RES - PBGC Memorandum of Understanding
The following are the key terms of the Agreement (the "Agreement")
between the Pension Benefit Guaranty Corporation ("PBGC") and RES Holding
Corporation ("RES"). The parties agree to be bound by these terms, subject to
definitive documentation.
1. PBGC Obligations
In consideration of RES obligations described in this term sheet. PBGC
will forebear from instituting proceedings to terminate the Republic Engineered
Steels, Inc. ("RESI") USWA Defined Benefit Plan, (the "Plan") (as further
defined below) or any single employer defined benefit pension plan of Bar
Technologies, Inc. ("BarTech") or its affiliates under section 4042(a)(4) of
ERISA as a result of (i) the acquisition of RESI by RES pursuant to a tender
offer (the "Tender Offer") by its wholly owned subsidiary, RES Acquisition
Corporation ("Acquisition") and the subsequent merger of Acquisition with and
into RESI (the "Merger" and, collectively with the Tender Offer, the
"Transaction"), (ii) the subsequent combination ("Combination") of RES and RESI
under a common ultimate parent corporation ("Ultimate Parent") with the
operating assets of BarTech (whether by merger or otherwise), including any
financings or refinancings by RES, RESI, BarTech and/or their affiliates in
connection therewith or resulting therefrom, and/or (iii) the plant closings
and/or discontinuations identified in the confidential memorandum (each, a
"Permitted Closure") as identified in Attachment A.
2. RES Obligations
RES shall cause RESI to comply with the requirements hereof.
3. RESI Obligations
(a) RESI shall make a cash contribution ("Required Contribution") to
the Nubar Plan i.e., the defined benefit pension plan that results from
the replacement or merger of the plan maintained by RESI with the plan
maintained by Nubar as referenced in I. E. 9 of the 1998 Settlement
Agreement between United Steelworkers of America, AFL-CIO and BarTech
and RES Acquisition Corporation (the "Plan") in the amount of $27
million within five (5) business days after January 1, 1999. Such
contribution shall be in addition to the $3.2 million paid in January
1998.
(b) Thereafter, one or more entities described in paragraph 6 below as
being liable for the Required Contribution shall make a Required
Contribution in the amounts and on the dates indicated by the following
chart. If at any time minimum funding contributions under IRC ss. 412
exceed the amount of the Required Contribution the contributions under
ss. 412 shall be made in lieu of the Required Contribution. All
Required Contributions are cash contributions to the Plan. The amounts
of Required Contributions under this agreement are
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based on projections that include the assumption that no shutdown
benefits will be granted and that certain liabilities will arise from
granting 1,000 ERBs.
Date Amount ($mill)
---- --------------
no later than 7/1/99 $20.0
no later than 10/1/99 7.5
no later than 1/1/00 7.5
no later than 4/1/00 7.5
no later than 7/1/00 7.5
no later than 10/1/00 7.625
no later than 1/1/01 7.625
no later than 4/1/01 7.625
no later than 7/1/01 7.625
no later than 10/1/01 9.075
no later than 1/1/02 9.075
no later than 4/1/02 9.075
no later than 7/1/02 9.075
no later than 10/1/02 8.475
no later than 1/1/03 8.475
no later than 4/1/03 8.475
no later than 7/1/03 8.475
(c) Notwithstanding the provisions of paragraph 3(b), in the event
BarTech's employees are not participants in the Plan on any
Contribution Date listed above, then BarTech minimum funding
contribution under I.R.C. ss. 412 to the defined benefit plan in which
BarTech's employees participate on such Contribution Date rather than
to the Plan. If BarTech's employees are not participants in the Plan,
the Required Contribution shall be as follows:
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Date Amount ($mill)
---- --------------
no later than 7/1/99 $20.0
no later than 10/1/99 7.5
no later than 1/1/00 7.5
no later than 4/1/00 7.5
no later than 7/1/00 7.5
no later than 10/1/00 7.5
no later than 1/1/01 7.5
no later than 4/1/01 7.5
no later than 7/1/01 7.5
no later than 10/1/01 7.55
no later than 1/1/02 7.55
no later than 4/1/02 7.55
no later than 7/1/02 7.55
no later than 10/1/02 7.55
no later than 1/1/03 7.55
no later than 4/1/03 7.55
no later than 7/1/03 7.55
(d) Any portion of the Required Contribution will not be required to
the extent that it is not tax-deductible. Determination of current
liability for tax deductibility purposes will be computed using the
interest rate that represents the lowest end of the permissible range.
RES will provide PBGC with evidence, at the date the particular payment
is due, that a particular portion of the Required Contribution is not
being made because it is not deductible. This evidence will be subject
to PBGC's review.
4. Letter of Credit
The portions of the Required Contribution due no later than (a) five
(5) business days after January 1, 1999, and (b) July 1, 1999, respectively (the
"Due Dates"), will be backed by a $47 million letter (or letters) of credit
("L/C") which will have been put in place within five (5) business days after
the date of this Agreement. The L/C shall provide that in the event a
Responsible Entity
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fails to make the Required Contribution due by the applicable Due Date, then
PBGC may draw down on the L/C for the benefit of the Plan in an amount equal to
the missed payment. If a Responsible Entity does make the applicable portion of
the Required Contribution on or before a Due Date the amount of the L/C will be
reduced to the remaining unpaid amounts due on any applicable Due Date.
5. Required Credit Balance
(a) At the end of any plan year beginning from January 1, 2004 through
the end of the agreement, the Plan's Required Credit Balance shall be
the sum of
(i) the Plan's December 31, 2003 funding standard account credit
balance, plus
(ii) interest on (i) above to the end of the plan year at the
funding standard account rate
(b) For each Plan Year beginning with January 1, 2004 through the end
of the Agreement, cash contributions will be made to the Plans during
the Plan Year so that the Plan's funding standard account credit
balance at the end of the Plan Year is at least equal to the Required
Credit Balance, provided, however, that nothing herein shall require
any contribution to be made to the extent any such contribution is not
tax deductible in accordance with the terms of Paragraph 3(d)
6. Joint and Several Liability
From the date hereof until the consummation of the Combination, RES,
and at all times thereafter, the Ultimate Parent (in each case "Holdings") and
each entity that is a member of the Holdings Controlled Group shall be jointly
and severally liable for each Required Contribution, provided, however, that (i)
such member shall not be so liable if it is acquired by Holdings or a member of
the Holdings Controlled Group subsequent to the closing of the Combination and
all of its financing in excess of $500,000, whether equity or debt, is
non-recourse to, and not guaranteed or contributed by, Holdings or any other
member of the Holdings Controlled Group, and (ii) no stockholder of Holdings
will be liable for any portion of the Required Contribution. This provision does
not apply to require minimum funding contributions under section 412 of the
I.R.C. or controlled group liability under ERISA upon termination of a plan.
7. Expiration of the Agreement
This Agreement will terminate upon the earliest to occur of (a), (b),
(c), or (d) below but in the case of (a), (b), or (c), no earlier than September
15, 2003
(a) The date on which Ultimate Parent obtains ratings on its unsecured
debt from Standard & Poor's and Xxxxx'x of at least BBB- and Baa3,
respectively,
(b) The date on which Ultimate Parent demonstrates to the PBGC that the
Plan has no unfunded benefit liability as determined under ERISA ss.
4001(a)(18) and relevant regulations as of the last day of the
Plan Year for any two consecutive Plan Years (the last day of the Plan
Year in the second consecutive year being the measurement date),
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(c) In the event there is no rating as provided in section (a) above,
the date on which Ultimate Parent obtains a private rating on a
hypothetical issue of unsecured debt at the rating level from S&P and
Xxxxx'x of at least BBB- and Baa3, respectively. For purposes of
obtaining such private ratings, the amount of the hypothetical debt
issue will equal at least $100 million; and
(d) The date on which PBGC receives a Post Distribution Certification
for the Plan pursuant to 20 C.F.R. ss. 4041.27(h) indicating that the
Plan has been successfully terminated in a standard termination under
ERISA ss. 4041(b).
8. Notice and Information Requirements and Other
Ultimate Parent shall provide PBGC the following:
(a) Form 5500 when filed with the IRS and Actuarial Valuation Report no
later than September 30 of the current plan year, for the Plan
(b) By July 1 of each Plan year beginning with 1999,
(i) a statement showing, as of May 31 of the current year, the
total number of ERBs offered and the total number of ERBs
accepted during the term of the agreement; and the market
value of Plan assets; and
(ii) a statement and detailed supporting schedules, certified by
the Plan's enrolled actuary, showing the following present
values as of September 30 of the current year. The present
values will be calculated based on participant data as of
January 1 of the current year (adjusted for any significant
events that have occurred or are expected to occur) and PBGC
plan termination assumptions as of March 31 of the current
year, guaranteed benefits; guaranteed benefits phased in
since the prior September 30, benefits that would be
guaranteed but are not yet phased in, and the phase in
dates for these benefits; total benefit liabilities of the
Plan, and beginning in 2003, non-guaranteed benefits payable
in Priority Category 3;
(iii) The present values in 8(b) may be calculated using
approximation techniques similar to those employed by the
Plan's enrolled actuary in the estimation of benefit
liabilities used by the parties in negotiating the Memorandum
of Understanding and outlined in a side letter. PBGC shall
have the right to receive actual calculations if the
approximation techniques described in Attachment B have not
been used.
(c) Certification from the Plan's enrolled actuary that individual
employee data is in sufficient detail to calculate participant benefits
in each Priority Category at the current January 1 valuation date is
being maintained, and that such data will be supplied to PBGC if
requested
(d) By December 31 of each plan year beginning with the 2003 plan year,
a certified actuarial statement, plus supporting calculations, that
specifies the Plan's Required
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Credit Balance and the amount of the contribution for that plan year
that is necessary to maintain the Plan's Required Credit Balance.
(e) Written notice of failure to make any Required Contribution within
five (5) business days after the due date.
(f) Written notice thirty (30) days prior to any change in any of the
Plan's actuarial assumptions or methods for the purpose of the minimum
funding standard of section 412 of the IRC, which change shall be
subject to the PBGC's consent in advance, such consent not to be
unreasonably withheld.
(g) Written notice sixty (60) days prior to any merger and/or any
transfers of liabilities or assets described in section 414(l) of the
IRC to or from the Plan (other than mergers or transfers involving
amounts less than 3% of assets or liabilities in any Plan year).
(h) Written notice thirty (30) days prior to any transaction that would
have the effect of transferring sponsorship of any of the Plan outside
of the Ultimate Parent Controlled Group.
(i) Written notice of any Plan amendment the earlier of (a) 30 days
prior to adoption or (b) at the same time the proposed amendment is
sent for ratification to union members; provided, however, that in the
case of an amendment to the Plan that is required by law, written
notice within 10 days after adoption of the amendment.
(j) Written notice within thirty (30) days after any Permitted
Closures.
(k) Written notice within thirty (30) days after delivery or receipt of
any notice of default under any debt instrument of RES or its
subsidiaries where the outstanding balance of such debt instrument
exceeds $10 million.
(l) Written notice thirty (30) days prior to any sale, transfer or
other disposition of assets of any member of the RES Controlled Group
where such entity's assets (i) represent 20% or more of the book value
of the assets of the RES Controlled Group on a consolidated basis, or
(ii) generated 20% or more of the consolidated revenues or operating
income.
(m) Annual audited consolidated financial statements and quarterly
financial statements.
(n) A copy of any reportable event notice to the Director of PBGC's
Corporate Finance and Negotiations Department at the same time such
notice is filed.
(o) A concurrent copy of the notice delivered to the USWA a stated in
Article XXXIV Section 1 of the 1998 Settlement Agreement between United
Steelworkers of America, AFL-CIO and BarTech and RES (or any successor
notice obligation) regarding a Company decision to "close permanently a
plant of discontinue permanently a department of a plant or substantial
portion thereof" other than a Permitted Closure.
9. Press Release
Before either party to this Agreement issues a press release concerning
this Agreement or its terms, that party shall provide that other party to the
Agreement a copy of that press release and a 24-hr time period to comment on
it.
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10. Execution of Agreement
PBGC and RES shall cooperate, in good faith, to attempt to finalize and
execute definitive documentation embodying the terms and conditions set forth
herein within thirty (30) days after the date of this Agreement.
Agreed and Accepted:
RES Holding Corporation Pension Benefit Guaranty Corporation
By: /s/ Xxxxx Xxxxxxxx By: /s/ Xxxxxx X. Xxxxxxxxx
---------------------- -------------------------
Its: President Its: Chief Negotiator
Dated: November 2, 1998 Dated: October 30, 1998
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