall include the feminine and neuter genders and the singular shall include the plural. (k) Entire Agreement. This Agreement constitutes the entire agreement of the parties with respect to matters set forth in this Agreement, and supersedes any prior understanding or agreement, oral or written, with respect to such matters. (l) Interpretations. Neither this Agreement nor any uncertainty or ambiguity herein shall be construed or resolved against any party hereto, whether under any rule of construction or otherwise. No party shall be considered the draftsman. On the contrary, this Agreement has been reviewed, negotiated and accepted by all parties and shall be construed and interpreted according to the ordinary meaning of the words used so as to fairly accomplish the purposes and intentions of all parties hereto. (m) Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, and all such counterparts shall constitute one and the same Agreement, binding on all the parties notwithstanding that all the parties are not signatories to the same counterpart. -11- 12 IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. SIMCALA, Inc. as successor in interest to SAC Acquisition Corp. By: /s/ William A. Davies ------------------------------------------- William A. Davies Chairman of the Board SUNTRUST BANK, ATLANTA, as Escrow Agent By: /s/ Ronald C. Painter ------------------------------------------- Name: ----------------------------------------- Title: ---------------------------------------- SELLERS: Charter Oak Partners By Fine Partners L.P., the Managing Partner of Charter Oak Partners By: /s/ Anthony J. Dowd ------------------------------------------- Anthony J. Dowd Authorized Signatory [Signatures Continued on Following Page] -12- 13 Capital One Investors By: MCK Corporation, General Partner By: /s/ James M. Petras ----------------------------------------- James M. Petras, President of MCK Corporation By: Briseis Capital Corporation, General Partner By: /s/ James D. Ireland III ----------------------------------------- James D. Ireland III, President of Briseis Capital Corporation Carl Edward Boardwine /s/ Carl Edward Boardwine -------------------------------------------------- Dwight L. Goff /s/ Dwight L. Goff -------------------------------------------------- R. Myles Cowan /s/ R. Myles Cowan -------------------------------------------------- George W. Rapp, Jr. /s/ George W. Rapp, Jr. -------------------------------------------------- -13- 14 SCHEDULE A ESCROW AGENT'S FEES The annual fee of $3,500 for administering this Escrow Agreement is due at the time of closing. Each year on the anniversary of the date of this Escrow Agreement, half of the annual fee will be invoiced to the Company and the other half of the annual fee will be paid from the Escrow Fund (as provided in Section 9 of the Escrow Agreement). Out of pocket expenses such as, but not limited to postage, courier, overnight mail, insurance, money wire transfer, long distance telephone charges, facsimile, stationery, travel, legal or accounting, etc., will be billed or deducted from the Escrow Fund, as appropriate, at cost. These fees do not include extraordinary services which will be priced according to time and scope of duties. It is acknowledged that the schedule of fees shown above are acceptable for the services mutually agreed upon and the parties authorize SunTrust Bank, Atlanta to perform said services. 15 SCHEDULE B PROPORTIONATE SHARES
PROPORTIONATE SHARE Charter Oak Partners 53.1% P.O. Box 5147 10 Wright Street, Building B Westport, Connecticut 06880 Taxpayer Identification Number: 13-2869339 Capital One Investors 36.0% 111 Chester Avenue, Ste. 815 Cleveland, Ohio 44144 Taxpayer Identification Number: 34-1749709 Carl Edward Boardwine 8.0% 125 Bald Cypress East Electic, Alabama 36080 Social Security Number: ###-##-#### Dwight L. Goff 1.0% 1665 Minnie Knight Road Titus, Alabama 36080 Social Security Number: ###-##-#### R. Myles Cowan 1.0% 3640 Narrow Lane Road Montgomery, Alabama 36111 Social Security Number: ###-##-#### George W. Rapp, Jr. 0.9% 97 Warrior Road Louisville, Kentucky 40207 Social Security Number: ###-##-####
EX-10.18 29 SHAREHOLDERS AGREEMENT 3/31/98 1 EXHIBIT 10.18 SIMCALA HOLDINGS, INC. SHAREHOLDERS AGREEMENT THIS SHAREHOLDERS AGREEMENT (this "Agreement") is made and entered into as of March 31, 1998, by and among SIMCALA HOLDINGS, INC., a Georgia corporation (the "Company"), CGW SOUTHEAST PARTNERS III, L.P., a Delaware limited partnership ("CGW"), and Carl Edward Boardwine, Dwight L. Goff and R. Myles Cowan (may be referred to individually as a "Shareholder" and collectively as the "Shareholders"). RECITALS WHEREAS, the shares of capital stock of the Company now or hereafter owned by the Shareholders, or any of them, are hereinafter called the "Shares"; and WHEREAS, CGW, the Shareholders and the Company deem it to be in their best interests to provide certain agreements with respect to the Shares, including, without limitation, the transfer or other disposition of the Shares; AGREEMENT NOW, THEREFORE, for and in consideration of the premises, the mutual covenants contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree: ARTICLE 1 RESTRICTIONS ON SHARES 1.1 Restrictions on Transfer of Shares. The Shares shall be subject to the following restrictions: (a) Except for transfers made in compliance with Section 1.1(b) below, none of the Shares owned by a Shareholder may be conveyed, pledged, assigned, transferred, hypothecated, encumbered or otherwise disposed of by a Shareholder. (b) A Shareholder (or any Transferee as defined in Section 9.12(h) hereof) may transfer the Shares owned by such Shareholder or such Transferee only: (i) to a Transferee, provided that all such Shares shall remain subject to the restrictions set forth in this Section 1.1 and all applicable rights in favor of the Company set forth elsewhere herein in the hands of the Transferee and any subsequent Transferee; 2 (ii) in connection with one of the following transactions: (A) dissolution or liquidation of the Company, (B) merger of the Company into another company, or any consolidation, share exchange, combination, reorganization or like transaction the consummation of which is subject to prior approval by the shareholders of the Company, (C) sale or transfer (other than as security for the Company's credit obligations) of substantially all of the assets of the Company, or (D) in a transfer pursuant to Articles 3 or 7 hereof; or (iii) in strict compliance with the right of first refusal described in Article 2 below. (c) Any Transferee shall, as a condition to the transfer of any Shares to the Transferee, become a party to this Agreement and shall thereupon be deemed a "Shareholder" hereunder. ARTICLE 2 RIGHT OF FIRST REFUSAL 2.1 Right of First Offer. If a Shareholder shall receive a bona fide offer from a third party for such third party to purchase any Shares owned by such Shareholder, which offer such Shareholder intends to accept, such Shareholder, before accepting such third party offer or consummating the sale to such third party, shall notify the Company in writing of such offer, which notice shall state the number of Shares subject to such offer and the price and terms of payment offered by such third party. The Company shall have thirty (30) days after receipt by it of such notice within which to notify the Shareholder, in writing, of its election to purchase all (but not less than all) of the Shares that are the subject of such third party offer at the same price and upon the same terms and conditions as are contained in such third party offer. Failure by the Company to give such written notice within such thirty (30) day period shall constitute a rejection of such offer by the Company. If the Company rejects such offer or fails timely to accept such offer, or if after timely accepting such offer the Company fails timely to consummate the purchase of the Shares that are the subject of that offer, then such Shareholder shall be free to sell the Shares that are the subject of such third party offer to the third party at the price and upon the same terms and conditions as are set forth in the third party offer; provided, however, if such Shareholder does not consummate such sale to the third party within ninety (90) days after rejection by the Company of the offer, or, if such offer is timely accepted by the Company, after failure of the Company timely to consummate such purchase, the Shares that were the subject of such third party offer shall once again become subject to the provisions of this Section 2.1, and any subsequent disposition of such Shares shall be made only after compliance with the terms of this Section 2.1. If the Company timely accepts such offer, the consummation by the Company of the purchase of Shares that are the subject of the offer shall be held at the offices of the Company not later than sixty (60) days following the date the Company gives written notice of its acceptance of such offer. -2- 3 ARTICLE 3 COMPANY'S REPURCHASE RIGHT 3.1 Right to Sell and Purchase Shares. Upon the occurrence of a Repurchase Event (as defined in Section 9.12(f) hereof) with respect to a Shareholder: (a) The Shareholder (or his personal representative, executor or administrator, as the case may be) and/or a Transferee of such Shareholder shall have the right to sell to the Company all or any portion of the Shares owned by the Shareholder and/or such Transferee at a price per share equal to the Purchase Price (as defined in Section 3.2) upon the terms and conditions set forth herein. A Shareholder and/or a Transferee may exercise his right to sell the Shares owned by such Shareholder and/or such Transferee by giving written notice to the Company within one month following the occurrence of the Repurchase Event giving rise to such right, provided, however, if the Repurchase Event is the death or disability of a Shareholder, notice may be given within six months following the Repurchase Event. (b) During the respective periods described in Section 3.1(a) and for the period of ninety (90) days following the expiration of the applicable period described in that Section, the Company shall have the right to purchase all or any portion of the Shares owned by such Shareholder (or his personal representative, executor or administrator, as the case may be) and/or a Transferee of such Shareholder at a price per share equal to the Purchase Price upon the terms and conditions set forth herein. The Company may exercise its right to purchase the Shares owned by such Shareholder and/or such Transferee by giving written notice to such Shareholder and/or Transferee within the applicable period following the occurrence of the Repurchase Event giving rise to such right or within the ninety (90) day period following the expiration of such applicable period. 3.2 Purchase Price. The Purchase Price shall be (a) upon the occurrence of a Repurchase Event, (i) the greater of Fair Value Per Share (as defined in Section 9.12(d) hereof) or Cost (as defined in Section 9.12(c) hereof) due to the termination of such Shareholder's employment for any reason other than by the Company for Cause, and (ii) the lesser of Fair Value Per Share or Cost due to the termination of Shareholder's employment by the Company for Cause, and (b) for any other purpose, Fair Value Per Share. 3.3 Closing of Repurchase. The closing of any purchase of the Shares owned by such Shareholder and/or such Transferee pursuant to this Article 3 shall take place at the principal office of the Company not earlier than thirty (30) nor later than forty-five (45) days after the date of the written notice by a Shareholder and/or a Transferee of the exercise of his right to sell, and the date of the Company's written notice of the exercise of its right to purchase such Shares pursuant to this Article 3. At the closing of any purchase of Shares pursuant to this Article 3, such Shareholder (or his personal representative, executor or administrator, or such Transferee, as the case may be) shall deliver all stock certificates representing the Shares to be purchased, properly endorsed for transfer, and the Company shall pay the transferor at such time and against delivery of the Shares (a) the aggregate purchase price for the Shares being purchased; provided, -3- 4 however, if the Board of Directors of the Company shall determine in good faith that payment of the entire aggregate purchase price for the Shares is not permitted by the Company's loan agreements or would constitute an unlawful distribution by the Company, then the Company shall have the right, if the Company's loan agreements permit the Company to incur the indebtedness created by such deferred payment, to pay for such Shares by executing and delivering to such Shareholder (or his personal representative, executor or administrator or such Transferee, as the case may be), the Company's unsecured promissory note for the aggregate purchase price. Such note shall be payable to the order of the transferor and shall bear interest at the annual rate of interest equal to the annual rate of interest the Company is paying on the date of the closing of such repurchase on borrowings from its senior lenders, with accrued and unpaid interest being due on each principal installment payment date. To the extent that the loan agreements to which the Company is a party permit the payment annually of an amount greater than the aggregate amount then payable annually under any note or notes issued as above provided, the Company shall use its best efforts to obtain the consent (if required) of the lenders who are parties to such loan agreements to permit such additional amounts to be applied in prepayment of any such note or notes, and if such consent is obtained (or if no such consent is required) the Company shall pay such additional amounts in prepayment of such note or notes (with such prepayment being made pro rata based upon the outstanding principal amount of all such notes in the event more than one such note shall be outstanding), with any such prepayment being applied in inverse order of maturity. 3.4 Death of Shareholder During Payout. In the event of the death of such Shareholder after payment has commenced under Section 3.3, the terms and amounts of payment due to such Shareholder shall continue unchanged, and payments shall be made to such Shareholder's estate or personal representative. ARTICLE 4 ASSIGNMENT OF COMPANY'S RIGHT TO PURCHASE If the Company shall at any time during the term of this Agreement have the right to purchase from a Shareholder and/or a Transferee of a Shareholder, as the case may be, any shares of the capital stock of the Company then owned by such Shareholder or such transferee, and the Company at such time is either unable, or elects not, to exercise such right with respect to all or any part of such shares of capital stock, the Company may, but shall not be obligated to, assign its rights and delegate its obligations hereunder to CGW which may then exercise all of the rights of the Company with respect to the purchase of such shares of capital stock as to which such rights are assigned. -4- 5 ARTICLE 5 FAILURE TO DELIVER SHARES If a Shareholder or a Transferee, as the case may be, becomes obligated to sell all or any portion of the Shares to the Company and/or to CGW under of this Agreement but fails to present the certificate(s) for such Shares at the closing of such purchase, then the Company and/or CGW, as the case may be, shall transfer the purchase price for such Shares to a trustee (which shall be a bank or trust company located in the State of Georgia), for the benefit of such Shareholder and/or such Transferee, as the case may be, and thereupon such portion of the Shares shall (a) in the case of a purchase by the Company be deemed as of the date of such transfer of the purchase price to have been redeemed and canceled and no longer outstanding, and (b) in the case of a purchase by CGW be deemed transferred and conveyed to CGW, and the Company may cancel certificates for such shares and may issue new certificates for such shares in the name of CGW. The Company or CGW, as the case may be, shall promptly inform such Shareholder and/or such Transferee, as the case may be, of the name and address of the trustee. The Shareholder and/or such Transferee shall have the right to obtain the purchase price from the trustee (or from the Company and/or CGW, as the case may be, following a return of the purchase price by the trustee as hereinafter provided) upon surrender to the trustee of the certificates evidencing such portion of the Shares or, in the event such certificates are missing or have been stolen, an affidavit of such Shareholder and/or such Transferee, as the case may be, to that effect together with the agreement of such Shareholder and/or such Transferee, as the case may be, to indemnify the Company and/or CGW, as the case may be, against any loss incurred as a result of such missing or stolen certificates. Any portion of the purchase price remaining in the hands of the trustee following the lapse of a two (2) year period commencing with the date of transfer of such purchase price to the trustee may be returned to the Company and/or CGW, as the case may be, but such return shall not vitiate the cancellation of such portion of the Shares to which the returned portion of the purchase price relates, and the Shareholder and/or such Transferee shall thereafter have the right to receive such purchase price from the Company and/or CGW, as the case may be. ARTICLE 6 PREEMPTIVE RIGHTS 6.1 Preemptive Rights. Except as provided in Section 6.2 below, if after the date hereof the Company authorizes the issuance and sale of any shares of its equity securities or any securities containing options or rights to acquire any shares of capital stock or any other equity securities of the Company, the Company will first offer in writing to sell to each Shareholder a portion of such equity securities, options or rights equal to the percentage determined by dividing (i) the number of shares of capital stock then held by such Shareholder by (ii) the number of shares of capital stock outstanding (on a fully diluted basis), at the most favorable price and on the most favorable terms as such equity securities, options or rights are to be offered to any other person. For purposes of this Section 6.1, capital stock acquirable upon exercise or conversion of options or rights to acquire any shares of capital stock or any other equity securities of the Company shall be deemed outstanding only if the applicable conversion price, exercise price or -5- 6 other acquisition price per share is equal to or less than the then current Fair Value Per Share. In the event any Shareholder shall not, within ten (10) business days after receipt of such written offer, timely exercise his rights under this Section 6.1 to purchase a portion of such equity securities, options or rights, or if after timely exercising such right shall fail timely to consummate such purchase (a "Non-Purchasing Shareholder"), each other Shareholder that has fully exercised its right under this Section 6.1 to purchase such Shareholder's portion of such equity securities, options or rights and who has timely consummated such purchase (a "Purchasing Shareholder") shall have the right to purchase such Purchasing Shareholder's pro rata share (determined among all Purchasing Shareholders on the basis of their respective ownership of capital stock of the Company) of the portion of such equity securities, options or rights which the Non-Purchasing Shareholder had the right to purchase under this Article 6. Any computation of the number of shares of equity securities, options or rights that a Shareholder has the right to purchase under this Article 6 shall be rounded to the nearest whole share. Each Shareholder must exercise its purchase rights within thirty (30) days after receipt of written notice from Company describing in reasonable detail the equity securities, options or rights being offered, the purchase price thereof, the payment terms and such Shareholder's percentage allotment or in the case of the purchase by a Purchasing Shareholder of a portion of the equity securities, options or rights that a Non-Purchasing Shareholder had the right to, but did not purchase, within forty-five (45) days after receipt of such written notice. The provisions of this Section 6.1 shall terminate upon the consummation of a Public Offering (as defined in Section 9.12(e) hereof). 6.2 Exceptions for Stock Options. Section 6.1 above and the rights of Shareholders thereunder shall not apply to capital stock or any securities of the Company which are convertible into or exchangeable or exerciseable for capital stock that are issued to employees of the Company or any direct or indirect subsidiary, either directly or upon exercise of options, rights, warrants, grants or awards, pursuant to the terms of any stock option or stock incentive plan adopted by the Board of Directors of the Company primarily for the benefit of employees of the Company and its subsidiaries. ARTICLE 7 CO-SALE RIGHTS AND OBLIGATIONS 7.1 Co-Sale Rights of Shareholders. In the event that CGW receives a bona fide offer from a third party including the Company or any Affiliate thereof (a "Proposed Purchaser") to purchase all or any portion of the shares of capital stock of the Company owned by CGW (a "Proposed Transfer"), then each Shareholder shall have the right, as a precondition to such Proposed Transfer, to cause CGW to require the Proposed Purchaser to purchase such percentage of the Shares owned by such Shareholder as such Shareholder elects, up to and including the percentage of CGW's shares being purchased by the Proposed Purchaser. Any Shares purchased from such Shareholder pursuant to this Section 7.1 shall be paid and contracted for at the same price per share, with the same form of consideration and otherwise upon the same terms and conditions as the sale by CGW. -6- 7 7.2 Co-Sale Obligations of Shareholders. In the event of a proposed Sale of the Company (as defined in Section 9.12(g)) that is effected through a sale of the capital stock of the Company, CGW shall have the right to require such Shareholder to sell to the Proposed Purchaser in such Sale of the Company all of its respective Shares. Any Shares purchased from a Shareholder pursuant to this Section 7.2 shall be paid and contracted for at the same price per share, with the same form of consideration and otherwise upon the same terms and conditions as the sale by CGW of its shares to the Proposed Purchaser in such Sale of the Company. If the Proposed Purchaser in any Sale of the Company is an Affiliate of CGW, such sale may only be made at a price per each Share to each Shareholder equal to or greater than the Fair Value Per Share determined as provided in Section 9.12(d). 7.3 Participation Notice. CGW shall, not less than fifteen (15) nor more than forty-five (45) days prior to any Proposed Transfer or Sale of the Company, notify each Shareholder in writing of any such Proposed Transfer or Sale of the Company (the "Participation Notice"). Such Participation Notice shall set forth: (i) the number and type of securities proposed to be transferred (the "Transferred Securities"); (ii) the name(s) and address(es) of the Proposed Purchaser(s); (iii) the proposed amount and all forms of consideration and terms and conditions of payment offered by such Proposed Purchaser; (iv) the date, time and place at which the Proposed Transfer or Sale of the Company is to be consummated (the "Scheduled Closing"); and (v) that the Proposed Purchaser has been informed of the co-sale rights of the Shareholders provided for in Section 7.1 hereof and has agreed to purchase the Transferred Securities in accordance with the terms of that Section. 7.4 Exercise of Co-Sale Rights or Obligations. The co-sale rights described in Section 7.1 shall be deemed to have been exercised by a Shareholder with respect to the maximum number of Shares that can be sold by such Stockholder unless written notice of the Non-Exercise (the "Non-Exercise Notice") of any of such rights is delivered to CGW at least five (5) days prior to the Scheduled Closing. The co-sale obligations described in Section 7.2 may be exercised by delivery of a written notice (the "Exercise Notice"), at least five (5) days prior to the Scheduled Closing, to a Shareholder. 7.5 Miscellaneous. In the event that a Shareholder exercises his co-sale rights pursuant to Section 7.1 hereof and the Proposed Purchaser is not willing to purchase Shares from such Shareholder on the same terms and conditions as specified in the Participation Notice, then CGW shall not be permitted to transfer or otherwise dispose of any of its shares to the Proposed Purchaser pursuant to the Proposed Transfer unless the Proposed Purchaser agrees to purchase (i) a lesser amount of CGW's shares and (ii) a pro rata amount of the shares of such Shareholder on the same terms and conditions as CGW's shares are purchased. Upon exercising his respective co-sale rights pursuant to this Article 7, a Shareholder shall be obligated until the date of the Scheduled Closing, to transfer such number and type of securities with respect to which such exercise has been made, to the Proposed Purchaser on the terms and conditions stated in the Participation Notice and in accordance with the provisions of this Article 7. -7- 8 7.6 Inapplicability of Article. Notwithstanding anything to the contrary set forth in this Article 7, the rights and obligations arising under this Article 7 shall not apply to: (i) the sale by CGW of shares of capital stock of the Company pursuant to a Public Offering in which the Shareholders are permitted to sell Shares unless the inability of the Shareholders to sell Shares in such Public Offering is due to advice to the Company from the managing underwriter of such offering to the effect that the inclusion in such offering of Shares of the Shareholders would adversely affect the marketing of the securities of the Company proposed to be sold in such offering, or (ii) any distribution by CGW of all or any portion of the shares owned by it to its partners. ARTICLE 8 TERM AND TERMINATION 8.1 Term and Termination. Articles 1, 2 and 6 of this Agreement shall terminate and be of no force and effect, unless extended as provided herein, upon the sooner of (a) the passage of fifteen (15) years from the date of this Agreement, (b) the effective date of a written agreement signed by all of the parties hereto providing for the termination of this Agreement, or (c) upon the effective date of a registration statement filed by the Company with the Securities and Exchange Commission that will, upon issuance and sale of the shares of Common Stock covered by that registration statement, result in a Public Offering (as defined in Section 9.12(e)). 8.2 Extension of Term. This Agreement may be extended for additional ten (10) year periods if the Company, CGW, and Shareholders who own in the aggregate more than fifty-one percent (51%) of Shares subject to this Agreement at the time of the extension so agree in writing. ARTICLE 9 GENERAL PROVISIONS 9.1 Legends. Each certificate representing the Shares shall be endorsed with the following legend: TRANSFER IS RESTRICTED THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO A RIGHT OF FIRST REFUSAL AND OTHER RESTRICTIONS ON TRANSFER SET FORTH IN A SHAREHOLDERS AGREEMENT, DATED AS OF MARCH ____, 1998, A COPY OF WHICH IS AVAILABLE FROM THE COMPANY. THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, OR HYPOTHECATED UNLESS (1) THERE IS AN EFFECTIVE REGISTRATION UNDER THE SECURITIES -8- 9 ACT AND ANY APPLICABLE STATE SECURITIES LAWS COVERING SUCH SECURITIES OR (2) THE COMPANY RECEIVES AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS. Each Shareholder agrees that the Company may also endorse any other legends required by applicable federal or state securities laws and securities laws of applicable foreign jurisdictions. The Company shall not be required (a) to transfer on its books any Shares that have been sold or transferred in violation of the provisions of this Agreement (including the foregoing legends), or (b) to treat as the owner of the Shares, or otherwise to accord voting or dividend rights to, any transferee to whom the Shares have been transferred in contravention of this Agreement (or such legends). 9.2 Additional Shares or Substituted Securities. If any stock dividend, stock split, recapitalization or other change affecting the Company's outstanding stock is effected without receipt of consideration, then any new, substituted or additional securities or other property (including money paid other than as a regular cash dividend) which is by reason of any such transaction distributed with respect to the Shares shall be immediately subject to the restrictions on Shares set forth herein, and the requirement of a legend set forth in Section 9.1, of this Agreement, but only to the extent that the Shares are at the time subject to such restrictions and requirement. 9.3 Removal of Legend and Transfer Restrictions. (a) Any legend or portion of a legend endorsed on a certificate pursuant to Section 9.1 hereof and the stop transfer instructions with respect to the Shares shall be removed and the Company shall issue a certificate without such legend or portion thereof to the holder thereof if such Shares are registered under the Securities Act and a prospectus meeting the requirements of Section 10 of the Securities Act is available or at such other time as such legend is no longer applicable. (b) The restrictions described in the second sentence of the legend set forth in Section 9.1 hereof may be removed at such time as permitted by Rule 144 promulgated under the Securities Act. 9.4 Governing Laws. This Agreement shall be construed, administered and enforced according to the laws of the State of Georgia. 9.5 Assignment; Successors. This Agreement and the rights of a party hereunder may be transferred to a Transferee of such party, but may not be transferred or assigned to any other person or entity without the prior written consent of the parties hereto; provided, however, CGW may assign this Agreement and its rights hereunder to any Affiliate of CGW, provided CGW -9- 10 remains liable with respect to its obligations under this Agreement. This Agreement shall be binding upon and inure to the benefit of the parties and their respective permitted Transferees. 9.6 Notice. Except as otherwise specified herein, all notices and other communications under this Agreement shall be in writing and shall be deemed to have been given if personally delivered or if sent by overnight delivery addressed to the proposed recipient at the last known address of the recipient as reflected on the books and records of the Company. The date on which such notice or other communication is received shall be the date of delivery. Any party may designate any other address to which notices shall be sent by giving notice of the address to the other parties in the same manner as provided herein. 9.7 Severability. In the event that any one or more of the provisions or portion thereof contained in this Agreement shall for any reason be held to be invalid, illegal, or unenforceable in any respect, the same shall not invalidate or otherwise affect any other provisions of this Agreement, and this Agreement shall be construed as if the invalid, illegal or unenforceable provision or portion thereof had never been contained herein. 9.8 Entire Agreement. This Agreement expresses the entire understanding and agreement of the parties with respect to the subject matter hereof. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which shall constitute one and the same instrument. 9.9 Violation. Any attempted transfer, pledge, sale, assignment, or hypothecation of the Shares or any portion thereof in violation of the terms of this Agreement shall be void and without effect. 9.10 Headings. Paragraph headings used herein are for convenience of reference only and shall not be considered in construing this Agreement. 9.11 Specific Enforcement. Each of the Company, CGW and the Shareholders expressly agrees that others will be irreparably damaged if this Agreement is not specifically performed. Upon a breach of the terms, covenants and/or conditions of this Agreement by any party, the other parties shall, in addition to any and all other rights and remedies at law or in equity, be entitled to a temporary or permanent injunction, without showing any actual damage, and/or a decree for specific performance, in accordance with the provisions hereof. All such rights and remedies shall be cumulative. 9.12 Certain Definitions. The capitalized terms listed below are used herein with the meaning thereafter ascribed: (a) "AFFILIATE" of any party shall mean any natural person, corporation, general or limited partnership, joint venture, trust, association, or unincorporated entity of any kind (each a "Person") that controls or is controlled by or under common control with such other party. For the purpose of this definition, "control" of a Person shall mean the possession, directly or indirectly, of the power to direct or cause the direction of its -10- 11 management and policies, whether through the ownership of voting capital stock, by contract or otherwise, and the terms "controlled" and "common control" shall have correlative meanings. (b) "CAUSE" shall mean as to a Shareholder (i) conduct amounting to fraud or dishonesty against the Company; (ii) such Shareholder's willful misconduct intended to injure or having the effect of injuring the reputation, business or business relationship of the Company, repeated refusal to follow the reasonable directions of the Board of Directors of the Company, or knowing violation of law in the course of performance of the duties of such Shareholder's employment with the Company, (iii) repeated absences from work without a reasonable excuse without being corrected upon fifteen (15) days prior written notice, (iv) a conviction or plea of guilty or nolo contendere to a felony or a crime involving dishonesty against the Company; or (v) a breach or violation by such Shareholder of the terms of this Agreement or any other agreement to which such Shareholder and the Company are a party without being corrected upon fifteen (15) days prior written notice. (c) "COST" shall mean the consideration per Share paid by the Shareholder for such Share. (d) "FAIR VALUE PER SHARE" shall mean the value of a share of capital stock of the Company (on a fully-diluted basis) assuming the sale of the Company and all its subsidiaries as a whole and as a going concern to a willing buyer on the date with respect to which such determination is made (whether such sale takes the form of a sale of stock, a sale of assets, a merger or a consolidation). The Company will, within fifteen (15) days after the date with respect to which such determination is made, deliver to the Shareholder with respect to whose Shares the determination is being made a written notice setting forth a proposed Fair Value Per Share. If, within fifteen (15) days after receipt of such notice, such Shareholder does not object to the determination of the Fair Value Per Share set forth therein, then the Fair Value Per Share will be as set forth in such notice. If within such fifteen (15) day period such Shareholder objects to the Company's determination of Fair Value Per Share, the Company and such Shareholder will attempt to agree within fifteen (15) days following the expiration of such period on an appraiser to determine the Fair Value Per Share. If the Company and such Shareholder fail to agree on a mutually acceptable appraiser during such fifteen (15) day period, then the Company and such Shareholder will each appoint an investment banking firm of national reputation and such two investment banking firms will select a third investment banking firm of national or regional reputation experienced in the appraisal of businesses similar to that of the Company and its subsidiaries to serve as the appraiser and shall direct such appraiser to independently determine the Fair Value Per Share and to submit its determination in writing at the earliest practicable date, but in any event within ninety (90) days following the date of such appraiser's selection. The Company and the Shareholder shall each bear the costs of their respective investment banking firms for purposes of appointing an appraiser, and the costs of the third appraiser shall be shared equally by the Company and such Shareholder; provided, however, that to the extent the Fair Value Per Share -11- 12 determined by the appraisers ("Appraisers' Value") shall exceed the Fair Value Per Share proposed by the Company ("Company's Value") to the Shareholder pursuant to this subsection (c), the Company shall pay an amount of the appraisal costs of the Shareholder equal to the amount per share the Appraiser's Value exceeds the Company's Value, multiplied by the number of Shares which are the subject of the appraisal. If either the Company or the Shareholder fails to appoint an investment banking firm of national reputation within fifteen (15) days after the expiration of such fifteen (15) day period, then the investment banking firm appointed by the other party will act as the appraiser and determine the Fair Value Per Share. All appraisal reports will be in writing, will be signed by the appraiser and will be delivered to the Company with copies to the Shareholder. If the appraiser expresses its opinion as to Fair Value Per Share in terms of a range of values, the mean of such range shall be deemed to be the Fair Value Per Share for purposes of this Agreement or if such opinion expresses Fair Value Per Share as an absolute number, such number shall be deemed to be the Fair Value Per Share. The Fair Value Per Share determined as herein provided will be final and binding upon Company and the Shareholder. (e) "PUBLIC OFFERING" shall mean one or a series of firmly underwritten public offerings for sale by the Company of an aggregate number of shares of its Common Stock for all such offerings as will, immediately following the completion of such offerings, constitute not less than twenty percent (20%) of the total shares of the Common Stock of the Company then issued and outstanding, which public offerings shall be managed by one or more underwriters that the Company, in its discretion, reasonably believes to have appropriate experience in public offerings of similar size and type, and where the aggregate gross proceeds to the Company from such public offerings shall be not less than $20,000,000. (f) "REPURCHASE EVENT" means, as to a Shareholder, the termination of such Shareholder's employment with the Company or any Affiliate of the Company for any reason, other than (i) in the case of a "put" by such Shareholder pursuant to Section 3.1(a) above, termination of such employment by the Shareholder or by the Company for Cause, and (ii) in the case of a "call" by the Company pursuant to Section 3.1(b) above, termination of such employment by the Company without Cause. (g) "SALE OF THE COMPANY" shall mean the sale of the Company and all of its Subsidiaries (whether by merger, share exchange, consolidation, sale of all of the outstanding capital stock or sale of substantially all of their respective assets) to any person or entity. (h) "TRANSFEREE" shall mean a spouse or any child, grandchild, parent or spouse of any child, grandchild or parent, or any trust created for the benefit of any of the foregoing. -12- 13 IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year first set forth above. SIMCALA HOLDINGS, INC.. By: /s/ William A. Davies -------------------------------------- William A. Davies Chairman of the Board CGW SOUTHEAST PARTNERS III, L.P. By: CGW Southeast III, L.L.C., its General Partner By: CGW, Inc., its Manager By: /s/ William A. Davies -------------------------------------- William A. Davies Managing Director SHAREHOLDERS: /s/ Carl Edward Boardwine ----------------------------------------------- Carl Edward Boardwine /s/ Dwight L. Goff ----------------------------------------------- Dwight L. Goff /s/ R. Myles Cowan ----------------------------------------------- R. Myles Cowan -13- EX-12.1 30 COMPUTATION OF RATIOS 1 EXHIBIT 12.1 SIMCALA, INC. STATEMENT SETTING FORTH COMPUTATION OF RATIO TO EARNINGS OF FIXED CHARGES FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1994 AND FOR THE PERIOD FROM JANUARY 1, 1995 TO FEBRUARY 10, 1995 (SIMETCO, INC.) AND FOR THE PERIOD FROM FEBRUARY 10, 1995 TO DECEMBER 31, 1995, FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997, FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 (PREDECESSOR), FOR THE PRO FORMA AS ADJUSTED YEAR ENDING DECEMBER 31, 1997 AND FOR THE PRO FORMA AS ADJUSTED THREE MONTHS ENDING MARCH 31, 1998 (COMPANY) (DOLLARS IN THOUSANDS)
SIMETCO, INC. PREDECESSOR ------------------------------- ------------------------------------- PERIOD FROM PERIOD FROM FEBRUARY 10, JANUARY 1, 1995 (DATE OF YEAR ENDED 1995 TO INCEPTION) TO YEAR ENDED DECEMBER 31, FEBRUARY 10, DECEMBER 31, DECEMBER 31, ----------------- ------------------- 1993 1994 1995 1995 1996 1997 -------- ------- ------------ ------------- ------- -------- Earnings available for Fixed Charges: Earnings (loss) before provision for income taxes $ (2,728) $(1,943) $ 290 $ (3,219) $ 6,619 $ 9,885 Fixed charges - see below 776 800 72 1,250 1,713 2,001 Less capitalized interest (102) (66) ------- ------- ------------ ------------- ------- -------- Total $(1,952) $(1,143) $ 362 $ (2,071) $ 8,266 $ 11,886 ======= ======= ============ ============= ======= ======== Fixed Charges: Interest expense $ 776 $ 800 $ 72 $ 1,111 $ 1,511 $ 1,710 Capitalized interest 102 66 Amortization of debt issuance costs 60 218 Rental expense 37 76 73 ------- ------- ------------ ------------- ------- -------- Total $ 776 $ 800 $ 72 $ 1,250 $ 1,713 $ 2,001 ======= ======= ============ ============= ======= ======== Ratio of Earnings to Fixed Charges (2.5) (1.4) 5.0 (1.7) 4.8 5.9 ======= ======= ============ ============= ======= ======== Deficiency $(2,728) $(1,943) $ (3,321) ======= ======= ============= PREDECESSOR COMPANY ---------------------------- ---------------------------- PRO FORMA (UNAUDITED) PRO FORMA AS ADJUSTED THREE MONTHS THREE MONTHS AS ADJUSTED THREE MONTHS ENDED ENDED YEAR ENDING ENDING MARCH 31, MARCH 31, DECEMBER 31, MARCH 31, 1997 1998 1997 1998 ---------------------------- ---------------------------- Earnings available for Fixed Charges: Earnings (loss) before provision for income taxes $ 2,363 $ (681) $ (522) (3,395) Fixed charges - see below 434 339 8,366 2,099 Less capitalized interest (20) (20) ---------------------------- ---------------------------- Total $ 2,797 $ (362) $ 7,844 $ (1,316) ============================ ============================ Fixed Charges: Interest expense $ 361 $ 300 7,699 1,925 Capitalized interest 20 20 Amortization of debt issuance costs 55 14 594 149 Rental expense 18 5 73 5 ---------------------------- ---------------------------- Total $ 434 $ 339 $ 8,366 $ 2,099 ============================ ============================ Ratio of Earnings to Fixed Charges 6.46 (1.07) 0.94 (0.63) ============================ ============================ Deficiency $ (701) $ (522) $ (3,415) ============ ============================
2 SIMCALA, INC. STATEMENT SETTING FORTH COMPUTATION OF RATIO OF EBITDA TO CASH INTEREST EXPENSE FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1994 AND FOR THE PERIOD FROM JANUARY 1, 1995 TO FEBRUARY 10, 1995 (SIMETCO, INC.) AND FOR THE PERIOD FROM FEBRUARY 10, 1995 TO DECEMBER 31, 1995, FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997, FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 (PREDECESSOR), FOR THE PRO FORMA AS ADJUSTED YEAR ENDING DECEMBER 31, 1997 AND FOR THE PRO FORMA AS ADJUSTED THREE MONTHS ENDING MARCH 31, 1998 (COMPANY) (DOLLARS IN THOUSANDS)
SIMETCO, INC. PREDECESSOR -------------------------------- -------------------------------------- PERIOD FROM PERIOD FROM FEBRUARY 10, JANUARY 1, 1995 (DATE OF YEAR ENDED 1995 TO INCEPTION) TO YEAR ENDED DECEMBER 31, FEBRUARY 10, DECEMBER 31, DECEMBER 31, ----------------- ------------------ 1993 1994 1995 1995 1996 1997 -------- ------- ------------ ------------- ------- ------- EBITDA: Earnings (loss) from continued operations before cumulative effect of change in accounting principle $(2,728) $(1,943) $ 290 $ (3,219) $ 5,450 $ 6,371 Interest expense 776 800 72 1,111 1,511 1,710 Income taxes - - - - 1,169 3,514 Depreciation and amortization 1,282 1,140 95 1,070 1,593 2,167 ======= ======= ============ ============= ======= ======= Total $ (670) $ (3) $ 457 $ (1,038) $ 9,723 $13,762 ======= ======= ============ ============= ======= ======= Cash interest expense $ 607 $ 800 $ 72 $ 929 $ 1,238 $ 1,560 Ratio of EBITDA to cash interest expense (1.1) (0.0) 6.3 (1.1) 7.9 8.8 ======= ======= ============ ============= ======= ======= Deficiency $(1,277) $ (803) $ (1,967) ======= ======= ============= PREDECESSOR COMPANY ---------------------------- ---------------------------- PRO FORMA (UNAUDITED) PRO FORMA AS ADJUSTED THREE MONTHS THREE MONTHS AS ADJUSTED THREE MONTHS ENDED ENDED YEAR ENDING ENDING MARCH 31, MARCH 31, DECEMBER 31, MARCH 31, 1997 1998 1997 1998 ---------------------------- ---------------------------- EBITDA: Earnings (loss) from continued operations before cumulative effect of change in accounting principle $ 1,570 $ (581) $ (891) $ (2,377) Interest expense 415 314 8,293 2,073 Income taxes 793 (100) 369 (1,018) Depreciation and amortization 424 471 5,991 1,427 ============ ============ ============================ Total $ 3,202 $ 104 $ 13,762 $ 105 ============ ============ ============================ Cash interest expense $ 421 $ 161 $ 8,143 $ 1,920 Ratio of EBITDA to cash interest expense 7.6 0.6 1.7 0.1 ============ ============ ============================ Deficiency $ (57) $ (1,815) ============ ============
3 SIMCALA, INC. STATEMENT SETTING FORTH COMPUTATION OF RATIO OF EBITDA MARGIN FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1994 AND FOR THE PERIOD FROM JANUARY 1, 1995 TO FEBRUARY 10, 1995 (SIMETCO, INC.) AND FOR THE PERIOD FROM FEBRUARY 10, 1995 TO DECEMBER 31, 1995, FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997, FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 (PREDECESSOR) FOR THE PRO FORMA AS ADJUSTED YEAR ENDING DECEMBER 31, 1997 AND FOR THE PRO FORMA AS ADJUSTED THREE MONTHS ENDING MARCH 31, 1998 (COMPANY) (DOLLARS IN THOUSANDS)
SIMETCO, INC. PREDECESSOR --------------------------------- -------------------------------------- PERIOD FROM PERIOD FROM FEBRUARY 10, JANUARY 1, 1995 (DATE OF YEAR ENDED 1995 TO INCEPTION) TO YEAR ENDED DECEMBER 31, FEBRUARY 10, DECEMBER 31, DECEMBER 31, ------------------ ------------------ 1993 1994 1995 1995 1996 1997 -------- ------- ------------ ------------- ------- ------- EBITDA: Earnings (loss) from continued operations before cumulative effect of change in accounting principle $ (2,728) $(1,943) $ 290 $ (3,219) $ 5,450 $ 6,371 Interest expense 776 800 72 1,111 1,511 1,710 Income taxes 0 0 0 0 1,169 3,514 Depreciation and amortization 1,282 1,140 95 1,070 1,593 2,167 ---------------------------------- -------------------------------------- Total $ (670) $ (3) $ 457 $ (1,038) $ 9,723 $13,762 ================================== ====================================== Net Sales $ 31,014 $31,127 $ 3,742 $ 31,523 $52,407 $62,184 Ratio (2.2%) (0.0%) 12.2% (3.3%) 18.6% 22.1% ================================== ====================================== PREDECESSOR COMPANY ---------------------------- ---------------------------- PRO FORMA (UNAUDITED) PRO FORMA AS ADJUSTED THREE MONTHS THREE MONTHS AS ADJUSTED THREE MONTHS ENDED ENDED YEAR ENDING ENDING MARCH 31, MARCH 31, DECEMBER 31, MARCH 31, 1997 1998 1997 1998 ---------------------------- ---------------------------- EBITDA: Earnings (loss) from continued operations before cumulative effect of change in accounting principle $ 1,570 $ (581) $ (891) $ (2,377) Interest expense 415 314 8,293 2,073 Income taxes 793 (100) 369 (1,018) Depreciation and amortization 424 471 5,991 1,427 ------------ ------------- ---------------------------- Total $ 3,202 $ 104 $ 13,762 $ 105 ============ ============ ============================ Net Sales $ 15,655 $ 14,854 $ 62,184 14,854 Ratio 20.5% 0.7% 22.1% 0.7% ============================ ============================
4 SIMCALA, INC. STATEMENT SETTING FORTH COMPUTATION OF RATIO OF NET DEBT TO PRO FORMA EBITDA FOR THE PRO FORMA AS ADJUSTED YEAR ENDING DECEMBER 31, 1997 AND FOR THE PRO FORMA AS ADJUSTED THREE MONTHS ENDING MARCH 31, 1998 (COMPANY) (DOLLARS IN THOUSANDS)
Company ------------------------------- Pro Forma Pro Forma As Adjusted As Adjusted Three Months Year Ending Ending December 31, March 31, 1997 1998 ------------------------------- Net Debt: Long-term debt at March 31, 1998 $ 81,083 $ 81,083 Current portion - debt at March 31, 1998 90 90 Less: cash and cash equivalents at March 31, 1998 (15,796) (15,796) ------------------------------- 65,377 65,377 Pro Forma EBITDA $ 13,762 $ 105 Ratio 4.75 622.6 ===============================
EX-23.2 31 CONSENT OF DELOITTE & TOUCHE LLP 1 EXHIBIT 23.2 INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE Board of Directors SIMCALA, Inc. We consent to the use in this Registration Statement of SIMCALA, Inc. (the "Company") on Form S-1 of our report dated February 27, 1998, appearing in the Prospectus, which is part of the Registration Statement, and to the references to us under the headings "Summary Historical and Pro Forma Financial Information," "Selected Historical Financial Information" and "Experts" in such Prospectus. Our audit of the financial statements referred to in our aforementioned report also included the financial statement schedule of the Company as of and for the year ended December 31, 1997, listed in Item 16. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audit. In our opinion, such 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. /s/ Deloitte & Touche LLP Atlanta, Georgia May 28, 1998 EX-23.3 32 CONSENT OF CROWE, CHIZEK & COMPANY LLP 1 EXHIBIT 23.3 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the inclusion in this Registration Statement on Form S-1 and the related Prospectus of our report dated January 17, 1997 except as to Note 4 for which the date is January 22, 1997 on the financial statements of SIMCALA, Inc. and to the reference to our firm under the heading "Experts" included in this Registration Statement and the related Prospectus. Our audit of the financial statements referred to in our aforementioned report also included the financial statement schedule of the Company as of and for the year ended December 31, 1996, listed in Item 16. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audit. In our opinion, such financial statement schedule, when considered in relation to the basis financial statements taken as a whole, presents fairly in all material respects the information set forth therein. Crowe, Chizek and Company LLP Oak Brook, Illinois May 28, 1998 EX-23.4 33 CONSENT OF ERNST & YOUNG LLP 1 EXHIBIT 23.4 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our report dated March 8, 1996, in the Registration Statement (Form S-1) and related Prospectus of SIMCALA, Inc. for the registration of $75,000,000 of 9 5/8% Series B Senior Notes due 2006. Our audit also included the financial statement schedule of SIMCALA, Inc. listed in Item 16 for the period from February 10, 1995 (date of inception) to December 31, 1995. This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ Ernst & Young LLP Cleveland, Ohio May 28, 1998 EX-25.1 34 FORMS T-1 1 EXHIBIT 25.1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM T-1 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(B)(2) IBJ SCHRODER BANK & TRUST COMPANY (Exact name of trustee as specified in its charter) New York 13-5375195 (Jurisdiction of incorporation or (I.R.S. Employer organization if not a U.S. national bank) Identification No.) One State Street, New York, New York 10004 (Address of principal executive offices) (Zip code) IBJ SCHRODER BANK & TRUST COMPANY One State Street New York, New York 10004 (212) 858-2000 (Name, address and telephone number of agent for service) SIMCALA, INC. (Exact name of obligor as specified in its charter) Delaware 34-1780941 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Ohio Ferro Alloys Road Mt. Meigs, Alabama 36057 (Address of principal executive offices) (Zip Code) 9 5/8% SERIES B SENIOR NOTES DUE 2006 (Title of indenture securities) 2 Item 1. General information Furnish the following information as to the trustee: (a) Name and address of each examining or supervising authority to which it is subject. New York State Banking Department Two Rector Street, New York, New York Federal Deposit Insurance Corporation Washington, D.C. Federal Reserve Bank of New York Second District 33 Liberty Street New York, New York (b) Whether it is authorized to exercise corporate trust powers. Yes Item 2. Affiliations with the Obligor. If the obligor is an affiliate of the trustee, describe each such affiliation. The obligor is not an affiliate of the trustee. Item 4. Trusteeships under other indentures. If the trustee is a trustee under another indenture under which any other securities, or certificates of interest or participation in any other securities of the obligor are outstanding, furnish the following information: (a) Title of the securities outstanding under each such other indenture. None (b) A brief statement of the facts relied upon as a basis for the claim that no conflicting interest within the meaning of Section (310)(b)(1) of the Act arises as a result of the trusteeship under any such other indenture, including a statement as to how the indenture securities will rank as compared with the securities issued under such other indentures. Not applicable 3 Item 13. Defaults by the Obligor. (a) State whether there is or has been a default with respect to the securities under this indenture. Explain the nature of any such default. None (b) If the trustee is a trustee under another indenture under which any other securities, or certificates of interest or participation in any other securities, of the obligor are outstanding, or is trustee for more than one outstanding series of securities under the indenture, state whether there has been a default under any such indenture or series, identify the indenture or series affected, and explain the nature of any such default. Not applicable Item 16. List of exhibits. List below all exhibits filed as part of this statement of eligibility. *1. A copy of the Charter of IBJ Schroder Bank & Trust Company as amended to date. (See Exhibit 1A to Form T-1, Securities and Exchange Commission File No. 22-18460). *2. A copy of the Certificate of Authority of the trustee to Commence Business (Included in Exhibit 1 above). *3. A copy of the Authorization of the trustee to exercise corporate trust powers, as amended to date (See Exhibit 4 to Form T-1, Securities and Exchange Commission File No. 22-19146). *4. A copy of the existing By-Laws of the trustee, as amended to date (See Exhibit 4 to Form T-1, Securities and Exchange Commission File No. 22-19146). 5. Not Applicable 6. The consent of United States institutional trustee required by Section 321(b) of the Act. 7. A copy of the latest report of condition of the trustee published pursuant to law or the requirements of its supervising or examining authority. *The Exhibits thus designated are incorporated herein by reference as exhibits hereto. Following the description of such Exhibits is a reference to the copy of the Exhibit heretofore filed with the Securities and Exchange Commission, to which there have been no amendments or changes. -2- 4 NOTE In answering any item in this Statement of Eligibility which relates to matters peculiarly within the knowledge of the obligor and its directors or officers, the trustee has relied upon information furnished to it by the obligor. Inasmuch as this Form T-1 is filed prior to the ascertainment by the trustee of all facts on which to base responsive answers to Item 2, the answer to said Item are based on incomplete information. Item 2, may, however, be considered as correct unless amended by an amendment to this Form T-1. 5 SIGNATURE Pursuant to the requirements of the Trust Indenture Act of 1939, the trustee, IBJ Schroder Bank & Trust Company, a corporation organized and existing under the laws of the State of New York, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of New York, and State of New York, on the 19th day of May, 1998. IBJ SCHRODER BANK & TRUST COMPANY By: /s/ Stephen J. Giurlando ----------------------------- Stephen J. Giurlando Assistant Vice President -4- 6 EXHIBIT 6 CONSENT OF TRUSTEE Pursuant to the requirements of Section 321(b) of the Trust Indenture Act of 1939, as amended, in connection with the issuance by Simcala, Inc. of its 9 5/8% Series B Senior Notes due 2006, we hereby consent that reports of examinations by Federal, State, Territorial, or District authorities may be furnished by such authorities to the Securities and Exchange Commission upon request therefor. IBJ SCHRODER BANK & TRUST COMPANY By: /s/ Stephen J. Giurlando -------------------------------- Stephen J. Giurlando Assistant Vice President Dated: May 19, 1998 7 EXHIBIT 7 CONSOLIDATED REPORT OF CONDITION OF IBJ SCHRODER BANK & TRUST COMPANY OF NEW YORK, NEW YORK AND FOREIGN AND DOMESTIC SUBSIDIARIES REPORT AS OF DECEMBER 31, 1997 8
DOLLAR AMOUNTS IN THOUSANDS ASSETS 1. Cash and balance due from depository institutions: a. Noninterest-bearing balances and currency and coin $ 45,276 b. Interest-bearing balances $ 121,534 2. Securities: a. Held-to-maturity securities $ 184,821 b. Available-for-sale securities $ 74,043 3. Federal funds sold and securities purchased under agreements to resell in domestic offices of the bank and of its Edge and Agreement subsidiaries and in IBFs: Federal Funds sold and Securities purchased under agreements to resell $ 202,104 4. Loans and lease financing receivables: a. Loans and leases, net of unearned income $ 1,797,414 b. LESS: Allowance for loan and lease losses $ 61,962 c. LESS: Allocated transfer risk reserve $ -0- d. Loans and leases, net of unearned income, allowance, and reserve $ 1,735,452 5. Trading assets held in trading accounts $ 479 6. Premises and fixed assets (including capitalized leases) $ 2,952 7. Other real estate owned $ -0- 8. Investments in unconsolidated subsidiaries and associated companies $ -0- 9. Customers' liability to this bank on acceptances outstanding $ 1,447 10. Intangible assets $ -0- 11. Other assets $ 67,256 12. TOTAL ASSETS $ 2,435,364
-2- 9 LIABILITIES 13. Deposits: a. In domestic offices $ 791,520 (1) Noninterest-bearing $ 247,397 (2) Interest-bearing................................$ 544,123 b. In foreign offices, Edge and Agreement subsidiaries, and IBFs $ 1,229,810 (1) Noninterest-bearing.............................$ 14,607 (2) Interest-bearing................................$ 1,215,203 14. Federal funds purchased and securities sold under agreements to repurchase in domestic offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs: Federal Funds purchased and Securities sold under agreements to repurchase $ 10,000 15. a. Demand notes issued to the U.S. Treasury $ 5,000 b. Trading Liabilities $ 108 16. Other borrowed money: a. With a remaining maturity of one year or less $ 83,453 b. With a remaining maturity of more than one year $ 1,763 c. With a remaining maturity of more than three years $ 2,242 17. Not applicable. 18. Bank's liability on acceptances executed and outstanding $ 1,447 19. Subordinated notes and debentures $ -0- 20. Other liabilities $ 70,284 21. TOTAL LIABILITIES $ 2,195,627 22. Limited-life preferred stock and related surplus $ -0- EQUITY CAPITAL 23. Perpetual preferred stock and related surplus $ -0- 24. Common stock $ 29,649 25. Surplus (exclude all surplus related to preferred stock) $ 217,008
-3- 10 26. a. Undivided profits and capital reserves $ (7,130) b. Net unrealized gains (losses) on available-for-sale securities $ 210 27. Cumulative foreign currency translation adjustments $ -0- 28. TOTAL EQUITY CAPITAL $ 239,737 29. TOTAL LIABILITIES AND EQUITY CAPITAL $ 2,435,364
EX-27.1 35 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SIMCALA INC. (PREDECESSOR) INCOME STATEMENT FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND SIMACALA, INC. (COMPANY) AS OF MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM S-1 FINANCIAL STATEMENT. 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 20,546,000 0 5,809,000 0 2,871,000 32,844,000 53,075,000 0 122,667,000 9,438,000 0 0 0 109 18,807,891 122,667,000 14,854,000 14,854,000 11,679,000 11,679,000 (282,000) 0 314,000 (681,000) (100,000) (581,000) 0 0 0 (581,000) 0 0
EX-27.2 36 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SIMCALA INC. FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM S-1 REGISTRATION STATEMENT. YEAR DEC-31-1998 JAN-01-1997 DEC-31-1997 634,877 0 5,907,822 (77,436) 2,663,941 10,544,832 26,493,428 (4,045,499) 33,662,539 9,659,697 0 0 0 100 8,275,572 33,662,539 62,184,345 62,184,345 47,972,065 47,972,065 (228,461) (8,846) 1,709,586 9,885,313 3,514,000 6,371,313 0 0 0 6,371,313 0 0
EX-99.1 37 FORM OF NON-QUALIFIED STOCK OPTION AGREEMENT 1 EXHIBIT 99.1 FORM OF NON-QUALIFIED STOCK OPTION AGREEMENT THIS AGREEMENT is made and entered into as of __________, (the "Grant Date") by and between SIMCALA Holdings, Inc. (the "Corporation"), a Georgia corporation, and _____________ ("Optionee"). BACKGROUND A. The Corporation has adopted the 1998 Stock Incentive Plan (the "Plan"). Pursuant to the Plan, the Committee has authorized the grant to Optionee of a non-qualified stock option to purchase shares of the common stock of the Corporation. Capitalized terms used herein and not defined in context are defined in Section 4.11 hereof or in the Plan. B. The Corporation and Optionee wish to confirm herein the terms, conditions, and restrictions of the option. C. For and in consideration of the premises, the mutual covenants contained herein, and other good and valuable consideration, the parties hereto agree: ARTICLE 1 GRANT AND EXERCISE OF OPTION 1.1 Grant of Option. Subject to the terms, restrictions, limitations, and conditions stated herein, the Corporation hereby grants to Optionee a non-qualified option (the "Option") to purchase all or any part of ____ shares of Common Stock of the Corporation (the "Option Shares"). This Option is intended to be a non-qualified stock option. 1.2 Exercise of Option. (a) The Option may be exercised during the Option Period (as defined in Section 1.4) only to the extent of the number of Option Shares that are then vested ("Vested Shares") as determined pursuant to the vesting schedule attached hereto as Schedule I. (b) The Option may be exercised with respect to all or any portion of the Vested Shares at any time during the Option Period by the delivery to the Corporation, at its principal place of business, of (i) a written notice of exercise, in substantially the form attached hereto as Exhibit A (or as otherwise permitted by the Committee), which shall be delivered to the Corporation no earlier than thirty (30) days and no later than ten (10) days (or such lesser number of days as permitted by the Committee) prior to the date upon which Optionee desires to exercise all or any portion of the Option (the "Exercise Date"); (ii) a certified 2 check payable to the Corporation in the amount of the Exercise Price multiplied by the number of Option Shares being purchased (the "Purchase Price") or, at the discretion of the Committee, by delivery of a number of shares of Stock having a Fair Market Value as of the Exercise Date at least equal to the Purchase Price; and (iii) a certified check payable to the Corporation in the amount of all withholding tax obligations (whether federal, state or local), imposed on the Corporation by reason of the exercise of the Option, or the Withholding Election described in Section 1.2(c). Upon acceptance of such notice, receipt of payment in full, and receipt of payment of all withholding tax obligations, the Corporation shall cause a certificate representing the shares of Stock purchased to be issued and delivered to Optionee. (c) In lieu of paying the withholding tax obligation in cash, as described in Section 1.2(b)(iii), Optionee may elect to have the actual number of shares issuable upon exercise of the Option reduced by the smallest number of whole shares of Stock which, when multiplied by the Fair Market Value per share of the Stock as of the Exercise Date, is sufficient to satisfy the amount of the withholding tax obligations imposed on the Corporation by reason of the exercise hereof (the "Withholding Election"). The Withholding Election must be made by executing and delivering to the Corporation a properly completed Notice of Withholding Election, in substantially the form of Exhibit B attached hereto (or as otherwise permitted by the Committee). 1.3 Exercise Price. The price for each share of Stock for which the Option is exercised is US $________. 1.4 Term and Termination of Option. Except as otherwise provided herein, the period in which the Option may be exercised as to any Vested Shares (the "Option Period") shall commence on the date such shares become Vested Shares and terminate at 5:00 p.m. Eastern Time on the date of the first to occur of the following events: (a) the 10th anniversary of the Grant Date; (b) If the employment of Optionee by the Corporation terminates for any reason other than as provided in paragraph (c) or (d) below, the Option shall lapse, unless it is previously exercised, one year after Optionee's Termination of Employment; provided, however, that if Optionee's employment is terminated by the Corporation for Cause or by Optionee without the consent of the Corporation, the Option shall (to the extent not previously exercised) lapse immediately. (c) If the employment of Optionee by the Corporation terminates by reason of his Disability, the Option shall lapse, unless it is previously exercised, within one year after Optionee's Termination of Employment. -2- 3 (d) If Optionee dies while employed by the Corporation, or during the one year period described in paragraph (b) or during the one-year period described in paragraph (c) and before the Option otherwise lapses, the Option shall lapse one year after Optionee's death. Upon Optionee's death, any exercisable Options may be exercised by Optionee's beneficiary. Unless the exercisability of the Option is accelerated as provided in Article 13 of the Plan, if Optionee exercises the Option after Termination of Employment, the Option may be exercised only with respect to the shares that were otherwise vested on Optionee's Termination of Employment. Upon the expiration of any Option Period, this Option, and all unexercised rights granted to Optionee hereunder shall terminate as to all Vested Shares to which such Option Period relates, and thereafter be null and void. 1.5 Rights as Stockholder. Optionee, or, if applicable, the Transferee (as defined in Section 4.11), shall have no rights as a stockholder with respect to any Option Shares until Optionee has exercised this Option as to such Option Shares and has tendered to the Corporation the Purchase Price due in respect of such exercise. No adjustment to the number of Option Shares covered by this Option or the Exercise Price shall be made for dividends paid or declared on or with respect to Stock in cash, securities or other property, for which the record date is prior to the date of exercise hereof. 1.6 Changes in Capitalization. The Committee may proportionately adjust the number of Option Shares and the Exercise Price for any increase or decrease in the number of issued shares of Stock (without any change in the aggregate price to be paid upon exercise of all of the Option Shares) resulting from an event described in Article 14 of the Plan. Any adjustment pursuant to this Section 1.6 may provide, in the Committee's discretion, for the elimination of any fractional shares that might otherwise become subject to the Option without payment therefor. 1.7 Accelerated Vesting. (a) Change in Control. If a Change in Control occurs, the Option shall become fully exercisable. (b) Other Events. As provided in Section 13.9 and Section 13.10 of the Plan, the Committee may accelerate the vesting of the Option in other events. (c) Effect of Acceleration. If the vesting of the Option accelerates due to a Change in Control or is accelerated by the Committee pursuant to Section 13.9 of the Plan (i.e., events that could lead to a Change in Control), the Committee shall determine (i) whether the fully exercisable Option will expire after a designated period of time to the extent not then exercised, (ii) whether the difference between the Exercise Price and the Fair Market Value of the Option Shares as of a date designated by the Committee will be settled in cash, (iii) whether the Option will be assumed by another party to the transaction giving -3- 4 rise to the acceleration or otherwise be equitably converted in connection with such transaction, or (iv) any combination of the foregoing. 1.8 Rights of Optionee Subject to Plan. This Option is granted pursuant to the Plan and is, in all respects, subject to the terms and provisions of the Plan, a copy of which is available at the offices of the Corporation. In the event of any conflict between any part or provision of this Agreement and any part or provision of the Plan, the part or provision of the Plan shall control. 1.9 Shareholders Agreement. Upon exercise of this Option pursuant to Section 1.2, Optionee shall enter into and be bound by that certain Shareholders Agreement, dated _____________, 1998, among SIMCALA, Inc., and its shareholders, or any other stockholder, voting, or similar agreement if all other employee shareholders of the Corporation have either executed or been asked to execute such an agreement. ARTICLE 2 RESTRICTION ON TRANSFER OF OPTION 2.1 Restrictions on Transfer of Option. The Option evidenced hereby is nontransferable other than by will or the laws of descent and distribution. ARTICLE 3 LEGENDS 3.1 Legends. Each certificate representing the Option Shares purchased upon exercise of this Option shall be endorsed with the following legend and Optionee shall not make any transfer of the Option Shares without first complying with the restrictions on transfer described in such legend: TRANSFER IS RESTRICTED THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON TRANSFER SET FORTH IN A NON-QUALIFIED STOCK OPTION AGREEMENT DATED ______________, 1998, A COPY OF WHICH IS AVAILABLE FROM THE CORPORATION. THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, OR HYPOTHECATED UNLESS (1) THERE IS AN EFFECTIVE REGISTRATION UNDER SUCH ACT COVERING SUCH SECURITIES, (2) THE TRANSFER IS MADE IN COMPLIANCE WITH RULE 144 PROMULGATED UNDER SUCH ACT, OR (3) THE ISSUER RECEIVES AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE CORPORATION, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR -4- 5 HYPOTHECATION IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT. Optionee agrees that the Corporation may also endorse any other legends required by applicable federal or state securities laws. The Corporation shall not be required (a) to transfer on its books any Option Shares that have been sold or transferred in violation of the provisions of this Agreement (including the foregoing legends), or (b) to treat the owner of the Option Shares, or otherwise to accord voting or dividend rights to, any transferee to whom the Option Shares have been transferred in contravention of this Agreement (or such legends). 3.2 Removal of Legend and Transfer Restrictions. (a) Any legend endorsed on a certificate pursuant to Section 3.1 hereof and the stop transfer instructions with respect to the Option Shares shall be removed and the Corporation shall issue a certificate without such legend to the holder thereof if such Option Shares are registered under the Securities Act of 1933 and a prospectus meeting the requirements of Section 10 of the Securities Act of 1933 is available. (b) The restrictions described in the second sentence of the legend set forth in Section 3.1 hereof may be removed at such time as permitted by Rule 144 promulgated under the Securities Act of 1933. ARTICLE 4 GENERAL PROVISIONS 4.1 Governing Laws. This Agreement shall be construed, administered and enforced according to the laws of the State of Georgia; provided, however, this Option may not be exercised except, in the reasonable judgment of the Committee, in compliance with exemptions under applicable state securities laws of the state in which Optionee resides, and/or any other applicable securities laws. 4.2 Successors. This Agreement shall be binding upon and inure to the benefit of the heirs, legal representatives, successors, and permitted assigns of the parties. 4.3 Notice. Except as otherwise specified herein, all notices and other communications under this Agreement shall be in writing and shall be deemed to have been given if personally delivered, if mailed by overnight delivery or if sent by registered or certified United States mail, return receipt requested, postage prepaid, addressed to the proposed recipient at the last known address of the recipient. In each case, each notice or other communication shall be deemed to have been received on the earlier of the date of actual receipt or the date that is three (3) days after the date on which such notice or other communication was mailed or sent. Any party may designate any other address to which -5- 6 notices shall be sent by giving notice of the address to the other parties in the same manner as provided herein. 4.4 Severability. In the event that any one or more of the provisions or portion thereof contained in this Agreement shall for any reason be held to be invalid, illegal, or unenforceable in any respect, the same shall not invalidate or otherwise affect any other provisions of this Agreement, and this Agreement shall be construed as if the invalid, illegal or unenforceable provision or portion thereof had never been contained herein. 4.5 Entire Agreement. Except as set forth in Section 1.9, this Agreement expresses the entire understanding and agreement of the parties with respect to the subject matter hereof. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which shall constitute one and the same instrument. 4.6 Violation. Except as provided herein, any transfer, pledge, sale, assignment, or hypothecation of the Option or any portion thereof or of any Option Shares issued upon exercise hereof shall be a violation of the terms of this Agreement and shall be void and without effect. 4.7 Headings. Paragraph headings used herein are for convenience of reference only and shall not be considered in construing this Agreement. 4.8 Specific Performance. In the event of any actual or threatened default in, or breach of, any of the terms, conditions and provisions of this Agreement, the party or parties who are thereby aggrieved shall have the right to specific performance and injunction in addition to any and all other rights and remedies at law or in equity, and all such rights and remedies shall be cumulative. 4.9 No Employment Rights Created. The grant of the Option hereunder shall not be construed as giving Optionee the right to continued employment with the Corporation. 4.10 Special Limitation on Exercise. Notwithstanding anything contained herein to the contrary, no purported exercise of the Option shall be effective without the written approval of the Corporation, which approval may be withheld if the exercise of this Option, together with the exercise of other previously exercised stock options and/or offers and sales pursuant to any prior or contemplated offering of securities, would, in the sole and absolute judgment of the Corporation, require the filing of a registration statement with the United States Securities and Exchange Commission, or with the securities commission of any state. The Corporation shall avail itself of any exemptions from registration contained in applicable federal and state securities laws which are reasonably available to the Corporation on terms which, in its sole and absolute discretion, it deems reasonable and not unduly burdensome or costly. If the Option cannot be exercised at the time it would otherwise expire due to the restrictions contained in this -6- 7 Section 4.10, the Exercise Period may, upon request of Optionee, be extended for successive one-year periods until it can be exercised in accordance with this Section 4.10. Any attempt by Optionee to exercise the Option that is not effective due to the restrictions contained in this Section 4.10 shall be deemed to be a request for a one-year extension period under the preceding sentence. Optionee shall deliver to the Corporation, prior to the exercise of the Option, such information representations, and warranties as the Corporation may reasonably request in order for the Corporation to be able to satisfy itself that the Option Shares to be acquired pursuant to the exercise of the Option is being acquired in accordance with the terms of an applicable exemption from the securities registration requirements of applicable federal and state securities laws. 4.11 Certain Definitions. The capitalized terms listed below are used herein with the meaning thereafter ascribed: (a) "Cause" shall have the meaning assigned such term in any employment agreement that exists between the Corporation and the Optionee provided, however, if no definition exists, it shall mean as follows: (i) conduct amounting to fraud or dishonesty against the Corporation or any subsidiary or affiliate of the Corporation; (ii) Optionee's intentional misconduct or repeated refusal to follow the reasonable directions of the Board of Directors of the Corporation, provided an officer of the Corporation, upon the direction of the Board of Directors, notifies Optionee of the acts deemed to constitute such intentional misconduct or repeated refusal in writing and Optionee fails to correct such acts (or begins such action as may be necessary to correct such acts and thereafter diligently pursues the completion thereof) within five (5) business days after written notice has been given; (iii) repeated absences from work without a reasonable excuse, (iv) repeated intoxication with alcohol or drugs while on Corporation business during regular business hours; (v) a conviction or plea of guilty or nolo contendere to a felony (other than one arising from the operation of a motor vehicle or resulting from actions taken (or not taken) by Optionee in good faith in his capacity as an employee or officer of the Corporation; or (vi) a breach or violation by the Optionee of any material terms of this Agreement or any other agreement to which Optionee and the Corporation are a party. (b) "Disability" shall have the meaning assigned such term in any employment agreement that exists between the Corporation and the Optionee provided, however, if no definition exists, it shall mean as follows: (i) the inability of Optionee to perform the duties of Optionee's employment due to physical or emotional incapacity or illness, where such inability is expected to be of long-continued and indefinite duration, or (ii) Optionee shall be entitled to (x) disability retirement benefits under the federal Social Security Act or (y) recover benefits under any long-term disability plan or policy maintained by the Corporation. In the event of a dispute, the determination of Disability shall be made reasonably by the Board of Directors of the Corporation and shall be supported by advice of a physician competent in the area to which such Disability relates. -7- 8 (c) "Fair Market Value" shall mean the value of the share of Stock of the Corporation determined as follows: (i) If the Stock is, at the time of the determination of Fair Market Value, listed or traded on any national securities exchange or quoted on a national securities or central market system, the Fair Market Value of a share of Stock shall be the average of the daily closing prices for the thirty (30) consecutive trading days before such date of determination, excluding any trades which are not bona fide arms-length transactions. The closing price for each day shall be (A) if such securities are listed are admitted for trading on any national securities exchange, the last sale price for such security, regular way, or the mean of the closing bid and asked prices therefor if no such sale occurred, in each case as officially reported on the principal securities exchange on which such Stock is listed; or (B) if quoted on a national securities exchange or market system, the mean between the closing high bid and low asked quotations for such Stock for each day during such thirty (30) day period. (ii) If, at time of such determination, the Stock of the Corporation is not listed or quoted on any national securities exchange or market system, the Fair Market Value of a share of Stock shall be determined in good faith by the Directors of the Corporation. (d) "Termination of Employment" means the termination of the employee-employer relationship between Optionee and the Corporation (and its Parents and Subsidiaries), regardless of the fact that severance or similar payments are made to Optionee, for any reason, including, but not by way of limitation, a termination by resignation, discharge, death, Disability, or retirement. The Committee shall, in its absolute discretion, determine the effect of all matters and questions relating to Termination of Employment. Other capitalized terms used herein without definition shall have the meanings assigned to such terms in the Plan. -8- 9 IN WITNESS WHEREOF, the parties have executed and sealed this Agreement on the day and year first set forth above. SIMCALA HOLDINGS, INC. By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- OPTIONEE: (SEAL) -------------------------------- -9- 10 EXHIBIT A TO SIMCALA HOLDINGS, INC. NON-QUALIFIED STOCK OPTION AGREEMENT Notice of Exercise Name --------------------------------- Address ----------------------------- --------------------------------- Date --------------------------------- SIMCALA Holdings, Inc. - ------------------------- - ------------------------- Re: Exercise of Stock Option Gentlemen: I hereby give notice of my election to exercise options granted to me to purchase ________ shares of no par value Common Stock (the "Stock") of SIMCALA Holdings, Inc. (the "Corporation") under SIMCALA Holdings, Inc. Non-Qualified Stock Option Agreement dated ___________ (the "Agreement"). The purchase shall take place as of ___________ (the "Exercise Date"). On or before the Exercise Date, I will present you with a certified check (or bank cashier's check) for $__________ for the full purchase price payable to the order of __________________________. I hereby represent, warrant, covenant, and agree with the Corporation as follows: The shares of the Stock being acquired by me will be acquired for my own account without the participation of any other person, with the intent of holding the Stock for investment and without the intent of participating, directly or indirectly, in a distribution of the Stock and not with a view to, or for resale in connection with, any distribution of the Stock, nor am I aware of the existence of any distribution of the Stock; I am not acquiring the Stock based upon any representation, oral or written, by any person with respect to the future value of, or income from, the Stock but rather upon an independent examination and judgment as to the prospects of the Corporation; Exhibit A to Non-Qualified Stock Option Agreement - Page 1 11 The Stock was not offered to me by means of publicly disseminated advertisements or sales literature, nor am I aware of any offers made to other persons by such means; I am able to bear the economic risks of the investment in the Stock including the risk of a complete loss of my investment therein; I understand and agree that the Stock will be issued and sold to me without registration under any state law relating to the registration of securities for sale, and will be issued and sold in reliance on the exemptions from registration under the Securities Act of 1933 (the "1933 Act"), provided by Sections 3(b) and/or 4(2) thereof and the rules and regulations promulgated thereunder; The Stock cannot be offered for sale, sold or transferred by me other than pursuant to: (A) an effective registration under the 1933 Act or in a transaction, otherwise in compliance with the 1933 Act; and (B) evidence satisfactory to the Corporation of compliance with the applicable securities laws of other jurisdictions. The Corporation shall be entitled to rely upon an opinion of counsel satisfactory to it with respect to compliance with the above laws; The Corporation will be under no obligation to register the Stock or comply with any exemption available for sale of the Stock without registration or filing, and the information or conditions necessary to permit routine sale of securities of the Corporation under Rule 144 of the 1933 Act are not now available and no assurance has been given that it or they will become available. The Corporation is under no obligation to act in any manner so as to make Rule 144 available with respect to the Stock; I have and have had complete access to and the opportunity to review and make copies of all material documents related to the business of the Corporation, including, but not limited to, contracts, financial statements, tax returns, leases, deeds and other books and records. I have examined such of these documents as I wished and am familiar with the business and affairs of the Corporation. I realize that purchase of the Stock is a speculative investment and that any possible profit therefrom is uncertain; Exhibit A to Non-Qualified Stock Option Agreement - Page 2 12 I have had the opportunity to ask questions of and receive answers from the Corporation and any person acting on its behalf and to obtain all material informal reasonably available with respect to the Corporation and its affairs. I have received all information and data with respect to the Corporation which I have requested and which I have deemed relevant in connection with the evaluation of the merits and risks of investment in the Corporation; I have such knowledge and experience in financial and business matters that I am capable of evaluating the merits and risks of the purchase of the Stock hereunder and I am able to bear the economic risk of such purchase; and The agreements, representations, warranties, and covenants made by me herein extend to and apply to all of the Stock of the Corporation issued to me pursuant to this Option. Acceptance by me of the certificate representing such Stock shall constitute a confirmation by me that all such agreements, representations, warranties, and covenants made herein shall be true and correct at that time. I understand that the certificates representing the shares being purchased by me in accordance with this notice shall bear a legend referring to the foregoing covenants, representations and warranties and restrictions on transfer, and I agree that a legend to that effect may be placed on any certificate which may be issued to me as a substitute for the certificates being acquired by me in accordance with this notice. Very truly yours, --------------------------------------- AGREED TO AND ACCEPTED: SIMCALA HOLDINGS, INC. By: ------------------------------- Title: ---------------------------- Number of Shares Exercised: ------------------------ Number of Shares Remaining: Date: ------------------------ -------------------- Exhibit A to Non-Qualified Stock Option Agreement - Page 3 13 EXHIBIT B TO SIMCALA HOLDINGS, INC. NON-QUALIFIED STOCK OPTION AGREEMENT Notice of Withholding Election TO: SIMCALA HOLDINGS, INC. FROM: Name -------------------- RE: Withholding Election - ------------------------------------------------------------------------------- This election relates to the Option identified in Paragraph 3 below. I hereby certify that: (1) My correct name and social security number and my current address are set forth at the end of this document. (2) I am (check one, whichever is applicable). [ ] the original recipient of the Option. [ ] the legal representative of the estate of the original recipient of the Option. [ ] a legatee of the original recipient of the Option. [ ] the legal guardian of the original recipient of the Option. (3) The Option pursuant to which this election is made is dated and was issued in the name of ___________ for ___________ shares of SIMCALA Holdings, Inc. (the "Corporation") no par value Common Stock (the "Stock"). This election relates to _____________ shares of the Stock issuable upon whole or partial exercise(s) of the Option (the "Option Shares"). (4) In connection with any exercise of the Option with respect to the Option Shares, I hereby elect to have certain of the shares issuable pursuant to the exercise withheld by the Corporation for the purpose of having the value of the shares applied to pay federal, state, and local, if any, taxes arising from exercise. The shares to be withheld shall have, as of the date on which the amount of the tax required to be withheld is determined, a fair market value Exhibit B to Non-Qualified Stock Option Agreement - Page 1 14 equal to the minimum statutory tax withholding requirement under federal, state, and local law in connection with the exercise. (5) I understand that this Withholding Election is subject to the disapproval of the Board of Directors. (6) I further understand that, if this Withholding Election is not disapproved by the Board of Directors, the Corporation shall withhold from the Option Shares a number of shares of the Stock having the value specified in Paragraph 4 above. Dated: ---------------------------- ---------------------------------------- Legal Signature - ---------------------------------- ---------------------------------------- Social Security Number Name (Printed) - ---------------------------------- ---------------------------------------- Street Address - ---------------------------------- ---------------------------------------- City, State, Zip Code Exhibit B to Non-Qualified Stock Option Agreement - Page 2 15 SCHEDULE I TO SIMCALA HOLDINGS, INC. NON-QUALIFIED STOCK OPTION AGREEMENT Vesting Schedule The Option Shares shall vest as follows:
Anniversary of % of Option Grant Date Shares Vested -------------- -------------- 1 20% 2 40% 3 60% 4 80% 5 100%
Construction. Unless the vesting shall be accelerated, the right of Optionee to vest in Option Shares shall cease upon the termination of Optionee's employment by the Company, and thereafter, no further shares shall become Vested Shares. EX-99.2 38 1998 STOCK INCENTIVE PLAN 1 EXHIBIT 99.2 SIMCALA HOLDINGS, INC. 1998 STOCK INCENTIVE PLAN ARTICLE 1 PURPOSE 1.1. GENERAL. The purpose of the SIMCALA Holdings, Inc. 1998 Stock Incentive Plan (the "Plan") is to promote the success, and enhance the value, of SIMCALA Holdings, Inc. (the "Company"), by linking the personal interests of its employees and officers to those of Company stockholders and by providing such persons with an incentive for outstanding performance. The Plan is further intended to provide flexibility to the Company in its ability to motivate, attract, and retain the services of employees and officers upon whose judgment, interest, and special effort the successful conduct of the Company's operation is largely dependent. Accordingly, the Plan permits the grant of incentive awards from time to time to selected employees and officers. ARTICLE 2 EFFECTIVE DATE 2.1. EFFECTIVE DATE. The Plan shall be effective as of the date upon which it shall be approved by the Board. However, the Plan shall be submitted to the stockholders of the Company for approval within 12 months of the Board's approval thereof. No Incentive Stock Options granted under the Plan may be exercised prior to approval of the Plan by the stockholders and if the stockholders fail to approve the Plan within 12 months of the Board's approval thereof, any Incentive Stock Options previously granted hereunder shall be automatically converted to Non-Qualified Stock Options without any further act. Unless the Committee specifies otherwise at the time of grant, no Awards granted under the Plan shall be contingent upon the stockholders having approved the Plan. In the discretion of the Committee, Awards may be made to Covered Employees which are intended to satisfy the conditions for deductibility under Code Section 162(m). ARTICLE 3 DEFINITIONS 3.1. DEFINITIONS. When a word or phrase appears in this Plan with the initial letter capitalized, and the word or phrase does not commence a sentence, the word or phrase shall generally be given the meaning ascribed to it in this Section or in Section 1.1 unless a clearly different meaning is required by the context. The following words and phrases shall have the following meanings: (a) "Award" means any Option, Stock Appreciation Right, Restricted Stock Award, Performance Share Award, Dividend Equivalent Award, or Other Stock-Based 2 Award, or any other right or interest relating to Stock or cash, granted to a Participant under the Plan. (b) "Award Agreement" means any written agreement, contract, or other instrument or document evidencing an Award. (c) "Board" means the Board of Directors of the Company. (d) "CGW" means Cravey, Green & Wahlen, Inc. (e) "CGW Affiliate" means any corporation, limited liability company, partnership, joint venture or other entity in which CGW owns or controls, directly or indirectly through one or more intermediaries, 20% or more of the combined voting power of the outstanding voting securities of such entity. (f) "Cause" has the same meaning as provided in any employment agreement between the Participant in question and the Company on the date of the Participant's termination of employment, or if no such definition or employment agreement exists, "Cause" means (i) conduct by the Participant amounting to fraud or dishonesty against the Company, (ii) the Participant's intentional misconduct, repeated refusal to follow the reasonable directions of the Board, or knowing violation of law in the course of performance his duties of employment with the Company, (iii) the Participant's repeated absences from work without a reasonable excuse, (iv) the Participant's repeated intoxication with alcohol or drugs while on the Company's premises during regular business hours, (v) the Participant's conviction or plea of guilty or nolo contendere to a felony or a crime involving dishonesty, or (vi) a breach or violation by the Participant of the terms of any employment or other agreement to which the Participant and the Company are parties. (g) "Change in Control" means consummation of a merger or consolidation of the Company with, or sale or other disposition of all or substantially all of the assets or stock of the Company to, any individual, entity or group other than CGW or a CGW Affiliate. (h) "Code" means the Internal Revenue Code of 1986, as amended from time to time. (i) "Committee" means the committee of the Board described in Article 4. (j) "Company" means SIMCALA Holdings, Inc. , a Georgia corporation. (k) "Covered Employees" is defined in Code Section 162(m). (l) "Disability" has the same meaning as provided in any employment agreement or shareholder agreement between the Participant in question and the -2- 3 Company on the date the Participant ceases active work due to a disability, or if no such definition or agreement exists, "Disability" means (1) the inability of the Participant to perform the duties of his employment due to physical or emotional incapacity or illness, where such inability is expected to be of long-continued and indefinite duration, or (2) the Participant shall be entitled to (i) disability retirement benefits under the federal Special Security Act or (ii) recover benefits under any long-term disability plan or policy maintained by the Company. In the event of a dispute, the determination of Disability shall be made by the Committee and shall be supported by advice of a physician competent in the area to which such Disability relates. (m) "Dividend Equivalent" means a right granted to a Participant under Article 11. (n) "Effective Date" has the meaning assigned such term in Section 2.1. (o) "Fair Market Value" means with respect to Stock or any other property, the fair market value of such Stock or other property determined by such methods or procedures as may be established from time to time by the Committee. Unless otherwise determined by the Committee, (i) if at any time the Stock is traded on an over-the-counter market, Fair Market Value of Stock as of any date shall mean the average bid and ask price of a share of Stock on the over-the-counter market on such date, or, if no bid and ask prices are available with respect to such day, on the next preceding day on which such bid and ask prices were available, and (ii) if at any time the Stock is listed on a securities exchange or is traded over the Nasdaq National Market, Fair Market Value of Stock as of any date shall mean the closing sales price on such exchange or over such system on such date or, in the absence of reported sales on such date, the closing sales price on the immediately preceding date on which sales were reported. (p) "Incentive Stock Option" means an Option that is intended to meet the requirements of Section 422 of the Code or any successor provision thereto. (q) "Non-Qualified Stock Option" means an Option that is not an Incentive Stock Option. (r) "Option" means a right granted to a Participant under Article 7 of the Plan to purchase Stock at a specified price during specified time periods. An Option may be either an Incentive Stock Option or a Non-Qualified Stock Option. (s) "Other Stock-Based Award" means a right, granted to a Participant under Article 12, that relates to or is valued by reference to Stock or other Awards relating to Stock. (t) "Parent" means a corporation which owns or beneficially owns a majority of the outstanding voting stock or voting power of the Company. For -3- 4 Incentive Stock Options, the term shall have the same meaning as set forth in Code Section 424(e). (u) "Participant" means a person who, as an officer or employee of the Company or any Parent or Subsidiary, has been granted an Award under the Plan. (v) "Performance Share" means a right granted to a Participant under Article 9, to receive cash, Stock, or other Awards, the payment of which is contingent upon achieving certain performance goals established by the Committee. (w) "Plan" means SIMCALA Holdings, Inc. 1998 Stock Incentive Plan, as amended from time to time. (x) "Restricted Stock Award" means Stock granted to a Participant under Article 10 that is subject to certain restrictions and to risk of forfeiture. (y) "Stock" means the no par value common stock of the Company and such other securities of the Company as may be substituted for Stock pursuant to Article 14. (z) "Stock Appreciation Right" or "SAR" means a right granted to a Participant under Article 8 to receive a payment equal to the difference between the Fair Market Value of a share of Stock as of the date of exercise of the SAR over the grant price of the SAR, all as determined pursuant to Article 8. (aa) "Subsidiary" means any corporation of which a majority of the outstanding voting stock or voting power is beneficially owned directly or indirectly by the Company. For Incentive Stock Options, the term shall have the meaning set forth in Code Section 424(f). (bb) "1933 Act" means the Securities Act of 1933, as amended from time to time. (cc) "1934 Act" means the Securities Exchange Act of 1934, as amended from time to time. ARTICLE 4 ADMINISTRATION 4.1. COMMITTEE. The Plan shall be administered by the Compensation Committee of the Board or, at the discretion of the Board from time to time, by the Board. From and after the time, if any, at which the Company shall have a class of securities registered under Section 12 of the 1934 Act, it is intended that the directors appointed to serve on the Committee shall be "non-employee directors" (within the meaning of Rule 16b-3 promulgated under the 1934 Act) and "outside directors" (within the meaning of Code Section 162(m) and -4- 5 the regulations thereunder). However, the mere fact that a Committee member shall fail to qualify under either of the foregoing requirements shall not invalidate any Award made by the Committee which Award is otherwise validly made under the Plan. The members of the Committee shall be appointed by, and may be changed at any time and from time to time in the discretion of, the Board. During any time that the Board is acting as administrator of the Plan, it shall have all the powers of the Committee hereunder, and any reference herein to the Committee (other than in this Section 4.1) shall include the Board. 4.2. ACTION BY THE COMMITTEE. For purposes of administering the Plan, the following rules of procedure shall govern the Committee. A majority of the Committee shall constitute a quorum. The acts of a majority of the members present at any meeting at which a quorum is present, and acts approved unanimously in writing by the members of the Committee in lieu of a meeting, shall be deemed the acts of the Committee. Each member of the Committee is entitled to, in good faith, rely or act upon any report or other information furnished to that member by any officer or other employee of the Company or any Parent or Subsidiary, the Company's independent certified public accountants, or any executive compensation consultant or other professional retained by the Company to assist in the administration of the Plan. 4.3. AUTHORITY OF COMMITTEE. The Committee has the exclusive power, authority and discretion to: (a) Designate Participants; (b) Determine the type or types of Awards to be granted to each Participant; (c) Determine the number of Awards to be granted and the number of shares of Stock to which an Award will relate; (d) Determine the terms and conditions of any Award granted under the Plan, including but not limited to, the exercise price, grant price, or purchase price, any restrictions or limitations on the Award, any schedule for lapse of forfeiture restrictions or restrictions on the exercisability of an Award, and accelerations or waivers thereof, based in each case on such considerations as the Committee in its sole discretion determines; (e) Accelerate the vesting or lapse of restrictions of any outstanding Award, based in each case on such considerations as the Committee in its sole discretion determines; (f) Determine whether, to what extent, and under what circumstances an Award may be settled in, or the exercise price of an Award may be paid in, cash, Stock, other Awards, or other property, or an Award may be canceled, forfeited, or surrendered; -5- 6 (g) Prescribe the form of each Award Agreement, which need not be identical for each Participant; (h) Decide all other matters that must be determined in connection with an Award; (i) Establish, adopt or revise any rules and regulations as it may deem necessary or advisable to administer the Plan; (j) Make all other decisions and determinations that may be required under the Plan or as the Committee deems necessary or advisable to administer the Plan; and (k) Amend the Plan or any Award Agreement as provided in Article 15. 4.4. DECISIONS BINDING. The Committee's interpretation of the Plan, any Awards granted under the Plan, any Award Agreement and all decisions and determinations by the Committee with respect to the Plan are final, binding, and conclusive on all parties. ARTICLE 5 SHARES SUBJECT TO THE PLAN 5.1. NUMBER OF SHARES. Subject to adjustment as provided in Section 14.1, the aggregate number of shares of Stock reserved and available for Awards or which may be used to provide a basis of measurement for or to determine the value of an Award (such as with a Stock Appreciation Right or Performance Share Award) shall be eight thousand (8,000), of which not more than 10% may be granted as Awards of Restricted Stock or unrestricted Stock Awards. 5.2. LAPSED AWARDS. To the extent that an Award is canceled, terminates, expires or lapses for any reason, any shares of Stock subject to the Award will again be available for the grant of an Award under the Plan and shares subject to SARs or other Awards settled in cash will be available for the grant of an Award under the Plan. 5.3. STOCK DISTRIBUTED. Any Stock distributed pursuant to an Award may consist, in whole or in part, of authorized and unissued Stock, treasury Stock or Stock purchased on the open market. 5.4. LIMITATION ON AWARDS. Notwithstanding any provision in the Plan to the contrary, the maximum number of shares of Stock with respect to one or more Options and/or SARs that may be granted during any one calendar year under the Plan to any one Participant shall be 8000. The maximum fair market value (measured as of the date of grant) of any Awards other than Options and SARs that may be received by any one Participant (less any consideration paid by the Participant for such Award) during any one calendar year under the Plan shall be $1,000,000. -6- 7 ARTICLE 6 ELIGIBILITY 6.1. GENERAL. Awards may be granted only to individuals who are employees or officers of the Company, Parent or a Subsidiary, as determined by the Committee. ARTICLE 7 STOCK OPTIONS 7.1. GENERAL. The Committee is authorized to grant Options to Participants on the following terms and conditions: (a) EXERCISE PRICE. The exercise price per share of Stock under an Option shall be determined by the Committee. (b) TIME AND CONDITIONS OF EXERCISE. The Committee shall determine the time or times at which an Option may be exercised in whole or in part. The Committee also shall determine the performance or other conditions, if any, that must be satisfied before all or part of an Option may be exercised. The Committee may waive any exercise provisions at any time in whole or in part based on factors as the Committee may determine in its sole discretion so that the Option becomes exercisable at an earlier date. (c) PAYMENT. The Committee shall determine the methods by which the exercise price of an Option may be paid, the form of payment, including, without limitation, cash, shares of Stock, or other property (including "cashless exercise" arrangements), and the methods by which shares of Stock shall be delivered or deemed to be delivered to Participants; provided, however, that if shares of Stock are used to pay the exercise price of an Option, such shares must have been held by the Participant for at least six months. (d) EVIDENCE OF GRANT. All Options shall be evidenced by a written Award Agreement between the Company and the Participant. The Award Agreement shall include such provisions as may be specified by the Committee. 7.2. INCENTIVE STOCK OPTIONS. The terms of any Incentive Stock Options granted under the Plan must comply with the following additional rules: (a) EXERCISE PRICE. The exercise price per share of Stock shall be set by the Committee, provided that the exercise price for any Incentive Stock Option shall not be less than the Fair Market Value as of the date of the grant. (b) EXERCISE. In no event may any Incentive Stock Option be exercisable for more than ten years from the date of its grant. -7- 8 (c) LAPSE OF OPTION. An Incentive Stock Option shall lapse under the earliest of the following circumstances; provided, however, that the Committee may, prior to the lapse of the Incentive Stock Option under the circumstances described in paragraphs (3), (4) and (5) below, provide in writing that the Option will extend until a later date, but if the Option is exercised after the dates specified in paragraphs (3) or (4) and (5) below, it will automatically become a Non-Qualified Stock Option: (1) The Incentive Stock Option shall lapse as of the option expiration date set forth in the Award Agreement. (2) The Incentive Stock Option shall lapse ten years after it is granted, unless an earlier time is set in the Award Agreement. (3) If the Participant terminates employment for any reason other than as provided in paragraph (4) or (5) below, the Incentive Stock Option shall lapse, unless it is previously exercised, three months after the Participant's termination of employment; provided, however, that if the Participant's employment is terminated by the Company for Cause or by the Participant without the consent of the Company, the Incentive Stock Option shall (to the extent not previously exercised) lapse immediately. (4) If the Participant terminates employment by reason of his Disability, the Incentive Stock Option shall lapse, unless it is previously exercised, one year after the Participant's termination of employment. (5) If the Participant dies while employed, or during the three-month period described in paragraph (3) or during the one-year period described in paragraph (4) and before the Option otherwise lapses, the Option shall lapse one year after the Participant's death. Upon the Participant's death, any exercisable Incentive Stock Options may be exercised by the Participant's beneficiary, determined in accordance with Section 13.6. Unless the exercisability of the Incentive Stock Option is accelerated as provided in Article 13, if a Participant exercises an Option after termination of employment, the Option may be exercised only with respect to the shares that were otherwise vested on the Participant's termination of employment. (d) INDIVIDUAL DOLLAR LIMITATION. The aggregate Fair Market Value (determined as of the time an Award is made) of all shares of Stock with respect to which Incentive Stock Options are first exercisable by a Participant in any calendar year may not exceed $100,000.00. (e) TEN PERCENT OWNERS. No Incentive Stock Option shall be granted to any individual who, at the date of grant, owns stock possessing more than -8- 9 ten percent of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary unless the exercise price per share of such Option is at least 110% of the Fair Market Value per share of Stock at the date of grant and the Option expires no later than five years after the date of grant. (f) EXPIRATION OF INCENTIVE STOCK OPTIONS. No Award of an Incentive Stock Option may be made pursuant to the Plan after the day immediately prior to the tenth anniversary of the Effective Date. (g) RIGHT TO EXERCISE. During a Participant's lifetime, an Incentive Stock Option may be exercised only by the Participant or, in the case of the Participant's Disability, by the Participant's guardian or legal representative. ARTICLE 8 STOCK APPRECIATION RIGHTS 8.1. GRANT OF SARs. The Committee is authorized to grant SARs to Participants on the following terms and conditions: (a) RIGHT TO PAYMENT. Upon the exercise of a Stock Appreciation Right, the Participant to whom it is granted has the right to receive the excess, if any, of: (1) The Fair Market Value of one share of Stock on the date of exercise; over (2) The grant price of the Stock Appreciation Right as determined by the Committee, which shall not be less than the Fair Market Value of one share of Stock on the date of grant in the case of any SAR related to an Incentive Stock Option. (b) OTHER TERMS. All awards of Stock Appreciation Rights shall be evidenced by an Award Agreement. The terms, methods of exercise, methods of settlement, form of consideration payable in settlement, and any other terms and conditions of any Stock Appreciation Right shall be determined by the Committee at the time of the grant of the Award and shall be reflected in the Award Agreement. ARTICLE 9 PERFORMANCE SHARES 9.1. GRANT OF PERFORMANCE SHARES. The Committee is authorized to grant Performance Shares to Participants on such terms and conditions as may be selected by the Committee. The Committee shall have the complete discretion to determine the number of -9- 10 Performance Shares granted to each Participant. All Awards of Performance Shares shall be evidenced by an Award Agreement. 9.2. RIGHT TO PAYMENT. A grant of Performance Shares gives the Participant rights, valued as determined by the Committee, and payable to, or exercisable by, the Participant to whom the Performance Shares are granted, in whole or in part, as the Committee shall establish at grant or thereafter. The Committee shall set performance goals and other terms or conditions to payment of the Performance Shares in its discretion which, depending on the extent to which they are met, will determine the number and value of Performance Shares that will be paid to the Participant. 9.3. OTHER TERMS. Performance Shares may be payable in cash, Stock, or other property, and have such other terms and conditions as determined by the Committee and reflected in the Award Agreement. ARTICLE 10 RESTRICTED STOCK AWARDS 10.1. GRANT OF RESTRICTED STOCK. The Committee is authorized to make Awards of Restricted Stock to Participants in such amounts and subject to such terms and conditions as may be selected by the Committee. All Awards of Restricted Stock shall be evidenced by a Restricted Stock Award Agreement. 10.2. ISSUANCE AND RESTRICTIONS. Restricted Stock shall be subject to such restrictions on transferability and other restrictions as the Committee may impose (including, without limitation, limitations on the right to vote Restricted Stock or the right to receive dividends on the Restricted Stock). These restrictions may lapse separately or in combination at such times, under such circumstances, in such installments, upon the satisfaction of performance goals or otherwise, as the Committee determines at the time of the grant of the Award or thereafter. 10.3. FORFEITURE. Except as otherwise determined by the Committee at the time of the grant of the Award or thereafter, upon termination of employment during the applicable restriction period or upon failure to satisfy a performance goal during the applicable restriction period, Restricted Stock that is at that time subject to restrictions shall be forfeited and reacquired by the Company; provided, however, that the Committee may provide in any Award Agreement that restrictions or forfeiture conditions relating to Restricted Stock will be waived in whole or in part in the event of terminations resulting from specified causes, and the Committee may in other cases waive in whole or in part restrictions or forfeiture conditions relating to Restricted Stock. 10.4. CERTIFICATES FOR RESTRICTED STOCK. Restricted Stock granted under the Plan may be evidenced in such manner as the Committee shall determine. If certificates representing shares of Restricted Stock are registered in the name of the -10- 11 Participant, certificates must bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Restricted Stock. ARTICLE 11 DIVIDEND EQUIVALENTS 11.1. GRANT OF DIVIDEND EQUIVALENTS. The Committee is authorized to grant Dividend Equivalents to Participants subject to such terms and conditions as may be selected by the Committee. Dividend Equivalents shall entitle the Participant to receive payments equal to dividends with respect to all or a portion of the number of shares of Stock subject to an Option Award or SAR Award, as determined by the Committee. The Committee may provide that Dividend Equivalents be paid or distributed when accrued or be deemed to have been reinvested in additional shares of Stock, or otherwise reinvested. ARTICLE 12 OTHER STOCK-BASED AWARDS 12.1. GRANT OF OTHER STOCK-BASED AWARDS. The Committee is authorized, subject to limitations under applicable law, to grant to Participants such other Awards that are payable in, valued in whole or in part by reference to, or otherwise based on or related to shares of Stock, as deemed by the Committee to be consistent with the purposes of the Plan, including without limitation shares of Stock awarded purely as a "bonus" and not subject to any restrictions or conditions, convertible or exchangeable debt securities, other rights convertible or exchangeable into shares of Stock, and Awards valued by reference to book value of shares of Stock or the value of securities of or the performance of specified Parents or Subsidiaries. The Committee shall determine the terms and conditions of such Awards. ARTICLE 13 PROVISIONS APPLICABLE TO AWARDS 13.1. STAND-ALONE, TANDEM, AND SUBSTITUTE AWARDS. Awards granted under the Plan may, in the discretion of the Committee, be granted either alone or in addition to, in tandem with, or in substitution for, any other Award granted under the Plan. If an Award is granted in substitution for another Award, the Committee may require the surrender of such other Award in consideration of the grant of the new Award. Awards granted in addition to or in tandem with other Awards may be granted either at the same time as or at a different time from the grant of such other Awards. 13.2. EXCHANGE PROVISIONS. The Committee may at any time offer to exchange or buy out any previously granted Award for a payment in cash, Stock, or another Award (subject to Section 14.1), based on the terms and conditions the Committee determines and communicates to the Participant at the time the offer is made. -11- 12 13.3. TERM OF AWARD. The term of each Award shall be for the period as determined by the Committee, provided that in no event shall the term of any Incentive Stock Option or a Stock Appreciation Right granted in tandem with the Incentive Stock Option exceed a period of ten years from the date of its grant (or, if Section 7.2(e) applies, five years from the date of its grant). 13.4. FORM OF PAYMENT FOR AWARDS. Subject to the terms of the Plan and any applicable law or Award Agreement, payments or transfers to be made by the Company or a Parent or Subsidiary on the grant or exercise of an Award may be made in such form as the Committee determines at or after the time of grant, including without limitation, cash, Stock, other Awards, or other property, or any combination, and may be made in a single payment or transfer, in installments, or on a deferred basis, in each case determined in accordance with rules adopted by, and at the discretion of, the Committee. 13.5. LIMITS ON TRANSFER. No right or interest of a Participant in any unexercised or restricted Award may be pledged, encumbered, or hypothecated to or in favor of any party other than the Company or a Parent or Subsidiary, or shall be subject to any lien, obligation, or liability of such Participant to any other party other than the Company or a Parent or Subsidiary. No Award shall be assignable or transferable by a Participant other than by will or the laws of descent and distribution or, except in the case of an Incentive Stock Option, pursuant to a domestic relations order that would satisfy Section 414(p)(1)(A) of the Code if such Section applied to an Award under the Plan; provided however, that the Committee may (but need not) permit other transfers where the Committee concludes that such transferability (i) does not result in accelerated taxation, (ii) does not cause any Option intended to be an incentive stock option to fail to be described in Code Section 422(b), and (iii) is otherwise appropriate and desirable, taking into account factors deemed relevant, including without limitation, any state or federal tax or securities laws applicable to transferable Awards. 13.6. BENEFICIARIES. Notwithstanding Section 13.5, a Participant may, in the manner determined by the Committee, designate a beneficiary to exercise the rights of the Participant and to receive any distribution with respect to any Award upon the Participant's death. A beneficiary, legal guardian, legal representative, or other person claiming any rights under the Plan is subject to all terms and conditions of the Plan and any Award Agreement applicable to the Participant, except to the extent the Plan and Award Agreement otherwise provide, and to any additional restrictions deemed necessary or appropriate by the Committee. If no beneficiary has been designated or survives the Participant, payment shall be made to the Participant's estate. Subject to the foregoing, a beneficiary designation may be changed or revoked by a Participant at any time provided the change or revocation is filed with the Committee. 13.7. STOCK CERTIFICATES. All Stock certificates delivered under the Plan are subject to any stop-transfer orders and other restrictions as the Committee deems necessary or advisable to comply with federal or state securities laws, rules and regulations and the rules of any national securities exchange or automated quotation system on which the Stock is listed, quoted, or traded. The Committee may place legends on any Stock certificate to reference -12- 13 restrictions applicable to the Stock. The Committee may, as a condition precedent to the issuance of any certificate evidencing Stock, require the Participant to execute a shareholder voting, or similar agreement if all other shareholders of the Company have at that time either executed or been asked to execute such an agreement. 13.8. ACCELERATION UPON A CHANGE IN CONTROL. If a Change in Control occurs, all outstanding Options, Stock Appreciation Rights, and other Awards in the nature of rights that may be exercised shall become fully exercisable and all restrictions on outstanding Awards shall lapse; provided however, that such acceleration will not occur if, in the opinion of the Company's accountants, such acceleration would preclude the use of "pooling of interest" accounting treatment for a Change in Control transaction that (a) would otherwise qualify for such accounting treatment, and (b) is contingent upon qualifying for such accounting treatment. To the extent that this provision causes Incentive Stock Options to exceed the dollar limitation set forth in Section 7.2(d), the excess Options shall be deemed to be Non-Qualified Stock Options. 13.9. ACCELERATION UPON CERTAIN EVENTS NOT CONSTITUTING A CHANGE IN CONTROL. In the event of the occurrence of any circumstance, transaction or event not constituting a Change in Control (as defined in Section 3.1) but which the Board of Directors deems to be, or to be reasonably likely to lead to, an effective change in control of the Company of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of the 1934 Act, the Committee may in its sole discretion declare all outstanding Options, Stock Appreciation Rights, and other Awards in the nature of rights that may be exercised to be fully exercisable, and/or all restrictions on all outstanding Awards to have lapsed, in each case as of such date as the Committee may, in its sole discretion, declare, which may be on or before the consummation of such transaction or event. To the extent that this provision causes Incentive Stock Options to exceed the dollar limitation set forth in Section 7.2(d), the excess Options shall be deemed to be Non-Qualified Stock Options. 13.10. ACCELERATION FOR ANY OTHER REASON. Regardless of whether an event has occurred as described in Section 13.8 or 13.9 above, the Committee may in its sole discretion at any time determine that all or a portion of a Participant's Options, Stock Appreciation Rights, and other Awards in the nature of rights that may be exercised shall become fully or partially exercisable, and/or that all or a part of the restrictions on all or a portion of the outstanding Awards shall lapse, in each case as of such date as the Committee may, in its sole discretion, declare. The Committee may discriminate among Participants and among Awards granted to a Participant in exercising its discretion pursuant to this Section 13.10. 13.11. EFFECT OF ACCELERATION. If an Award is accelerated under Section 13.8 or 13.9, the Committee may, in its sole discretion, provide (i) that the Award will expire after a designated period of time after such acceleration to the extent not then exercised, (ii) that the Award will be settled in cash rather than Stock, (iii) that the Award will be assumed by another party to the transaction giving rise to the acceleration or otherwise be equitably converted in connection with such transaction, or (iv) any combination of the foregoing. The -13- 14 Committee's determination need not be uniform and may be different for different Participants whether or not such Participants are similarly situated. 13.12. PERFORMANCE GOALS. The Committee may determine that any Award granted pursuant to this Plan to a Participant (including, but not limited to, Participants who are Covered Employees) shall be determined solely on the basis of (a) the achievement by the Company or a Parent or Subsidiary of a specified target return, or target growth in return, on equity or assets, (b) the Company's or Parent's or Subsidiary's stock price, (c) the achievement by a business unit of the Company or a Parent or Subsidiary of a specified target, or target growth in, net income or earnings per share, or (d) any combination of the goals set forth in (a) through (c) above. Furthermore, the Committee reserves the right for any reason to reduce (but not increase) any Award, notwithstanding the achievement of a specified goal. If an Award is made on such basis, the Committee shall establish goals prior to the beginning of the period for which such performance goal relates (or such later date as may be permitted under Code Section 162(m) or the regulations thereunder). Any payment of an Award granted with performance goals shall be conditioned on the written certification of the Committee in each case that the performance goals and any other material conditions were satisfied. 13.13. TERMINATION OF EMPLOYMENT. Whether military, government or other service or other leave of absence shall constitute a termination of employment shall be determined in each case by the Committee at its discretion, and any determination by the Committee shall be final and conclusive. A termination of employment shall not occur in a circumstance in which a Participant transfers from the Company to one of its Subsidiaries, transfers from a Parent or Subsidiary to the Company, or transfers from one Parent or Subsidiary to another Parent or Subsidiary. ARTICLE 14 CHANGES IN CAPITAL STRUCTURE 14.1. GENERAL. In the event a stock dividend is declared upon the Stock, the shares of Stock then subject to each Award shall be increased proportionately without any change in the aggregate purchase price therefor. In the event the Stock shall be changed into or exchanged for a different number or class of shares of stock or securities of the Company or of another corporation, whether through reorganization, recapitalization, reclassification, stock split-up, combination of shares, merger or consolidation, there shall be substituted for each such share of Stock then subject to each Award the number and class of shares into which each outstanding share of Stock shall be so exchanged, all without any change in the aggregate purchase price for the shares then subject to each Award. ARTICLE 15 AMENDMENT, MODIFICATION AND TERMINATION 15.1. AMENDMENT, MODIFICATION AND TERMINATION OF THE PLAN. The Board or the Committee may, at any time and from time to time, amend, modify or -14- 15 terminate the Plan without stockholder approval; provided, however, that the Board or Committee may condition any amendment or modification on the approval of stockholders of the Company if such approval is necessary or deemed advisable with respect to tax, securities or other applicable laws, policies or regulations. 15.2. AWARDS PREVIOUSLY GRANTED. At any time and from time to time, the Committee may amend, modify or terminate any outstanding Award without approval of the Participant; provided, however, that, subject to the terms of the applicable Award Agreement, such amendment, modification or termination shall not, without the Participant's consent, reduce or diminish the value of such Award determined as if the Award had been exercised, vested, cashed in or otherwise settled on the date of such amendment or termination. ARTICLE 16 GENERAL PROVISIONS 16.1. NO RIGHTS TO AWARDS. No Participant or any employee or officer shall have any claim to be granted any Award under the Plan, and neither the Company nor the Committee is obligated to treat Participants or employees and officers uniformly. 16.2. NO STOCKHOLDER RIGHTS. No Award gives the Participant any of the rights of a stockholder of the Company unless and until shares of Stock are in fact issued to such person in connection with such Award. 16.3. WITHHOLDING. The Company or any Parent or Subsidiary shall have the authority and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy federal, state, and local taxes (including the Participant's FICA obligation) required by law to be withheld with respect to any taxable event arising as a result of the Plan. With respect to withholding required upon any taxable event under the Plan, the Committee may, at the time the Award is granted or thereafter, require that any such withholding requirement be satisfied, in whole or in part, by withholding shares of Stock having a Fair Market Value on the date of withholding equal to the amount to be withheld for tax purposes, all in accordance with such procedures as the Committee establishes. 16.4. NO RIGHT TO EMPLOYMENT. Nothing in the Plan or any Award Agreement shall interfere with or limit in any way the right of the Company or any Parent or Subsidiary to terminate any Participant's employment at any time, nor confer upon any Participant any right to continue in the employ of the Company or any Parent or Subsidiary. 16.5. UNFUNDED STATUS OF AWARDS. The Plan is intended to be an "unfunded" plan for incentive and deferred compensation. With respect to any payments not yet made to a Participant pursuant to an Award, nothing contained in the Plan or any Award Agreement shall give the Participant any rights that are greater than those of a general creditor of the Company or any Parent or Subsidiary. -15- 16 16.6. INDEMNIFICATION. To the extent allowable under applicable law, each member of the Committee shall be indemnified and held harmless by the Company from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by such member in connection with or resulting from any claim, action, suit, or proceeding to which such member may be a party or in which he may be involved by reason of any action or failure to act under the Plan and against and from any and all amounts paid by such member in satisfaction of judgment in such action, suit, or proceeding against him provided he gives the Company an opportunity, at its own expense, to handle and defend the same before he undertakes to handle and defend it on his own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the Company's Articles of Incorporation or Bylaws, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless. 16.7. RELATIONSHIP TO OTHER BENEFITS. No payment under the Plan shall be taken into account in determining any benefits under any pension, retirement, savings, profit sharing, group insurance, welfare or benefit plan of the Company or any Parent or Subsidiary unless provided otherwise in such other plan. 16.8. EXPENSES. The expenses of administering the Plan shall be borne by the Company and its Parents or Subsidiaries. 16.9. TITLES AND HEADINGS. The titles and headings of the Sections in the Plan are for convenience of reference only, and in the event of any conflict, the text of the Plan, rather than such titles or headings, shall control. 16.10. GENDER AND NUMBER. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine; the plural shall include the singular and the singular shall include the plural. 16.11. FRACTIONAL SHARES. No fractional shares of Stock shall be issued and the Committee shall determine, in its discretion, whether cash shall be given in lieu of fractional shares or whether such fractional shares shall be eliminated by rounding up. 16.12. GOVERNMENT AND OTHER REGULATIONS. The obligation of the Company to make payment of awards in Stock or otherwise shall be subject to all applicable laws, rules, and regulations, and to such approvals by government agencies as may be required. The Company shall be under no obligation to register under the 1933 Act, or any state securities act, any of the shares of Stock paid under the Plan. The shares paid under the Plan may in certain circumstances be exempt from registration under the 1933 Act, and the Company may restrict the transfer of such shares in such manner as it deems advisable to ensure the availability of any such exemption. 16.13. GOVERNING LAW. To the extent not governed by federal law, the Plan and all Award Agreements shall be construed in accordance with and governed by the laws of the State of Georgia. -16- 17 16.14. ADDITIONAL PROVISIONS. Each Award Agreement may contain such other terms and conditions as the Committee may determine; provided that such other terms and conditions are not inconsistent with the provisions of this Plan. 16.15 CODE SECTION 162(m). The deduction limits of Code Section 162(m) and the regulation thereunder do not apply to the Company until such time, if any, as any class of the Company's common equity securities is registered under Section 12 of the 1934 Act or the Corporation otherwise meets the definition of a "publicly held corporation" under Treasury Regulation 1.162-27(c) or any successor provision. Upon becoming a publicly held corporation, the deduction limits of Code Section 162(m) and the regulations thereunder shall not apply to compensation payable under this Plan until the expiration of the reliance period described in Treasury Regulation 1.162-27(f) or any successor regulation. The foregoing is hereby acknowledged as being the SIMCALA Holdings, Inc. 1998 Stock Incentive Plan as adopted by the Board of Directors of the Company on March 31, 1998. SIMCALA Holdings, Inc. By: /s/ William A. Davies ------------------------------------ Name: ---------------------------------- Title: --------------------------------- -17- EX-99.3 39 FORM OF LETTER OF TRANSMITTAL 1 EXHIBIT 99.3 SIMCALA, INC. LETTER OF TRANSMITTAL TO TENDER FOR EXCHANGE 9 5/8% SENIOR NOTES DUE 2006, SERIES B WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 FOR ANY AND ALL OUTSTANDING 9 5/8% SENIOR NOTES DUE 2006, SERIES A PURSUANT TO THE PROSPECTUS DATED _________, 1998 - ------------------------------------------------------------------------------- THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., EASTERN TIME, ,1998, UNLESS EXTENDED (THE "EXPIRATION DATE"). - ------------------------------------------------------------------------------- PLEASE READ CAREFULLY THE ATTACHED INSTRUCTIONS If you desire to accept the Exchange Offer, this Letter of Transmittal should be completed, signed, and submitted timely to the Exchange Agent: TO: IBJ SCHRODER BANK & TRUST COMPANY, EXCHANGE AGENT By Hand or Overnight Delivery: ------------------------------ IBJ Schroder Bank & Trust Company One State Street New York, New York 10004 Attn: Securities Processing Window, Subcellar One (SC-1) By Registered or Certified Mail: -------------------------------- IBJ Schroder Bank & Trust Company P.O. Box 84 Bowling Green Station New York, New York 10274-0084 Attn: Reorganization Operations Department By Facsimile Transmission (Eligible Institutions Only): ----------------------------- (212) 858-2611 To Confirm by Telephone or for Information, Call: ------------------------- (212) 858-2103 DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. FOR ANY QUESTIONS REGARDING THIS LETTER OF TRANSMITTAL OR FOR ANY ADDITIONAL INFORMATION, YOU MAY CONTACT THE EXCHANGE AGENT BY TELEPHONE AT (212) 858-2103. 2 The undersigned hereby acknowledges receipt of the Prospectus dated ___________, 1998 (the "Prospectus") of SIMCALA, Inc., a Delaware corporation (the "Company"), and this Letter of Transmittal (the "Letter of Transmittal"), that together constitute the Company's offer (the "Exchange Offer") to exchange $1,000 in principal amount of its 9 5/8% Senior Notes due 2006, Series B (the "Exchange Notes"), which have been registered under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to an effective Registration Statement filed with the Securities and Exchange Commission ("SEC"), for each $1,000 in principal amount of its outstanding 9 5/8% Senior Notes due 2006, Series A (the "Series A Notes," and together with the Exchange Notes, the "Notes"), of which $75,000,000 aggregate principal amount is outstanding. Capitalized terms used but not defined herein have the meanings ascribed to them in the Prospectus. The undersigned hereby tenders the Series A Notes described in Box 1 below (the "Tendered Notes") upon the terms, and subject to the conditions, described in the Prospectus and this Letter of Transmittal. The undersigned is the registered owner of all the Tendered Notes, and the undersigned represents that it has received from each beneficial owner of the Tendered Notes ("Beneficial Owners") a duly completed and executed form of "Instruction to Registered Holder and/or Book-Entry Transfer Facility Participant from Owner" accompanying this Letter of Transmittal, instructing the undersigned to take the action described in this Letter of Transmittal. This Letter of Transmittal is to be completed either if (a) certificates are to be forwarded herewith or (b) tenders are to be made pursuant to the procedures for tender by book-entry transfer set forth under "The Exchange Offer - Procedures for Tendering" in the Prospectus and an Agent's Message (as defined below) is not delivered. Certificates, or book-entry confirmation of a book-entry transfer of such Series A Notes into the Exchange Agent's Account at The Depository Trust Company ("DTC"), as well as this Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, with any required signature guarantees, and any other documents required by this Letter of Transmittal, must be received by the Exchange Agent at its address set forth herein on or prior to the Expiration Date. Tenders by book-entry transfer may also be made by delivering an Agent's Message in lieu of this Letter of Transmittal. The term "Agent's Message" means a message, transmitted by DTC to and received by the Exchange Agent and forming a part of a book-entry confirmation, which states that DTC has received an express acknowledgment from the tendering participant, which acknowledgment states that such participant has received and agrees to be bound by this Letter of Transmittal and that the Company may enforce this Letter of Transmittal against such participant. Holders (as defined below) of Series A Notes whose certificates (the "Certificates") for such Series A Notes are not immediately available or who cannot deliver their Certificates and all other required documents to the Exchange Agent on or prior to the Expiration Date (as defined in the Prospectus) or who cannot complete the procedures for book-entry transfer on a timely basis, must tender their Series A Notes according to the guaranteed delivery procedures set forth in "The Exchange Offer Procedures for Tendering" in the Prospectus. Delivery of the documents to the book-entry transfer facility does not constitute delivery to the Exchange Agent. Subject to, and effective upon, the acceptance for exchange by the Company of the Tendered Notes, the undersigned hereby exchanges, assigns, transfers and conveys to, or upon the order of, the Company, all right, title, and interest in, to and under the Tendered Notes. -2- 3 Please issue the Exchange Notes in exchange for Tendered Notes in the name(s) of the undersigned. Similarly, unless otherwise indicated under "Special Delivery Instructions" below (Box 3), please send or cause to be sent the Certificate(s) for the Exchange Notes (and accompanying documents, as appropriate) to the undersigned at the address shown below in Box 1. The undersigned hereby irrevocably constitutes and appoints the Exchange Agent as the true and lawful agent and attorney in fact of the undersigned with respect to the Tendered Notes, with full power of substitution (such power of attorney being an irrevocable power coupled with an interest), to (i) deliver the Tendered Notes to the Company or cause ownership of the Tendered Notes to be transferred to, or upon the order of, the Company, on the books of the transfer agent and registrar for the Series A Notes and deliver all accompanying evidences of transfer and authenticity to, or upon the order of, the Company upon receipt by the Exchange Agent, as the undersigned's agent, of the Exchange Notes to which the undersigned is entitled upon acceptance by the Company of the Tendered Notes pursuant to the Exchange Offer, and (ii) receive as agent of the Company all benefits and otherwise exercise all rights of beneficial ownership of the Tendered Notes, all in accordance with the terms of the Exchange Offer. The undersigned understands that tenders of Series A Notes pursuant to the procedures described under the caption "The Exchange Offer" in the Prospectus and in the instructions hereto will constitute a binding agreement between the undersigned and the Company upon the terms and subject to the conditions of the Exchange Offer, subject only to withdrawal of such tenders on the terms set forth in the Prospectus under the caption "The Exchange Offer - Withdrawals of Tenders." All authority herein conferred or agreed to be conferred shall survive the death or incapacity of the undersigned and any Beneficial Owner(s), and every representation, warranty, covenant and obligation of the undersigned or any Beneficial Owner(s) hereunder shall be binding upon the heirs, representatives, successors and assigns of the undersigned and such Beneficial Owner(s). The undersigned hereby represents and warrants that the undersigned has full power, authority and capacity to tender, exchange, assign and transfer the Tendered Notes and that the Company will acquire good and unencumbered title to the Tendered Notes free and clear of all liens, pledges, restrictions, charges, encumbrances, and adverse claims of any kind whatsoever. The undersigned and each Beneficial Owner will, upon receipt, execute and deliver any additional documents or instruments reasonably requested by the Company or the Exchange Agent as necessary or desirable to complete and give effect to the transactions contemplated hereby. The undersigned hereby represents and warrants that the information set forth in Box 2 is true and correct. By accepting the Exchange Offer, the undersigned hereby further represents and warrants that (i) the Exchange Notes to be acquired by the undersigned and any Beneficial Owner(s) in connection with the Exchange Offer are being acquired by the undersigned and any Beneficial Owner(s) in the ordinary course of business of the undersigned and any Beneficial Owner(s), (ii) neither the undersigned nor any Beneficial Owner on behalf of which the undersigned is acting has any arrangement or understanding with any person to participate in the distribution of such Exchange Notes, and/or any intention to participate in any distribution of the Exchange Notes, (iii) neither the undersigned nor any Beneficial Owner is an "affiliate" (as defined in Rule 405 under the Securities Act) of the Company, and (iv) the undersigned and each such Beneficial Owner acknowledge and agree that (x) any person with the intention of distributing the Exchange Notes is not eligible to participate in the Exchange Offer and, in the event any such person holds -3- 4 Exchange Notes, such person must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale of the Exchange Notes acquired by such person and cannot rely on the position of the Staff of the SEC set forth in the no-action letters that are discussed in the section of the Prospectus entitled "The Exchange Offer," and (y) any such secondary resale transaction should be covered by an effective registration statement containing the information with respect to the selling security holders required by Item 507 of Regulation S-K under the Securities Act. In addition, by accepting the Exchange Offer, the undersigned hereby (i) represents and warrants that, if the undersigned or any Beneficial Owner of the Series A Notes is a broker-dealer, such broker-dealer holds the Series A Notes for its own account as a result of market-making activities or other trading activities and (ii) acknowledges that, by receiving Exchange Notes for its own account in exchange for Series A Notes, where such Series A Notes were acquired as a result of market-making activities or other trading activities, such broker-dealer may be a statutory underwriter and will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such Exchange Notes. By so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. ANY HOLDER WHO IS PROHIBITED BY APPLICABLE LAW OR SEC POLICY FROM PARTICIPATING IN THE EXCHANGE OFFER, INCLUDING ANY HOLDER WHO IS AN AFFILIATE OF THE COMPANY OR A BROKER-DEALER WHO HOLDS SERIES A NOTES ACQUIRED DIRECTLY FROM THE COMPANY OR ONE OF ITS AFFILIATES, AND ANY PERSON WHO INTENDS TO, OR IS PARTICIPATING IN, OR HAS ANY ARRANGEMENT OR UNDERSTANDING TO PARTICIPATE IN, A DISTRIBUTION OF THE EXCHANGE NOTES, SHOULD CONTACT THE COMPANY WITHIN 20 BUSINESS DAYS OF THE EXCHANGE OFFER IN ORDER TO PRESERVE ITS REGISTRATION RIGHTS THAT ARE DISCUSSED IN THE SECTION OF THE PROSPECTUS ENTITLED "THE EXCHANGE OFFER - - REGISTRATION RIGHTS AND EFFECT OF EXCHANGE OFFER." [ ] CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED HEREWITH. [ ] CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY DELIVERED TO THE EXCHANGE AGENT AND COMPLETE "USE OF GUARANTEED DELIVERY" BELOW (Box 4). [ ] CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE "USE OF BOOK-ENTRY TRANSFER" BELOW (Box 5). -4- 5 - ------------------------------------------------------------------------------- PAYOR'S NAME: SIMCALA, INC.* - ------------------------------------------------------------------------------- Name (if joint names, list first and circle the name of the person or entity whose number you enter in Part I below. See instructions if your name has changed.) -------------------------------------------------------- Address -------------------------------------------------------- SUBSTITUTE City, State and ZIP Code -------------------------------------------------------- Form W-9 List account number(s) here (optional) -------------------------------------------------------- Department of the PART 1-PLEASE PROVIDE YOUR Social Security Number Treasury TAXPAYER IDENTIFICATION or TIN Internal Revenue NUMBER ("TIN") IN THE BOX AT Service RIGHT AND CERTIFY BY SIGNING AND DATING BELOW -------------------------------------------------------- PART 2-Check the box if you are NOT subject to backup withholding under the provisions of section 3406(a)(I)(C) of the Internal Revenue Code because (1) you have not been notified that you are subject to backup withholding as a result of failure to report all interest or dividends or (2) the Internal Revenue Service has notified you that you are no longer subject to backup withholding. [ ] - ------------------------------------------------------------------------------- CERTIFICATION-UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT THE INFORMATION PROVIDED ON THIS FORM IS TRUE, CORRECT AND COMPLETE. Awaiting TIN [ ] SIGNATURE DATE , 1998 ------------------------------- ------------------------- - ------------------------------------------------------------------------------- *See Instruction 8.
- ------------------------------------------------------------------------------- Note: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. -5- 6 PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY BEFORE COMPLETING THE BOXES - ------------------------------------------------------------------------------- BOX 1* DESCRIPTION OF NOTES TENDERED** (Attach additional signed pages, if necessary) - -------------------------------------------------------------------------------
Aggregate Principal Name(s) and Address(es) of Registered Note Amount Aggregate Holder(s), exactly as name(s) appear(s) on Note Certificate Represented Principal Certificate(s) Number(s) by Amount (Please fill in, if blank) of Notes Certificate(s) Tendered - ------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------ Total - ------------------------------------------------------------------------------------------------
* Need not be completed by persons tendering by book-entry transfer. ** The minimum permitted tender is $1,000 in principal amount of Series A Notes. All other tenders must be in integral multiples of $1,000 of principal amount. Unless otherwise indicated in this column, the principal amount of all Note Certificates identified in this Box 1 or delivered to the Exchange Agent herewith shall be deemed tendered. See Instruction 4. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- BOX 2 BENEFICIAL OWNER(S) - ------------------------------------------------------------------------------- State of Principal Residence of Each Principal Amount of Tendered Notes Beneficial Owner of Tendered Notes Held for Account of Beneficial Owner - ----------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------------
-6- 7 - ------------------------------------------------------------------------------- BOX 3 SPECIAL DELIVERY INSTRUCTIONS (See Instructions 5, 6 and 7) TO BE COMPLETED ONLY IF EXCHANGE NOTES ARE TO BE EXCHANGED FOR SERIES A NOTES AND UNTENDERED SERIES A NOTES ARE TO BE SENT TO SOMEONE OTHER THAN THE UNDERSIGNED, OR TO THE UNDERSIGNED AT AN ADDRESS OTHER THAN THAT SHOWN ABOVE. Mail Exchange Note(s) and any untendered Series A Notes to: Name(s): - ------------------------------------------------------------------------------- (please print) Address: - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- (Include Zip Code) Tax Identification or Social Security No.: - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- BOX 4 USE OF GUARANTEED DELIVERY (See Instruction 2) TO BE COMPLETED ONLY IF SERIES A NOTES ARE BEING TENDERED BY MEANS OF A NOTICE OF GUARANTEED DELIVERY. Name(s) of Registered Holder(s): - ------------------------------------------------------------------------------- Date of Execution of Notice of Guaranteed Delivery: ---------------------------- Name of Institution which Guaranteed Delivery: --------------------------------- - ------------------------------------------------------------------------------- -7- 8 - ------------------------------------------------------------------------------- BOX 5 USE OF BOOK-ENTRY TRANSFER (See Instruction 1) TO BE COMPLETED ONLY IF DELIVERY OF TENDERED NOTES IS TO BE MADE BY BOOK-ENTRY TRANSFER. Name of Tendering Institution: ------------------------------------------------- Account Number: ---------------------------------------------------------------- Transaction Code Number: ------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- BOX 6 TENDERING HOLDER SIGNATURE (See Instructions 1 and 5) IN ADDITION, SUBSTITUTE FORM W-9 MUST BE COMPLETED AND SIGNED - ------------------------------------------------------------------------------- X Signature Guarantee ------------------------- X (If required by Instruction 5) -------------------------- (Signature of Registered Holder(s) or Authorized Signatory) Authorized Signature Note: The above lines must be signed by the registered holder(s) of Series A Notes or by X person(s) authorized to become registered holder(s) --------------------------------- (evidence of such authorization must be transmitted Name: with this Letter of Transmittal). If signature is ----------------------------- by a trustee, executor, administrator, guardian, (please print) attorney-in-fact, officer, or other person acting in a fiduciary or representative capacity, such person must set forth his or her full title below. See Instruction 5. Title: ---------------------------- Name of Firm: --------------------- Name(s): (Must be an Eligible Institution as -------------------------------------------- defined in Instruction 2) - ---------------------------------------------------- Capacity: Address: ------------------------------------------- -------------------------- -------------------------- Street Address: -------------------------------------- -------------------------- -------------------------------------- Area Code and Telephone Number: (include ZIP code) Area Code and Telephone Number: -------------------------------------------- Tax Identification or Social Security Number: Dated: --------------------------------------------- --------------------------
- ------------------------------------------------------------------------------- -8- 9 - ------------------------------------------------------------------------------- BOX 7 BROKER-DEALER STATUS - ------------------------------------------------------------------------------- [ ] Check this box if the Beneficial Owner of the Series A Notes is a broker-dealer and such broker-dealer acquired the Series A Notes for its own account as a result of market-making activities or other trading activities. - ------------------------------------------------------------------------------- -9- 10 SIMCALA, INC. INSTRUCTIONS TO LETTER OF TRANSMITTAL FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER 1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND SERIES A NOTES. A properly completed and duly executed copy of this Letter of Transmittal, including Substitute Form W-9, and any other documents required by this Letter of Transmittal must be received by the Exchange Agent at its address set forth herein, and either Certificates for Tendered Notes must be received by the Exchange Agent at its address set forth herein or such Tendered Notes must be transferred pursuant to the procedures for book-entry transfer described in the Prospectus under the caption "Exchange Offer - Procedures for Tendering" (and a confirmation of such transfer received by the Exchange Agent), in each case prior to 5:00 P.M., Eastern Time, on the Expiration Date. The method of delivery of Certificates for Tendered Notes, this Letter of Transmittal and all other required documents to the Exchange Agent is at the election and risk of the tendering holder, and the delivery will be deemed made only when actually received by the Exchange Agent. If delivery is by mail, registered mail with return receipt requested, properly insured, is recommended. Instead of delivery by mail, it is recommended that the holder use an overnight or hand delivery service. In all cases, sufficient time should be allowed to assure timely delivery. No Letter of Transmittal or Series A Notes should be sent to the Company. Neither the Company nor the registrar or transfer agent is under any obligation to notify any tendering holder of the Company's acceptance of Tendered Notes prior to the closing of the Exchange Offer. 2. GUARANTEED DELIVERY PROCEDURES. Holders who wish to tender their Series A Notes but whose Series A Notes are not immediately available, and who cannot deliver their Series A Notes, this Letter of Transmittal or any other documents required hereby to the Exchange Agent prior to the Expiration Date must tender their Series A Notes according to the guaranteed delivery procedures set forth below, including completion of Box 4. Pursuant to such procedures: (i) such tender must be made by an "eligible guarantor institution" within the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended, and which is a member of a recognized signature guarantee program (i.e., Securities Transfer Agents Medallion Program, Stock Exchange Medallion Program or New York Stock Exchange Medallion Signature Program) (an "Eligible Institution") and the Notice of Guaranteed Delivery must be signed by the holder; (ii) prior to the Expiration Date, the Exchange Agent must have received from the holder and the Eligible Institution a properly completed and duly executed Notice of Guaranteed Delivery (by mail, hand delivery or facsimile transmission) setting forth the name and address of the holder, the Certificate number(s) of the Tendered Notes and the principal amount of Tendered Notes, stating that the tender is being made thereby and guaranteeing that, within five trading days after the Expiration Date, this Letter of Transmittal together with the Certificate(s) representing the Series A Notes and any other required documents will be deposited by the Eligible Institution with the Exchange Agent; and (iii) such properly completed and executed Letter of Transmittal, as well as all other documents required by this Letter of Transmittal and the Certificate(s) representing all Tendered Notes in proper form for transfer, must be received by the Exchange Agent within three trading days after the Expiration Date. Any holder who wishes to tender Series A Notes pursuant to the guaranteed delivery procedures described above must ensure that the Exchange Agent receives the Notice of Guaranteed Delivery relating to such Series A Notes prior to 5:00 P.M., Eastern Time, on the Expiration Date. -10- 11 3. BENEFICIAL OWNER INSTRUCTIONS TO REGISTERED HOLDERS. Only a holder in whose name Tendered Notes are registered on the books of the registrar (or the legal representative or attorney-in-fact of such registered holder) may execute and deliver this Letter of Transmittal. Any Beneficial Owner of Tendered Notes who is not the registered holder must arrange promptly with the registered holder to execute and deliver this Letter of Transmittal on his or her behalf through the execution and delivery to the registered holder of the "Instructions to Registered Holder and/or Book-Entry Transfer Facility Participant from Owner" form accompanying this Letter of Transmittal. The Company, the Exchange Agent, and the transfer agent and registrar for Series A Notes shall be entitled to rely upon all representations, warranties, covenants and instructions given by such registered holder as have been duly authorized and true with respect to, and binding upon, the Beneficial Owner. 4. PARTIAL TENDERS. Tenders of Series A Notes will be accepted only in integral multiples of $1,000 in principal amount. If less than the entire principal amount of Series A Notes held by the holder is tendered, the tendering holder should fill in the principal amount tendered in the column labeled "Aggregate Principal Amount Tendered" of the box entitled "Description of Notes Tendered" (Box 1) above. The entire principal amount of Series A Notes delivered to the Exchange Agent will be deemed to have been tendered unless otherwise indicated. If the entire principal amount of all Series A Notes held by the holder is not tendered, then Series A Notes for the principal amount of Series A Notes not tendered and Exchange Notes issued in exchange for any Series A Notes tendered and accepted will be sent to the registered holder at his or her registered address, unless a different address is provided in the appropriate box on this Letter of Transmittal, as soon as practicable following the Expiration Date. 5. SIGNATURES ON THE LETTER OF TRANSMITTAL; BOND POWERS AND ENDORSEMENTS; GUARANTEE OF SIGNATURES. If this Letter of Transmittal is signed by the registered holder(s) of the Tendered Notes, the signature must correspond with the name(s) as written on the face of the Tendered Notes without alteration, enlargement or any change whatsoever. If any of the Tendered Notes are owned of record by two or more joint owners, all such owners must sign this Letter of Transmittal. If any Tendered Notes are held in different names, it will be necessary to complete, sign and submit as many separate copies of the Letter of Transmittal as there are different names in which Tendered Notes are held. If this Letter of Transmittal is signed by the registered holder(s) of Tendered Notes, and Exchange Notes issued in exchange therefor are to be issued (and any untendered principal amount of Series A Notes is to be reissued) in the name of the registered holder(s), then such registered holder(s) need not and should not endorse any Tendered Notes, nor provide a separate bond power. In any other case, such registered holder(s) must either properly endorse the Tendered Notes or transmit a properly completed separate bond power with this Letter of Transmittal, with the signature(s) on the endorsement or bond power guaranteed by an Eligible Institution. If this Letter of Transmittal is signed by a person other than the registered holder(s) of any Tendered Notes, such Tendered Notes must be endorsed or accompanied by appropriate bond powers, in each case, signed as the name(s) of the registered holder(s) appear(s) on the Tendered Notes, with the signature(s) on the endorsement or bond power guaranteed by an Eligible Institution. -11- 12 If this Letter of Transmittal or any Tendered Notes or bond powers are signed by a trustee, executors, administrators, guardians, attorneys-in-fact, officers of corporations, or others acting in a fiduciary or representative capacity, such person should so indicate when signing and, unless waived by the Company, evidence satisfactory to the Company of their authority to so act must be submitted with this Letter of Transmittal. Endorsements on Tendered Notes or signatures on bond powers required by this Instruction 5 must be guaranteed by an Eligible Institution. Signatures on this Letter of Transmittal must be guaranteed by an Eligible Institution unless the Tendered Notes are tendered (i) by a registered holder who has not completed the box set forth herein entitled "Special Delivery Instructions" (Box 3) or (ii) by an Eligible Institution. 6. SPECIAL DELIVERY INSTRUCTIONS. Tendering holders should indicate, in the applicable box (Box 3), the name and address to which the Exchange Notes and/or substitute Series A Notes for principal amounts are tendered or not accepted for exchange, respectively are to be sent, if different from the name and address of the person signing this Letter of Transmittal. In the case of issuance in a different name, the taxpayer identification or social security number of the person named must also be indicated. 7. TRANSFER TAXES. The Company will pay all transfer taxes, if any, applicable to the exchange of Tendered Notes pursuant to the Exchange Offer. If, however, a transfer tax is imposed for any reason other than the transfer and exchange of Tendered Notes pursuant to the Exchange Offer, then the amount of any such transfer taxes (whether imposed on the registered holder or on any other person) will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted with this Letter of Transmittal, the amount of such transfer taxes will be billed directly to such tendering holder. Except as provided in this Instruction 7, it will not be necessary for transfer tax stamps to be affixed to the Tendered Notes listed in this Letter of Transmittal. 8. TAX IDENTIFICATION NUMBER. Federal income tax law requires that the holder(s) of any Tendered Notes which are accepted for exchange must provide the Company (as payor) with its correct taxpayer identification number ("TIN"), which, in the case of a holder who is an individual, is his or her social security number. If the Company is not provided with the correct TIN, the holder may be subject to backup withholding and a $50 penalty imposed by the Internal Revenue Service. (If withholding results in an over-payment of taxes, a refund may be obtained.) Certain holders (including, among others, all corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. See the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for additional instructions. To prevent backup withholding, each holder of Tendered Notes must provide such holder's correct TIN by completing the Substitute Form W-9 set forth herein, certifying that the TIN provided is correct (or that such holder is awaiting a TIN), and that (i) the holder has not been notified by the Internal Revenue Service that such holder is subject to backup withholding as a result of failure to report all interest or dividends or (ii) the Internal Revenue Service has notified the holder that such holder is no longer subject to backup withholding. If the Tendered Notes are registered in more than one name or are not in the name of the actual owner, consult the -12- 13 "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for information on which TIN to report. The Company reserves the right in its sole discretion to take whatever steps are necessary to comply with the Company's obligations regarding backup withholding. 9. VALIDITY OF TENDERS. All questions as to the validity, form, eligibility (including time of receipt), acceptance and withdrawal of Tendered Notes will be determined by the Company in its sole discretion, and whose determination will be final and binding. The Company reserves the right to reject any and all Series A Notes not validly tendered or any Series A Notes the Company's acceptance of which would, in the opinion of the Company or its counsel, be unlawful. The Company also reserves the right to waive any conditions of the Exchange Offer or defects or irregularities in tenders of Series A Notes as to any ineligibility of any holder who seeks to tender Series A Notes in the Exchange Offer. The interpretation of the terms and conditions of the Exchange Offer (including this Letter of Transmittal and the instructions hereto) by the Company shall be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Series A Notes must be cured within such time as the Company shall determine. Neither the Company, the Exchange Agent nor any other person shall be under any duty to give notification of defects or irregularities with respect to tenders of Series A Notes, nor shall any of them incur any liability for failure to give such notification. Tenders of Series A Notes will not be deemed to have been made until such defects or irregularities have been cured or waived. Any Series A Notes received by the Exchange Agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned by the Exchange Agent to the tendering holder, unless otherwise provided in this Letter of Transmittal, as soon as practicable following the Expiration Date. 10. WAIVER OF CONDITIONS. The Company reserves the absolute right to amend, waive or modify any of the conditions in the Exchange Offer in the case of any Tendered Notes. 11. NO CONDITIONAL TENDER. No alternative, conditional, irregular, or contingent tender of Series A Notes or transmittal of this Letter of Transmittal will be accepted. 12. MUTILATED, LOST, STOLEN OR DESTROYED NOTES. Any tendering holder whose Series A Notes have been mutilated, lost, stolen or destroyed should contact the Exchange Agent at the address indicated herein for further instructions. 13. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests for assistance and requests for additional copies of the Prospectus or this Letter of Transmittal may be directed to the Exchange Agent at the address indicated herein. Holders may also contact their broker, dealer, commercial bank, trust company or other nominee for assistance concerning the Exchange Offer. 14. ACCEPTANCE OF TENDERED NOTES AND ISSUANCE OF NOTES; RETURN OF NOTES. Subject to the terms and conditions of the Exchange Offer, the Company will accept for exchange all validly tendered Series A Notes as soon as practicable after the Expiration Date and will issue Exchange Notes therefor as soon as practicable thereafter. For purposes of the Exchange Offer, the Company shall be deemed to have accepted tendered Series A Notes when, as and if the Company has given written or oral notice (immediately followed in writing) thereof to the Exchange Agent. If any Tendered Notes are not exchanged pursuant to the Exchange Offer for any reason, such -13- 14 unexchanged Series A Notes will be returned, without expense, to the undersigned at the address shown in Box 1 or at a different address as may be indicated herein under "Special Delivery Instructions" (Box 3). 15. WITHDRAWAL. Tenders may be withdrawn only pursuant to the procedures set forth in the Prospectus under the caption "The Exchange Offer." -14- 15 IBJ SCHRODER BANK & TRUST COMPANY, EXCHANGE AGENT ONE STATE STREET NEW YORK, NEW YORK 10004 (212) 858-2103 -----END PRIVACY-ENHANCED MESSAGE-----