<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
(Mark One)
[x] Annual report under Section 13 or 15(d) of the Securities Exchange Act of
1934
For the fiscal year ended December 31, 1999
[ ] Transition report under Section 13 or 15(d) of the Exchange Act For the
transition period from to
---- ----
Commission file number 001-12127
EMPIRE RESOURCES, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
- --------------------------------------------------------------------------------
Delaware 22-3136782
- --------------------------------------------------------------------------------
(State or Other Jurisdiction of (I.R.S. EmployerIdentification No.)
Incorporation or Organization)
- --------------------------------------------------------------------------------
One Parker Plaza
Fort Lee, NJ 07024
(Address of Principal Executive Offices)
201 944-2200
(Issuer's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12 (b) of the Act:
Title of each class Name of each exchange on
------------------- ------------------------
which registered
----------------
Common Stock, par value $0.01 per share American Stock Exchange
Redeemable Common Stock Purchase Warrants American Stock Exchange
Securities registered pursuant to Section 12 (g) of the Act: None
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes [X]
No [ ]
Check if disclosure of delinquent filers in response to Item 405 of
regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form KSB. [ ]
State issuer's revenues for its most recent fiscal year: $107,112,064.
As of March 15, 2000, the aggregate market value of the voting stock of
the registrant held by non-affiliates was approximately $6.0 Million Such market
value was calculated based upon the closing price of the stock on the American
Stock Exchange as of such date.
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 15,255,162 shares of common
stock outstanding as of March 15, 2000.
DOCUMENTS INCORPORATED BY REFERENCE:
None.
Transitional Small Business Disclosure Format (check one): Yes [ ]
No [X]
<PAGE>
EMPIRE RESOURCES, INC.
FORM 10-KSB FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
INDEX
10-KSB Part and Item No. Page
- ------------------------ ----
Part I
Item 1 Description of Business. 3
Item 2 Description of Property. 10
Item 3 Legal Proceedings. 10
Item 4 Submission of Matters to a Vote of Security Holders. 10
Part II
Item 5 Market for Common Equity and Related
Stockholder Matters. 11
Item 6 Management's Discussion and Analysis or
Plan of Operation. 13
Item 7 Financial Statements. 15
Item 8 Changes In and Disagreements With Accountants
On Accounting and Financial Disclosure. 16
Part III
Item 9 Directors, Executive Officers, Promoters and Control
Persons, Compliance With Section 16(a) of
the Exchange Act. 17
Item 10 Executive Compensation. 19
Item 11 Security Ownership of Certain Beneficial Owners
And Management. 25
Item 12 Certain Relationships and Related Transactions. 28
Item 13 Exhibits and Reports on Form 8-K 28
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
History
Empire Resources, Inc. (the "Company") was incorporated in the State of
Delaware in 1990 under the name Integrated Technology USA, Inc. ("Integrated").
The Company was in the business of designing, developing and marketing products
for emerging computer related markets. Effective September 17, 1999, the name of
the Company was changed to Empire Resources, Inc. From its inception until
September 1999, the Company had generated limited revenues from the sale of its
computer related products. On November 6, 1997, the Company announced its
decision to discontinue its existing operations in their entirety by December
31, 1997. The Company sought a merger/acquisition opportunity that would enable
it to deploy its cash into a new operating business.
On February 22, 1999, the Company signed an agreement to merge (the
"Merger") with Empire Resources, Inc. ("Empire"), a distributor of value added,
semi-finished aluminum products. The merged company is continuing the aluminum
business of Empire. In this report, the Company refers to Empire Resources,
Inc., after the effective date of the Merger, and Integrated Technology USA,
Inc., prior to the effective date of the Merger, and Empire refers to Empire
Resources, Inc. as it existed prior to the effective date of the Merger.
References to the Company include all subsidiaries, consolidated for purposes of
the Company's financial statements.
Under the terms of the Agreement and Plan of Merger (the "Merger
Agreement"), effective September 17, 1999, Empire was merged with and into the
Company, and the Company issued to the then current stockholders of Empire
9,384,761 shares of common stock, of which 3,824,511 shares of common stock have
been placed in escrow. Some or all of the escrowed shares will be released to
the former stockholders of Empire after March 31, 2001 based on a two-year
earn-out formula. Any escrowed shares not released to the former stockholders of
Empire will be returned to the treasury of the merged company or retired.
In conjunction with the Merger, Empire Resources Pacific Ltd.
("Empire-Pacific"), then an affiliate of Empire operating in Australia, became a
wholly owned subsidiary of Empire in a combination of companies under common
control.
In addition, the Company has two other wholly owned subsidiaries, I.T.I.
Innovative Technology, Ltd. ("Innovative") and CompuPrint Ltd. ("CompuPrint"),
both of which are incorporated in Israel and are presently inactive.
For accounting and other financial reporting purposes, the merger has been
treated as a "reverse acquisition." Under this treatment, the surviving
corporation has been treated as a continuation of Empire, and the merger has
been treated as an issuance of shares by Empire to the stockholders of
Integrated in exchange for Integrated's cash. Accordingly, the accompanying
financial statements are the historical financial statements of Empire and
Empire Resources Pacific Ltd., and include the results of operations of
Integrated and the subsidiaries only from the September 17, 1999 merger date.
Since the Merger, the Company and prior to the Merger, Empire, has been
engaged principally in the purchase, sale and distribution of nonferrous metals
to a diverse customer base located throughout North America and Australia and
New Zealand. The Company sells its products through its own marketing and sales
personnel and through its independent sales agents located in the U.S. who
receive commissions on
3
<PAGE>
sales. Empire-Pacific acts as the Company's sales agent in Australia. The
Company purchases from a wide array of suppliers located throughout the world.
The Company does not typically purchase inventory for stock; rather, it places
orders with its suppliers based upon orders that it has received from its
customers.
Strategy
The Company's strategy for growth involves the following key elements:
Provide Customers with High Level of Service and Cost Effective, Quality
Products. The Company places great emphasis on providing customers with a high
level of service. In particular, the Company works closely with its customers in
order to learn the specific requirements of each customer. This enables the
Company to provide each customer with cost-effective, quality materials matching
the customer's particular needs. The Company also provides various ancillary
services to its customers, including (1) arranging for products to be stored in
warehouse facilities for release to the customer on a just-in-time delivery
basis, (2) providing customers with timely information concerning market trends
and product development, and (3) upon request by customers, arranging for
subsequent metal processing or finishing services required by the customer.
Expand Sources of Supply and Serve as Effective Marketing Channel for
Suppliers. The Company constantly endeavors to increase its supply sources by
expanding its relationships with existing suppliers and forming relationships
with new suppliers. The Company seeks to build its supply relationships by
serving as an effective marketing channel for its suppliers. The Company
believes that, as it increases its supply sources, it will be able to increase
sales to existing customers and attract new customers because it will be in a
position to offer customers greater quantities and a wider range of products.
Expand Geographically. Empire in 1996 expanded geographically by forming
an affiliate to market its products in Australia and New Zealand. The Company
will selectively seek additional opportunities to expand into new geographic
areas.
Acquire Capability to Provide Additional Value Added Services. The Company
may seek to acquire the capability to provide its customers with additional
value-added services (such as various processing or finishing services). The
Company may accomplish this through establishing joint venture arrangements with
existing service providers or by selectively making acquisitions.
The Industry
Semi-finished aluminum products are produced by processing primary
aluminum or aluminum scrap. A product is considered "semi-finished" if it has
not yet been converted into a final end-product. Semi-finished aluminum products
include aluminum sheet, plate and foil, rod, bar and wire, extruded and cast
products, and aluminum powder and paste.
According to Brook Hunt, in 1998, the following industries accounted for
the indicated percentages of western world consumption of aluminum:
transportation (32%), packaging (20%), building (19%), machinery and equipment
(9%), electrical (8%), consumer durables (6%), and other industries (6%).
Although demand for aluminum products in the United States has been
cyclical, over the longer-term demand has continued to increase. The Company
believes that this growth reflects (1) general population and economic growth
and (2) the advantages of aluminum products, including light weight, high degree
of
4
<PAGE>
formability, resistance to corrosion and recyclability. According to The
Aluminum Association Inc., demand for flat rolled aluminum sheet and plate
products in the United States grew by 6.5% in 1999, and the entire category of
semifinished products shipped 18.1 billion pounds in 1999.
Sales, Marketing and Services
The Company endeavors to build its distribution within the aluminum
industry by providing customers with quality products, access to alternative
sources of supply, and comprehensive customer service. The Company offers
customers a full range of services, including:
o sourcing aluminum products from the appropriate supplier in order to
meet pricing and delivery requirements;
o handling foreign exchange transactions;
o assuming responsibility for the shipment and timely delivery of the
product to the customer;
o assisting customers in identifying materials matching their
particular needs;
o where necessary, arranging for subsequent metal processing and/or
finishing services which may be required by the customer;
o arranging for materials that have been ordered by a customer (and are
subject to a firm purchase commitment) to be stored at an appropriate
warehouse for release to the customers on a just-in-time delivery
basis; and
o providing customers with timely information concerning market trends
and product development.
The Company carefully monitors the timing and processing of orders to meet
customers' needs and commits to fill orders within a time-period mutually agreed
with the customer--generally within a 30 day window. The Company maintains
constant and ongoing communication with its suppliers in order to ensure that
these delivery dates are met and that customers are apprised of the delivery
status of their orders.
The Company primarily sells its products through its own marketing and
sales personnel. In addition, the Company sells its products through independent
sales agents located in the United States who receive a commission on sales. The
Company typically places orders with its suppliers based upon orders that it has
received from its customers. The Company's inventory generally represents
material that has been ordered by customers but is being held pending delivery
to such customers.
In 1996, Empire extended its distribution territory by establishing
Empire-Pacific to distribute Empire's products in Australia and New Zealand.
Backlog
At December 31, 1999, the amount of backlog of firm orders was
approximately $35 million, representing orders received from customers and
placed into production with the Company's supplier mills. The Company expects to
fill and invoice substantially all of the orders in the December 31, 1999
backlog during the period ending June 30, 2000.
5
<PAGE>
Suppliers
The Company enjoys exclusive representation arrangements with several
foreign mills, as well as close and long-term relationships with key domestic
vendors. The Company provides important services to its suppliers by:
o serving as an integrated marketing and distribution channel for the
export volume of foreign suppliers;
o purchasing manufacturing capacity from suppliers in bulk;
o assuming responsibility for transporting the products that it
purchases;
o eliminating foreign currency risks for suppliers; and
o ensuring prompt payment to suppliers for materials purchased.
The Company strives to maintain long-term relationships with its suppliers
and to be a significant distributor for them. By being a significant distributor
for its suppliers, the Company is able to obtain competitive pricing and to
influence quality standards and delivery practices.
During 1999, the Company, and prior to the Merger, Empire, succeeded in
expanding its supply sources to offset the loss of a previous supplier. The
Company expects that it will further expand its supply sources in 2000 when an
existing supplier, with whom the Company enjoys an exclusive, long-term
relationship, is scheduled to begin full scale production at a new facility.
Customers
The Company serves over 150 customers in diverse industries, including
transportation, automobile, housing, appliances and packaging. In 1999, the top
ten customers of the Company, and of Empire prior to the Merger, represented
approximately 40% of its sales. These customers included five full-service
distribution centers (i.e., distributors that have the capacity to provide
additional processing services), as well as producers of various consumer and
industrial products.
The Company's customers are located throughout the United States and
Canada and, to a lesser extent, Australia and New Zealand. In 1999, customers in
the United States accounted for approximately 75% of revenues, customers in
Canada for approximately 15% , and customers in Australia and New Zealand for
approximately 10%. The Company 's U.S. customer base is not regional.
The Company insures its accounts receivable against credit risk by
purchasing credit insurance. This insurance is generally subject to a 10%
co-insurance provision with respect to each claim and there are limits on the
amount of credit that the Company 's insurance carrier will underwrite with
respect to each customer.
Transportation
The Company arranges for the transportation to customers of the products
that they purchase from the Company. When the Company purchases products from an
overseas supplier, it accepts delivery either at the port in the supplier's home
country or at the port of destination. If the Company takes delivery at a
foreign port, it will generally arrange for transportation to the port of
destination on regularly scheduled port-to-port sea-going transportation. Upon
delivery of the products at the destination port, the Company uses rail and
trucking services to deliver the products to its customers.
6
<PAGE>
The Company is generally able to negotiate volume transportation rates
with vendors. As a result, it generally obtains lower rates than its customers
or suppliers could obtain for themselves.
Competition
The Company's principal competitors are North American aluminum
producers, including Alcoa Inc. and Alcan Aluminum Limited which dominate the
aluminum industry in North America. These companies are significantly larger and
have greater financial resources than the Company. The Company also competes
with other importers and agents that act for foreign aluminum producers. The
Company believes that agents of foreign mills are generally less capable of
serving the needs of North American customers because these agents are generally
captive to a single foreign source and often lack the flexibility and range of
product offerings that the Company offers its customers. As with other
industries, a number of our competitors have developed and are developing
e-commerce strategies for the sale of products over the Internet. Accordingly,
the Company is studying the feasibility of and the means to implement this type
of strategy.
RISK FACTORS
The Company's business is subject to a number of risk factors, including
the following:
The Company's Foreign Supply Sources are Subject to Substantial Risks.
The Company generally purchases aluminum products from foreign suppliers.
Thus, its operations could be materially and adversely affected by changes in
economic, political and social conditions in the countries where the Company
currently purchases or may in the future purchase such products. Among other
things, changes in laws, regulations, or the interpretation thereof, or
restrictions on currency conversions and exports, could negatively affect the
Company 's business. Although the trend in the markets in which the Company
operates has been towards open markets and trade policies and the fostering of
private economic activity, no assurance can be given that the governments will
continue to pursue these policies or that such policies may not be significantly
altered, especially in the event of a change in the leadership, or as a result
of social or political upheaval or unforeseen circumstances affecting economic,
political or social life.
Consolidation of Suppliers has Materially Impacted the Company's Operations.
During the last several years, consolidations have been taking place among
aluminum suppliers. Although the Company has in the past successfully replaced
any suppliers lost as a result of industry consolidations, there can be no
assurance that the Company would be able to replace the volume of production or
the type of products supplied by any of its current vendors, if they were
acquired or their operations terminated or were interrupted.
The Company is Highly Dependent on Supplier Relationships.
The Company's operations and its sales strategy are highly dependent upon
its supplier relationships. The Company's strategy also is based in large part
upon its ability to maintain and increase its supplier base, permitting it to
purchase sufficient materials at competitive prices. As a result, the
termination or limitation by any principal supplier of its relationship with the
Company could have a material adverse effect on the Company 's business.
The Company's loss of any one of its material suppliers (or material
default by any such supplier in its obligations to the Company) due to
bankruptcy, financial difficulties, expropriation, social unrest, destruction,
sabotage, strikes, acquisition by a person or entity unwilling to provide
products to the Company, or for any other reason, would have at least a
short-term material adverse effect on the Company's business.
7
<PAGE>
Changing Aluminum Prices Could Impact the Company's Profit Margins.
The Company relies on long-term relationships with its suppliers, but
generally has no long-term, fixed-price purchase contracts; it purchases at
prevailing market prices at the time orders are placed, with appropriate
discounts for quantity purchases. The aluminum industry is highly cyclical, and
the prices that the Company pays for aluminum and the prices it charges will be
influenced by a variety of factors outside of its control, including general
economic conditions (both domestic and international), competition, production
levels, import duties and other trade restrictions, and currency fluctuations.
If Suppliers Fail to Provide Products of the Quality they Certify, Customer
Relationships and Prices Could be Negatively Affected.
The Company's relationships with its customers depend, in part, on its
ability to deliver products of the quality specified by those customers. The
Company obtains certifications from its suppliers as to the quality of the
products being supplied. However, if the product is not of the quality certified
or if a supplier fails to deliver products ordered by the Company, the Company
may be forced to buy product of the specified quality from another source to
fulfill the customer's order. While the Company would then be left with a claim
against the supplier for any loss sustained by the Company, the Company may not
be able to successfully prosecute these claims, particularly in foreign
jurisdictions.
The Company May be Required to Purchase Minimum Tonnages
Under the terms of some of its supply contracts, the Company may be
required to take minimum tonnages which it subsequently finds it is unable to
sell at a profit.
The Company is Exposed to Credit Risk from its Customers.
The Company does not require collateral for customer receivables. The
Company has significant balances owing from customers that operate in cyclical
industries and under leveraged conditions, which may impair the collectability
of these receivables. The Company carries credit insurance with a 10% co-pay
provision and specific limits on each customer's receivables. The Company's
failure to collect a significant portion of the amount due on its receivables
directly from customers or through insurance claims (or other material default
by customers in their obligations to the Company) could have a material adverse
effect on the Company's financial condition.
Increased Tariffs Could Adversely Affect the Company's Financial Condition.
During 1999, in excess of 20% of sales of the Company, and of Empire prior
to the Merger, represented sales of aluminum products from countries that were
considered developing countries whose exports were eligible for preferential
tariff treatment upon import into the United States under the generalized system
of preference. There can be no assurance that any of our suppliers will continue
to be eligible for such preferential tariff treatment or that the generalized
system of preference will be renewed in any given year after its current
expiration date of September 30, 2001. If the preferential tariff treatment of
any of our suppliers that are currently eligible for such treatment becomes
unavailable, then imports from such supplier may be subjected to a tariff,
instead of the duty-free treatment those imports now enjoy. To the extent these
increased costs could not be passed on to its customers, the Company's profit
margins could be negatively affected.
8
<PAGE>
This could result in higher costs to us and have a material adverse effect on
our business, financial condition and results of operations.
Antidumping and Other Duties Could be Imposed on the Company, its Suppliers and
their Products.
The imposition of an antidumping or other increased duty on any products
imported by the Company could have a material adverse effect on the Company's
financial condition. For example, the Company's imports of aluminum products
could be subject to an antidumping duty. Under United States' law, an
antidumping duty may be imposed on any imports if two conditions are met. First,
the Department of Commerce must decide that the imports are being sold in the
United States at less than fair value. Second, the International Trade
Commission (the "Commission") must determine that the United States' industry is
materially injured or threatened with material injury by reason of the imports.
The Commission's determination of injury involves a two-prong inquiry: first,
whether the industry is materially injured, and second, whether the dumping, not
other factors, caused the injury. The Commission is required to analyze the
volume of imports, the effect of imports on United States prices for like
merchandise, and the effects the imports have on United States producers of like
products, taking into account many factors, including lost sales, market share,
profits, productivity, return on investment, and utilization of production
capacity.
If the Company Fails to Deliver Products on a Timely Basis, it May Suffer
Losses.
Interruption of shipping schedules upon which the Company relies for
foreign purchases could result in untimely deliveries to the Company's customers
or cause the Company to purchase the products in the United States at a higher
cost in order to meet delivery schedules. Consequently, the Company's profit
margins could be reduced or it could suffer losses. The Company guarantees its
customers that it will deliver products within the period specified in their
purchase orders. Any interruption of the means of transportation used by the
Company to transport products could cause delays in delivery of products, could
force the Company to buy the products from domestic suppliers at a higher cost
in order to fulfill its commitments, and also could result in the loss of the
customer.
The Company is Subject to Competition from Companies with Captive Sources of
Supply.
Many of the Company's competitors are significantly larger than the
Company and many have captive sources of supply and access to greater capital
and other resources. Thus, if the Company's sources of supply are interrupted,
its competitors could be in a position to capture the Company's customers.
The Company is Dependent on its Executive Officers.
The Company is highly dependent on its executive officers, the loss of any
of which could have a significant adverse impact on the Company's business.
Employees
As of December 31, 1999, the Company had 24 employees in New Jersey, all
of whom were full-time employees. The Company also has independent sales
representatives located in the United States. None of these employees are
represented under a collective bargaining agreement.
Empire-Pacific, a wholly-owned subsidiary of the Company, has five
employees in Australia.
9
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTY
The Company's corporate headquarters are located in Fort Lee, New Jersey,
where the Company leases office space pursuant to a lease expiring in March
2005. The lease provides for an annual rental payment of $173,802 through March
2000, and an annual payment of $215,881 thereafter. Management believes that the
Company's facilities are adequate to meet its current needs.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings involving the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth
quarter of 1999.
10
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market for Common Stock
The Common Stock of the Company (the "Common Stock") commenced trading on
the American Stock Exchange ("AMEX") on October 1, 1996, under the symbol ITH.
In conjunction with the Merger on September 17, 1999, the symbol changed to ERS.
The table below sets forth the high and low sales prices for the Common
Stock as reported on the AMEX for the periods indicated.
Common Stock
----------------------------------------
1999 1998
---- ----
Period High Low High Low
------ ---- --- ---- ---
1st Quarter....... $1 7/8 $1 3/8 $1 13/16 $1 1/8
2nd Quarter....... $2 3/4 $1 3/8 $1 11/16 $1 3/16
3rd Quarter....... $2 5/8 $1 1/4 $1 5/8 $1 1/8
4th Quarter....... $1 5/8 $1 $1 3/4 $1 3/16
On March 15, 2000, the closing price of the Common Stock on AMEX was
$1 3/8 and there were 48 holders of record of the Common Stock.
Recent Sales of Unregistered Securities
Set forth below is certain information concerning sales by the Company of
unregistered securities during the past three years. The issuances by the
Company of the securities sold in the transactions referenced below were not
registered under the Securities Act of 1933, pursuant to the exemption
contemplated in Section 4(2) thereof for transactions not involving a public
offering.
In connection with the Merger, on September 17, 1999, the Company issued
to Nathan Kahn and Sandra Kahn an aggregate of 9,384,761 shares of common stock
of the Company. However, 3,824,511 of these shares were deposited into escrow.
Some or all of the escrowed shares may be released to Nathan Kahn and Sandra
Kahn after April 1, 2001 based on a two-year earn-out formula that is a function
of the Company's net income during the two-year period. Any escrowed shares not
required to be released to Nathan Kahn and Sandra Kahn based on the earn-out
formula will be returned to the Company and canceled.
In recognition of Simon Kahn's contribution to the merger transaction, the
Company, in July 1999, granted to Simon Kahn an option to purchase 10,000 shares
of the Company's common stock at an exercise price of $2.00 per share. This
option will become exercisable with respect to 50% of the shares subject thereto
on the 180th day following the closing of the merger with Empire and with
respect to the balance on the first anniversary of such closing.
In the third quarter of 1997 and the first quarter of 1998, certain
directors were granted options that were intended to motivate these directors to
seek acquisition opportunities for the Company. These options provided that the
options would become exercisable upon (or in certain cases a specified period
following) completion of an acquisition transaction by Integrated within 18
months of the grant date (provided that in all events they would be become
exercisable on the day preceding the tenth anniversary of the grant date).
11
<PAGE>
Following the execution of the Merger Agreement with Empire on February 22,
1999, the board amended these options to provide that they would become
exercisable upon (or in certain cases a specified period following) the closing
of the Merger, even if this closing occured after the 18-month period originally
specified in these options. Certain information concerning these options is
shown in the table below:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Name of Director Date of Grant Number of Exercise Vesting
shares of Price Per
Common Share
Stock ($)
Underlying
Option
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
William Spier October 7, 1997 20,000 1.4063 Completion of merger
- ---------------------------------------------------------------------------------------------------
December 10, 1997 50,000 1.4063 Completion of merger
- ---------------------------------------------------------------------------------------------------
December 10, 1997 25,000 2.0000 180 days following
completion of merger
- ---------------------------------------------------------------------------------------------------
December 10, 1997 25,000 2.0000 One year following
completion of merger
- ---------------------------------------------------------------------------------------------------
Bernard S. Appel October 7, 1997 16,000 1.4063 Completion of merger
- ---------------------------------------------------------------------------------------------------
Barry W. Blank February 2, 1998 16,000 1.6563 Completion of merger
- ---------------------------------------------------------------------------------------------------
Nicole R. Kubin October 7, 1997 16,000 1.4063 Completion of merger
- ---------------------------------------------------------------------------------------------------
Morton L. Landowne October 7, 1997 16,000 1.4063 Completion of merger
- ---------------------------------------------------------------------------------------------------
Morris J. Smith October 7, 1997 16,000 1.4063 Completion of merger
- ---------------------------------------------------------------------------------------------------
Michael Yudin February 2, 1998 16,000 1.6563 Completion of merger
- ---------------------------------------------------------------------------------------------------
</TABLE>
The Merger Agreement contemplated that six of the 10 directors of the
Company prior to the Merger would cease to be directors upon completion of the
merger. The options held by these directors were amended to provide that ceasing
to be a director as contemplated by the Merger Agreement would not cause such
person's options to terminate. Without this amendment, certain of the options
held by these directors would have terminated three months after they ceased to
be directors.
Use of Proceeds from Registered Securities
On October 7, 1996, the Company completed an underwritten initial public
offering (the "IPO") pursuant to a registration statement on Form SB-2,
effective October 1, 1996 (File No. 333-9697). Remaining net proceeds of the IPO
as of September 17, 1999 amounted to $9,926,620. The Merger was accounted for as
a reverse acquisition, pursuant to which the remaining proceeds were used in
exchange for shares of Empire. See "Description of Business--History" above.
These funds were subsequently applied to repay a portion of the outstanding
indebtedness of Empire.
Dividends
The Company has never paid any dividends on its Common Stock and expects
for the foreseeable future to retain all of its earnings from operations for use
in expanding and developing its business. Any future decision as to the payment
of dividends will be at the discretion of the board of directors and will depend
upon earnings, receipt of dividends from subsidiaries, financial position,
capital requirements, plans for expansion and such other factors as the board of
directors deems relevant. In addition, covenants contained in agreements with
commercial banks require the Company to maintain working capital and net worth
ratios that restrict the Company's ability to declare or pay dividends.
12
<PAGE>
ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Results of Operations
The Merger between Integrated and Empire was completed on September 17,
1999. This discussion and analysis compares the results for 1999 of the Company
after the date of the Merger and of Empire prior to the Merger with Empire's
results for 1998. For accounting and other financial reporting purposes, the
Merger has been treated as a "reverse acquisition." Under this treatment, the
Company has been treated as a continuation of Empire, and the Merger has been
treated as an issuance of shares by Empire to the stockholders of Integrated in
exchange for Integrated's cash. Accordingly, the accompanying financial
statements include the historical financial statements of Empire and
Empire-Pacific, and include the results of operations of the Company only from
September 17, 1999, the effective date of the Merger.
Net sales increased $5.9 million or 6% from $101.2 million in 1998 to
$107.1 million in 1999. The Company believes that the primary constraint on
increases in sales was the amount of product its suppliers had available for
sale. The increase in sales in 1999 represents an increase in mill availability
for export from existing supply relationships combined with the introduction of
new suppliers late in the year.
Gross profit increased $1.1 million or 15% from 1998 to 1999 as a result
of the increase in sales and distribution efficiencies.
Selling, general and administrative expenses increased from $3.3 million
to $3.9 million, or 18%, as a result of a non-operating charge of $0.1 million
(see "Accounting Treatment of Restricted Stock Agreement", below), increased
staffing costs associated with customer service enhancements, and costs related
to employment contracts (see "Certain Agreements Entered into with Executive
Officers").
Interest expense rose $0.8 million or 62% from 1998 to 1999, approximately
half of which was directly attributable to interest on promissory notes to
stockholders issued in conjunction with the Merger (as described under
- -"Distribution of Surplus Net Worth--Distribution of Promissory Notes" below),
with the balance attributable to related higher levels of outstanding bank
indebtedness required in order to fund the Company's working capital
requirements.
The aforementioned higher selling, general and administrative expenses and
interest expense were only partially offset by the higher gross margin,
resulting in 1999 income before income taxes being $417,081 (17%) lower than in
1998.
Income taxes were $115,253 higher in 1999 due to the change in the tax
status of the Company. Prior to the Merger, Empire had been taxed as an S
corporation for Federal income tax purposes. In general, the income or loss of
an S corporation is passed through to its owners rather than being subject to
tax at the entity level. Post Merger the Company has been taxed as a C
corporation. As a result, 1998 income taxes reflect only state and local income
tax, while 1999 taxes reflect only state and local taxes through September 17,
1999, and both federal and state and local taxes subsequent to that date.
Consequently, the Company has presented pro-forma income taxes as if the Company
had been taxed as a C corporation for all periods presented, together with the
resulting pro-forma net income.
The Company reported net income of $1,956,215 for 1999 compared to net
income of $2,488,549 for 1998. The cost increases discussed above and the
increase in income taxes were the major impacts on net income. Pro forma net
income, net of pro forma income taxes was $1,308,676 for 1999 as compared to
13
<PAGE>
$1,571,912 for 1998. The cost increases discussed above were the major factor
impacting pro-forma net income.
The resulting pro forma earnings per share, net of pro forma income taxes,
based on the number of common shares considered outstanding for each fiscal year
under applicable accounting rules was $0.18 in 1999 and $0.28 in 1998.
Distribution of Surplus Net Worth
In February 1999, Empire determined to distribute to the former Empire
stockholders an amount approximately equal to the total stockholders' equity of
Empire as shown on the balance sheet of Empire as of December 31, 1998 (or
$10,922,475). Empire carried out the foregoing through the distribution to the
Empire stockholders of the Asset Backed Notes described under "--Distribution of
Promissory Notes" below.
Empire also determined, as permitted by the merger agreement, to make
additional distributions to the former Empire stockholders of an amount
approximately equal to its total stockholders' equity at the effective date of
the merger. As a consequence of the foregoing, Empire has made these
distributions to the former Empire stockholders as described below.
Distribution of Promissory Notes
On February 19, 1999, Empire distributed to the Empire stockholders two
promissory notes (the "Asset Backed Notes") in the aggregate principal amount of
$10,922,475. The Asset Backed Notes bore interest at the rate of 6% per annum
and were secured by all accounts receivable and inventory of Empire that were in
existence on the date the notes were issued and by any proceeds received in
respect of such collateral.
Empire was required to deposit any proceeds constituting collateral into a
segregated collateral account. The funds in this account were used to fully
repay the Asset Backed Notes in September and October 1999. Because Empire had
been segregating funds in a collateral account as described above, Empire had
been required to increase its borrowings under its credit facility in order to
fund its working capital requirements.
Prior to completion of the Merger, Empire made such additional
distributions to the former Empire stockholders as was necessary to reduce
Empire's Surplus Net Worth, measured as of the effective time of the Merger, to
approximately zero. Such distributions were in the form of cash or notes.
Accounting Treatment of Restricted Stock Agreement
The Company and Nathan and Sandra Kahn entered into a restricted stock
agreement with Mr. Wrubel. Mr. Wrubel is currently Vice President of Sales of
the Company. Pursuant to the restricted stock agreement, the Kahns have
transferred to Mr. Wrubel 469,238 shares ("Restricted Shares") of common stock
of the Company which represents a portion of the shares that were received by
the Kahns in the Merger. The Restricted Shares are comprised of (i) 358,327
shares (the "Non-Contingent Restricted Shares") that will vest on specified
dates over a three-year period, subject only to the condition that Mr. Wrubel
continue to be employed by the Company as of the vesting date, and (ii) 110,911
shares (the "Contingent Restricted Shares") that will be subject to the same
vesting criteria as the Non-Contingent Restricted Shares and, in addition, be
14
<PAGE>
subject to the condition that the number of shares (if any) that will vest will
be a function of the after-tax net income of the Company over a specified
period.
The transfer of the Restricted Shares from the Kahns to Mr. Wrubel did not
involve the issuance of any shares or any cash expenditure by the Company.
However, under applicable accounting rules, such transfer is being treated the
same as if the Company had issued such shares to Mr. Wrubel as compensation for
services and, accordingly, the Company is required to recognize an expense
relating thereto. The expense relating to the Non-Contingent Restricted Shares
is based on the fair market value of the stock as of the grant date and will be
recognized over the vesting period. The Company recognized $103,786 of such
expense in 1999, and will recognize $299,226 of expense in 2000, $133,440 of
expense in 2001 and $45,830 of expense in 2002.) The expense relating to the
Contingent Restricted Shares will be based on the fair market value of the stock
as of the time of vesting and be recognized at the time of vesting. No expense
will be recognized with respect to Contingent Restricted Shares that do not
vest.
Liquidity and Capital Resources
Empire currently operates under a revolving line of credit, including a
commitment to issue letters of credit, with two commercial banks. The available
line was $45 million as of December 31, 1999. Borrowings under these lines of
credit are collateralized by security interests in substantially all of Empire's
assets. Under these credit agreements, Empire is required to maintain working
capital and net worth ratios. These facilities expire on June 30, 2001. As of
December 31, 1999, the amount outstanding under Empires' revolving lines of
credit was $26.3 million (excluding letters of credit in the amount of $10.3
million).
Management believes that cash from operations, together with funds
available under its credit facility, will be sufficient to fund the cash
requirements relating to the Company's existing operations for the next twelve
months. Empire may require additional debt or equity financing in connection
with the future expansion of its operations.
Commitments and Contingencies
Empire has contingent liabilities in the form of letters of credit to some
of its suppliers. As of December 31, 1999, Empire's outstanding letters of
credit amounted to $10.3 million.
Under the terms of some of its supply contracts, the Company is required
to take minimum tonnages as specified in those contracts. As a result, the
Company could, under certain circumstances, be forced to sell the required
tonnage at a loss.
Forward Looking Statements
This report contains certain forward looking statements reflecting
management's current views with respect to future events and financial
performance. These forward looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from those in
the forward looking statements, all of which are difficult to predict and many
of which are beyond the control of the Company.
ITEM 7. FINANCIAL STATEMENTS
Furnished at end of report commencing on page F-1.
15
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON AUDITING AND
FINANCIAL DISCLOSURE
PricewaterhouseCoopers LLP were the principal independent accountants for
Integrated. Upon the completion of the Merger on September 17, 1999,
PricewaterhouseCoopers LLP was dismissed as the independent accountants for the
Company. Such dismissal was previously approved by the Board of Directors of the
Company. The report of PricewaterhouseCoopers LLP on the financial statements of
Integrated for the past two years did not contain an adverse opinion or a
disclaimer of opinion, nor was it qualified or modified as to uncertainty, audit
scope or accounting principles. During Integrated's two most recent fiscal years
and through September 17, 1999 there were no disagreements with
PricewaterhouseCoopers LLP on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of PricewaterhouseCoopers
LLP, would have caused it to make reference to the subject matter of the
disagreement in connection with its report on the financial statements of
Integrated.
The financial statements of Empire for the year 1998 prior to the "as if
pooling" with Empire-Pacific (not separately presented herein) were audited by
KPMG LLP. The report of KPMG LLP on the financial statements of Empire for 1998
did not contain an adverse opinion or a disclaimer of opinion, nor was it
qualified or modified as to uncertainty, audit scope or accounting principles.
There were no disagreements with KPMG LLP on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedure,
which disagreements, if not resolved to the satisfaction of KPMG LLP, would have
caused it to make reference to the subject matter of the disagreement in
connection with its report on the financial statements of Empire.
On October 5, 1999, the Audit Committee of the Board of Directors of the
Company appointed the firm of Richard A. Eisner & Company, LLP as the principal
accountant to audit the Company's financial statements.
16
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Officers and Directors
The officers and directors of the Company are as follows:
Name Age Position
---- --- --------
William Spier........... 65 Non-Executive Chairman of the
Board and Director
Nathan Kahn 45 Chief Executive Officer,
President and Director
Sandra Kahn............. 42 Vice President, CFO and
Director
Harvey Wrubel........... 46 Vice President of Sales
Jack Bendheim........... 53 Director
Barry Blank............. 59 Director
Barry L. Eisenberg...... 53 Director
Peter G. Howard......... 64 Director
Nathan Mazurek.......... 37 Director
Morris J. Smith......... 42 Director
William Spier. Mr. Spier has been a director of the Company since October
1996 and was Acting Chief Executive Officer from November 1997 until September
1999. Mr. Spier presently serves as non-executive Chairman of the Board of the
Company. Mr. Spier has been a private investor since 1982. He also served as
Chairman of DeSoto, Inc., a manufacturer and distributor of cleaning products,
from May 1991 through September 1996, and as Chief Executive Officer of DeSoto,
Inc., from May 1991 to January 1994 and from September 1995 through September
1996. From 1980 to 1981, Mr. Spier was Vice Chairman of Phibro-Salomon Inc. Mr.
Spier also serves as a Director of Keystone Consolidated Industries, Inc., Moto
Guzzi, Inc., and Soligen Technologies, Inc.
Nathan Kahn. Mr. Kahn has been the Chief Executive Officer, President and
a director of the Company since the Merger in September 1999, and prior to the
Merger, was the President and a director of Empire from the time of its
formation in 1984. Mr. Kahn has also been the President and a director of
Empire-Pacific since its formation in 1996.
Sandra Kahn. Ms. Kahn has been a Vice President, the Chief Financial
Officer and a director of the Company since the Merger in September 1999, and
prior to the Merger, Ms. Kahn was the Secretary and Treasurer and a director of
Empire from the time of its formation in 1984. Ms. Kahn has also been the
Secretary and Treasurer and a director of Empire-Pacific since its formation in
1996.
Harvey Wrubel. Mr. Wrubel has been the Vice President of Sales/Director of
Marketing of the Company since the Merger in September 1999, and prior to the
Merger, was the Vice President of Sales/ Director of Marketing of Empire for
more than the prior five years.
17
<PAGE>
Jack Bendheim. Mr. Bendheim has been a director of the Company since
September 1999. He has also been the President, Chief Executive Officer and
Chairman of the Board of Philipp Brothers Chemicals, Inc. for more than the
prior five years. Mr. Bendheim is also a director of The Bershire Bank, which is
owned by Cooper Life Science.
Barry W. Blank. Mr. Blank has been a director of the Company since
December 1997. Mr. Blank is a stockbroker and has been a member of the New York
Stock Exchange since 1981 and a member of the American Stock Exchange since
1978. Since October 1998, he has served as branch manager of the Phoenix office
of Dirks & Co. Prior thereto, he managed a branch office of Coleman & Co.
Securities (1995 to 1997) and a branch office of RAS Securities (1994 to 1995).
Barry L. Eisenberg. Mr. Eisenberg has been a director of the Company since
1990 and was Secretary and Treasurer of the Company from 1993 until September
1999. Since 1995, Mr. Eisenberg has been an active investor and director of
private companies in Israel. Prior thereto, Mr. Eisenberg was, for a period of
more than five years, a partner in the Roseland, New Jersey law firm of Lasser,
Hochman, Marcus, Guryan & Kuskin.
Peter G. Howard. Mr. Howard has been a director of the Company since
September 1999. He has also been the Managing Director of Empire-Pacific since
1996. From 1961 to 1995, Mr. Howard held various positions within the aluminum
industry, the most recent of which was Divisional General Manager of Comalco
Rolled Products, a unit of Comalco Aluminum Ltd., an aluminum producer.
Nathan Mazurek. Mr. Mazurek has been the President and Chief Executive
Officer of American Circuit Breaker Corporation, a manufacturer of circuit
breaker protection equipment for more than the prior five years. Since 1995, Mr.
Mazurek has been President and Chief Executive Officer of Pioneer Transformers
Ltd., a manufacturer of liquid filled power and distribution transformers.
Morris J. Smith. Mr. Smith has been a director of the Company since
January 1994. Since 1993, Mr. Smith has been a private investor and investment
consultant. Prior thereto, Mr. Smith was employed for a period of more than five
years by Fidelity Investments as a portfolio manager.
Family Relationships
Nathan Kahn and Sandra Kahn are husband and wife. Simon Kahn, who was a
director of Integrated prior to the Merger, is the brother of Nathan Kahn. Barry
L. Eisenberg and Jack Bendheim are brothers-in-law.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Officers, directors and greater than ten-percent stockholders are required by
SEC regulations to furnish the Company with copies of all Section 16(a) reports
that they file.
Based solely upon review of the copies of such reports furnished to the
Company and written representations from certain of the Company's executive
officers and directors that no other such reports were required, the Company
believes that during the period from January 1, 1999 through December 31, 1999
all Section 16(a) filing requirements applicable to its officers, directors and
greater than ten-percent beneficial
18
<PAGE>
owners were complied with on a timely basis, except that Nathan Kahn, Sandra
Kahn, Peter Howard, Jack Bendheim and Nathan Mazurek filed late Forms 3 with
respect to one transaction each, and William Spier filed a late Form 4 with
respect to two transactions.
ITEM 10. EXECUTIVE COMPENSATION
Executive Compensation
The following table sets forth for the periods indicated information
concerning the compensation earned by the Company's Chief Executive Officer and
each of the Company's most highly compensated executive officers.
Summary Compensation Table
Annual Compensation Long-Term
Compensation Awards
Securities All Other
Underlying Compensation
Options ($)
(#)
Name and Principal
Position Year Salary($) Bonus($)
William Spier 1999 -- -- 2,000 $11,333(2)
Non-Executive Chairman 1998 -- -- -- $4,000(3)
of the Board (1) 1997 -- -- -- $6,000(3)
Nathan Kahn 1999 $176,875 -- 2,000 $1,000(3)
Chief Executive Officer 1998 $55,000 -- -- --
and President 1997 $255,000 -- -- --
Sandra Kahn 1999 $82,000 -- 2,000 $1,000(3)
Vice President, 1998 $52,000 -- -- --
Chief Financial Officer,
Treasurer and Secretary 1997 $52,000 -- -- --
Harvey Wrubel 1999 $203,000 $300,000 200,000 --
Vice President of Sales 1998 $200,000 $300,003 -- --
1997 $125,000 $253,593 -- --
- ---------------------------
(1) Served as Acting Chief Executive officer of the Company prior to the merger.
(2) Of this amount, $3,000 represents director fees for attending board
meetings. Mr. Spier is also entitled to $25,000 per annum as consideration for
his services as non-executive Chairman of the Board, and $8,333 represents
amounts paid to Mr. Spier in 1999 for serving in such capacity.
(3) Represents directors' fees.
19
<PAGE>
Option Grants in Last Fiscal Year
The following table contains information concerning the stock option
grants made to each of the officers and employees named in the Summary
Compensation Table, above, during 1999. No stock appreciation rights were
granted to these individuals during such year.
(Individual Grants)(1)
Number of Percent of Exercise Expiration
securities total options price date
underlying granted to ($/Sh)
options granted employees in (2)
(#) fiscal year
Name
William Spier 2,000 1% $1.625 9/17/09
Nathan Kahn 2,000 1% $1.625 9/17/09
Sandra Kahn 2,000 1% $1.625 9/17/09
Harvey Wrubel 200,000 93% $1.625 9/17/09
- ---------------------------
(1) All options granted to the named officers and employees are
non-statutory under federal tax laws and were granted on September 17, 1999.
Pursuant to the option agreement underlying these options, the options became
exercisable immediately upon grant.
(2) The exercise price may be paid in cash or, under certain
circumstances, in shares of the Company's Common Stock.
Year-End Option Values
The following table provides certain information concerning the options
held by the officers and employees named in the Summary Compensation Table,
above, as of December 31, 1999.
Options as of December 31, 1999
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options at
Options at Year End Year End
Name Exercisable Unexercisable Exercisable Unexercisable
William Spier 97,000 50,000 ........ ........
Nathan Kahn 2,000 ........ ........ ........
Sandra Kahn 2,000 ........ ........ ........
Harvey Wrubel 200,000 ........ ........ ........
20
<PAGE>
Long-Term Incentive Plans
The following table provides certain information concerning the long-term
incentive plans available to the officers and employees named in the Summary
Compensation Table, above, as of December 31, 1999.
<TABLE>
<CAPTION>
Long-Term Incentive Plans--Awards in Last Fiscal Year
Estimated Future Payouts under
Non-Stock Price-Based Plans
(a) (b) (c) (d) (e) (f)
Number of
Shares, Units Performance or other
or other Period until Maturation Threshold Target Maximum
Name Rights (#) or Payout (#) (#) (#)
<S> <C> <C> <C> <C> <C>
Nathan Kahn and 3,824,511 April 1, 1999 through 228,817 228,817 3,824,511
Sandra Kahn (1) March 31, 2001
Harvey Wrubel (2)
</TABLE>
(1)For a detailed description of this plan and the formula to be applied in
determining the amounts payable, see Item 11, "Security Ownership of Certain
Beneficial Owners and Management--Issuance of Contingent Shares to Empire
Stockholders".
(2)For a detailed description of shares that may be issued to Harvey Wrubel and
the formula to be applied in determining the amounts payable, see Item 10,
"Executive Compensation, Employment Agreement with Harvey Wrubel".
Compensation of Directors
Each director who is not an employee of the Company (including any officer
that is serving as such without being paid a salary) is paid $500 for attendance
(in person or by telephone) at meetings of the Board, and all directors are
reimbursed for out-of-pocket expenses incurred in connection with attendance at
Board meetings. In addition, the Company in 1999 granted options to directors as
described below:
Number of
Name Shares Underlying Option Exercise Price Per Share
- ---- ------------------------ ------------------------
Jack Bendheim 2,000 $1.625
Barry Blank 2,000 $1.625
Barry Eisenberg 2,000 $1.625
Peter Howard 2,000 $1.625
Nathan Kahn 2,000 $1.625
Sandra Kahn 2,000 $1.625
Simon Kahn 10,000 $2.000
Nathan Mazurek 2,000 $1.625
Morris Smith 2,000 $1.625
William Spier 2,000 $1.625
Harvey Wrubel 200,000 $1.625
21
<PAGE>
Certain Agreements with Officers of the Company
Employment Agreements with the Kahns
Concurrently with the Merger on September 17, 1999, the Company entered
into employment agreements with each of Nathan Kahn and Sandra Kahn. Certain
information regarding these agreements is set forth below. The forms of these
agreements are attached hereto as exhibits.
Term. The scheduled term of each agreement is three years. Each agreement
provides that the term will be extended automatically for successive two-year
periods unless either party gives written notice of termination at least 180
days prior to the end of the original term or the then additional term, as the
case may be. Each agreement provides that the Company may terminate the
agreement upon the Disability of the executive or for Cause (as such terms are
defined the agreement).
Base Salary. The agreements provide for base salary to be paid at a rate
per annum as follows: Nathan Kahn ($250,000) and Sandra Kahn ($100,000). These
amounts may be increased, but not decreased, by the Board of Directors. The base
salary provided for by each agreement is subject to possible upward annual
adjustments based upon changes in a designated cost of living index.
Bonus. The agreement with Nathan Kahn provides for an annual bonus equal
to 5% of the amount by which the Company's earnings before taxes for such year
exceed $4,000,000. The agreement with Sandra Kahn provides for an annual bonus
equal to 2% of the amount by which the Company's earnings before taxes for such
year exceed $4,000,000. For the purpose of calculating the annual bonus amounts,
earnings before taxes shall be calculated excluding (1) charges to earnings for
extraordinary items and (2) the annual bonus amounts payable to Nathan Kahn and
Sandra Kahn.
Non-Compete. Each agreement provides that during the Specified Period (as
defined below) the employee will not, among other things, directly or
indirectly, be engaged as a principal in any other business activity or conduct
which competes with the business of the Company or be an employee, consultant,
director, principal, stockholder, advisor of, or otherwise be affiliated with,
any such business, activity or conduct. The "Specified Period" means the
employee's period of employment and the four year period thereafter, provided
that if the employee's employment is terminated for Disability or without Cause
(or the employee voluntarily terminates his employment following a breach by the
Company), the Specified Period will terminate two years after the employee's
employment terminates.
Employment Agreement with Harvey Wrubel
Concurrently with the Merger, the Company entered into an employment
agreement with Harvey Wrubel. Certain information regarding this agreement is
set forth below.
Term. The scheduled term of the agreement is until December 31, 2002. The
agreement provides that the term will be extended automatically for successive
two-year periods unless either party gives written notice of termination at
least 90 days prior to the end of the original term or the then additional term,
as the case may be. The agreement provides that the Company may terminate the
agreement any time with or without Cause (as such term is defined in the
agreement). However, if the Company terminates the agreement without Cause, the
employee is entitled to continue receiving his base salary until the scheduled
end of the term.
22
<PAGE>
Base Salary. The agreement provides for base salary to be paid at a rate
of $203,000 per annum. This amount may be increased, but not decreased, by the
Board of Directors. The base salary is subject to possible upward annual
adjustments based upon changes in a designated cost of living index.
Performance-Based Compensation. In addition to base salary, the agreement
provides that the Company shall pay the employee performance-based compensation
in accordance with a formula provided for in the agreement.
Non-Compete. The agreement provides that, during the employment term and
for 12 months thereafter, the employee will not, among other things, be engaged
in, or be, an employee, director, partner, principal, stockholder or advisor of
any business, activity or conduct which competes with the business of the
Company. During any period following termination of the employee's employment
the foregoing will only apply to competition with regard to aluminum and such
other commodities as were being sold by the Company within six months prior to
such termination.
Restricted Stock Arrangements. The Company and Nathan and Sandra Kahn
entered into a restricted stock agreement dated September 14, 1999 with Mr.
Wrubel. Pursuant to this agreement, the Kahns transferred to Mr. Wrubel 469,238
shares ("Restricted Shares") of common stock of the Company effective as of the
date of the Merger. The Restricted Shares are subject to the vesting
requirements described below. If Mr. Wrubel's employment with the Company is
terminated for Cause (as defined in his employment agreement) or if Mr. Wrubel
terminates employment with the Company for any reason, Mr. Wrubel will forfeit
to the Kahns any Restricted Shares that have not then vested.
The vesting of 358,327 of the Restricted Shares will be determined in
accordance with the following vesting schedule: (i) 33.33% of such shares will
vest on the first anniversary of the grant date (provided Mr. Wrubel has been
continuously employed by the Company until such date), (ii) 33.33% will vest on
the second anniversary of the grant date (provided Mr. Wrubel has been
continuously employed by the Company until such date) and (iii) 33.34% will vest
on the third anniversary of the grant date (provided Mr. Wrubel has been
continuously employed by the Company until such date).
The vesting of 110,911 of the Restricted Shares (the "Contingent
Restricted Shares") will be determined in accordance with the vesting schedule
set forth above and, in addition, will depend on the Company's cumulative
after-tax, net income during the two-year period commencing April 1, 1999 and
ending March 31, 2001, as indicated in the table below. (For this purpose, the
Company's net income will be adjusted in the manner described under "Issuance of
Contingent Shares to Empire Stockholders--Earn-Out Formula.")
- --------------------------------------------------------------
Cumulative After-Tax Income
During the Two-Year Period Number of Contingent
Ending March 31, 2001 (in Restricted Shares that
Millions of Dollars) will Vest
- --------------------------------------------------------------
less than $4.4 0
- --------------------------------------------------------------
$4.4 to but excluding $4.8 6,636
- --------------------------------------------------------------
$4.8 to but excluding $5.2 13,522
- --------------------------------------------------------------
$5.2 to but excluding $5.6 20,673
- --------------------------------------------------------------
$5.6 to but excluding $6.0 28,104
- --------------------------------------------------------------
$6.0 to but excluding $6.4 35,833
23
<PAGE>
- --------------------------------------------------------------
$6.4 to but excluding $6.8 43,877
- --------------------------------------------------------------
$6.8 to but excluding $7.2 52,256
- --------------------------------------------------------------
$7.2 to but excluding $7.6 60,992
- --------------------------------------------------------------
$7.6 to but excluding $8.0 70,108
- --------------------------------------------------------------
$8.0 to but excluding $8.4 79,628
- --------------------------------------------------------------
$8.4 to but excluding $8.8 89,582
- --------------------------------------------------------------
$8.8 to but excluding $9.2 99,999
- --------------------------------------------------------------
$9.2 or greater 110,911
- --------------------------------------------------------------
24
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of March 15, 2000, certain information
with respect to beneficial ownership (as defined in Rule 13d-3 of the Securities
and Exchange Act of 1934) of the common stock of the Company by (i) each person
that is a director of the Company, (ii) each person named in the Summary
compensation Table under item 10--"Executive Compensation," (iii) all such
persons as a group and (iv) each person known to the Company to be the owner of
more than 5% of the common stock of the Company.
Number of Shares Percent of Common
Name and Address(1) Beneficially Owned (2) Stock Owned
- ------------------------------ ---------------------- -----------------
Directors and Officers:
William Spier 226,669(3) 1.5%
Nathan Kahn and Sandra Kahn 8,919,523(4) 58.5%
Harvey Wrubel 669,238(5) 4.4%
Jack Bendheim 38,666(6) *
Barry W. Blank 877,600(7) 5.8%
Barry L. Eisenberg 365,706(8) 2.4%
Peter G. Howard 2,000(9) *
Nathan Mazurek 2,000(10) *
Morris J. Smith 66,667(11) *
All officers and directors as a
group (10 persons) 11,168,069(12) 73.2%
Other Stockholders:
Alan P. Haber 1,140,605(13) 7.5%
* Less than 1%
(1) The address of all listed persons is c/o Empire, except for Mr. Haber,
whose address is 11/1 Mishol Uzrad, Ramot, Israel 91230.
(2) Unless otherwise indicated, each person has sole investment and voting
power with respect to the shares indicated. For purposes of this table, a
person or group of persons is deemed to have "beneficial ownership" of any
shares as of a given date which such person has the right to acquire
within 60 days after such date. For purposes of computing the percentage
of outstanding shares held by each person or group of persons named above
on a given date, any security which such person or persons has the right
to acquire within 60 days after such date is deemed to be outstanding for
the purpose of computing the percentage ownership of such person or
persons, but is not deemed to be outstanding for the purpose of computing
the percentage ownership of any other person.
(3) Consists of (i) 104,669 currently outstanding shares held by Mr. Spier
and (ii) 122,000 shares underlying currently exercisable options held by
Mr. Spier.
(4) Consists (i) of shares received in the Merger (less the shares transferred
to Mr. Wrubel as described under Item 10 "Executive Compensation--Certain
Agreements Entered Into with Officers of the Company--Employment Agreement
With Harvey Wrubel") of which 3,824,511 shares are Contingent Shares
subject to the earn-out described under "Issuance of Contingent Shares to
Empire Stockholders--Earn-Out Formula," and (ii) 4,000 shares underlying
currently exercisable options held by Nathan and Sandra Kahn.
(5) Consists of (i) 469,238 shares transferred from Nathan and Sandra Kahn to
Mr. Wrubel, and
25
<PAGE>
(ii) 200,000 shares underlying currently exercisable options held by Mr.
Wrubel.
(6) Consists of (i) 20,000 outstanding shares held by the Bendheim
Foundation, an affiliate of Mr. Bendheim, (ii) 16,666 shares underlying
currently exercisable warrants held by Mr. Bendheim (Mr. Bendheim
disclaims beneficial ownership of the shares owned by the Bendheim
Foundation), and (iii) 2,000 shares underlying currently exercisable
options held by Mr. Bendheim.
(7) Consists of (i) 259,600 outstanding shares held by Mr. Blank, (ii) 18,000
shares underlying currently exercisable options held by Mr. Blank, and
(iii) 600,000 shares underlying currently exercisable warrants held by Mr.
Blank. Excludes any shares which may be owned by Mr. Blank's customers, in
which he disclaims any beneficial or other interest and over which he has
no voting or dispositive power.
(8) Consists of (i) 700 currently outstanding shares held by Mr. Eisenberg,
(ii) 78,667 shares underlying currently exercisable options held by Mr.
Eisenberg, (iii) 1,000 shares underlying currently exercisable warrants
held by Mr. Eisenberg, (iv) 500 shares owned by Mr. Eisenberg's wife and
(v) 284,839 currently outstanding shares held by 241 Associates LLC, a
limited liability company. Noam Eisenberg is the sole manager of 241
Associates LLC and as such has voting and investment power with respect to
the shares held by 241 Associates LLC. Noam Eisenberg is the son of Barry
L. Eisenberg. A majority of the ownership interest of 241 Associates LLC
is owned by Mr. Eisenberg and his wife and, as a result of such ownership
interests, Mr. Eisenberg may influence the voting and disposition of the
shares of common stock held by 241 Associates LLC. Mr. Eisenberg disclaims
beneficial ownership of such shares and of the shares owned by his wife.
(9) Consists of 2,000 shares underlying currently exercisable options held by
Mr. Howard.
(10) Consists of 2,000 shares underlying currently exercisable options held by
Mr. Mazurek.
(11) Consists of (i) 7,000 currently outstanding shares held by Mr. Smith and
(ii) 59,667 shares underlying currently exercisable options held by Mr.
Smith. The Brook Road Nominee Trust, nominee for the Morris Smith Family
Trust, is the owner of 163,653 outstanding shares of Common Stock. Esther
Smith, the mother of Morris J. Smith, is the sole trustee of the Morris
Smith Family Trust and as such has voting and investment power with
respect to such shares. The Morris Smith Family Trust is a discretionary
trust, the potential beneficiaries of which are Mr. Smith and members of
his family. Mr. Smith disclaims any beneficial ownership of any and all
shares owned by the Brook Road Nominee Trust.
(12) Consists of 10,062,069 currently outstanding shares and 1,106,000 shares
underlying currently exercisable options and warrants. Does not include
163,653 shares that Mr. Smith disclaims beneficial ownership of as
described in footnote 10 above.
(13) Consists of (i) 830,771 shares held by Mr. Haber, (ii) 276,444 shares
underlying currently exercisable options held by Mr. Haber, (iii) 10,000
shares underlying currently exercisable warrants held by Mr. Haber and
(iv) 23,390 shares held by Mr. Haber's wife. Mr. Haber disclaims any
beneficial ownership of any stock owned by his wife.
26
<PAGE>
Issuance of Contingent Shares to Empire Stockholders
Upon the Merger, Nathan and Sandra Kahn ("the Empire Stockholders")
received an aggregate of 9,384,761 shares of common stock of the Company in
exchange for the outstanding stock of Empire owned by them prior to the Merger.
Pursuant to the Merger agreement, 3,824,511 of these shares (the "Contingent
Shares") were deposited into escrow. The Contingent Shares are subject to the
earn-out described below.
Earn-Out Formula
The number of the Contingent Shares (if any) that will be released to the
Empire Stockholders will depend on the Company's cumulative after-tax, net
income during the two-year period commencing April 1, 1999 and ending March 31,
2001, as indicated in the table below. Any shares not required to be released to
the Empire Stockholders will be returned to the Company and canceled. For
purposes of this calculation, the net income of the Company for the measurement
period will be adjusted as follows:
o any extraordinary expenses (within the meaning of the Merger
Agreement) relating to the Merger (such as legal and accounting fees
and printing expenses) will be excluded;
o if during any portion of the measurement period, Integrated, Empire
or Empire-Pacific is treated as an S Corporation for federal or state
tax purposes, such-after tax income will be calculated on a pro forma
basis as if all such corporations were liable for federal and state
income taxes as taxable corporate entities throughout the entire
period; and
o such after-tax net income will be based upon the income of Empire
(and not of Integrated) with respect to any portion of the
measurement period that is prior to the effective time of the Merger.
The table below shows (1) the number of Contingent Shares that would be
released to the Empire Stockholders based upon different amounts of cumulative
after-tax, net income of the Company during the period indicated, (2) the total
number of shares of common stock of the Company that would be outstanding giving
effect to the release of a specified number of Contingent Shares (and the return
of any remaining shares to the Company), (3) the percentage of such outstanding
shares that would be owned by the Empire Stockholders, and (4) the percentage of
such outstanding shares that would be owned by the Empire Stockholders on a pro
forma basis assuming the exercise of all outstanding options and warrants that
have been issued by Integrated and provide for an exercise price per share of
$2.00 or less. The information in the table below is based upon the number of
shares of Integrated common stock that were outstanding as of July 19, 1999, the
record date for the meeting to which the Proxy Statement dated August 6, 1999
related.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Number of
Contingent Pro Forma
Cumulative After-Tax Income Shares to Be Total Shares Percent Percent
During the Two-Year Period Released to of the Owned by Owned by
Ending March 31, 2001 (in the Empire Company Empire Empire
Millions of Dollars) Stockholders Outstanding Stockholder Stockholders
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
less than $4.4 0 11,699,651 47.5% 44.9%
- -------------------------------------------------------------------------------------
$4.4 to but excluding $4.8 228,817 11,928,468 48.5% 45.9%
- -------------------------------------------------------------------------------------
$4.8 to but excluding $5.2 466,268 12,165,919 49.5% 46.9%
- -------------------------------------------------------------------------------------
$5.2 to but excluding $5.6 712,853 12,412,504 50.5% 47.9%
- -------------------------------------------------------------------------------------
$5.6 to but excluding $6.0 969,107 12,668,758 51.5% 48.9%
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
$6.0 to but excluding $6.4 1,235,611 12,935,262 52.5% 49.9%
$6.4 to but excluding $6.8 1,512,993 13,212,644 53.5% 50.9%
$6.8 to but excluding $7.2 1,801,933 13,501,584 54.5% 51.9%
$7.2 to but excluding $7.6 2,103,168 13,802,819 55.5% 52.9%
$7.6 to but excluding $8.0 2,417,500 14,117,151 56.5% 53.9%
$8.0 to but excluding $8.4 2,745,802 14,445,453 57.5% 54.9%
$8.4 to but excluding $8.8 3,089,028 14,788,679 58.5% 55.9%
$8.8 to but excluding $9.2 3,448,217 15,147,868 59.5% 56.9%
$9.2 or greater 3,824,511 15,524,162 60.5% 57.9%
</TABLE>
Escrow Arrangements Relating to the Contingent Shares
The Contingent Shares will be held in escrow, pursuant to an Escrow
Agreement until the earn-out is calculated. While the Contingent Shares are held
in escrow, the Empire Stockholders will have the right to (1) vote such shares
and (2) receive any dividends or distributions with respect to such shares. The
Empire Stockholders have agreed to refund to the Company any dividends or
distributions that are attributable to any Contingent Shares that are required
to be returned to the Company. The Empire Stockholders have also agreed that, as
long as any Contingent Shares remain in escrow, they will not take any action
(whether as stockholders or directors of the Company) to approve any dividends
or distributions with respect to the common stock of the Company, unless such
action is approved by a majority of the directors then in office who were
directors of Integrated prior to the Merger.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For a discussion of the options that were granted to directors of
Integrated and which vested upon completion of the Merger, see "Recent Sales of
Unregistered Securities" above.
For a discussion of the options that were granted to Simon Kahn, who is
the brother of Nathan Kahn and was a director of Integrated prior to the Merger,
see "Recent Sales of Unregistered Securities" above.
For a discussion of the shares of the Company that may be transferred to
Nathan and Sandra Kahn, see "Issuance of Contingent Shares to Empire
Stockholders" above.
ITEM 13 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
2.1 Agreement and Plan of Merger among the Registrant, Empire Resources
Inc., Empire Resource Pacific, Ltd., Nathan Kahn and Sandra Kahn,
dated as of February 22, 1999 (incorporated by reference to Exhibit
2.1 to the Registrant's Report on Form 8-K dated March 9, 1999)
3.1 Certificate of Merger of Empire Resources, Inc. into Integrated
Technology USA, Inc.***
3.2 Amended and Restated Certificate of Incorporation of the
Registrant*
28
<PAGE>
3.3 Amended and Restated By-Laws of the Registrant*
3.4 Amendment No. 1 to Amended and Restated By-Laws of the Registrant
(incorporated by reference to Exhibit 3.3 to the Registrant's
Report on Form 10-KSB for the year ended December 31, 1996)
3.5 Amendment No. 2 to Amended and Restated By-Laws of the Registrant
(incorporated by reference to Exhibit 3.1 to the Registrant's
Report on Form 8-K dated May 11, 1997)
10.1 Employment Agreement dated September 15, 1999 entered into by
Registrant with Nathan Kahn***
10.2 Employment Agreement dated September 15, 1999 entered into by
Registrant with Sandra Kahn***
10.3 Employment Agreement dated September 15, 1999 entered into by
Registrant with Harvey Wrubel***
10.4 Restricted Stock Agreement dated September 15, 1999 entered into by
Registrant with Harvey Wrubel***
10.5 Credit Agreement dated May 20, 1999 between the Registrant and
Fleet Bank, National Association and Citicorp USA, Inc., as
Banks, and Fleet Bank, National Association, as Agent ***
10.6 Amendment Number One to Credit Agreement dated May 20, 1999 between
the Registrant and Fleet Bank, National Association and Citicorp
USA, Inc., as Banks, and Fleet Bank, National Association, as Agent
***
10.7 Amendment Number Two to Credit Agreement dated May 20, 1999 between
the Registrant and Fleet Bank, National Association and Citicorp
USA, Inc., as Banks, and Fleet Bank, National Association, as Agent
***
10.8 Third Modification and Extension of Lease for office space, dated
as of the 17th of February, 2000, to the Lease between 400 Kelby
Associates, as Landlord, and Registrant as Tenant ***
10.9 Form of the Subscription Agreement entered into by the Registrant
with each person or entity that provided funds to the Company in
connection with the bridge financing referred to in Note H of Notes
to Condensed Consolidated Financial Statements included under Item
7 of this Report, having attached thereto the form of the notes and
warrants issued in connection with such financing.*
10.10 Registrant's 1996 Stock Option Plan*
10.11 Form of Representative's Warrant Agreement dated as of October 1,
1996, between the Registrant and National Securities Corporation**
10.12 Form of Warrant Agreement dated as of October 1, 1996, between the
Registrant and American Stock Transfer & Trust Company**
10.13 Form of Indemnification Agreement entered into by the Registrant
with executive officers and directors (incorporated by reference to
Exhibit 10.12 to the Registrant's Report on Form 10-KSB for the
year ended December 31, 1996)
10.14 Form of Indemnification Agreement between the Registrant and Edward
Abramson (incorporated by reference to Exhibit 3.3 to the
Registrant's Report on Form 10-KSB for the year ended December 31,
1996)
29
<PAGE>
10.15 Termination Agreement dated November 5, 1997 (incorporated by
reference to Exhibit 10.1 to the Registrant's Quarterly Report on
Form 10-QSB for the period ended September 30, 1997)
10.16 Form of Rights Agreement, dated as of July 23, 1997, between the
Registrant and American Stock Transfer & Trust Co., as Rights
Agent, including all exhibits thereto (incorporated by reference to
Exhibit 4 to the Registrant's Report on Form 8-K dated July 23,
1997)
10.17 Amendment to Rights Agreement, dated February 19, 1999, between the
Registrant and American Stock Transfer & Trust Co., as Rights Agent
(incorporated by reference to Exhibit 4.1 to the Registrant's
Report on Form 8-K dated March 9, 1999)
11.1 Statement re computation of per share earnings ***
21.1 List of subsidiaries of the Registrant ***
27.1 Financial Data Schedule***
- --------------------------------------
* Incorporated by reference from the correspondingly numbered Exhibit in the
Company' s Registration statement on Form SB-2 (No. 333-9697)
** Incorporated by reference from the correspondingly numbered Exhibit in the
Company' s Report on Form 10-QSB for the quarterly period ended September 30,
1996 (File No. 001-12127)
*** Filed herewith
(b) Reports on Form 8-K
In its report on Form 8-K dated October 8, 1999, the Company reported that
it had appointed the firm of Richard A. Eisner & Company, LLP as the Company's
certifying accountant.
30
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
Empire Resources, Inc.
By: /s/ Nathan Kahn
---------------------------
Nathan Kahn
Chief Executive Officer
March 28, 2000
/s/ Nathan Kahn
- ---------------------------
Nathan Kahn
Chief Executive Officer and Director (Principal Executive Officer)
March 28, 2000
/s/ Sandra Kahn
- ---------------------------
Sandra Kahn, Chief Financial Officer and Director (Principal Financial and
Principal Accounting Officer)
March 28, 2000
/s/ William Spier
- ---------------------------
William Spier, Director
March 28, 2000
/s/ Jack Bendheim
- ---------------------------
Jack Bendheim, Director
March 28, 2000
/s/ Barry W. Blank
- ---------------------------
Barry W. Blank, Director
March 28, 2000
31
<PAGE>
/s/ Barry L. Eisenberg
- ---------------------------
Barry L. Eisenberg, Director
March 28, 2000
/s/ Peter G. Howard
- ---------------------------
Peter G. Howard, Director
March 28, 2000
/s/ Nathan Mazurek
- ---------------------------
Nathan Mazurek, Director
March 28, 2000
/s/ Morris J. Smith
- ---------------------------
Morris J. Smith, Director
March 28, 2000
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Empire Resources, Inc.
Fort Lee, New Jersey
We have audited the accompanying consolidated balance sheet of Empire Resources,
Inc. and subsidiaries as of December 31, 1999, and the related consolidated
statements of income, 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 consolidated financial statements enumerated above present
fairly, in all material respects, the financial position of Empire Resources,
Inc. and subsidiaries at December 31, 1999, and the results of their operations
and their cash flows for the year then ended in conformity with generally
accepted accounting principles.
/s/ RICHARD A. EISNER & COMPANY, LLP
New York, New York
February 17, 2000
F-1
<PAGE>
Independent Auditors' Report
The Board of Directors
Empire Resources, Inc.:
We have audited the statements of income, changes in stockholders' equity and
cash flows of Empire Resources, Inc. for the year ended December 31, 1998 (not
separately presented herein). 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 financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Empire
Resources, Inc. for the year ended December 31, 1998 in conformity with
generally accepted accounting principles.
/s/ KPMG LLP
New York, New York
February 5, 1999
F-2
<PAGE>
EMPIRE RESOURCES, INC.
Consolidated Balance Sheet
December 31, 1999
<TABLE>
<CAPTION>
<S> <C>
ASSETS (Note E)
Current assets:
Cash $ 199,791
Trade accounts receivable (less allowance for doubtful accounts of
$125,788) 25,955,724
Inventories 19,362,208
Other current assets 768,962
-----------
Total current assets 46,286,685
Furniture and equipment (less accumulated depreciation of $239,738) 69,045
Deferred financing costs, net 42,093
-----------
$46,397,823
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable - banks $26,300,000
Trade accounts payable 8,104,145
Accrued expenses 1,771,465
Distribution payable to former stockholders 46,482
-----------
Total current liabilities 36,222,092
------------
Commitments
Stockholders' equity:
Preferred stock $.01 par value, 5,000,000 shares authorized; none issued
Common stock $.01 par value, 40,000,000 shares authorized; 15,580,862
shares issued, including 3,824,511 shares held in escrow 155,809
Additional paid-in capital 9,924,597
Retained earnings 118,274
Cumulative translation adjustment 36,152
Treasury stock (56,700 shares) (59,101)
-----------
Total stockholders' equity 10,175,731
-----------
$46,397,823
===========
</TABLE>
See notes to financial statements F-3
<PAGE>
EMPIRE RESOURCES, INC.
Consolidated Statements of Income
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1999 1998
------------ ------------
<S> <C> <C>
Net sales $107,112,064 $101,163,278
Cost of goods sold 98,925,131 94,042,658
------------ ------------
Gross profit 8,186,933 7,120,620
Selling, general and administrative expenses 3,913,597 3,261,715
------------ ------------
Operating income 4,273,336 3,858,905
Interest expense 2,162,568 1,331,056
------------ ------------
Income before income taxes 2,110,768 2,527,849
Income taxes 154,553 39,300
------------ ------------
Net income $ 1,956,215 $ 2,488,549
============ ============
Income before income taxes $ 2,110,768 $ 2,527,849
Pro forma income taxes 802,092 955,937
------------ ------------
Pro forma net income $ 1,308,676 $ 1,571,912
============ ============
Weighted average shares outstanding:
Basic 7,327,663 5,560,250
========= =========
Diluted 7,356,186 5,560,250
========= =========
Pro forma earnings per share:
Basic $.18 $.28
==== ====
Diluted $.18 $.28
==== ====
</TABLE>
See notes to financial statements F-4
<PAGE>
EMPIRE RESOURCES, INC.
Consolidated Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Common Stock
----------------------------
Number Additional Cumulative
of Paid-in Retained Translation Comprehensive
Shares Amount Capital Earnings Adjustment Income
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1998 10 $ 50,000 $ 11,681,785
Net income for 1998 2,485,690
Distributions to stockholders
of Empire (3,295,000)
------------- ------------- -------------
10 50,000 10,872,475
$ 2,500,655
=============
Combination of Empire Resources
Pacific Ltd. under "as if
pooling of interests" method (237,201) $ 49,704
Issuance of shares in connection
with Merger Agreement
including 3,824,511 shares
held in escrow 9,384,751
------------- ------------- ------------- -------------
Balance at December 31, 1998 9,384,761 50,000 10,635,274 49,704
Exchange of shares -
reverse acquisition 6,196,101 155,809 $ 9,829,103
Payments of merger costs -
Integrated (58,292)
Payment of merger costs -
Empire (569,258)
Distributions to stockholders
of Empire (50,000) (11,903,957)
Transfer of restricted
shares to key employee 103,786
Treasury stock acquired in
merger (50,000 shares) 50,000
Purchase of treasury stock
(6,700 shares)
Net change in cumulative
translation adjustment (13,552)
$ 1,942,663
=============
Net income for 1999 1,956,215
------------- ------------- ------------- ------------- -------------
Balance at December 31, 1999 15,580,862 $ 155,809 $ 9,924,597 $ 118,274 $ 36,152
============= ============= ============= ============= =============
<CAPTION>
Treasury
Stock Total
------------- -------------
<S> <C> <C>
Balance at January 1, 1998 $ 11,731,785
Net income for 1998 2,485,690
Distributions to stockholders
of Empire (3,295,000)
-------------
10,922,475
Combination of Empire Resources
Pacific Ltd. under "as if
pooling of interests" method (187,497)
-------------
Balance at December 31, 1998 10,734,978
Exchange of shares -
reverse acquisition 9,984,912
Payments of merger costs -
Integrated (58,292)
Payment of merger costs -
Empire (569,258)
Distributions to stockholders
of Empire (11,953,957)
Transfer of restricted
shares to key employee 103,786
Treasury stock acquired in
merger (50,000 shares) $ (50,000) 0
Purchase of treasury stock
(6,700 shares) (9,101) (9,101)
Net change in cumulative
translation adjustment (13,552)
Net income for 1999 1,956,215
------------- -------------
Balance at December 31, 1999 $ (59,101) $ 10,175,731
============= =============
</TABLE>
See notes to financial statements F-5
<PAGE>
EMPIRE RESOURCES, INC.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,956,215 $ 2,488,549
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization 55,511 43,125
Translation adjustment (13,552) 12,106
Transfer of restricted shares to key employee 103,786
Changes in:
Trade accounts receivable (5,516,924) 2,536,193
Inventories (5,357,035) 9,050,092
Other current assets (445,000) (4,957)
Trade accounts payable 269,300 (9,440,773)
Accrued expenses 1,242,865 64,869
------------ ------------
Net cash (used in) provided by operating activities (7,704,834) 4,749,204
------------ ------------
Cash flows from investing activities:
Additions to fixed assets (25,418) (69,006)
------------ ------------
Cash flows from financing activities:
Proceeds from (repayments of) notes payable - banks 10,400,000 (1,800,000)
Distributions to stockholders (11,953,957) (3,295,000)
Distribution payable to former stockholders 46,482
Net cash acquired upon merger 9,926,620
Payment of merger costs (569,258)
Deferred financing costs (58,462)
Purchase of treasury stock (9,101)
------------ ------------
Net cash provided by (used in) financing activities 7,782,324 (5,095,000)
------------ ------------
Net increase (decrease) in cash 52,072 (414,802)
Cash at beginning of year 147,719 562,521
------------ ------------
Cash at end of year $ 199,791 $ 147,719
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 1,868,047 $ 1,331,056
Income taxes $ 33,213 $ 300
</TABLE>
See notes to financial statements F-6
<PAGE>
EMPIRE RESOURCES, INC.
Notes to Consolidated Financial Statements
December 31, 1999
NOTE A - ORGANIZATION AND BASIS OF PRESENTATION
Empire Resources, Inc. (formerly known as Integrated Technology USA, Inc.,
("Integrated" or the "Company") was incorporated in 1990 to design, develop and
market products for emerging computer related markets. Since inception, the
Company had generated limited revenues from the sale of its computer related
products. On November 6, 1997, the Company announced its decision to discontinue
its existing operations in their entirety by December 31, 1997. The Company
sought a merger/acquisition opportunity that would enable it to deploy its cash
into a new operating business.
On February 22, 1999, the Company signed a merger agreement with Empire
Resources, Inc. ("Empire"), a distributor of value added, semi-finished aluminum
products. Under the terms of the Agreement and Plan of Merger (the "Merger
Agreement"), effective September 17, 1999, Empire was merged with and into the
Company. The Company issued to the then current stockholders ("Kahns") of Empire
9,384,761 shares of common stock, of which 3,824,511 shares of common stock have
been placed in escrow. Some or all of the escrowed shares will be released to
the former stockholders of Empire based on a two-year earn-out formula. Any
escrowed shares not released to the former stockholders of Empire will be
returned to the treasury of the merged company or retired. The release of
escrowed shares will be recorded as a charge against the merged company's
earnings as compensation expense at the fair value of the released shares as of
the date the conditions are met. Concurrently with the merger, the surviving
corporation and the Kahns entered into a restricted stock agreement with an
employee of Empire who is Vice President of Sales of the surviving corporation.
Pursuant to such agreement, the Kahns transferred to the employee 469,238 shares
of common stock of the surviving corporation, of which 358,327 shares (the
"non-contingent shares") will vest on specified dates over a three-year period
and 110,911 shares are contingent shares subject both to the vesting criteria of
the noncontingent shares and the earn-out provisions of the escrowed shares
referred to above.
Upon completion of the merger, the Company changed its name to Empire Resources,
Inc. The merged company is continuing the business of Empire.
In conjunction with the merger, Empire Resources Pacific Ltd.
("Empire-Pacific"), an affiliate of Empire Resources, Inc. operating in
Australia became a wholly owned subsidiary of Empire in a combination of
companies under common control, which was accounted for at historical cost in a
manner similar to that in a pooling of interests.
In addition, the Company has two other wholly owned subsidiaries, I.T.I.
Innovative Technology, Ltd. ("Innovative") and CompuPrint Ltd. ("CompuPrint"),
both of which are incorporated in Israel and are presently inactive.
For accounting and other financial reporting purposes, the merger has been
treated as a "reverse acquisition." Under this treatment, the surviving
corporation has been treated as a continuation of Empire, and the merger has
been treated as an issuance of shares by Empire to the stockholders of
Integrated in exchange for Integrated's cash. Accordingly, the accompanying
financial statements are the historical financial statements of Empire and
Empire-Pacific and include the results of operations of Integrated and its
subsidiaries only from September 17, 1999, the merger date.
The Company is engaged principally in the purchase, sale and distribution of
nonferrous metals to a diverse customer base located throughout North America
and Australia. The Company sells its products through its own marketing and
sales personnel and through its independent sales agents located in the U.S. who
receive commissions on sales. Empire-Pacific acts as its sales agent in
Australia. The Company purchases from a wide array of suppliers located
throughout the world.
F-7
<PAGE>
EMPIRE RESOURCES, INC.
Notes to Consolidated Financial Statements
December 31, 1999
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
[1] Revenue recognition:
Revenue is recognized when title to the goods passes to the customers.
[2] Inventories:
Inventories are stated at the lower of cost or market. Cost is determined
by the specific-identification method.
[3] Furniture and equipment:
Furniture and equipment are stated at cost. Depreciation of furniture and
equipment is calculated on the straight-line method over their estimated
useful lives of five years.
[4] Commodity futures:
The Company has price risk exposure due to changes in its aluminum sales
prices and supply costs. The Company enters into high grade aluminum
futures contracts to limit its gross margin exposure by hedging firmly
committed sales transactions. The Company monitors its exposure daily to
ensure overall effectiveness of its hedge positions. Gains and losses
related to aluminum hedges are deferred and recognized in results of
operations as the aluminum products are sold.
[5] Foreign currency:
The Company enters into foreign exchange forward contracts to hedge
transactions primarily related to firm commitments to purchase or sell
nonferrous metals denominated in international currencies. These contracts
reduce currency risk from exchange rate movements. Gains and losses are
deferred and accounted for as part of the underlying transactions.
[6] Foreign currency translation:
Empire-Pacific's functional currency is the Australian dollar. Cumulative
translation adjustments represent translation of Australian dollar amounts
into U.S. dollars.
[7] Income taxes and pro forma income taxes:
Empire had elected S corporation status for federal income tax purposes,
and accordingly was not subject to federal tax on its income for the
period prior to the merger with Integrated Technology USA, Inc. on
September 17, 1999. Income tax expense for periods prior to the merger
date represents state and local taxes. Income tax expense for the year
ended December 31, 1999 includes provisions for taxes on a C corporation
basis on income earned from September 17, 1999. Pro forma income tax
expense represents the provision for income taxes as if Empire had been a
C corporation for all periods presented.
The Company follows the asset and liability approach for deferred income
taxes. This method provides that deferred tax assets and liabilities are
recorded, using currently enacted tax rates, based upon the difference
between the tax bases of assets and liabilities and their carrying amounts
for financial statement purposes. Deferred tax asset valuation allowances
are recorded when management does not believe that it is more likely than
not that the related deferred tax assets will be realized.
F-8
<PAGE>
EMPIRE RESOURCES, INC.
Notes to Consolidated Financial Statements
December 31, 1999
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[8] Earnings per share:
The Company has adopted Statement of Financial Accounting Standards No.
128, Earnings per Share ("FAS 128"), which requires the presentation of
basic earnings per share ("Basic EPS") and diluted earnings per share
("Diluted EPS"). Basic EPS is computed by dividing income available to
common shareholders by the weighted average number of common shares
outstanding during the period. Diluted EPS gives effect to all dilutive
potential common shares outstanding during the period. The computation of
Diluted EPS does not assume conversion, exercise or contingent exercise of
securities that would have an anti-dilutive effect on earnings. The
dilutive effect of the outstanding stock warrants and options was computed
using the treasury stock method.
Basic and Diluted EPS shown in the accompanying financial statements are
based on pro forma income taxes since historical earnings per share
presentation would not be meaningful.
[9] Stock - based compensation:
The Company measures compensation cost using the methodology prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees" ("APB 25"). Accordingly, no compensation costs have been
recognized for nonvariable options because the exercise prices of the
stock options on the dates of grant equal the market values of the common
stock. However, the Company has adopted the disclosure requirements of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock
Based Compensation" ("SFAS 123") (see Note G).
[10] Use of estimates:
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities at
the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
these estimates.
[11] Concentration of suppliers:
The Company's purchase of nonferrous metal is from a limited number of
suppliers located throughout the world. Three suppliers accounted for 56%
and 47% of total purchases during the years ended December 31, 1999 and
1998, respectively.
NOTE C - INVENTORIES
Inventories as of December 31, 1999 consist of the following:
Semi-finished aluminum products:
Stored in warehouses $10,072,372
In transit 9,289,836
-----------
$19,362,208
===========
F-9
<PAGE>
EMPIRE RESOURCES, INC.
Notes to Consolidated Financial Statements
December 31, 1999
NOTE D - FINANCIAL INSTRUMENTS/FORWARD CONTRACTS/FUTURES CONTRACTS
The carrying amounts of financial instruments including cash, trade accounts
receivable and trade accounts payable approximated fair value as of December 31,
1999 because of the short term duration of these instruments. The carrying
amounts of notes payable to the banks approximate fair value as of December 31,
1999 because the interest rates on such debt approximate the market rate.
The Company hedges its foreign currency exposure to the extent considered
practicable by use of foreign exchange forward contracts. The counter currency
for these contracts is the U.S. dollar. Foreign currency amounts are translated
at rates current at the reporting date. The "buy" amounts represent the U.S.
dollar equivalent of commitments to purchase foreign currencies, and the "sell"
amounts represent the U.S. dollar equivalent of commitments to sell foreign
currencies. All of the Company's foreign currency forward agreements will mature
during 2000. The market risk related to foreign currency forward contracts is
substantially offset by changes in the valuation and cash flows of the
underlying positions held. The table below summarizes by major currency the
notional amounts of foreign currency forward contracts in U.S. dollars as of
December 31, 1999:
Buy Sell
----------- -----------
Australian Dollar $1,271,122 $ 5,374,794
Canadian Dollar 241,379 4,679,832
German Marks 48,309
---------- -----------
Total $1,512,501 $10,102,935
========== ===========
The net unrealized loss as of December 31, 1999 was $82,698 based on the fair
market value of the foreign currency contracts.
The Company also uses high grade aluminum futures to hedge its exposure on the
metal content of its purchases and sales of aluminum products. As of December
31, 1999, the Company had a realized loss of $498,368 which has been deferred
and will be recognized in earnings or as adjustments of carrying amounts when
the related product transactions occur. The futures contracts used to hedge
aluminum positions and obligations at December 31, 1999 consist of the
following:
Buy Sell
----------- ------------
Aluminum futures notional amount $20,731,324 $12,298,483
The net unrealized gain as of December 31, 1999 was $833,391 based on the fair
market value of the aluminum futures contracts.
The Company's financial instrument counterparties are global commercial banks in
the case of foreign currency contracts and metals brokers with significant
experience with such metal futures contracts.
New accounting pronouncement: In June 1998, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 will
require the Company to record all derivatives as assets or liabilities at fair
value. The statement requires that changes in the derivatives' fair value be
recognized currently in earnings unless specific hedge accounting criteria are
met. SFAS 133 is effective for all fiscal quarters of all fiscal years beginning
after June 15, 2000. The impact of SFAS 133 on the Company's financial
statements will depend on a variety of factors, including the extent of the
Company's hedging activities, the types of hedging instruments used and the
effectiveness of such instruments. The effect of adopting the statement is
currently being evaluated.
F-10
<PAGE>
EMPIRE RESOURCES, INC.
Notes to Consolidated Financial Statements
December 31, 1999
NOTE E - NOTES PAYABLE - BANKS
On May 20, 1999, the Company entered into a revolving credit agreement with two
commercial banks which, as amended, provides for a line of credit of
$45,000,000. Borrowings by the Company under this line of credit are
collateralized by security interests in substantially all assets of Empire.
Under the agreement, Empire is required to maintain working capital and net
worth ratios, as defined by the loan agreement. The facility expires on June 30,
2001. As of December 31, 1999, the amount outstanding under this credit facility
was $36.6 million (including $10.3 million of outstanding letters of credit).
Interest on borrowings is the higher of (i) the federal funds rate plus 1/2% and
(ii) the prime rate of Fleet Bank, plus the applicable margin defined in the
loan agreement. At December 31, 1999, the interest rate charged approximated
8.50%.
NOTE F - LOANS AND DISTRIBUTIONS PAYABLE TO STOCKHOLDERS/OFFICERS
Pursuant to the Merger Agreement, on February 19, 1999, the Company distributed
to its stockholders/officers (the "Kahns") two promissory notes in the aggregate
principal amount of $10,922,475. This amount represents the total stockholders'
equity of the Company as of December 31, 1998. These promissory notes bore
interest at the rate of 6% per annum and were paid in full in September and
October of 1999. Total interest incurred on such notes was $410,863. As of
December 31, 1999 interest of $275,578 remains unpaid and has been included in
accrued liabilities.
Under the Merger Agreement, the Company also determined to recalculate its
surplus net worth as of the effective date of the merger, and to make additional
distributions to the Kahns to reduce such surplus net worth to approximately
zero. Accordingly, prior to the effective date of the merger, the Company
approved distributions of $1,031,482 to the Kahns net of merger costs which were
to be borne by the Kahns. At December 31, 1999, $46,482 of such distributions
were reflected as distributions payable to former stockholders, and $179,749 of
such accrued merger costs were included in accrued liabilities in the
accompanying balance sheet.
NOTE G - STOCK OPTIONS
The Company's 1996 Stock Option Plan ( the "1996 Plan"), as amended, provides
for the granting of options to purchase not more than an aggregate of 1,129,000
shares of common stock. All officers, directors and employees of the Company and
other persons who perform services for the Company are eligible to participate
in the 1996 Plan. Some or all of the options may be "incentive stock options"
within the meaning of the Internal Revenue Code of 1986, as amended. The 1996
Plan provides that it is to be administered by the Board of Directors, or by a
committee appointed by the Board, which will be responsible for determining,
subject to the provisions of the 1996 Plan, to whom the options are granted, the
number of shares of common stock subject to an option, whether an option shall
be incentive or non-qualified, the exercise price of each option (which, other
than in the case of incentive stock options, may be less than the fair market
value of the shares on the date of grant), the period during which each option
may be exercised and the other terms and conditions of each option. No options
may be granted under the 1996 Plan after July 29, 2006.
As of December 31, 1999, the Company had granted options to purchase 1,303,944
shares under the 1996 Plan (297,276 of which had been forfeited), including an
aggregate of 218,000 options granted to officers and directors of the Company
subsequent to the merger.
On the effective date of the merger, September 17, 1999, options issued by
Integrated which remained outstanding were substantially vested. These options
are considered as part of the reverse acquisition for accounting purposes. Prior
to the merger, Empire Resources, Inc. and its affiliate had no stock option plan
and had not issued any options.
F-11
<PAGE>
EMPIRE RESOURCES, INC.
Notes to Consolidated Financial Statements
December 31, 1999
NOTE G - STOCK OPTIONS (CONTINUED)
The following is a summary of stock option activity for the year ended December
31, 1999:
<TABLE>
<CAPTION>
Number Exercise price Weighted Average
of shares per share Exercise Price
<S> <C> <C> <C>
Options outstanding at September 17,
1999, the effective date of the
merger including 233,044 options
outside the 1996 Plan 1,021,712 $0.01 - $6.00 $3.34
Granted subsequent to the merger 218,000 $1.625 $1.625
----------
Options outstanding at December
31, 1999 including 233,044 options
outside the 1996 Plan 1,239,712 $3.04
===========
Options exercisable at December
31, 1999 1,179,712 $3.09
===========
Options available for grant under
1996 Plan at December 31, 1999 122,332
===========
</TABLE>
As permitted by SFAS 123, the Company continues to account for its stock plans
in accordance with APB 25 and its related interpretations. Had the compensation
cost for the options issued on or after September 17, 1999 to officers,
directors and employees been determined based upon the fair value at the grant
date in accordance with the methodology prescribed under SFAS No. 123, the
Company's net income for the year ended December 31, 1999 would have been as
follows:
Net income:
As reported (net of pro forma income taxes) $1,308,676
Pro forma 1,206,993
Net income per share:
As reported (net of pro forma income taxes)
Basic $.18
Diluted $.18
Pro forma:
Basic $.16
Diluted $.16
The weighted average fair value of the options granted on or after September 17,
1999 was estimated at $0.72 on the date of grant, using the Black-Scholes
option-pricing model which included the following assumptions stated on a
weighted average basis:
Dividend yield 0%
Volatility 0.40
Risk free interest rate 5.76%
Expected life in years in years 5
F-12
<PAGE>
EMPIRE RESOURCES, INC.
Notes to Consolidated Financial Statements
December 31, 1999
NOTE H - COMMON STOCK
[1] Stock repurchase plan:
In November 1999, the Board of Directors authorized the Company to
repurchase up to one million shares of its common stock at prices not to
exceed $1.50 per share. During the year ended December 31, 1999, the
Company repurchased 6,700 shares for an aggregate cost of $9,101.
[2] Warrants:
The following warrants were issued by Integrated prior to the merger and
were outstanding on December 31, 1999.
In connection with a bridge financing during the year ended December 31,
1996, Integrated issued warrants to purchase an aggregate of 199,174
shares of common stock at an exercise price of $0.60 per share. As of
December 31, 1999, 90,838 of such warrants were outstanding.
In connection with its initial public offering in October 1996 (the
"IPO"), Integrated issued warrants to acquire 3,360,082 shares of its
common stock at an exercise price of $9.00 per share, subject to
adjustment under certain circumstances. These warrants are exercisable at
any time during the four-year period which commenced October 1, 1997.
In connection with the IPO, Integrated sold to an underwriter of the IPO,
for nominal consideration, warrants to purchase up to 300,000 shares of
its common stock and/or 300,000 warrants to acquire 300,000 shares of
common stock (the "Representative Warrants"). The Representative Warrants
are initially exercisable at a price of $9.90 per share of common stock
and approximately $0.17 per warrant for a four-year period commencing on
the first anniversary of the issuance of such warrants. The warrants
issuable upon exercise of the Representative Warrants are initially
exercisable at a price of $14.85 and provide for adjustments in the number
of shares of common stock and warrants issuable upon exercise of the
Representative Warrants as a result of certain events.
[3] Stock Rights Agreement:
The Company's Stockholder Rights Plan (the "Rights Plan"), adopted in
1997, provides for the issuance of a common stock purchase right (a
"Right") in respect of each share of common stock outstanding as of August
4, 1997 and each share issued thereafter, at a stipulated purchase price.
On February 18, 1999, the Rights Plan was amended to provide, among other
things, that the rights are only exercisable prior to the earliest of the
occurrence of three events, the earliest of which was the merger on
September 17, 1999. No rights were exercised as of that date, and the
Rights Plan has therefore effectively been terminated.
NOTE I - INCOME TAXES
As discussed in Note B[7], Empire was an S corporation for income tax purposes
for periods prior to the merger on September 17, 1999. Income tax expense
consists of the following:
1999 1998
-------- -------
Current $119,553 $39,300
Deferred 35,000
-------- -------
Tax expense $154,553 $39,300
======== =======
F-13
<PAGE>
EMPIRE RESOURCES, INC.
Notes to Consolidated Financial Statements
December 31, 1999
NOTE I - INCOME TAXES (CONTINUED)
Temporary differences arise due to difference between reporting for financial
reporting purposes and for tax purposes relating primarily to interest payable
to stockholders.
The U.S. statutory rate of 35% can be reconciled to the effective tax rate as
follows:
Year Ended
December 31,
----------------------
1999 1998
---------- ----------
Income subject to tax as S corporation $1,798,721 $2,527,849
Income subject to tax as C corporation 312,047
---------- ----------
Total income before income taxes $2,110,768 $2,527,849
========== ==========
Year Ended
December 31,
----------------------
1999 1998
---------- ----------
Provision for taxes at statutory rate $ 93,843
State and local taxes, net of federal
tax benefit 60,710 $ 39,300
---------- ----------
$ 154,553 $ 39,300
========== ==========
The deferred tax liabilities at December 31, 1999 of $35,000 was attributable to
interest to stockholders.
A reconciliation of the federal statutory rate to the pro forma income tax
expense is as follow:
Year Ended
December 31,
----------------------
1999 1998
---------- ----------
Income tax based on federal statutory
rate of 35% $ 726,000 $ 859,000
State taxes, net of federal tax benefit 104,000 123,000
Other (27,908) (26,063)
---------- ----------
Total pro forma income taxes $ 802,092 $ 955,937
========== ==========
Prior to the merger, Integrated had net operating loss carryforwards. Under
Section 382 of the Internal Revenue Code, due to a lack of continuity of
business enterprise by Integrated, there is no net operating loss carryover
utilization. Hence, such net operating loss carryforwards have lapsed.
At December 31, 1999, the net operating loss carryforwards in the State of
Israel, for Innovative and CompuPrint, subsidiaries of Integrated, which do not
expire, amounted to approximately $5,169,000 and $657,000, respectively. The
Company has provided a 100% valuation allowance for such loss carryforwards,
since the likelihood of realization cannot be determined.
F-14
<PAGE>
EMPIRE RESOURCES, INC.
Notes to Consolidated Financial Statements
December 31, 1999
NOTE J - EMPLOYEE RETIREMENT BENEFITS
Effective November 1, 1999, the Company implemented a salary reduction employee
benefits plan, a qualified plan adopted to conform to Internal Revenue Code
Section 401(k). Employees may contribute up to 15% of their eligible
compensation, and the Company will provide a matching contribution of 50% of
employee contributions limited to 2% of employee compensation. The plan covers
all employees who have attained age 18, and substantially all eligible employees
have elected to participate.
Each employee's pre-tax contributions are immediately vested upon participation
in the plan. The employees' vesting of the Company's matching contribution is
based upon length of service as follows:
Years of service Vested %
---------------- --------
1 25%
2 50%
3 75%
4 100%
Employees who terminate prior to 100% vesting forfeit their non-vested portion
of the Company's matching contribution, and those funds revert to the Company to
reduce future matching contributions. Employees in active service on the
effective date of the Plan were granted retroactive service credit for the
purpose of determining their vested percentage. Company matching contributions
in 1999 amounted to $5,775.
NOTE K - COMMITMENTS AND CONTINGENCIES
[1] Lease:
The Company leases its office facilities under a lease expiring on March
31, 2005. The minimum noncancelable scheduled rentals under this lease are
as follows:
Year Ended
December 31,
------------
2000 $ 205,362
2001 215,880
2002 215,880
2003 215,880
2004 215,880
2005 53,970
---------
$1,122,852
==========
Rent expense for the years ended December 31, 1999 and 1998 was $185,448
and $177,767, respectively.
[2] Letters of credit:
Outstanding letters of credit at December 31, 1999 amounting to
$10,296,411 expire in January and February of 2000.
F-15
<PAGE>
EMPIRE RESOURCES, INC.
Notes to Consolidated Financial Statements
December 31, 1999
NOTE K - COMMITMENTS AND CONTINGENCIES (CONTINUED)
[3] Employment agreements:
Concurrently with the merger, the Company entered into three-year
employment agreements with two of its executive officers. Each agreement
provides that the term will be extended automatically for successive
two-year periods unless either party gives written notice of termination
at least 180 days prior to the end of the original term or the then
additional term, as the case may be. Each agreement provides that the
Company may terminate the agreement upon the disability of the executive
or for cause (as such terms are defined the agreement).
The agreements cumulatively provide for base salary to be paid at a rate
of $350,000 per annum. The amount may be increased, but not decreased, by
the Board of Directors. The base salary provided for by each agreement is
subject to possible upward annual adjustments based upon changes in a
designated cost of living index.
The agreements also provide for an annual bonuses equal to 7%, on a
combined basis, of the amount by which the Company's earnings before taxes
(as defined in the agreements) for such year exceed $4,000,000.
Concurrently with the merger, the Company also entered into an employment
agreement with another officer. The scheduled term of the agreement is
until December 31, 2002. The agreement provides for base salary to be paid
at a rate of $203,000 per annum which may be increased, but not decreased,
by the Board of Directors. The base salary is subject to possible upward
annual adjustments based upon changes in a designated cost of living
index. In addition to base salary, the agreement provides that the Company
shall pay the employee performance-based compensation in accordance with a
formula provided for in the agreement.
NOTE L - INFORMATION REGARDING EMPIRE RESOURCES PACIFIC LTD. FOR THE YEAR
ENDED DECEMBER 31, 1998
(UNAUDITED)
As a result of the merger, Empire-Pacific became a wholly owned subsidiary of
Empire in a combination of companies under common control and is accounted for
at historical cost in a manner similar to that in a pooling of interests.
Accordingly, the accompanying financial statements for the period prior to the
combination have been restated to include the combined results of operations,
changes in stockholders' equity and cash flows of Empire-Pacific as though it
had been part of Empire since inception. The following tables summarize the
accounts of Empire-Pacific included in the consolidated financial statements of
Empire Resources, Inc. as of December 31, 1998 and for the year then ended:
Condensed balance sheet information (unaudited):
December 31,
1998
----------------
Current assets $ 720
Noncurrent assets 2,735
------------
Total assets $ 3,455
============
Due to Empire Resources, Inc. $ 190,952
Capital deficiency (187,497)
------------
Total liabilities and capital deficiency $ 3,455
============
F-16
<PAGE>
EMPIRE RESOURCES, INC.
Notes to Consolidated Financial Statements
December 31, 1999
NOTE L - INFORMATION REGARDING EMPIRE RESOURCES PACIFIC LTD. FOR THE YEAR
ENDED DECEMBER 31, 1998
(UNAUDITED) (CONTINUED)
Condensed statement of income information (unaudited):
Year Ended
December 31,
1998
--------------
Selling, general and administrative expenses $ 168,506 *
----------
Operating loss (169,506)
Other income 172,365 *
----------
Income before income taxes 2,859
Income taxes
----------
Net income $ 2,859
==========
* Eliminated in consolidation
Condensed statement of cash flows information (unaudited):
Year Ended
December 31,
1998
--------------
Cash flows from operating activities:
Net income $ 2,859
Adjustments to reconcile net income to net cash
provided by operating activities:
Translation adjustment 12,106
Other changes in operating activities (5,016)
----------
Net cash provided by operating 9,949
activities
Cash flows used in financing activities (12,226)
----------
Net decrease in cash (2,277)
Cash at beginning of year 2,835
----------
Cash at end of year $ 558
==========
F-17
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 09/17/1999
991388422-2240021
CERTIFICATE OF MERGER OF EMPIRE RESOURCES, INC. INTO
INTEGRATED TECHNOLOGY USA, INC.
The undersigned corporation organized and existing under and by virtue of
the General Corporation Law of the State of Delaware, does hereby certify:
FIRST: That the name and state of incorporation of each of the constituent
corporations of the merger is as follows:
-------------------------------------------------------------
| Name State of Incorporation |
| ---- ---------------------- |
|-------------------------------------------------------------|
| Integrated Technology USA, Inc. Delaware |
|-------------------------------------------------------------|
| Empire Resources, Inc. Delaware |
-------------------------------------------------------------
SECOND: That a plan and agreement of merger between the parties to the
merger has been approved, adopted, certified, executed and acknowledged by each
of the constituent corporations in accordance with the requirements of Section
251 of the General Corporation Law of the State of Delaware.
THIRD: That the name of the surviving corporation of the merger is
Integrated Technology USA, Inc.
FOURTH: That the certificate of incorporation of the surviving corporation
shall be amended by deleting the existing Article I and substituting therefor
the following new Article I:
ARTICLE I
The name of the corporation is Empire Resources, Inc.
FIFTH: That the executed plan and agreement of merger is on file at the
principal place of business of the surviving corporation. The address of the
principal place of business of the surviving corporation is One Parker Plaza,
Fort Lee, New Jersey 07024.
SIXTH: That a copy of the plan and agreement of merger will be furnished by
the surviving corporation, on request and without cost to any stockholder of any
constituent corporation.
IN WITNESS WHEREOF, Integrated Technology USA, Inc. has caused the Certificate
to be signed by William Spier, its authorized officer, this 15th day of
September, 1999.
Integrated Technology USA, Inc.
BY: William Spier
----------------------
TITLE: Acting Chief Executive Officer
<PAGE>
EMPLOYMENT AND NON-COMPETITION AGREEMENT
THIS EMPLOYMENT AND NON-COMPETITION AGREEMENT, is entered into as of
this 15th day of September, 1999 by and between Integrated Technology USA, Inc.
(the "Company"), a Delaware corporation, c/o Madison Partners, 444 Madison
Avenue, New York, New York 10022 and Nathan Kahn, c/o Empire Resources, Inc.,
One Parker Plaza, Fort Lee, New Jersey 07024 (the "Executive").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company desires to employ the Executive and the Executive
desires to be employed by the Company; and
WHEREAS, the Company and the Executive desire to set forth the terms
and conditions of such employment.
NOW THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the adequacy and
receipt of which is hereby acknowledged, the parties hereto agree as follows:
1. Term of Employment. The Company hereby agrees to employ the
Executive and the Executive hereby accepts employment, in accordance with the
terms and conditions set forth herein, for a term (the "Employment Term")
commencing on the date of the consummation of the merger of the Company and
Empire Resources, Inc. (the "Merger") and terminating, unless otherwise
terminated earlier in accordance with Section 5 hereof, on the third anniversary
of the Merger (the "Original Employment Term"), provided that the Employment
Term shall be automatically extended, subject to earlier termination as provided
in Section 5 hereof, for successive additional two (2) year periods (the
"Additional Terms"), unless, at least one hundred eighty (180) days prior to the
end of the Original Employment Term or the then Additional Term, the Company or
the Executive has notified the other in writing that the Employment Term shall
terminate at the end of the then current term.
2. Position and Responsibilities. During the Employment Term, the
Executive shall serve as the Chief Executive Officer of the Company and the
Executive shall report exclusively to the Board of Directors of the Company (the
"Board"). During the Employment Term, the Company shall recommend the Executive
for election as a director. The Executive shall, to the extent appointed or
elected, serve on the Board as a director and as a member of any committee of
the Board, in each case, without additional compensation. The Executive shall,
to the extent appointed or elected, serve as a director or as a member of any
committee of the board of any of the Company's subsidiaries or affiliates and as
an officer or employee (in a capacity commensurate with his position with the
Company) of any such subsidiaries or affiliates, in all cases, without
additional compensation and any compensation paid to the Executive in such
capacities shall be a credit with regard to the amounts due hereunder from the
Company. The Executive shall have all of the duties, authorities, powers and
responsibilities commensurate with
<PAGE>
all of the duties, authorities, powers and responsibilities of a chief executive
officer. The Executive shall devote substantially all of his business time,
attention and energies to the performance of his duties hereunder, provided that
the foregoing shall not prevent the Executive from participating in charitable,
community or industry affairs, from managing his and his family's personal
investments and from serving on the boards of directors of not-for-profit
companies to the extent such activities do not interfere with the performance of
his duties hereunder.
3. Compensation and Benefits. The Company shall pay and provide the
Executive the following:
3.1 Base Salary. The Company shall pay the Executive a base
salary (the "Base Salary") at an annual rate of not less than Two Hundred Fifty
Thousand Dollars ($250,000) per year in accordance with the Company's normal
payroll practices for senior executives. Base Salary shall be subject to annual
review by the Board (or a duly authorized committee thereof) for increase (but
not decrease) following each anniversary of the date hereof, provided that on
such anniversary date, the Base Salary shall be increased by not less than an
amount necessary to adjust for any increase in the cost of living during the
immediately prior twelve (12) months based on the Consumer Price Index for Urban
Wage Earners and Clerical Workers (CPI-W) selected areas (NY-NJ-CT), all items
index published by the Bureau of Labor Statistics of the United States
Department of Labor. Once increased, Base Salary shall not be reduced and shall
thereafter, as increased, shall be the Base Salary hereunder.
3.2 Annual Bonus. The Company shall pay the Executive an
annual bonus for each fiscal year of the Company ending during the Employment
Term, commencing with the 1999 fiscal year, equal to five percent (5%) of the
amount by which the Company's Earnings Before Taxes (as defined below) for each
such fiscal year exceeds $4,000,000 (the "Annual Bonus Payments"); provided,
however, that if any fiscal year is less than twelve (12) months due to a change
in the fiscal year, then such $4,000,000 amount shall be proportionately
reduced. Each Annual Bonus Payment shall be paid in a single cash lump sum not
later than thirty (30) days after the audited financial statements for such
fiscal year are complete. "Earnings Before Taxes" shall mean, for each fiscal
year, the Company's earnings before income taxes determined without regard to
charges to earnings for extraordinary items and Annual Bonus Payments with
respect to the Executive or to the Chief Financial Officer (as long as its Chief
Financial Officer is Sandra Kahn). Earnings Before Taxes and the amount of each
Annual Bonus Payment shall be determined by the Company's independent certified
public accountants (the "Accountants"), or such other party as mutually agreed
by the parties hereto, in accordance with GAAP as consistently applied by the
Company (as specifically modified hereby). The Company shall provide the
Executive with a copy of the Accountants' final determination (together with
supporting quantitative data and the methods used to make such calculations) for
his review and comment at least five (5) business days prior to the payment of
each Annual Bonus Payment. The Accountants' determinations shall be final,
binding and conclusive on the parties hereto.
2
<PAGE>
3.3 Employee Benefits. The Executive shall, to the extent
eligible, be entitled to participate at a level commensurate with his position
in all employee benefit, fringe benefit, welfare, retirement, savings and
incentive plans and programs generally provided by the Company to its senior
executives from time to time.
3.4 Vacation. The Executive shall be entitled to paid vacation
in accordance with the standard written policies of the Company with regard to
vacations of senior executives, but in no event less than six (6) weeks per
calendar year (with proration for partial years).
4. Expenses. Upon submission of appropriate documentation, the Company
shall pay, or reimburse, the Executive for all ordinary and necessary business
expenses (including, but not limited to, travel and entertainment expenses)
which the Executive incurs in connection with the performance of his duties
hereunder.
5. Termination of Employment and the Employment Term. The Executive's
employment with the Company and the Employment Term shall terminate upon the
occurrence of the first of the following events:
5.1 Death. Automatically on the date of the Executive's death.
5.2 Disability. Upon thirty (30) days' written notice by the
Company to the Executive of a termination due to Disability, provided such
notice is delivered during the period of Disability. "Disability" shall mean the
inability of the Executive, due to injury, illness, disease or bodily or mental
infirmity, to engage in the performance of his material duties hereunder for a
period of more than one hundred eighty (180) days in any twelve (12) month
period.
5.3 For Cause. Immediately upon written notice by the Company
to the Executive of a termination for Cause, provided such notice is given
within ninety (90) days after the discovery by the Board of the Cause event and
has been approved by at least two-thirds of the directors then in office (other
than the Executive and Sandra Kahn) at a meeting at which the Executive and his
counsel had the right to appear and address after receiving at least five (5)
business days written notice of the meeting and reasonable detail of the facts
and circumstances claimed to provide a basis for such termination. "Cause" shall
mean: (i) an act or acts of willful and material misrepresentation, fraud or
willful dishonesty (other than good faith expense account disputes) by the
Executive which is intended to result in his substantial personal enrichment at
the expense of the Company; (ii) any willful misconduct by the Executive with
regard to the Company that has a material adverse impact on the Company; (iii)
any material, willful and knowing violation by the Executive of any fiduciary
duties owed by him to the Company which has a material adverse impact on the
Company; (iv) the Executive's conviction of, or pleading nolo contendere or
guilty to, a felony (other than (x) a traffic infraction or (y) vicarious
liability solely as a result of his position provided that the Executive did not
have actual knowledge of the actions or inactions creating the violation of the
law or the Executive relied in good faith on the advice of counsel with regard
to the legality of such action or inaction); or (v)
3
<PAGE>
\any other material breach by the Executive of this Agreement that is not cured
by the Executive within twenty (20) days after receipt by the Executive of a
written notice from the Company of such breach specifying the details thereof.
No action or inaction should be deemed willful if not demonstrably willful and
if taken or not taken by the Executive in good faith as not being adverse to the
best interests of the Company. Reference in this Section 5.3 to the Company
shall also include direct and indirect subsidiaries of the Company.
6. Non-Competition/Non-Solicitation.
6.1 Non-Competition. The Executive agrees that during the
Specified Period (as defined below), the Executive shall not, directly or
indirectly, be engaged as a principal in any other business, activity or conduct
which competes with the business of the Company (or be an employee, consultant,
director, principal, shareholder or adviser of, or otherwise be affiliated with,
any such business, activity or conduct), provided that competition shall not
include: (i) holding five percent (5%) or less of an interest in the equity or
debt of any publicly traded company, (ii) engaging in any activity with the
prior written approval of the Board, or (iii) being involved only in a
noncompeting portion of a business which is in competition with the business of
the Company (but only if such non-competing portion of the business is conducted
as a separate business unit, and the Executive has no direct or indirect
involvement with the operations of the competing business unit (with the burden
of so demonstrating being on the Executive) and the foregoing shall not affect
Executive's obligations of confidentiality). For purposes of this Section 6,
"Company" shall mean the Company and its subsidiaries and affiliates. The
"Specified Period" means the Executive's period of employment and the four (4)
year period thereafter, provided that in the event the Executive is terminated
without Cause or due to his Disability or the Executive voluntarily terminates
his employment following a breach by the Company of this Agreement, the
Specified Period will terminate two (2) years after the termination of his
employment.
6.2 Non-Solicitation. The Executive agrees that during the
Specified Period the Executive shall not, directly or indirectly, (i) solicit
any customer, client, supplier, or middleman of the Company or induce any
customer, client, supplier, or middleman of the Company to terminate, or
otherwise to cease, reduce, or diminish in any way its relationship with the
Company or (ii) solicit or induce, or attempt to solicit or induce, any
non-clerical employee(s), sales representative(s), agent(s), or consultant(s) of
the Company to terminate such person's employment, representation or other
association with the Company for the purpose of affiliating with any entity with
which the Executive is associated.
6.3 Confidentiality. The Executive specifically acknowledges
that any trade secrets or confidential business and technical information of the
Company or its vendors, suppliers or customers, whether reduced to writing,
maintained on any form of electronic media, or maintained in mind or memory and
whether compiled by the Executive or the Company (collectively, "Confidential
Information"), derives independent economic value from not being readily known
to or ascertainable by proper means by others; that reasonable efforts have been
4
<PAGE>
made by the Company to maintain the secrecy of such information; that such
information is the sole property of the Company or its vendors, suppliers, or
customers and that any retention, use or disclosure of such information by the
Executive during the Employment Term (except in the course of performing duties
and obligations of employment with the Company) or any time after termination
thereof, shall constitute misappropriation of the trade secrets of the Company
or its vendors, suppliers, or customers, provided that Confidential Information
shall not include: (i) information that is at the time of disclosure public
knowledge or generally known within the industry; (ii) information deemed in
good faith by the Executive, while employed by the Company, desirable to
disclose in the course of performing the Executive's duties; (iii) information
the disclosure of which the Executive in good faith deems necessary in defense
of the Executive's rights provided such disclosure by the Executive is limited
to only disclose as necessary for such purpose; or (iv) information disclosed by
the Executive to comply with a court, or other lawful compulsory, order
compelling him to do so, provided the Executive gives the Company prompt notice
of the receipt of such order and the disclosure by the Executive is limited to
only disclosure necessary for such purpose.
6.4 Return of Property. Upon the termination of the
Executive's employment or at any other time upon written request by the Company,
the Executive shall promptly deliver to the Company all records, files,
memoranda, designs, data, reports, drawings, plans, computer programs, software
and other documents (and all copies or reproductions of such materials in his
possession or control) belonging to the Company. Notwithstanding the foregoing,
the Executive may retain his rolodex and similar phone directories
(collectively, the "Rolodex") to the extent the Rolodex does not contain
information other than name, address, telephone number and similar information.
6.5 Scope of Restrictions/Remedies. If, at the time of
enforcement of this Section 6, a court holds that the restrictions stated herein
are unreasonable under circumstances then existing, the parties hereto agree
that the maximum period, scope or geographical area reasonable under such
circumstances shall be substituted for the stated period, scope or area and that
the court shall be allowed to revise the restrictions contained herein to cover
the maximum period, scope and area permitted by law. In the event of a material
breach or threatened material breach of this Section 6, the Company, in addition
to its other remedies at law or in equity, shall be entitled to injunctive or
other equitable relief in order to enforce or prevent any violations of the
provisions of this Section 6. The Company agrees that it will not assert to
enjoin or otherwise limit the Executive's activities based on an argument of
inevitable disclosure of confidential information. Upon written request of the
Executive, the Company shall within thirty (30) days notify the Executive in
writing whether or not in good faith it believes that any proposed activities
would be in Competition and, if it so determines or does not reply within thirty
(30) days, it shall be deemed to waive any right to treat such activities as
Competition unless the facts are otherwise than as presented by the Executive or
there is a change thereafter in such activities.
5
<PAGE>
7. Indemnification/Liability Insurance. The Company shall concurrently
with the execution and delivery of this Agreement enter into an Indemnification
Agreement with the Executive (such agreement to be the same as the agreement
previously entered into by the Company with its other executives, a copy of
which is filed as an exhibit to the Company's Report on Form 10-KSB for the year
ended December 31, 1997). The Company shall cover the Executive under directors
and officers liability insurance both during and, while potential liabil ity
exists, after the Employment Term in the same amount and to the same extent, if
any, as the Company covers its other officers and directors.
8. Assignment. This Agreement may and shall be assigned or transferred
to, and shall be binding upon and shall inure to the benefit of, any Successor
of the Company, and any such Successor shall be deemed substituted for all
purposes of the "Company" under the terms of this Agreement. Successor shall
mean any person, firm, corporation or business entity which at any time, whether
by merger, purchase, or otherwise, acquires all or substantially all of the
assets of the Company. Notwithstanding such assignment, the Company shall
remain, with such successor, jointly and severally liable for all its
obligations hereunder. Except as herein provided, this Agreement may not
otherwise be assigned by the Company. This Agreement is not assignable by the
Executive. This Agreement shall inure to the benefit of and be enforceable by
the Executive's personal or legal representatives, executors, and
administrators, successors, heirs, distributees, devisees, and legatees. If the
Executive should die after a termination while any amounts payable to the
Executive hereunder remain outstanding, all such amounts, unless otherwise
provided herein, shall be paid to the Executive's devisee, legatee, or other
designee or, in the absence of such designee, to the Executive's estate.
9. Legal Remedies.
9.1 Notices. All notices hereunder shall be in writing and
shall be deemed to have been duly given when delivered by hand, or one (1) day
after sending by express mail or other "overnight mail service," or three (3)
days after sending by certified or registered mail, postage prepaid, return
receipt requested. Notice shall be sent as follows: if to the Executive, to the
address as listed in the Company's records, and if to the Company, to the
address set forth on the first page of this Agreement, attention of the Chairman
of the Board with a copy to the Company's General Counsel. Either party may
change the notice address by notice given as aforesaid.
9.2 Arbitration. All disputes and controversies arising under
or in connection with this Agreement, other than the seeking of injunctive or
other equitable relief pursuant to Section 7 hereof, shall be settled
exclusively by arbitration in New York City, New York, or such other location
agreed by the parties hereto, in accordance with the rules for expedited
resolution of commercial disputes of the American Arbitration Association
("AAA") then in effect. The determination of the arbitrators shall be final and
binding on the parties. Judgment may be entered on the award of the arbitrator
in any court having proper jurisdiction. All expenses of the AAA and the
arbitrator shall be borne as determined by the arbitrator.
6
<PAGE>
10. Miscellaneous.
10.1 Entire Agreement. This Agreement supersedes any prior
agreements or understandings, oral or written, between the parties hereto with
respect to the subject matter hereof.
10.2 Modification. This Agreement shall not be varied,
altered, modified, canceled, changed, or in any way amended, nor any provision
hereof waived, except by mutual agreement of the parties in a written instrument
executed by the parties hereto or their legal representatives.
10.3 Severability. In the event that any provision or portion
of this Agreement shall be determined to be invalid or unenforceable for any
reason, the remaining provisions of this Agreement shall be unaffected thereby
and shall remain in full force and effect.
10.4 Counterparts. This Agreement may be executed in two (2)
or more counterparts, each of which shall be deemed to be an original, but all
of which together will constitute one and the same Agreement.
10.5 Tax Withholding. The Company may withhold from any
benefits payable under this Agreement all federal, state, city, or other taxes
as may be required pursuant to any law or governmental regulation or ruling.
10.6 Governing Law. The provisions of this Agreement shall be
construed and enforced in accordance with the laws of the state of New York,
without regard to any otherwise applicable principles of conflicts of laws.
IN WITNESS WHEREOF, the Executive and the Company have executed this
Agreement, as of the day and year first above written.
INTEGRATED TECHNOLOGY USA, INC.
By: /s/ William Spier
-----------------------------------
Name: William Spier
Title:
/s/ Nathan Kahn
--------------------------------------
Nathan Kahn
7
<PAGE>
EMPLOYMENT AND NON-COMPETITION AGREEMENT
THIS EMPLOYMENT AND NON-COMPETITION AGREEMENT, is entered into as of
this 15th day of September, 1999 by and between Integrated Technology USA, Inc.
(the "Company"), a Delaware corporation, c/o Madison Partners, 444 Madison
Avenue, New York, New York 10022 and Sandra Kahn, c/o Empire Resources, Inc.,
One Parker Plaza, Fort Lee, New Jersey 07024 (the "Executive").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company desires to employ the Executive and the Executive
desires to be employed by the Company; and
WHEREAS, the Company and the Executive desire to set forth the terms
and conditions of such employment.
NOW THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the adequacy and
receipt of which is hereby acknowledged, the parties hereto agree as follows:
1. Term of Employment. The Company hereby agrees to employ the
Executive and the Executive hereby accepts employment, in accordance with the
terms and conditions set forth herein, for a term (the "Employment Term")
commencing on the date of the consummation of the merger of the Company and
Empire Resources, Inc. (the "Merger") and terminating, unless otherwise
terminated earlier in accordance with Section 5 hereof, on the third anniversary
of the Merger (the "Original Employment Term"), provided that the Employment
Term shall be automatically extended, subject to earlier termination as provided
in Section 5 hereof, for successive additional two (2) year periods (the
"Additional Terms"), unless, at least one hundred eighty (180) days prior to the
end of the Original Employment Term or the then Additional Term, the Company or
the Executive has notified the other in writing that the Employment Term shall
terminate at the end of the then current term.
2. Position and Responsibilities. During the Employment Term, the
Executive shall serve as the Chief Financial Officer of the Company and the
Executive shall report exclusively to the Chief Executive Officer of the
Company. During the Employment Term, the Company shall recommend the Executive
for election as a director. The Executive shall, to the extent appointed or
elected, serve on the Board as a director and as a member of any committee of
the Board, in each case, without additional compensation. The Executive shall,
to the extent appointed or elected, serve as a director or as a member of any
committee of the board of any of the Company's subsidiaries or affiliates and as
an officer or employee (in a capacity commensurate with her position with the
Company) of any such subsidiaries or affiliates, in all cases, without
additional compensation and any compensation paid to the Executive in such
capacities shall be a credit with regard to the amounts due hereunder from the
Company. The Executive shall have all of the duties, authorities, powers and
responsibilities commensurate with all of the duties,
<PAGE>
authorities, powers and responsibilities of a chief financial officer. The
Executive shall devote substantially all of her business time, attention and
energies to the performance of her duties hereunder, provided that the foregoing
shall not prevent the Executive from participating in charitable, community or
industry affairs, from managing her and her family's personal investments and
from serving on the boards of directors of not-for-profit companies to the
extent such activities do not interfere with the performance of her duties
hereunder.
3. Compensation and Benefits. The Company shall pay and provide the
Executive the following:
3.1 Base Salary. The Company shall pay the Executive a base
salary (the "Base Salary") at an annual rate of not less than One Hundred
Thousand Dollars ($100,000) per year in accordance with the Company's normal
payroll practices for senior executives. Base Salary shall be subject to annual
review by the Board of Directors of the Company (the "Board"), or a duly
authorized committee thereof, for increase (but not decrease) following each
anniversary of the date hereof, provided that on such anniversary date, the Base
Salary shall be increased by not less than an amount necessary to adjust for any
increase in the cost of living during the immediately prior twelve (12) months
based on the Consumer Price Index for Urban Wage Earners and Clerical Workers
(CPI-W) selected areas (NY-NJ-CT), all items index published by the Bureau of
Labor Statistics of the United States Department of Labor. Once increased, Base
Salary shall not be reduced and shall thereafter, as increased, shall be the
Base Salary hereunder.
3.2 Annual Bonus. The Company shall pay the Executive an
annual bonus for each fiscal year of the Company ending during the Employment
Term, commencing with the 1999 fiscal year, equal to two percent (2%) of the
amount by which the Company's Earnings Before Taxes (as defined below) for each
such fiscal year exceeds $4,000,000 (the "Annual Bonus Payments"); provided,
however, that if any fiscal year is less than twelve (12) months due to a change
in the fiscal year, then such $4,000,000 amount shall be proportionately
reduced. Each Annual Bonus Payment shall be paid in a single cash lump sum not
later than thirty (30) days after the audited financial statements for such
fiscal year are complete. "Earnings Before Taxes" shall mean, for each fiscal
year, the Company's earnings before income taxes determined without regard to
charges to earnings for extraordinary items and Annual Bonus Payments with
respect to the Executive or to the Chief Executive Officer (as long as its Chief
Executive Officer is Nathan Kahn). Earnings Before Taxes and the amount of each
Annual Bonus Payment shall be determined by the Company's independent certified
public accountants (the "Accountants"), or such other party as mutually agreed
by the parties hereto, in accordance with GAAP as consistently applied by the
Company (as specifically modified hereby). The Company shall provide the
Executive with a copy of the Accountants' final determination (together with
supporting quantitative data and the methods used to make such calculations) for
her review and comment at least five (5) business days prior to the payment of
each Annual Bonus Payment. The Accountants' determinations shall be final,
binding and conclusive on the parties hereto.
3.3 Employee Benefits. The Executive shall, to the extent
eligible, be entitled
2
<PAGE>
to participate at a level commensurate with her position in all employee
benefit, fringe benefit, welfare, retirement, savings and incentive plans and
programs generally provided by the Company to its senior executives from time to
time.
3.4 Vacation. The Executive shall be entitled to paid vacation
in accordance with the standard written policies of the Company with regard to
vacations of senior executives, but in no event less than six (6) weeks per
calendar year (with proration for partial years).
4. Expenses. Upon submission of appropriate documentation, the Company
shall pay, or reimburse, the Executive for all ordinary and necessary business
expenses (including, but not limited to, travel and entertainment expenses)
which the Executive incurs in connection with the performance of her duties
hereunder.
5. Termination of Employment and the Employment Term. The Executive's
employment with the Company and the Employment Term shall terminate upon the
occurrence of the first of the following events:
5.1 Death. Automatically on the date of the Executive's death.
5.2 Disability. Upon thirty (30) days' written notice by the
Company to the Executive of a termination due to Disability, provided such
notice is delivered during the period of Disability. "Disability" shall mean the
inability of the Executive, due to injury, illness, disease or bodily or mental
infirmity, to engage in the performance of her material duties hereunder for a
period of more than one hundred eighty (180) days in any twelve (12) month
period.
5.3 For Cause. Immediately upon written notice by the Company
to the Executive of a termination for Cause, provided such notice is given
within ninety (90) days after the discovery by the Board of the Cause event and
has been approved by at least two-thirds of the directors then in office (other
than the Executive and Nathan Kahn) at a meeting at which the Executive and her
counsel had the right to appear and address after receiving at least five (5)
business days written notice of the meeting and reasonable detail of the facts
and circumstances claimed to provide a basis for such termination. "Cause" shall
mean: (i) an act or acts of willful and material misrepresentation, fraud or
willful dishonesty (other than good faith expense account disputes) by the
Executive which is intended to result in her substantial personal enrichment at
the expense of the Company; (ii) any willful misconduct by the Executive with
regard to the Company that has a material adverse impact on the Company; (iii)
any material, willful and knowing violation by the Executive of any fiduciary
duties owed by the Executive to the Company which has a material adverse impact
on the Company; (iv) the Executive's conviction of, or pleading nolo contendere
or guilty to, a felony (other than (x) a traffic infraction or (y) vicarious
liability solely as a result of her position provided that the Executive did not
have actual knowledge of the actions or inactions creating the violation of the
law or the Executive relied in good faith on the advice of counsel with regard
to the legality of such action or inaction); or (v) any other material breach by
the Executive of this Agreement that is not cured by the Executive within twenty
(20) days after receipt by the Executive of a written notice from the
3
<PAGE>
Company of such breach specifying the details thereof. No action or inaction
should be deemed willful if not demonstrably willful and if taken or not taken
by the Executive in good faith as not being adverse to the best interests of the
Company. Reference in this Section 5.3 to the Company shall also include direct
and indirect subsidiaries of the Company.
6. Non-Competition/Non-Solicitation.
6.1 Non-Competition. The Executive agrees that during the
Specified Period (as defined below), the Executive shall not, directly or
indirectly, be engaged as a principal in any other business, activity or conduct
which competes with the business of the Company (or be an employee, consultant,
director, principal, shareholder or adviser of, or otherwise be affiliated with,
any such business, activity or conduct), provided that competition shall not
include: (i) holding five percent (5%) or less of an interest in the equity or
debt of any publicly traded company, (ii) engaging in any activity with the
prior written approval of the Board, or (iii) being involved only in a
noncompeting portion of a business which is in competition with the business of
the Company (but only if such non-competing portion of the business is conducted
as a separate business unit, and the Executive has no direct or indirect
involvement with the operations of the competing business unit (with the burden
of so demonstrating being on the Executive) and the foregoing shall not affect
Executive's obligations of confidentiality). For purposes of this Section 6,
"Company" shall mean the Company and its subsidiaries and affiliates. The
"Specified Period" means the Executive's period of employment and the four (4)
year period thereafter, provided that in the event the Executive is terminated
without Cause or due to her Disability or the Executive voluntarily terminates
her employment following a breach by the Company of this Agreement, the
Specified Period will terminate two (2) years after the termination of her
employment.
6.2 Non-Solicitation. The Executive agrees that during the
Specified Period the Executive shall not, directly or indirectly, (i) solicit
any customer, client, supplier, or middleman of the Company or induce any
customer, client, supplier, or middleman of the Company to terminate, or
otherwise to cease, reduce, or diminish in any way its relationship with the
Company or (ii) solicit or induce, or attempt to solicit or induce, any
non-clerical employee(s), sales representative(s), agent(s), or consultant(s) of
the Company to terminate such person's employment, representation or other
association with the Company for the purpose of affiliating with any entity with
which the Executive is associated.
6.3 Confidentiality. The Executive specifically acknowledges
that any trade secrets or confidential business and technical information of the
Company or its vendors, suppliers or customers, whether reduced to writing,
maintained on any form of electronic media, or maintained in mind or memory and
whether compiled by the Executive or the Company (collectively, "Confidential
Information"), derives independent economic value from not being readily known
to or ascertainable by proper means by others; that reasonable efforts have been
made by the Company to maintain the secrecy of such information; that such
information is the sole property of the Company or its vendors, suppliers, or
customers and that any retention, use or disclosure of such information by the
Executive during the Employment Term (except in the
4
<PAGE>
course of performing duties and obligations of employment with the Company) or
any time after termination thereof, shall constitute misappropriation of the
trade secrets of the Company or its vendors, suppliers, or customers, provided
that Confidential Information shall not include: (i) information that is at the
time of disclosure public knowledge or generally known within the industry; (ii)
information deemed in good faith by the Executive, while employed by the
Company, desirable to disclose in the course of performing the Executive's
duties; (iii) information the disclosure of which the Executive in good faith
deems necessary in defense of the Executive's rights provided such disclosure by
the Executive is limited to only disclose as necessary for such purpose; or (iv)
information disclosed by the Executive to comply with a court, or other lawful
compulsory, order compelling her to do so, provided the Executive gives the
Company prompt notice of the receipt of such order and the disclosure by the
Executive is limited to only disclosure necessary for such purpose.
6.4 Return of Property. Upon the termination of the
Executive's employment or at any other time upon written request by the Company,
the Executive shall promptly deliver to the Company all records, files,
memoranda, designs, data, reports, drawings, plans, computer programs, software
and other documents (and all copies or reproductions of such materials in her
possession or control) belonging to the Company. Notwithstanding the foregoing,
the Executive may retain her rolodex and similar phone directories
(collectively, the "Rolodex") to the extent the Rolodex does not contain
information other than name, address, telephone number and similar information.
6.5 Scope of Restrictions/Remedies. If, at the time of
enforcement of this Section 6, a court holds that the restrictions stated herein
are unreasonable under circumstances then existing, the parties hereto agree
that the maximum period, scope or geographical area reasonable under such
circumstances shall be substituted for the stated period, scope or area and that
the court shall be allowed to revise the restrictions contained herein to cover
the maximum period, scope and area permitted by law. In the event of a material
breach or threatened material breach of this Section 6, the Company, in addition
to its other remedies at law or in equity, shall be entitled to injunctive or
other equitable relief in order to enforce or prevent any violations of the
provisions of this Section 6. The Company agrees that it will not assert to
enjoin or otherwise limit the Executive's activities based on an argument of
inevitable disclosure of confidential information. Upon written request of the
Executive, the Company shall within thirty (30) days notify the Executive in
writing whether or not in good faith it believes any proposed activities would
be in Competition and, if it so determines or does not reply within thirty (30)
days, it shall be deemed to waive any right to treat such activities as
Competition unless the facts are otherwise than as presented by the Executive or
there is a change thereafter in such activities.
7. Indemnification/Liability Insurance. The Company shall concurrently
with the execution and delivery of this Agreement enter into an Indemnification
Agreement with the Executive (such agreement to be the same as the agreement
previously entered into by the Company with its other executives, a copy of
which is filed as an exhibit to the Company's Report on Form 10-KSB for the year
ended December 31, 1997). The Company shall cover the Executive under directors
and officers liability insurance both during and, while potential liabil-
5
<PAGE>
ity exists, after the Employment Term in the same amount and to the same extent,
if any, as the Company covers its other officers and directors.
8. Assignment. This Agreement may and shall be assigned or transferred
to, and shall be binding upon and shall inure to the benefit of, any Successor
of the Company, and any such Successor shall be deemed substituted for all
purposes of the "Company" under the terms of this Agreement. Successor shall
mean any person, firm, corporation or business entity which at any time, whether
by merger, purchase, or otherwise, acquires all or substantially all of the
assets of the Company. Notwithstanding such assignment, the Company shall
remain, with such successor, jointly and severally liable for all its
obligations hereunder. Except as herein provided, this Agreement may not
otherwise be assigned by the Company. This Agreement is not assignable by the
Executive. This Agreement shall inure to the benefit of and be enforceable by
the Executive's personal or legal representatives, executors, and
administrators, successors, heirs, distributees, devisees, and legatees. If the
Executive should die after a termination while any amounts payable to the
Executive hereunder remain outstanding, all such amounts, unless otherwise
provided herein, shall be paid to the Executive's devisee, legatee, or other
designee or, in the absence of such designee, to the Executive's estate.
9. Legal Remedies.
9.1 Notices. All notices hereunder shall be in writing and
shall be deemed to have been duly given when delivered by hand, or one (1) day
after sending by express mail or other "overnight mail service," or three (3)
days after sending by certified or registered mail, postage prepaid, return
receipt requested. Notice shall be sent as follows: if to the Executive, to the
address as listed in the Company's records, and if to the Company, to the
address set forth on the first page of this Agreement, attention of the Chairman
of the Board with a copy to the Company's General Counsel. Either party may
change the notice address by notice given as aforesaid.
9.2 Arbitration. All disputes and controversies arising under
or in connection with this Agreement, other than the seeking of injunctive or
other equitable relief pursuant to Section 6 hereof, shall be settled
exclusively by arbitration in New York City, New York, or such other location
agreed by the parties hereto, in accordance with the rules for expedited
resolution of commercial disputes of the American Arbitration Association
("AAA") then in effect. The determination of the arbitrators shall be final and
binding on the parties. Judgment may be entered on the award of the arbitrator
in any court having proper jurisdiction. All expenses of the AAA and the
arbitrator shall be borne as determined by the arbitrator.
10. Miscellaneous.
10.1 Entire Agreement. This Agreement supersedes any prior
agreements or understandings, oral or written, between the parties hereto with
respect to the subject matter hereof.
6
<PAGE>
10.2 Modification. This Agreement shall not be varied,
altered, modified, canceled, changed, or in any way amended, nor any provision
hereof waived, except by mutual agreement of the parties in a written instrument
executed by the parties hereto or their legal representatives.
10.3 Severability. In the event that any provision or portion
of this Agreement shall be determined to be invalid or unenforceable for any
reason, the remaining provisions of this Agreement shall be unaffected thereby
and shall remain in full force and effect.
10.4 Counterparts. This Agreement may be executed in two (2)
or more counterparts, each of which shall be deemed to be an original, but all
of which together will constitute one and the same Agreement.
10.5 Tax Withholding. The Company may withhold from any
benefits payable under this Agreement all federal, state, city, or other taxes
as may be required pursuant to any law or governmental regulation or ruling.
10.6 Governing Law. The provisions of this Agreement shall be
construed and enforced in accordance with the laws of the state of New York,
without regard to any otherwise applicable principles of conflicts of laws.
IN WITNESS WHEREOF, the Executive and the Company have executed this
Agreement, as of the day and year first above written.
INTEGRATED TECHNOLOGY USA, INC.
By: /s/ William Spier
----------------------------------
Name: William Spier
Title:
/s/ Sandra Kahn
-------------------------------------
Sandra Kahn
7
<PAGE>
EMPLOYMENT AND NON-COMPETITION AGREEMENT
THIS EMPLOYMENT AND NON-COMPETITION AGREEMENT, is entered into as of
this 15th day of September, 1999 by and between Integrated Technology USA, Inc.
(the "Company"), a Delaware corporation c/o Madison Partners, 444 Madison
Avenue, 38th Floor, New York, New York 10022, and Harvey Wrubel residing at 670
South Forest Drive, Teaneck, New Jersey 07666 (the "Executive").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Empire Resources, Inc. ("ERI") and the Company are merging
(the "Merger");
WHEREAS, the Executive is currently employed by ERI;
WHEREAS, the Company desires to employ the Executive and the Executive
desires to be employed by the Company effective upon the consummation of the
Merger; and
WHEREAS, the Company and the Executive desire to set forth the terms
and conditions of such employment.
NOW THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the adequacy and
receipt of which is hereby acknowledged, the parties hereto agree as follows:
1. Term of Employment. The Company hereby agrees to employ the
Executive and the Executive hereby accepts employment, in accordance with the
terms and conditions set forth herein, for a term (the "Employment Term")
commencing on the effective date of the Merger (the "Effective Date") and
terminating, unless otherwise terminated earlier in accordance with Section 5
hereof, on December 31, 2002 (the "Original Employment Term"), provided that the
Employment Term shall be automatically extended, subject to earlier termination
as provided in Section 5 hereof, for successive additional two (2) year periods
(the "Additional Terms"), unless, at least ninety (90) days prior to the end of
the Original Employment Term or the then Additional Term, the Company or the
Executive has notified the other in writing that the Employment Term shall
terminate at the end of the then current term.
2. Position and Responsibilities. During the Employment Term, the
Executive shall serve as an executive officer of the Company with the initial
title of Vice President of Sales of the Company and the Executive shall report
to the Chief Executive Officer of the Company. The Executive shall perform such
services consistent with his position as may be assigned to him from time to
time by the Chief Executive Officer of the Company. The Executive shall devote
substantially all of his business time, attention and energies to the
performance of his duties hereunder, provided that the foregoing shall not
prevent the Executive from participating in
<PAGE>
charitable, community or industry affairs and from managing his and his family's
passive personal investments to the extent such activities do not interfere with
the performance of his duties hereunder.
3. Compensation and Benefits. During the Employment Term, the Company
shall pay and provide the Executive the following:
3.1 Base Salary. The Company shall pay the Executive a base
salary (the "Base Salary") at an annual rate of not less than Two Hundred Three
Thousand Dollars ($203,000) per year in accordance with the Company's normal
payroll practices for executives. Base Salary shall be subject to annual review
by the Board of Directors of the Company (the "Board"), or a duly authorized
committee thereof, for increase (but not decrease) in January of each year,
commencing in January, 2000, provided that in each such January the Base Salary
shall be increased by an amount necessary to adjust for any increase in the cost
of living during the twelve (12) month period ending during the prior November
based on the Consumer Price Index for Urban Wage Earners and Clerical Workers
(CPI-W) selected areas (NY-NJ-CT), all items index published by the Bureau of
Labor Statistics of the United States Department of Labor. Once increased, Base
Salary shall not be reduced and shall thereafter, as increased, shall be the
Base Salary hereunder.
3.2 Commissions. The Company shall pay the Executive an annual
commission (the "Annual Commission") for each fiscal year ending during the
Employment Term, commencing with the fiscal year commencing on January 1, 1999,
equal to ten percent (10%) of the Margin (as defined below) during each such
fiscal year. Each Annual Commission shall be paid in a single cash lump sum
after the end of each fiscal year based on the Company's actual receipts during
such year. "Margin" shall mean, for each fiscal year, the net paid revenues
(after deduction of duty and shipping) received during such fiscal year from all
sales directly and solely made by the Executive reduced by all costs directly
attributable to such sales (including, but not limited to, cost of materials,
finance charges in accordance with the Company's policy in effect from time to
time, storage charges and fees to third parties), provided that Margin shall be
determined without regard to the cost of the Annual Commissions. The Annual
Commission payments will be based solely on the Company's actual cash receipts
(rather than receivables) for each fiscal year and direct costs shall be first
attributed to any amounts from sales revenues received in installments. Any
refunds, chargebacks, increases and similar adjustments for amounts received in
prior fiscal years shall be adjusted in the next Annual Commission or, if none,
refunded by or paid to the Executive, as appropriate. Not more than thirty (30)
days after the end of each fiscal year, the Executive shall submit to the
Company a written summary of his calculation of the Margin and Annual Commission
payable with respect to such fiscal year (together with supporting quantitative
date and the methods used to make such calculations). The Company shall have
twenty (20) days to review such calculations. In the event that the Company does
not agree with the Executive's calculation of the Margin or Annual Commission,
the Company will provide the Executive with written notice specifying the
details of such dispute within such twenty (20) day period. If the parties
cannot resolve the dispute within ten (10) days,
2
<PAGE>
the Margin and the Annual Commission shall be referred to the Company's
independent certified public accountants, or such other party as mutually agreed
by the parties hereto, for determination (the "Accountants"). The Company shall
provide the Executive with a copy of the Accountants' determination (together
with supporting quantitative data and the methods used to make such
calculations). The Accountants' determination shall be final, binding and
conclusive on the parties hereto. The Accountants' shall have thirty (30) days
to perform such calculations and such calculations shall delay the payment date
with regard to amounts in question, but not other amounts. All amounts shall be
paid within ten (10) days of the determination (as set forth above) that such
amounts are due. The Company may, in its sole discretion and without liability
for lost Annual Commissions, reject sales or other transactions, compromise or
settle amounts due, make refunds or not pursue collections. In no event shall
the Executive be entitled to receive any Annual Commission with regard to any
sales made after his date of termination.
3.3 Employee Benefits. The Executive shall, to the extent
eligible, be entitled to participate at a level commensurate with his position
in all employee benefit, welfare, retirement, savings, stock option and
incentive plans and programs generally provided by the Company to its senior
executives from time to time.
3.4 Vacation. The Executive shall be entitled to paid vacation
in accordance with the standard written policies of the Company with regard to
vacations of executives, but in no event less than three (3) weeks per calendar
year (with proration for partial years). Unused vacation shall not accrue from
year to year nor be paid for.
4. Expenses. In accordance with its policies in effect from time to
time, upon submission of appropriate documentation, the Company shall pay, or
reimburse, the Executive for ordinary and necessary business expenses within
such policy which the Executive incurs in connection with the performance of his
duties hereunder.
5. Termination of Employment and the Employment Term. The Executive's
employment with the Company and the Employment Term shall terminate upon the
occurrence of the first of the following events:
5.1 Death. Automatically on the date of the Executive's death.
5.2 Termination By the Company for Cause. Immediately upon
written notice by the Company to the Executive of a termination for Cause.
"Cause" shall mean: (i) the Executive's commission of, or indictment for (A) a
felony, or (B) any misdemeanor involving theft, fraud or moral turpitude; (ii)
the Executive's failure to reasonably promptly follow the legal written
direction of the Chief Executive Officer of the Company with regard to matters
commensurate with his position; (iii) theft, dishonesty, fraud or breach of
fiduciary duty by the Executive with regard to the Company; (iv) willful
misconduct or gross negligence by the Executive with regard to the Company, its
business, assets or employees; (v) any material breach by the Executive of this
Agreement that is not cured by the Executive within twenty (20) days
3
<PAGE>
after receipt by the Executive of a written notice from the Company specifying
the details thereof; (vi) the Executive's failure to attempt to perform his
duties hereunder which is not remedied within five (5) days after receipt by the
Executive of a written notice from the Company specifying the details thereof;
(vii) the Executive's Material Unsatisfactory Performance (as defined below); or
(viii) the Executive's inability due to injury, illness, disease or bodily or
mental infirmity, to perform his material duties hereunder for a period of more
than one hundred twenty (120) days during any three hundred sixty-five (365)
consecutive day period. Reference in this Section 5.2 to the Company shall also
include direct and indirect subsidiaries of the Company. Material Unsatisfactory
Performance shall mean that, with regard to any fiscal year, the Margin
(determined in accordance with Section 3.2 above) in such fiscal year is less
than $500,000 (prorated for any short fiscal year). For purposes of this Section
5.2, a "sale" shall be deemed made at the earliest of (i) when an order is
formally confirmed or otherwise accepted in writing by the Company, (ii) when an
order number is issued, or (iii) when actions are initially taken by the Company
to fill the order.
5.3 Termination By the Company without Cause. Upon written
notice by the Company to the Executive of a termination without Cause.
6. Consequences of a Termination of Employment.
6.1 Termination due to Death. If the Employment Term
terminates on account of the Executive's death, (i) the Executive's estate shall
be entitled to: (x) prompt payment of any unpaid Base Salary and any accrued
vacation, and (y) reimbursement for any unreimbursed business expenses, and (ii)
any amounts or benefits due under any benefit plan, grant or program (including,
but not limited to, group health and life insurance arrangements in which the
Executive participates) shall be paid in accordance with the terms of said plan,
grant or program (collectively, the "Accrued Obligations"). In addition, in the
event of the termination of the Executive's employment on account of his death,
the Executive's estate shall be entitled to payment of any unpaid Annual
Commissions on sales occurring on or prior to the date of the Executive's
termination of employment.
6.2 Termination by the Company for Cause or Voluntary
Termination by the Executive. If the Executive is terminated by the Company for
Cause or the Executive terminates his employment in breach of this Agreement,
the Executive shall be entitled to receive any Accrued Obligations and payment
of any unpaid Annual Commissions on sales occurring on or prior to the
Executive's date of termination in full settlement of all amounts owed him. In
the event the Executive terminates his employment in breach of this Agreement,
the Company hereby reserves all rights which it has at law arising in connection
with such breach (without limitation of its rights under Section 7.6 below).
6.3 Termination by the Company without Cause. If the Executive
is terminated by the Company without Cause, the Executive shall, subject to
cutoff in accordance with Section 7.6 below, be entitled to receive in full
settlement of all amounts owed to him,
4
<PAGE>
provided he delivers to the Company a release of all claims relating to his
employment and the termination thereof (other than those specifically payable
hereunder and any rights of indemnification under the Company's organizational
documents) running to the Company, its subsidiaries and related entities and
their respective past or present officers, directors and employees in such form
as requested by the Company, the following:
(a) Any Accrued Obligations;
(b) Payment of any unpaid Annual Commissions on sales occurring on
or prior to the date of the Executive's termination of
employment; and
(c) Continued payment on a monthly basis of the Executive's then
current monthly Base Salary (without future increase) for the
number of months then remaining in the Employment Term.
6.4 Sales after a Termination of Employment. Notwithstanding
anything herein to the contrary, in no event shall the Executive be entitled to
receive Annual Commissions under this Agreement or otherwise be compensated for
sales occurring following his date of termination.
7. Non-Competition, Non-Solicitation, Confidentiality, Return of
Property.
7.1 Non-Competition. During the Employment Term and the twelve
(12) month period thereafter or, if longer, the period during which the
Executive is receiving severance payments pursuant to Section 6.3(b) above, the
Executive shall not be engaged as, or be, an employee, director, partner,
principal, shareholder, advisor, in any other business, activity or conduct
which competes with the business of the Company, provided that, with regard to
the period after the Executive's termination of employment, the foregoing shall
only apply to competition with regard to aluminum and such other commodities as
were being sold by the Company within six (6) months prior to the date of
termination. Notwithstanding the foregoing, competition shall not include
holding five percent (5%) or less of an interest in the equity or debt of any
publicly traded company. For purposes of this Section 7, "Company" shall mean
the Company and its subsidiaries and affiliates.
7.2 Non-Solicitation. During the Employment Term and the
eighteen (18) month period thereafter or, if longer, the period during which the
Executive is receiving severance payments pursuant to Section 6.3(b) above, the
Executive shall not, directly or indirectly (i) solicit any customer, client,
supplier, or middleman of the Company or induce any customer, client, supplier,
or middleman of the Company to terminate, or otherwise to cease, reduce, or
diminish in any way its relationship with the Company, provided that, with
regard to the period after the Executive's termination of employment, the
foregoing shall only apply to solicitation or inducement involving aluminum and
such other commodities as were being sold by the Company within six (6) months
prior to the date of termination so long as the Executive is
5
<PAGE>
not in violation of his obligations under Section 7.3 below, or (ii) solicit or
induce, or attempt to solicit or induce, any non-clerical employees, sales
representatives, agents, consultants, of the Company to terminate such person's
employment, representation or other association with the Company.
7.3 Confidentiality. The Executive specifically acknowledges
that any trade secrets or confidential business and technical information of the
Company or its vendors, suppliers or customers, whether reduced to writing,
maintained on any form of electronic media, or maintained in mind or memory and
whether compiled by the Executive or the Company (collectively, "Confidential
Information"), derives independent economic value from not being readily known
to or ascertainable by proper means by others; that reasonable efforts have been
made by the Company to maintain the secrecy of such information; that such
information is the sole property of the Company or its vendors, suppliers, or
customers and that any retention, use or disclosure of such information by the
Executive during the Employment Term (except in the course of performing duties
and obligations of employment with the Company) or any time after termination
thereof, shall constitute misappropriation of the trade secrets of the Company
or its vendors, suppliers, or customers, provided that Confidential Information
shall not include: (i) information that is at the time of disclosure public
knowledge or generally known within the industry; (ii) information deemed in
good faith by the Executive, while employed by the Company, desirable to
disclose in the course of performing the Executive's duties; (iii) information
the disclosure of which the Executive in good faith deems necessary in defense
of the Executive's rights provided such disclosure by the Executive is limited
to only disclose as necessary for such purpose; or (iv) information disclosed by
the Executive to comply with a court, or other lawful compulsory, order
compelling him to do so, provided the Executive gives the Company prompt notice
of the receipt of such order and the disclosure by the Executive is limited to
only disclosure necessary for such purpose.
7.4 Return of Property. Upon the termination of the
Executive's employment or at any other time upon written request by the Company,
the Executive shall promptly deliver to the Company all records, files,
memoranda, designs, data, reports, drawings, plans, computer programs, software
and other documents (and all copies or reproductions of such materials in his
possession or control) belonging to the Company. Notwithstanding the foregoing,
the Executive may retain his rolodex and similar phone directories
(collectively, the "Rolodex") to the extent the Rolodex does not contain
information other than name, address, telephone number and similar information.
7.5 Scope of Restrictions. If, at the time of enforcement of
this Section 7, a court holds that the restrictions stated herein are
unreasonable under circumstances then existing, the parties hereto agree that
the maximum period, scope or geographical area reasonable under such
circumstances shall be substituted for the stated period, scope or area and that
the court shall be allowed to revise the restrictions contained herein to cover
the maximum period, scope and area permitted by law.
6
<PAGE>
7.6 Remedies. In the event of a material breach or threatened
material breach of this Section 7, the Company, in addition to its other
remedies at law or in equity, shall be entitled to injunctive or other equitable
relief in order to enforce or prevent any violations of the provisions of this
Section 7. In the event the Executive breaches his covenants under Section 7.1
or Section 7.2 above, the Company may immediately cease payment to the Executive
of all future amounts due under Sections 6.3(b) and (c) above.
8. Assignment. This Agreement may be assigned by the Company only with
all or substantially all of the assets of the Company or the portion of the
Company with which the Executive is primarily employed. This Agreement is not
assignable by the Executive. This Agreement shall inure to the benefit of and be
enforceable by the parties' representatives, executors, and administrators,
successors, permitted assigns, heirs, distributees, devisees, and legatees. If
the Executive should die after a termination while any amounts payable to the
Executive hereunder remain outstanding, all such amounts, unless otherwise
provided herein, shall be paid to the Executive's devisee, legatee, or other
designee or, in the absence of such designee, to the Executive's estate.
9. Arbitration. All disputes and controversies arising under or in
connection with this Agreement, other than the seeking of injunctive or other
equitable relief pursuant to Section 7 hereof, shall be settled exclusively by
arbitration in New York City, New York, or such other location agreed by the
parties hereto, in accordance with the rules for expedited resolution of
commercial disputes of the American Arbitration Association ("AAA") then in
effect. The determination of the arbitrators shall be final and binding on the
parties. Judgment may be entered on the award of the arbitrator in any court
having proper jurisdiction. All expenses of the AAA and the arbitrator shall be
borne as determined by the arbitrator.
10. Miscellaneous.
10.1 Entire Agreement. This Agreement supersedes any and all
prior agreements or understandings, oral or written, between the parties hereto
with respect to the subject matter hereof.
10.2 Modification. This Agreement shall not be varied,
altered, modified, canceled, changed, or in any way amended, nor any provision
hereof waived, except by mutual agreement of the parties in a written instrument
executed by the parties hereto or their legal representatives.
10.3 Notices. All notices hereunder shall be in writing and
shall be deemed to have been duly given when delivered by hand, or one (1) day
after sending by express mail or other "overnight mail service," or three (3)
days after sending by certified or registered mail, postage prepaid, return
receipt requested. Notice shall be sent as follows: if to the Executive, to the
address as listed in the Company's records with a copy to Cheryl V. Reicin,
Esq., McDermott, Will & Emory, 50 Rockefeller Plaza, New York, New York 10020,
and if to the Company, to the
7
<PAGE>
address set forth on the first page of this Agreement, attention of the Chief
Executive Officer with a copy to the Company's General Counsel. Either party may
change the notice address by notice given as aforesaid.
10.4 Severability. In the event that any provision or portion
of this Agreement shall be determined to be invalid or unenforceable for any
reason, the remaining provisions of this Agreement shall be unaffected thereby
and shall remain in full force and effect.
10.5 Counterparts. This Agreement may be executed in two (2)
or more counterparts, each of which shall be deemed to be an original, but all
of which together will constitute one and the same Agreement.
10.6 Tax Withholding. The Company may withhold from any
benefits payable under this Agreement or otherwise all federal, state, city, or
other taxes as may be required pursuant to any law or governmental regulation or
ruling.
10.7 Governing Law. The provisions of this Agreement shall be
construed and enforced in accordance with the laws of the state of Delaware,
without regard to any otherwise applicable principles of conflicts of laws.
IN WITNESS WHEREOF, the Executive and the Company have executed this
Agreement as of the day and year first above written.
INTEGRATED TECHNOLOGY USA, INC.
By: /s/ William Spier
----------------------------------
Name: William Spier
Title:
/s/ Harvey Wrubel
-------------------------------------
Harvey Wrubel
8
<PAGE>
RESTRICTED STOCK AGREEMENT
THIS RESTRICTED STOCK AGREEMENT, made as of the 14TH day of September,
1999 (the "Grant Date"), by and between Nathan Kahn, as tenant-in-common, Sandra
Kahn, as tenant-in-common, each c/o Empire Resources, Inc., One Parker Plaza,
Fort Lee, New Jersey 07024 (collectively, the "Kahns"), Empire Resources, Inc.,
a Delaware corporation (the "Company"), and Harvey Wrubel residing at 670 South
Forest Drive, Teaneck, New Jersey 07666 (the "Executive").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Kahns desire to transfer to the Executive shares of the
Company's common stock, without par value (the "Common Stock"), subject to
certain restrictions set forth herein in order to provide additional incentives
to the Executive and to further the identity of interests of the Executive and
the Company's stockholders through opportunities for stock ownership by the
Executive.
NOW THEREFORE, the parties hereto agree as follows:
1. Grant of Restricted Stock. Subject to the restrictions, terms and
conditions of this Agreement, the Kahns, as tenants-in-common, hereby transfer
to the Executive one-half of a share (.5 shares) of Common Stock (the "Shares").
Pursuant to Section 3 hereof, the Shares are subject to certain vesting
restrictions, which restrictions shall expire at various times with regard to
portions of the Shares. While such restrictions are in effect, the Shares
subject to such restrictions shall be referred to herein as the "Restricted
Stock."
2. Restrictions on Transfer. The Executive shall not sell, transfer,
pledge, hypothecate, assign or otherwise encumber or dispose of the Shares,
except as set forth in this Agreement. Any attempted sale, transfer, pledge,
hypothecation, assignment or other disposition of the Shares in violation of
this Agreement shall be void and of no effect and the Company shall disregard
the same on its books and records and issue "stop transfer" instructions to its
transfer agent.
3. Restricted Stock.
3.1 Retention of Certificates. Promptly after the date of this
Agreement, the Company shall issue stock certificates representing the
Restricted Stock. The stock certificates shall be registered in the Executive's
name and shall bear the legend required pursuant to Section 4 hereof. Such stock
certificates shall be held in custody by the Company until the restrictions
thereon shall have lapsed. The Executive shall have delivered to the Company a
duly signed stock power, endorsed in blank, relating to the Restricted Stock. In
the event the Executive receives a stock dividend on the Restricted Stock or the
Restricted Stock is split or the Executive receives any other shares,
securities, moneys or property representing a dividend on the Restricted Stock
(other than regular cash dividends on and after the date of this Agreement) or
representing a distribution or return of capital upon or in respect of the
Restricted Stock or any
<PAGE>
part thereof, or resulting from a split-up, reclassification or other like
changes of the Restricted Stock, or otherwise received in exchange therefor, and
any warrants, rights or options issued to the Executive in respect of the
Restricted Stock (collectively "RS Property"), the Executive will also
immediately deposit with and deliver to the Company (or its designated agent)
any of such RS Property, including any certificates representing shares duly
endorsed in blank or accompanied by stock powers duly executed in blank, and
such RS Property shall be subject to the same restrictions, including that of
this Section 3.1, as the Restricted Stock with regard to which they are issued
and shall herein, except where the context otherwise requires, be encompassed
within the term "Restricted Stock."
3.2 Rights with Regard to Restricted Stock. Upon delivery to
the Executive, the Restricted Stock will constitute issued and outstanding
shares of Common Stock for all corporate purposes. From and after the date of
transfer, the Executive will have the right to vote the Restricted Stock, to
receive and retain all regular cash dividends payable to holders of Common Stock
of record on and after the transfer of the Restricted Stock, and to exercise all
other rights, powers and privileges of a holder of Common Stock with respect to
the Restricted Stock, with the exceptions that (i) the Executive will not be
entitled to delivery of the stock certificate or certificates representing the
Restricted Stock until the period during which such Restricted Stock is subject
to the restrictions set forth in Section 2 hereof (the "Restriction Period") has
expired and unless all other vesting requirements with respect thereto shall
have been fulfilled, (ii) the Company will retain custody of the stock
certificate or certificates representing the Restricted Stock and the other RS
Property during the Restriction Period, (iii) no RS Property shall bear interest
or be segregated in separate accounts during the Restriction Period, and (iv)
the Executive may not sell, assign, transfer, pledge, exchange, encumber or
dispose of the Restricted Stock during the Restriction Period. Notwithstanding
the foregoing, if there is a tender offer with respect to the Common Stock, the
Executive may tender his shares of Restricted Stock, but such Restricted Stock
shall upon tender remain subject to the restrictions set forth in Sections
3.3(a) and 3.3(b) below to the extent that such restrictions continue to apply
subsequent to the consummation of such tender offer.
3.3 Vesting. (a) Except as provided in Section 3.3(b) below,
the Restricted Stock shall become vested and cease to be Restricted Stock (but
shall remain subject to the other terms of this Agreement) on each of the
following dates (each, a "Vesting Date") as follows if the Executive has been
continuously employed by the Company until such date:
On the first anniversary of the Grant Date 33.33% of the Shares
On the second anniversary of the Grant Date 33.33% of the Shares
On the third anniversary of the Grant Date 33.34% of the Shares
There shall be no proportionate or partial vesting in the
periods prior to the applicable Vesting Date and all vesting shall occur only on
the appropriate Vesting Date, provided that, if the Executive's employment with
the Company is terminated by the Company without Cause (as defined in the
proposed employment agreement by and between the Executive and Integrated
Technology USA, Inc. ("ITI") (the "Employment Agreement")) or if there is a
2
<PAGE>
Change in Control of the Company (as defined in Exhibit A hereto) prior to the
Executive's termination of employment, then, subject to Section 3.3(b) below,
any unvested shares of Restricted Stock shall immediately fully vest. When any
Restricted Stock becomes vested, the Company shall promptly issue and deliver to
the Executive a new stock certificate registered in the name of the Executive
for such Shares without the legend set forth in Section 4(a) hereof and shall
promptly deliver to the Executive any related RS Property.
(b) .118182 shares of Restricted Stock that would otherwise
become vested on each Vesting Date pursuant to Section 3.3(a) above (the
"Contingent Shares") shall not vest and shall not cease to be Restricted Stock
hereunder unless the Company's Cumulative After-Tax Income Targets set forth on
Exhibit B hereto (the "Targets") are attained in accordance with the terms and
conditions set forth therein. The Contingent Shares shall only vest on the later
of the attainment of (i) the applicable Targets or (ii) the appropriate Vesting
Date (or upon a Change in Control or termination by the Company without Cause)
in accordance with Section 3(a) above. In the event that only some of the
Contingent Shares vest as a result of the attainment of the Targets, the amount
shall be proportionately allocated to each Vesting Date. Upon the attainment of
the Targets (but solely to the extent of such attainment), the Contingent Shares
shall cease to be subject to the restrictions of this Section 3(b). When any
Contingent Shares become fully vested in accordance with this Section 3(b) and
Section 3(a) above, the Company shall promptly issue and deliver to the
Executive a new stock certificate registered in the name of the Executive for
such Shares without the legend in Section 4(a) hereof and shall promptly deliver
to the Executive any related RS Property.
3.4 Surrender. In the event that the employment of the
Executive with the Company is terminated by the Company for Cause or the
Executive terminates employment with the Company for any reason, the Executive
shall forfeit to the Kahns, without compensation, all then unvested shares of
Restricted Stock and RS Property (but no vested portion of the Restricted Stock
or RS Property).
3.5 Adjustments. This award of Restricted Stock shall not
affect in any way the right or power of the Board of Directors or stockholders
of the Company to make or authorize an adjustment, recapitalization or other
change in the capital structure or the business of the Company, any merger or
consolidation of the Company or subsidiaries, any issue of bonds, debentures,
preferred or prior preference stock ahead of or affecting the Common Stock, the
dissolution or liquidation of the Company or subsidiaries, any sale or transfer
of all or part of its assets or business or any other corporate act or
proceeding.
3.6 Withholding. The Executive agrees that, subject to
subsection 3.7 below,
(a) No later than the date on which any Restricted
Stock shall have become vested, the Executive will pay to the Company, or make
arrangements satisfactory to the Company regarding payment of any federal, state
or local taxes of any kind required by law to be withheld with respect to any
Restricted Stock which shall have become so vested; and
3
<PAGE>
(b) The Company shall, to the extent permitted by
law, have the right to deduct from any payment of any kind otherwise due to the
Executive any federal, state or local taxes of any kind required by law to be
withheld with respect to any Restricted Stock which shall have become so vested.
3.7 Section 83(b). If the Executive properly elects (as
permitted by Section 83(b) of the Internal Revenue Code of 1986, as amended (the
"Code")) within thirty (30) days after the transfer of the Restricted Stock to
include in gross income for federal income tax purposes in the year of issuance
the fair market value of such Restricted Stock, the Executive shall pay to the
Company or make arrangements satisfactory to the Company to pay to the Company
upon such election, any federal, state or local taxes required to be withheld
with respect to such Restricted Stock. If the Executive shall fail to make such
payment, the Company shall, to the extent permitted by law, have the right to
deduct from any payment of any kind otherwise due to the Executive any federal,
state or local taxes of any kind required by law to be withheld with respect to
such Restricted Stock.
3.8 Special Incentive Compensation. The Executive agrees that
the award of the Restricted Stock hereunder is special incentive compensation
and that it, any dividends paid thereon (even if treated as compensation for tax
purposes) and any other RS Property will not be taken into account as "salary"
or "compensation" or "bonus" in determining the amount of any payment under any
pension, retirement or profit-sharing plan of the Company or any life insurance,
disability or other benefit plan of the Company.
3.9 Delivery Delay. The delivery of any certificate
representing Restricted Stock or other RS Property may be postponed by the
Company for such period as may be required for it to comply with any applicable
federal or state securities law, or any securities exchange listing requirements
and the Company is not obligated to issue or deliver any securities if, in the
opinion of counsel for the Company, the issuance of such Shares shall constitute
a violation by the Executive or the Company of any provisions of any law or of
any regulations of any governmental authority or any securities exchange.
4. Legends. All certificates representing the Shares shall have
endorsed thereon the following legends:
(a) "THE ANTICIPATION, ALIENATION, ATTACHMENT, SALE, TRANSFER,
ASSIGNMENT, PLEDGE, ENCUMBRANCE OR CHARGE OF THE SHARES OF STOCK REPRESENTED
HEREBY ARE SUBJECT TO THE TERMS AND CONDITIONS (INCLUDING A VESTING SCHEDULE AND
FORFEITURE PROVISION AND RESTRICTIONS AGAINST TRANSFER) OF AN AGREEMENT ENTERED
INTO BETWEEN THE REGISTERED OWNER, NATHAN KAHN, SANDRA KAHN AND EMPIRE
RESOURCES, INC. (THE "COMPANY") DATED AS OF THE 14TH DAY OF SEPTEMBER, 1999.
COPIES OF SUCH AGREEMENT ARE ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY."
4
<PAGE>
(b) "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE
SECURITIES UNDER SAID ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED."
(c) Any legend required to be placed thereon by applicable
blue sky laws or other law of any state or securities law or other law of any
province.
5. Securities Representations. The Shares are being issued to the
Executive and this Agreement is being made by the Company in reliance upon the
following express representations and warranties of the Executive.
The Executive acknowledges, represents and warrants that:
(a) he has been advised that he may be an "affiliate" within
the meaning of Rule 144 under the Securities Act of 1933, as amended (the "Act")
and in this connection the Company is relying in part on his representations set
forth in this Section;
(b) the Shares must be held indefinitely unless an exemption
from any applicable resale restrictions is available or the Company files an
additional registration statement (or a "re-offer prospectus") with regard to
such Shares and the Company is under no obligation to register the Shares (or to
file a "re-offer prospectus");
(c) he understands that the exemption from registration under
Rule 144 will not be available unless (i) a public trading market then exists
for the Common Stock of the Company, (ii) adequate information concerning the
Company is then available to the public, and (iii) other terms and conditions of
Rule 144, or any exemption therefrom are complied with and that any sale of the
Shares may be made only in limited amounts in accordance with such terms and
conditions;
(d) the Shares are being acquired for his own account and not
with a view to, or for sale in connection with, the distribution thereof, nor
with any present intention of distributing or selling any such Shares within the
meaning of the Act;
(e) in the event that the Executive is permitted to sell,
transfer, pledge, hypothecate, assign or otherwise dispose of the Shares, the
Executive may only do so pursuant to a registration statement under the Act and
qualification under applicable state securities laws, to the extent required, or
pursuant to an opinion of counsel satisfactory to the Company that such
registration is not required and that the transaction (if it involves a sale in
the over-the-counter market or on a securities exchange) complies with the
provisions of Rule 144 under the Act or another exemption. A stop-transfer order
will be placed on the books of the Company respecting the certificates
evidencing the Shares, and such certificates shall bear, until such time as the
Shares evidenced by such certificates shall have been registered under the Act
or shall have been
5
<PAGE>
transferred in accordance with an opinion of counsel for the Company that such
registration is not required, the legends required pursuant to Section 4 hereof;
and
(f) he has been advised that he may be subject to the
reporting requirements of Section 16(a) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and that he may be subject to insider trading
restrictions and reporting requirements on the purchase and sale of securities
of the Company imposed under the Exchange Act.
6. Not an Employment Agreement. The issuance of the Shares hereunder
does not constitute an agreement by the Company to continue to employ the
Executive during the entire, or any portion of, the term of this Agreement,
including but not limited to any period during which Restricted Stock is
outstanding.
7. Miscellaneous.
7.1 This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective heirs, personal legal
representatives, successors, trustees, administrators, distributees, devisees
and legatees. The Company may assign to, and require, any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, any subsidiary
or any division of the Company or Subsidiary by which the Executive is employed
to expressly assume and agree in writing to perform this Agreement. This
Agreement may not be otherwise assigned by the parties hereto. The Company, the
Kahns, Empire Resources Pacific Ltd., and ITI have entered into an Agreement and
Plan of Merger dated as of February 22, 1999 (the "Merger Agreement") pursuant
to which it is contemplated that the Company will merge into Integrated. In the
event of the consummation of such merger, this Agreement shall remain in effect,
ITI will succeed to all rights and obligations herein of the Company, the
Executive will receive as a result of the merger 469,238 shares of Common Stock,
$.01 par value of ITI, in place of the .5 Company shares previously held by the
Executive, the reference in Section 1 hereof to .5 Company shares shall be
changed to 469,238 shares of ITI, the reference in Section 3.3(b) hereof to
.118182 Company shares shall be changed to refer to 110,911 shares of ITI, all
references herein to the Company shall be deemed to refer to ITI, and all
references herein to Common Stock, Shares and Restricted Stock shall be deemed
to refer to shares of ITI.
7.2 No modification or waiver of any of the provisions of this
Agreement shall be effective unless in writing and signed by the party against
whom it is sought to be enforced.
7.3 This Agreement may be executed in one or more
counterparts, all of which taken together shall constitute one contract.
7.4 The failure of any party hereto at any time to require
performance by another party of any provision of this Agreement shall not affect
the right of such party to require performance of that provision, and any waiver
by any party of any breach of any provision of this Agreement shall not be
construed as a waiver of any continuing or succeeding breach of such provision,
a waiver of the provision itself, or a waiver of any right under this Agreement.
6
<PAGE>
7.5 The headings of the sections of this Agreement have been
inserted for convenience of reference only and shall in no way restrict or
modify any of the terms or provisions hereof.
7.6 All notices, consents, requests, approvals, instructions
and other communications provided for herein shall be in writing and validly
given or made when delivered, or on the second succeeding business day after
being mailed by registered or certified mail, whichever is earlier, to the
persons entitled or required to receive the same, at the addresses set forth at
the heading of this Agreement or to such other address as either party may
designate by like notice. Notices to the Company shall be addressed to its
principal office, attention of the Chief Executive Officer.
7.7 The capitalized terms in this Agreement that are not
otherwise defined herein shall have the meaning as set forth in the employment
agreement in effect on the date hereof between the Executive and the Company.
7.8 This Agreement shall be governed and construed and the
legal relationships of the parties determined in accordance with the laws of the
state of Delaware regardless of the law that might otherwise govern under
applicable principles of conflict laws.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
EMPIRE RESOURCES, INC.
By /s/ Nathan Kahn
-----------------------------------
Name: Nathan Kahn
Title:
/s/ Harvey Wrubel
-------------------------------------
Harvey Wrubel
/s/ Nathan Kahn
-------------------------------------
Nathan Kahn
As Tenant-In-Common
/s/ Sandra Kahn
-------------------------------------
Sandra Kahn
As Tenant-In-Common
7
<PAGE>
EXHIBIT A
---------
For purposes of this Agreement, a Change in Control shall mean any
"person" as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), other than the Company,
any trustee or other fiduciary holding securities under any employee benefit
plan of the Company, or any company owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions as their
ownership of Common Stock of the Company, becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing a percentage of the combined voting power
of the Company's outstanding securities greater than the total percentage then
beneficially owned, directly or indirectly, by Sandra Kahn and Nathan Kahn,
their issue and trusts or other entities formed primarily for the benefit of the
foregoing. In no event will consummation of the transactions contemplated under
the Merger Agreement be deemed to result in a Change in Control.
<PAGE>
EXHIBIT B
---------
The number of the Contingent Shares (if any) that will be released from
the restrictions set forth in Section 3(b), will be a function of degree of
attainment of the Company's Cumulative After-Tax Income during the two-year
period commencing April 1, 1999 and ending March 31, 2001, as indicated in the
table below.
Company Cumulative After-Tax Income Number of Contingent
Targets During the Two-Year Period Ending Shares to Be Released
March 31, 2001 (in Millions of Dollars) to the Executive
less than 4.4 0
4.4 to but excluding 4.8 6,636
4.8 to but excluding 5.2 13,522
5.2 to but excluding 5.6 20,673
5.6 to but excluding 6.0 28,104
6.0 to but excluding 6.4 35,833
6.4 to but excluding 6.8 43,877
6.8 to but excluding 7.2 52,256
7.2 to but excluding 7.6 60,992
7.6 to but excluding 8.0 70,108
8.0 to but excluding 8.4 79,628
8.4 to but excluding 8.8 89,582
8.8 to but excluding 9.2 99,999
9.2 or greater 110,911
For purposes of this Exhibit B, the Company's Cumulative After-Tax
Income during the two-year period commencing April 1, 1999 and ending March 31,
2001 shall be determined in accordance with Section 2.11 of the Merger
Agreement.
<PAGE>
- --------------------------------------------------------------------------------
EMPIRE RESOURCES, INC.
CREDIT AGREEMENT
Dated as of May 20, 1999
FLEET BANK, NATIONAL ASSOCIATION
CITICORP USA, INC.,
as Banks
and
FLEET BANK, NATIONAL ASSOCIATION,
as Agent
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Section 1. Definitions and Accounting Matters..............................................................1
1.01 Certain Defined Terms........................................1
1.02 Accounting Terms and Determinations.........................18
1.03 Classes and Types of Loans..................................19
Section 2. Commitments, Loans, Notes and Prepayments......................................................19
2.01 Loans.......................................................19
2.02 Borrowings..................................................20
2.03 Letters of Credit...........................................20
2.04 Acceptances.................................................23
2.05 Changes of the Commitment...................................27
2.06 Commitment Fee..............................................28
2.07 Lending Offices.............................................28
2.08 Several Obligations Remedies Independent....................28
2.09 Notes; Limitations on Interest Periods......................28
2.10 Optional Prepayments and Conversions or Continuations of
Loans............................................29
2.11 Mandatory Prepayments.......................................29
Section 3. Payments of Principal and Interest.............................................................30
3.01 Repayment of Loans..........................................30
3.02 Interest....................................................30
Section 4. Payments; Computations; Etc....................................................................31
4.01 Payments....................................................31
4.02 Computations................................................31
4.03 Pro Rata Treatment..........................................32
4.04 Minimum Amounts.............................................32
4.05 Certain Notices.............................................32
4.06 Non-Receipt of Funds by the Agent...........................33
4.07 Sharing of Payments, etc....................................34
Section 5. Yield Protection, etc..........................................................................35
5.01 Additional Costs............................................35
5.02 Limitation on Types of Loans................................37
5.03 Illegality..................................................37
5.04 Compensation................................................38
5.05 Additional Costs in Respect of Letters of Credit............38
Section 6. Conditions Precedent...........................................................................39
6.01 Effectiveness of Agreement..................................39
6.02 Initial and Subsequent Extensions of Credit.................41
6.03 Conditions Precedent to Merger..............................41
Section 7. Representations and Warranties.................................................................44
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
7.01 Corporate Existence.........................................44
7.02 Financial Condition.........................................44
7.03 Litigation..................................................44
7.04 No Breach...................................................44
7.05 Action......................................................44
7.06 Approvals...................................................45
7.07 Use of Credit...............................................45
7.08 ERISA.......................................................45
7.09 Taxes.......................................................45
7.10 True and Complete Disclosure................................45
7.11 Year 2000 Issue.............................................46
Section 8. Covenants of the Company.......................................................................46
8.01 Financial Statements, Etc...................................46
8.02 Litigation..................................................50
8.03 Existence, Etc..............................................50
8.04 Insurance...................................................51
8.05 Prohibition of Fundamental Changes..........................51
8.06 Limitation on Liens.........................................51
8.07 Indebtedness................................................52
8.08 Investments.................................................52
8.09 Leverage Ratio..............................................53
8.10 Tangible Net Worth..........................................53
8.11 Working Capital Ratio.......................................53
8.12 Lines of Business...........................................53
8.13 Transactions with Affiliates................................53
8.14 Use of Proceeds.............................................53
8.15 Subordinated Notes..........................................54
8.16 Additional Subsidiaries.....................................54
8.17 Additional Collateral.......................................55
8.18 Year 2000 Issue.............................................55
Section 9. Events of Default..............................................................................55
Section 10. The Agent......................................................................................58
10.01 Appointment, Powers and Immunities..........................58
10.02 Reliance by Agent...........................................59
10.03 Defaults....................................................59
10.04 Rights as a Bank............................................59
10.05 Indemnification.............................................60
10.06 Non-Reliance on Agent and Other Banks.......................60
10.07 Failure to Act..............................................60
10.08 Resignation or Removal of Agent.............................60
10.09 Agency Fee..................................................61
10.10 Consents under Other Basic Documents........................61
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Section 11. Miscellaneous..................................................................................61
11.01 Waiver......................................................61
11.02 Notices.....................................................61
11.03 Expenses, Etc...............................................62
11.04 Amendments, Etc.............................................62
11.05 Successors and Assigns......................................63
11.06 Assignments and Participations..............................63
11.07 Survival....................................................64
11.08 Captions....................................................65
11.09 Counterparts................................................65
11.10 Governing Law; Submission to Jurisdiction...................65
11.11 Waiver of Jury Trial........................................65
11.12 Interest Adjustment.........................................65
11.13 Lost Notes..................................................66
Section 12 Guarantee......................................................................................66
12.01 Guarantee Unconditional.....................................66
12.02 Absolute Obligation.........................................67
12.03 Repayment in Bankruptcy, Etc................................68
12.04 Additional Subsidiary Guarantors............................68
12.05 Miscellaneous...............................................68
</TABLE>
-iii-
<PAGE>
EXHIBIT A - Form of Note
EXHIBIT B - Form of Borrowing Base Certificate
EXHIBIT C - Form of Security Agreement
EXHIBIT D - Form of Opinion of Counsel to the Company
EXHIBIT E - Form of Junior Security Agreement
EXHIBIT F - Form of Guarantee Supplement
EXHIBIT G - Form of Letter of Indemnity
-iv-
<PAGE>
CREDIT AGREEMENT dated as of May ___, 1999, among: EMPIRE
RESOURCES, INC., a corporation duly organized and validly existing under the
laws of the State of Delaware (the "Company"); each of the lenders that is a
signatory hereto identified under the caption "BANKS" on the signature pages
hereto or that, pursuant to Section 11.06(b) hereof shall become a "Bank"
hereunder (individually, a "Bank," and collectively, the "Banks"); and FLEET
BANK, NATIONAL ASSOCIATION, a New York State bank, as agent for the Banks (in
such capacity, together with its successors in such capacity, the "Agent").
Section 1. Definitions and Accounting Matters.
1.01 Certain Defined Terms. As used herein, the following
terms shall have the following meanings (all terms defined in this Section 1.01
or in other provisions of this Agreement in the singular to have the same
meanings when used in the plural and vice versa):
"Acceptance" shall mean a draft drawn by a Drawer on the
Accepting Bank payable to the order of the Accepting Bank in Dollars, conforming
to the requirements of Section 2.04 hereof and accepted by the Accepting Bank in
accordance with Section 2.04(b) hereof.
"Acceptance Liability" shall mean, with respect to any
Acceptance, the obligation of the Company to pay to the Agent at the Principal
Office, for account of the Accepting Bank, the face amount thereof as required
by Section 2.04(d) hereof.
"Accepting Bank" shall mean Fleet, as the Bank that creates
and discounts Acceptances pursuant to Section 2.04 hereof together with its
successors and assigns in such capacity.
"Additional Pledge Agreement" shall have the meaning set forth
in Section 8.16 hereof.
"Affiliate" shall mean any Person that directly or indirectly
controls, or is under common control with, or is controlled by, the Company and,
if such Person is an individual, any member of the immediate family (including
parents, spouse, children and siblings) of such individual and any trust whose
principal beneficiary is such individual or one or more members of such
immediate family and any Person who is controlled by any such member or trust.
As used in this definition, "control" (including, with its correlative meanings,
"controlled by" and "under common control with") shall mean possession, directly
or indirectly, of power to direct or cause the direction of management or
policies (whether through ownership of securities or partnership or other
ownership interests, by contract or otherwise), provided that, in any event, any
Person that owns directly or indirectly securities having 5% or more of the
voting power for the election of directors or other governing body of a
corporation or 5% or more of the partnership or other ownership interests of any
other Person (other than as a limited partner of such other Person) will be
deemed to control such corporation or other Person. Notwithstanding the
foregoing, no individual shall be an Affiliate solely by reason of his or her
being a director, officer or employee of the Company.
<PAGE>
"All-in-Rate" shall mean, with respect to any Acceptance, a
rate per annum specified by Fleet to the Company at the time of the creation of
such Acceptance; provided, that, such rate shall not be less than a rate equal
to 2% per annum plus Fleet's acceptance rate as in effect from time to time.
"Applicable Lending Office" shall mean, for each Bank and for
each Type of Loan, the "Lending Office" of such Bank (or of an affiliate of such
Bank) designated for such Type of Loan on the signature pages hereof or such
other office of such Bank (or of an affiliate of such Bank) as such Bank may
from time to time specify to the Agent and the Company as the office by which
its Loans of such Type are to be made and maintained.
"Applicable Margin" shall mean: (a)(i) with respect to Base
Rate Loans that are not Cash Secured Loans, 1/2 of 1% per annum; and (ii) with
respect to Eurodollar Loans that are not Cash Secured Loans, 2% per annum and
(b)(i) with respect to Base Rate Loans that are Cash Secured Loans, 0.00% per
annum; and (ii) with respect to Eurodollar Loans that are Cash Secured Loans, 1%
per annum.
"Australia" shall mean the Commonwealth of Australia.
"Australian Effective Date" shall mean the date on which each
of the following conditions shall have been satisfied:
(a) The Company shall have furnished to the Agent the
following documents (which shall be in form and substance satisfactory
to the Agent):
(i) A Floating Charge, duly executed and delivered by
the Company and the Agent;
(ii) Evidence that the Floating Charge has been duly
registered with the Australian Securities Commission; and
(iii) evidence that all stamp duties, all fees, costs
and expenses with respect to the filing of the Floating Charge
have been paid in each of the states in Australia in which any
of the Australian Receivables are owing on the date the charge
is registered.
(b) The Company shall be duly registered to do business in
Australia, and the Company shall have furnished to the Agent evidence
to such effect.
(c) Australian counsel acceptable to the Banks shall have
furnished to the Banks its legal opinion with respect to the due
creation, perfection and priority of the Lien over the Australian
Receivables intended to be created by the Floating Charge.
-2-
<PAGE>
"Australian Receivables" shall mean, as at any date, the
aggregate amount of all Receivables at such date payable to the Company that
would constitute Insured Eligible Receivables but for the fact that the
principal place of business of the relevant account debtor is in Australia
and/or such Receivables are payable in lawful money of Australia.
"Available Pledged Cash" shall mean Pledged Cash that, as at
any date, is not included in the Borrowing Base for Tier I Credits.
"Bankruptcy Code" shall mean the Federal Bankruptcy Code of
1978, as amended from time to time.
"Base Rate" shall mean, for any day, a rate per annum equal to
the higher of (a) the Federal Funds Rate for such day plus 1/2 of 1% and (b) the
Prime Rate for such day. Each change in any interest rate provided for herein
based upon the Base Rate resulting from a change in the Base Rate shall take
effect at the time of such change in the Base Rate.
"Base Rate Loans" shall mean Loans that bear interest at rates
based upon the Base Rate.
"Basic Documents" shall mean, collectively, this Credit
Agreement, the Notes, the Letter of Indemnity, the Acceptance and Letter of
Credit documents, the Security Documents and all the other documents,
instruments and agreements executed pursuant to or in connection with the
foregoing.
"Borrowing Base" shall mean, as at any date, the sum of the
following:
(a) 90% of the aggregate amount of Insured Eligible
Receivables at said date, plus
(b) 80% of the aggregate amount of Eligible Receivables (other
than Australian Receivables, Eligible Long Receivables and Insured
Eligible Receivables) at said date, plus
(c) the lesser of $1,000,000 or 80% of the aggregate amount of
Eligible Long Receivables (other than Australian Receivables, Eligible
Receivables and Insured Eligible Receivables) at such date, plus
(d) 70% of the aggregate amount of Australian Receivables at
said date, provided that:
(i) Australian Receivables shall only be included in
the Borrowing Base on and after the Australian Effective Date,
and
-3-
<PAGE>
(ii) in no event shall the portion of the Borrowing
Base attributable to Australian Receivables exceed the lesser
of (x) 10% of the Borrowing Base and (y) $2,500,000, plus
(e) 80% of the aggregate value of Eligible In-transit
Inventory at said date, plus
(f) 75% of the aggregate value of Eligible Warehouse Inventory
at said date, provided, that in no event shall the portion of the
Borrowing Base attributable to Eligible Warehouse Inventory exceed the
lesser of (x) 40% of the Borrowing Base and (y) $10,000,000, plus
(g) 80% of the aggregate amount of Pledged Securities, plus
(h) 100% of the aggregate amount of Pledged Cash that is not
included in the Tier II Borrowing Base.
The "value" of Eligible Inventory shall be determined at the lower of cost or
market in accordance with GAAP, except that cost shall be determined on a
first-in-first-out basis.
"Borrowing Base Certificate" shall mean a certificate of the
chief financial officer of the Company, substantially in the form of Exhibit B
hereto and appropriately completed.
"Business Day" shall mean (a) any day on which commercial
banks are not authorized or required to close in New York City and (b) if such
day relates to a borrowing of, a payment or prepayment of principal of or
interest on, a Conversion of or into, or an Interest Period for, a Eurodollar
Loan or a notice by the Company with respect to any such borrowing, payment,
prepayment, Conversion or Interest Period, any day on which dealings in Dollar
deposits are carried out in the London interbank market.
"Capital Lease Obligations" shall mean, for any Person, all
obligations of such Person to pay rent or other amounts under a lease of (or
other agreement conveying the right to use) Property to the extent such
obligations are required to be classified and accounted for as a capital lease
on a balance sheet of such Person under GAAP, and, for purposes of this
Agreement, the amount of such obligations shall be the capitalized amount
thereof, determined in accordance with GAAP.
"Cash Secured Loans" shall mean the aggregate outstanding
principal balance of Loans which are included in Tier II Credits (which Loans
are required to be secured by a first priority perfected security interest in
Available Pledged Cash as set forth in Section 6.02 hereof).
"Citi" shall mean Citicorp USA, Inc.
"Closing Date" shall mean the date upon which the initial
extension of credit hereunder is made.
-4-
<PAGE>
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
"Collateral Account" shall mean a segregated collateral
account maintained by the Agent at Fleet.
"Commitment" shall mean (A) the F/X Indemnity Commitments and
(B) the obligation of the Banks to make Loans, and to buy participations in
Letters of Credit and Acceptances issued or created by the Issuing Bank or the
Accepting Bank, as the case may be and the obligation of the Issuing Bank to
issue Letters of Credit and of the Accepting Bank to create Acceptances in an
aggregate amount equal to (i) with respect to the period from the Closing Date
to but excluding September 30, 1999, $46,000,000 and (ii) with respect to the
period from and including September 30, 1999 to the Revolving Credit Commitment
Termination Date, $35,000,000, as each may be reduced from time to time pursuant
to Section 2.05 hereof. As to each Bank, the obligation of such Bank to make
Loans, and to buy participations in Letters of Credit and Acceptances issued or
created by the Issuing Bank or the Accepting Bank, as the case may be, under the
Commitment shall be in an aggregate principal or face amount at any one time
outstanding up to but not exceeding (x) with respect to the period from the
Closing Date to but excluding September 30, 1999, the amount set opposite such
Bank's name on the signature pages hereof under the caption "Initial Commitment"
(as the same may be reduced from time to time pursuant to Section 2.05 hereof)
and (y) with respect to the period from and including September 30, 1999 to the
Revolving Credit Commitment Termination Date, the amount set opposite such
Bank's name on the signature pages hereof under the caption "Subsequent
Commitment" (as the same may be reduced from time to time pursuant to Section
2.05 hereof); provided, that, the Commitment shall be further subject to the
sublimit limitations set forth in this Agreement.
"Commitment Letter" shall mean that certain letter dated May
10, 1999 from Fleet to the Company and accepted by the Company on May 14, 1999.
"Commitment Percentage" shall mean, with respect to any Bank,
the ratio of (a) the amount of the Commitment of such Bank to (b) the aggregate
amount of the Commitments of all of the Banks.
"Company Obligations" shall mean, collectively, all of the
obligations and liabilities of the Company under this Credit Agreement and the
other Basic Documents (including reimbursement obligations in connection with
Letter of Credit Liabilities and Acceptance Liabilities), in each case whether
fixed, contingent, now existing or hereafter arising, created, assumed, incurred
or acquired, and whether before or after the occurrence of any Event of Default
under Section 9(f) or 9(g) and including any obligation or liability in respect
of any breach of any representation or warranty and all post-petition interest
and funding losses, whether or not allowed as a claim in any proceeding arising
in connection with such an event.
-5-
<PAGE>
"Continue," "Continuation" and "Continued" shall refer to the
continuation pursuant to Section 2.10 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 2.10 hereof of one Type of Loans into another
Type of Loans, which may be accompanied by the transfer by a Bank (at its sole
discretion) of a Loan from one Applicable Lending Office to another.
"Credit" or "Credits" at any time shall mean the aggregate
principal amount of the Loans together with the aggregate amount of all Letter
of Credit Liabilities and Acceptance Liabilities.
"Default" shall mean an Event of Default or an event that with
notice or lapse of time or both would become an Event of Default.
"Dollars" and "$" shall mean lawful money of the United States
of America.
"Domestic Subsidiary" shall mean any Subsidiary that is not a
"controlled foreign corporation" within the meaning of Section 957 of the Code.
"Eligible In-transit Inventory" shall mean, as at any date,
all Inventory:
(a) that is owned by the Company as at such date,
(b) that is (i) either located in a jurisdiction in the United
States of America or is on a vessel bound for the United States of
America or Canada and (ii) not located in a warehouse or other storage
facility,
(c) as to which appropriate Uniform Commercial Code financing
statements have been filed naming the Company as "debtor" and Fleet, as
Agent, as "secured party" in the jurisdiction in which such Inventory
is (or is to be) located,
(d) that meets all standards imposed by any governmental
agency or department or division thereof having regulatory authority
over such Inventory, its use or sale, and
(e) that either (i) one or more customers of the Company has
agreed to purchase or (ii) is the subject of a hedge arrangement
acceptable to the Required Banks protecting the Company against
fluctuations in the price of such Inventory.
"Eligible Long Receivables" shall mean, as at any date, the
aggregate amount of all Receivables at such date each of which would constitute
Eligible Receivables but for the fact that such Receivable is due and payable
more than 90 days from the original invoice date; provided, that,
-6-
<PAGE>
(a) no such Eligible Long Receivable shall be due and payable
more than 180 days from the original invoice date, and
(b) the face amount of any one Eligible Long Receivables
included in the Borrowing Base shall not exceed $1,000,000.
"Eligible Warehouse Inventory" shall mean, as at any date, all
Inventory that would constitute Eligible In-transit Inventory but for the fact
that such Inventory is located in a warehouse or other storage facility.
"Eligible Receivables" shall mean, as at any date, the
aggregate amount of all Receivables at such date payable to the Company (minus
the Reserve Amount) other than the following (determined without duplication):
(a) any Receivable not payable in Dollars or in lawful money
of Canada,
(b) any Receivable due from an account debtor whose principal
place of business is not located in the United States of America or
Canada,
(c) any Receivable owing from an Affiliate of the Company,
(d) any Receivable owing from an account debtor that the
Required Banks (through the Agent) have notified the Company does not
have a satisfactory credit standing (as reasonably determined by the
Required Banks),
(e) any Receivable that remains unpaid for more than 60 days
after the original due date thereof,
(f) all Receivables of any account debtor if more than 50% of
the aggregate amount of the Receivables owing from such account debtor
shall at the time have remained unpaid for more than 60 days after the
original due date thereof,
(g) any Receivable as to which there is any unresolved dispute
with the respective account debtor (but only to the extent of the
amount thereof in dispute),
(h) any Receivable evidenced by an Instrument (as defined in
the Uniform Commercial Code of the State of New Jersey) not in the
possession of the Agent,
(i) any Receivable representing an obligation for goods sold
on consignment, approval or a sale-or-return basis or subject to any
other repurchase or return arrangement, and
(j) any Receivable that is due and payable more than 90 days
from the original date of invoice.
-7-
<PAGE>
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time.
"ERISA Affiliate" shall mean any corporation or trade or
business that is a member of any group of organizations (i) described in Section
414(b) or (c) of the Code of which the Company is a member and (ii) solely for
purposes of potential liability under Section 302(c)(11) of ERISA and Section
412(c)(11) of the Code and the lien created under Section 302(f) of ERISA and
Section 412(n) of the Code, described in Section 414(m) or (o) of the Code of
which the Company is a member.
"Eurodollar Base Rate" shall mean, with respect to any
Eurodollar Loan for any Interest Period therefor, the rate per annum (rounded
upwards, if necessary, to the nearest 1/16 of 1%) quoted by the Agent at
approximately 11:00 a.m. London time (or as soon thereafter as practicable) on
the date two Business Days prior to the first day of such Interest Period for
the offering by the Agent to leading banks in the London interbank market of
Dollar deposits having a term comparable to such Interest Period and in amount
comparable to the principal amount of the Eurodollar Loan to be made by the
Agent for such Interest Period.
"Eurodollar Loans" shall mean Loans that bear interest at
rates based on rates referred to in the definition of "Eurodollar Base Rate" in
this Section 1.01.
"Eurodollar Rate" shall mean, for any Eurodollar Loan for any
Interest Period therefor, a rate per annum (rounded upwards, if necessary, to
the nearest 1/100 of 1%) determined by the Agent to be equal to the Eurodollar
Base Rate for such Loan for such Interest Period divided by 1 minus the Reserve
Requirement (if any) for such Loan for such Interest Period.
"Event of Default" shall have the meaning assigned to such
term in Section 9 hereof.
"Facility" shall mean the loan facility described in this
Credit Agreement and/or any of the Basic Documents
"Federal Funds Rate" shall mean, 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 the day for which such rate is to
be determined 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 such rate is not so
published for any Business Day, the Federal Funds Rate for such Business Day
shall be the average rate charged to Fleet on such Business Day on such
transactions as determined by the Agent.
-8-
<PAGE>
"Fleet" shall mean Fleet Bank, National Association.
"Floating Charge" shall mean a Floating Charge Agreement, in
form and substance satisfactory to the Banks, that creates a charge under
Australian law with respect to all Receivables.
"Foreign Subsidiary" shall mean any Subsidiary that is a
"controlled foreign corporation" within the meaning of Section 957 of the Code.
"F/X Indemnity Commitment" shall mean the Issuing Bank's
obligation (not to exceed $3,000,000) to reimburse The Chase Manhattan Bank
under the Letter of Indemnity, but solely in connection with and as the same
relates to foreign exchange transactions, and each Bank's obligation to buy
participations therein as provided in this Credit Agreement; provided that the
F/X Indemnity Commitments shall terminate upon the termination of the Letter of
Indemnity.
"GAAP" shall mean generally accepted accounting principles
applied on a basis consistent with those that, in accordance with the last
sentence of Section 1.02(a) hereof, are to be used in making the calculations
for purposes of determining compliance with this Agreement.
"Guarantee" shall mean a guarantee, an endorsement, a
contingent agreement to purchase or to furnish funds for the payment or
maintenance of, or otherwise to be or become contingently liable under or with
respect to, the Indebtedness, other obligations, net worth, working capital or
earnings of any Person, or a guarantee of the payment of dividends or other
distributions upon the stock or equity interests of any Person, or an agreement
to purchase, sell or lease (as lessee or lessor) Property, products, materials,
supplies or services primarily for the purpose of enabling a debtor to make
payment of such debtor's obligations or an agreement to assure a creditor
against loss, and including, without limitation, causing a bank or other
financial institution to issue a letter of credit or other similar instrument
for the benefit of another Person, but excluding endorsements for collection or
deposit in the ordinary course of business. The terms "Guarantee" and
"Guaranteed" used as a verb shall have a correlative meaning.
"Guarantee Supplement" shall mean a Guarantee Supplement in
the form of Exhibit F hereto.
"Guarantor" shall mean each Subsidiary of the Company that is
a party to this Credit Agreement.
"Guarantor Obligations" shall mean, with respect to each
Guarantor (if any), all of the obligations and liabilities of such Guarantor
under this Credit Agreement and the other Basic Documents, whether fixed,
contingent, now existing or hereafter arising, created, assumed, incurred or
acquired.
"Hedging Agreement" shall mean, for any Person, an interest
rate swap, cap or collar agreement, or any agreement for foreign exchange
transactions, or any arrangement
-9-
<PAGE>
similar to any of the foregoing, between such Person and one or more of the
Banks or any Affiliate of one or more of the Banks, each as providing for the
transfer or mitigation of interest or currency risks either generally or under
specific contingencies.
"Indebtedness" shall mean, for any Person: (a) obligations
created, issued or incurred by such Person for borrowed money (whether by loan,
the issuance and sale of debt securities or the sale of Property to another
Person subject to an understanding or agreement, contingent or otherwise, to
repurchase such Property from such Person); (b) obligations of such Person to
pay the deferred purchase or acquisition price of Property or services, other
than trade accounts payable (other than for borrowed money) arising, and accrued
expenses incurred, in the ordinary course of business so long as such trade
accounts payable are payable within 90 days of the date the respective goods are
delivered or the respective services are rendered; (c) Indebtedness of others
secured by a Lien on the Property of such Person, whether or not the respective
indebtedness so secured has been assumed by such Person; (d) obligations of such
Person in respect of letters of credit or similar instruments issued or accepted
by banks and other financial institutions for account of such Person; (e)
Capital Lease Obligations of such Person; (f) Indebtedness of others Guaranteed
by such Person and (g) obligations of such Person under Hedging Agreements.
"Insured Eligible Receivables" shall mean, on any date, all
Eligible Receivables that are the subject of receivables or credit insurance (w)
that is provided by insurers reasonably acceptable to the Required Banks, (x)
that is duly documented by one or more written policies, and (y) that is
effective in accordance with the policy or policies evidencing the same and (z)
under which the Agent (for the pro rata benefit of the Banks) has been named an
additional insured.
"Interest-Period" shall mean,
(a) with respect to any Eurodollar Loan, each period
commencing on the date such Eurodollar Loan is made or Converted from a
Base Rate Loan or the last day of the next preceding Interest Period
for such Loan and ending on the numerically corresponding day in the
first, second, or third calendar month thereafter, as the Company may
select as provided in Section 4.05 hereof, except that each Interest
Period that commences on the last Business Day of a calendar month (or
on any day for which there is no numerically corresponding day in the
appropriate subsequent calendar month) shall end on the last Business
Day of the appropriate subsequent calendar month; and
(b) with respect to any Money Market Loan, each period of 7,
30, 60 or 90 days as the Company may select as provided in Section 4.05
hereof.
Notwithstanding the foregoing, each Interest Period that would otherwise end on
a day that is not a Business Day shall end on the next succeeding Business Day
(or, if such next succeeding Business Day falls in the next succeeding calendar
month, on the next preceding Business Day).
-10-
<PAGE>
"Inventory" shall mean aluminum products that constitute
"Inventory" within the meaning set forth in the Uniform Commercial Code of the
State of New York.
"Investment" shall mean, for any Person: (a) the acquisition
(whether for cash, Property, services or securities or otherwise) of capital
stock, bonds, notes, debentures, partnership or other ownership interests or
other securities of any other Person or any agreement to make any such
acquisition (including, without limitation, any "short sale" or any sale of any
securities at a time when such securities are not owned by the Person entering
into such sale); (b) the making of any deposit with, or advance, loan or other
extension of credit to, any other Person (including the purchase of Property
from another Person subject to an understanding or agreement, contingent or
otherwise, to resell such Property to such Person), but excluding any such
advance, loan or extension of credit having a term not exceeding 90 days
representing the purchase price of inventory or supplies sold by such Person in
the ordinary course of business); (c) the entering into of any Guarantee of, or
other contingent obligation with respect to, Indebtedness or other liability of
any other Person and (without duplication) any amount committed to be advanced,
lent or extended to such Person; or (d) the entering into of any Hedging
Agreement other than with Fleet, Citi, or an Affiliate of Fleet or Citi.
"Issuing Bank" shall mean Fleet, as the issuer of Letters of
Credit under Section 2.03 hereof, together with its successors and assigns in
such capacity.
"ITI" shall mean Integrated Technology USA, Inc., a Delaware
corporation.
"ITI Merger Agreement" shall mean the Agreement and Plan of
Merger, dated as of February 19, 1999 among ITI, the Company, Empire Resources
Pacific Ltd., Nathan Kahn and Sandra Kahn.
"Junior Security Agreement" shall mean the amended and
restated security agreement among the Company, Nathan Kahn and Sandra Kahn,
securing the obligations of the Company under the Subordinated Notes,
substantially in the form of Exhibit E hereto.
"Letter of Credit" shall have the meaning assigned to such
term in Section 2.03 hereof.
"Letter of Credit Documents" shall mean, with respect to any
Letter of Credit, collectively, any application therefor and any other
agreements, instruments, guarantees or other documents (whether general in
application or applicable only to such Letter of Credit) governing or providing
for (a) the rights and obligations of the parties concerned or at risk with
respect to such Letter of Credit or (b) any collateral security for any of such
obligations, each as the same may be modified and supplemented and in effect
from time to time.
"Letter of Credit Interest" shall mean for each Bank, such
Bank's participation interest (or, in the case of the Issuing Bank, the Issuing
Bank's retained interest) in the Issuing Bank's liability under Letters of
Credit and such Bank's rights and interests in Reimbursement
-11-
<PAGE>
Obligations and fees, interest and other amounts payable in connection with
Letters of Credit and Reimbursement Obligations.
"Letter of Credit Liability" shall mean, without duplication,
at any time and in respect of any Letter of Credit, the sum of (a) the undrawn
face amount of such Letter of Credit plus (b) the aggregate unpaid principal
amount of all Reimbursement Obligations of the Company at such time due and
payable in respect of all drawings made under such Letter of Credit.
"Letter of Indemnity" shall mean a letter issued by Fleet or
the Agent in favor of The Chase Manhattan Bank with respect to commercial
(documentary) Letters of Credit and foreign exchange contracts that are
outstanding on the date hereof that were issued by The Chase Manhattan Bank in
connection with the Prior Agreement, which letter shall be substantially in the
form of Exhibit G hereto.
"Leverage Ratio" shall mean, at any time, the ratio of (a)
Total Liabilities at such time minus the amount of Subordinated Debt at such
time to (b) Tangible Net Worth of the Company at such time.
"Lien" shall mean, with respect to any Property, any mortgage,
lien, pledge, charge, security interest or encumbrance of any kind in respect of
such Property. For purposes of this Agreement and the other Basic Documents, a
Person shall be deemed to own subject to a Lien any Property that it has
acquired or holds subject to the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement
(other than an operating lease) relating to such Property.
"Loans" shall mean such portion of the Commitment as shall be
used by the Company for revolving credit loans as provided for in Section 2.01
hereof, which revolving credit loans may be Base Rate Loans and/or Eurodollar
Loans and/or Money Market Loans and shall in no event exceed the aggregate sum
of $30,000,000, under the Tier I Commitment and the aggregate sum of
$11,000,000, under the Tier II Commitment, as same may be in effect from time to
time and subject to the provisions of Section 2.05 hereof.
"Major Lender" shall mean any Bank having 40% of the aggregate
amount of Commitments, or if the Commitments shall have terminated, any Banks
holding at least 40% of the aggregate outstanding amount of Credits; provided,
however, that such Bank may not be a Major Lender hereunder if such Bank is in
default of its obligations hereunder at such time.
"Margin Stock" shall mean "margin stock" within the meaning of
Regulations U and X.
"Material Adverse Effect" shall mean a material-adverse effect
on (a) business, operations, financial condition, prospects, liabilities or
capitalization of the Company, (b) the ability of the Company to perform its
obligations under any of the Basic Documents to which it is a party, (c) the
validity or enforceability of any of the Basic Documents, (d) the rights and
-12-
<PAGE>
remedies of the Banks and the Agent under any of the Basic Documents or (e) the
timely payment of the principal of or interest on the Loans or the Reimbursement
Obligations or other amounts payable in connection therewith.
"Maturity Date" shall mean, with respect to any Acceptance,
the maturity date of the draft whose acceptance hereunder by the Accepting Bank
created such Acceptance.
"Merger" shall mean the merger of the Company with and into
ITI, whereby ITI will be the surviving company and will change its name to
Empire Resources, Inc., all as more fully provided in the ITI Merger Agreement.
"Merger Material Adverse Effect" shall have the meaning set
forth in Section 6.03 hereof.
"Money Market Loans" shall mean loans that bear interest at a
rate based on the Money Market Rate.
"Money Market Rate" shall mean, with respect to any Money
Market Loan, a rate quoted by Fleet to the Company as the applicable rate for
such Loan; provided, that, if Citi provides notice to Fleet prior to any Money
Market Loan that its Money Market Rate would be greater than the rate quoted or
to be quoted by Fleet, for each such applicable Money Market Loan the Money
Market Rate shall be such higher rate quoted by Citi.
"New Empire" shall mean Empire Resources, Inc. as the
surviving corporation of the Merger.
"Notes" shall mean the promissory notes provided for by
Section 2.09 hereof and all promissory notes delivered in substitution or
exchange therefor, in each case as the same shall be modified and supplemented
and in effect from time to time.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or
any entity succeeding to any or all of its functions under ERISA.
"Permitted Investments" shall mean: (a) direct obligations of
the United States of America, or of any agency thereof, or obligations
guaranteed as to principal and interest by the United States of America, or of
any agency thereof, in either case maturing not more than 90 days from the date
of acquisition thereof; (b) certificates of deposit issued by any bank or trust
company organized under the laws of the United States of America or any state
thereof and having capital, surplus and undivided profits of at least
$500,000,000, maturing not more than 90 days from the date of acquisition
thereof; (c) commercial paper rated A-1 or better or P-1 by Standard Poor's
Corporation or Moody's Investors Services, Inc., respectively, maturing not more
than 90 days from the date of acquisition thereof; and (d) municipal bonds with
a credit rating acceptable to the Required Banks.
-13-
<PAGE>
"Person" shall mean any individual, corporation, company,
voluntary association, partnership, joint venture, trust, unincorporated
organization or government (or any agency, instrumentality or political
subdivision thereof).
"Plan" shall mean an employee benefit or other plan
established or maintained by the Company or any ERISA Affiliate and that is
covered by Title IV of ERISA, other than a Multiemployer Plan.
"Pledged Cash" shall mean time and deposit accounts maintained
at Fleet that are the subject of a first priority perfected security interest in
favor of Fleet, as Agent for the Banks, securing the obligations of the Company
hereunder and under the Notes.
"Pledged Securities" shall mean Permitted Investments that are
pledged to, and under the dominion and control of, the Agent pursuant to
documents satisfactory to the Required Banks creating a first priority perfected
security interest in favor of Fleet, as Agent for the Banks, securing the
obligations of the Company hereunder and under the Notes.
"Post-Default Rate" shall mean, in respect of any principal of
any Loan, any Reimbursement Obligation, any Acceptance Liability or any other
amount under this Agreement, any Note or any other Basic Document that is not
paid when due (whether at stated maturity, by acceleration, by optional or
mandatory prepayment or otherwise), a rate per annum during the period from and
including the due date to but excluding the date on which such amount is paid in
full equal to 4% plus the Base Rate as in effect from time to time plus the
Applicable Margin for Base Rate Loans (provided that, (x) if the amount so in
default is principal of a Eurodollar Loan and the due date thereof is a day
other than the last day of the Interest Period therefor, the "Post-Default Rate"
for such principal shall be, for the period from and including such due date to
but excluding the last day of such Interest Period, 4% plus the interest rate
for such Loan as provided in Section 3.02(b) hereof and, thereafter, the rate
provided for above in this definition and (y) if the amount so in default is the
face amount of any Acceptance, 4% plus the All-in-Rate for such Acceptance), in
each case provided above, however, it shall be assumed that for purposes of
calculating the Post-Default Rate, any reference to a Type of Loan above shall
mean such Loan at such time as it is not a Cash Secured Loan.
"Prime Rate" shall mean the rate of interest from time to time
announced by Fleet at the Principal Office as its prime commercial lending rate;
provided, that such rate is a reference rate only and is not necessarily the
best or lowest rate charged by Fleet.
"Principal Office" shall mean an office of Fleet, located on
the date hereof at 1125 Route 22 West, Bridgewater, New Jersey 08807.
"Prior Agreement" shall mean that certain Amended and Restated
Credit Agreement dated as of March 12, 1997 among the Company, Fleet Bank, N.A.,
The Chase Manhattan Bank, as Banks and The Chase Manhattan Bank, as Agent.
-14-
<PAGE>
"Property" shall mean any right or interest in or to property
of any kind whatsoever, whether real, personal or mixed and whether tangible or
intangible.
"Quarterly Dates" shall mean the last Business Day of each
March, June, September and December, the first of which shall be the first such
day after the date of this Agreement.
"Receivables" shall mean, as at any date, the unpaid portion
of the obligation, as stated on the respective invoice, of a customer of the
Company in respect of Inventory sold and shipped to such customer, net of any
credits, rebates or offsets owed to such customer and also net of any
commissions payable to third parties (and for purposes hereof, a credit or
rebate paid by check or draft of the Company shall be deemed to be outstanding
until such check or draft shall have been debited to the account of the
Company).
"Regulations A, D, U and X" shall mean, respectively,
Regulations A, D, U and X of the Board of Governors of the Federal Reserve
System (or any successor), as the same may be modified and supplemented and in
effect from time to time.
"Regulatory Change" shall mean, with respect to any Bank, any
change after the date of this Agreement in Federal, state or foreign law or
regulations (including, without limitation, Regulation D) or the adoption or
making after such date of any interpretation, directive or request applying to a
class of banks including such Bank of or under any Federal, state or foreign law
or regulations (whether or not having the force of law and whether or not
failure to comply therewith would be unlawful) by any court or governmental or
monetary authority charged with the interpretation or administration thereof.
"Reimbursement Obligations" shall mean, at any time, the
obligations of the Company then outstanding, or that may thereafter arise in
respect of all Letters of Credit then outstanding, to reimburse amounts paid by
the Issuing Bank in respect of any drawings under a Letter of Credit; provided,
that, for purposes of the Borrowing Base, but for that purpose only,
Reimbursement Obligations owing in connection with foreign exchange contracts
under the Letter of Indemnity shall be excluded in determining availability
thereunder.
"Required Banks" shall mean at any time, the Agent, each Major
Lender (if any) and Banks having 51% of the aggregate amount of Commitments, or
if the Commitments shall have terminated, the Agent, each Major Lender (if any)
and Bank's holding at least 51% of the aggregate outstanding amount of Credits;
provided, however, that if any Bank shall be in default of its obligations
hereunder at such time, then there shall be excluded from the determination of
Required Banks at such time the aggregate principal amount of the Commitment or
Credits, as the case may be, of such Bank at such time. Notwithstanding the
foregoing, (i) at any time there are two or fewer Banks, the 51% referred to
above shall be replaced with "100%" each time it appears and (ii) at any time
there are three Banks, the 51% referred to above shall be replaced with "66
2/3%" each time it appears.
-15-
<PAGE>
"Reserve Amount" shall mean $637,000, or such other amount as
is determined by the Agent to be the aggregate amount of credit memoranda on the
books of the Company that would dilute the Borrowing Base (based on the report
of the independent collateral auditor provided by Section 8.01(e) hereof).
"Reserve Requirement" shall mean, for any Interest Period for
any Eurodollar Loan, the average maximum rate at which reserves (including,
without limitation, any marginal, supplemental or emergency reserves) are
required to be maintained during such Interest Period under Regulation D by
member banks of the Federal Reserve System in New York City with deposits
exceeding one billion Dollars against "Eurocurrency liabilities" (as such term
is used in Regulation D). Without limiting the effect of the foregoing, the
Reserve Requirement shall include any other reserves required to be maintained
by such member banks by reason of any Regulatory Change with respect to (i) any
category of liabilities that includes deposits by reference to which the
Eurodollar Base Rate is to be determined as provided in the definition of
"Eurodollar Base Rate" in this Section 1.01 or (ii) any category of extensions
of credit or other assets that includes Eurodollar Loans.
"Revolving Credit Commitment Termination Date" shall mean June
30, 2001.
"Security Agreement" shall mean the Security Agreement between
the Company and Fleet, as Agent for the Banks, substantially in the form of
Exhibit C hereto, as the same shall be modified and supplemented and in effect
from time to time.
"Security Documents" shall mean, collectively, the Security
Agreement, the Floating Charge (but only after the Australian Effective Date),
an assignment to the Agent for the ratable benefit of the Banks of a keyman life
insurance policy in the amount of $2,000,000 owned by the Company on the life of
Nathan Kahn, and all Uniform Commercial Code financing statements required by
this Agreement or any of the foregoing agreements that are to be filed with
respect to the security interests in personal Property and fixtures created
pursuant to the foregoing.
"Shareholders" shall mean Nathan S. Kahn and Sandra R. Kahn.
"Subordinated Debt" shall mean unguaranteed Indebtedness of
the Company held by the Shareholders, that is subordinated to the Indebtedness
of the Company to the Banks on terms, and with such other terms, as shall be
acceptable to the Required Banks in their sole discretion.
"Subordinated Notes" shall mean those certain Promissory Notes
of the Company, in an aggregate principal amount equal to $10,922,475, payable
to Nathan Kahn and Sandra Kahn, respectively, fully subordinated to all of the
Company's Indebtedness owing to the Agent, the Issuing Bank, the Accepting Bank
and/or the Banks on terms reasonably satisfactory to the Agent and the Banks.
-16-
<PAGE>
"Subsidiary" shall mean, with respect to any Person (the
"parent") at any date, any other Person (i) the accounts of which would be
consolidated with those of the parent in the parent's consolidated financial
statements if such financial statements were prepared in accordance with GAAP as
of such date, or (ii) of which securities or other ownership interests
representing more than 50% of the equity or more than 50% of the ordinary voting
power or, in the case of a partnership, more than 50% of the general partnership
interests or more than 50% of the profits or losses of which are, as of such
date, owned, controlled or held by the parent or one or more subsidiaries of the
parent. Unless otherwise qualified, all references to "Subsidiary" or to
"Subsidiaries" in this Credit Agreement shall refer to a Subsidiary or
Subsidiaries of the Company.
"Tangible Net Worth" shall mean, as at any date for any
Person, the sum for such Person (determined without duplication in accordance
with GAAP), of the following:
(a) the amount of common stock; plus
(b) the amount of surplus and retained earnings (or, in the
case of a surplus or retained earnings deficit, minus the amount of
such deficit); plus
(c) the amount of any Subordinated Debt; minus
(d) the sum of the following: (i) the aggregate amount of
Investments in Affiliates plus (ii) the cost of treasury shares and the
book value of all assets that should be classified as intangibles
(without duplication of deductions in respect of items already deducted
in arriving at surplus and retained earnings) but in any event
including goodwill, minority interests, research and development costs,
trademarks, trade names, copyrights, patents and franchises,
unamortized debt discount and expense, all reserves and any write-up in
the book value of assets resulting from a revaluation thereof
subsequent to December 31, 1994.
"Tier I Commitment" shall mean (A) the F/X Indemnity
Commitments and (B) the obligation of the Banks to make Tier I Loans, and to buy
participations in Letters of Credit and Acceptances issued or created by the
Issuing Bank or the Accepting Bank, as the case may be and the obligation of the
Issuing Bank to issue Letters of Credit and of the Accepting Bank to create
Acceptances in an aggregate amount equal to $35,000,000, as such amount may be
reduced from time to time pursuant to Section 2.05 hereof, and which may be used
by the Company in the form of Loans up to and not exceeding the sum of
$30,000,000, the total amount of which may be used by the Company for trade
Letters of Credit and Acceptances and $2,000,000 of which may be used by the
Company for standby Letters of Credit, all as more fully set forth in this
Agreement and subject to the Borrowing Base limitations of this Agreement.
"Tier II Commitment" shall mean the obligation of the Banks to
make Loans in an aggregate amount equal to $11,000,000, as such amount may be
reduced from time to time pursuant to Section 2.05, which commitment shall
terminate on September 30, 1999, all as more
-17-
<PAGE>
fully set forth in this Agreement and subject to the Tier II Borrowing Base
limitations of this Agreement.
"Tier I Credits" shall mean (i) all Credits, at any time, in
an aggregate outstanding amount up to and including the first $35,000,000 of
outstanding Credits and (ii) all Tier I Loans.
"Tier I Loans" shall mean all Loans, at any time, in an
aggregate amount up to and including the first $30,000,000 of outstanding Loans.
"Tier II Credits" shall consist of only Loans and shall mean
(i) all outstanding Loans in excess of $30,000,000 and/or (ii) at any time there
are outstanding Credits of at least $35,000,000, Loans in an amount equal to the
difference between the then total outstanding Credits and $35,000,000.
"Tier II Borrowing Base" shall mean, as at any date, all
Available Pledged Cash.
"Total Liabilities" shall mean, as at any date, the sum, for
the Company (determined without duplication in accordance with GAAP), of the
following: (a) all Indebtedness and (b) all other liabilities that should be
classified as liabilities on a balance sheet, including, without limitation, all
reserves (other than general contingency reserves), but excluding all deferred
taxes and other deferred items.
"Type" shall have the meaning assigned to such term in Section
1.03 hereof.
"Working Capital Ratio" shall mean the ratio of:
(a) current liabilities (as that term is used in GAAP and in
any event including contingent liabilities) plus any Indebtedness hereunder in
respect of Loans or Acceptances that does not constitute a current liability, to
(b) current assets (as that term is used in GAAP) plus any
Pledged Securities and Pledged Cash that do not constitute current assets minus
current liabilities (as that term is used in GAAP) minus any Indebtedness
hereunder in respect of Loans or Acceptances that does not constitute a current
liability.
"Year 2000 Issue" shall mean failure of computer software,
hardware and firmware systems and equipment containing embedded computer chips
to properly receive, transmit, process, manipulate, store, retrieve, retransmit
or in any other way utilize data and information due to the occurrence of the
year 2000 or the inclusion of dates on or after January 1, 2000.
1.02 Accounting Terms and Determinations.
(a) 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
-18-
<PAGE>
matters required to be delivered to the Banks hereunder shall (unless otherwise
disclosed to the Banks in writing at the time of delivery thereof in the manner
described in subsection (b) below) be prepared, in accordance with generally
accepted accounting principles applied on a basis consistent with those used in
the preparation of the latest financial statements furnished to the Banks
hereunder. All calculations made for the purposes of determining compliance with
this Agreement shall (except as otherwise expressly provided herein) be made by
application of generally accepted accounting principles applied on a basis
consistent with those used in the preparation of the latest annual or quarterly
financial statements furnished to the Banks pursuant to Section 8.01 hereof.
(b) To enable the ready and consistent determination of
compliance with the covenants set forth in Section 8 hereof, the Company will
not change the last day of its fiscal year from December 31 of each year, or the
last days of the first three fiscal quarters in each of its fiscal years from
March 31, June 30 and September 30 of each year, respectively.
1.03 Classes and Types of Loans. Loans hereunder are
distinguished by "Type." The "Type" of a Loan refers to whether such Loan is a
Base Rate Loan or a Eurodollar Loan or a Money Market Loan, each of which
constitutes a Type.
Section 2. Commitments, Loans, Notes and Prepayments.
2.01 Loans. Each Bank severally agrees, on the terms and
conditions of this Agreement, to make loans to the Company in Dollars during the
period from and including the Closing Date to but not including the Revolving
Credit Commitment Termination Date in an aggregate principal amount at any one
time outstanding up to but not exceeding the amount of the Commitment of such
Bank as in effect from time to time, provided that, Loans shall also be subject
to the following additional limitations:
(a) From the date hereof until but excluding September 30,
1999, in no event shall (i) the aggregate principal amount of all Loans exceed
$41,000,000, (ii) the aggregate amount of all Letter of Credit Liabilities,
together with the aggregate principal amount of the Tier I Loans and the
aggregate amount of Acceptance Liabilities exceed the amount of the Tier I
Commitment as then in effect from time to time, (iii) the aggregate amount of
all Tier II Credits exceed the amount of the Tier II Commitment as then in
effect from time to time, (iv) the aggregate principal amount of the Tier I
Loans exceed $30,000,000, or (v) the aggregate principal amount of all Loans,
together with the aggregate amount of all Letter of Credit Liabilities and
Acceptance Liabilities, exceed the aggregate amount of the Commitment as then in
effect from time to time.
(b) From and including September 30, 1999 and all times
thereafter until the Revolving Credit Commitment Termination Date, in no event
shall (i) the aggregate principal amount of all Loans exceed $30,000,000, (ii)
the aggregate amount of all Letter of Credit Liabilities, together with the
aggregate principal amount of all Loans and the aggregate amount of Acceptance
Liabilities exceed the amount of the Tier I Commitment or the Commitment, each
as then in effect from time to time or (iii) there be any Tier II Credits
outstanding.
-19-
<PAGE>
Subject to the terms and conditions of this Agreement, during such period the
Company may borrow, repay and reborrow the amount of the Commitments by means of
Base Rate Loans, Eurodollar Loans and Money Market Loans and may Convert one
Type into Loans of another Type (as provided in Section 2.10 hereof) or Continue
Loans of one Type as Loans of the same Type (as provided in Section 2.10
hereof).
2.02 Borrowings. The Company shall give the Agent notice of
each borrowing hereunder as provided in Section 4.05 hereof. On the date
specified for each borrowing hereunder, each Bank shall, subject to the terms
and conditions of this Agreement, make available its Commitment Percentage of
the aggregate amount of such borrowing to the Agent by depositing the same, in
immediately available funds, at an account maintained by the Agent with Fleet at
the Principal Office. The amount so received by the Agent shall, subject to the
terms and conditions of this Agreement, be made available to the Company, by
depositing the same, in immediately available funds, in an account of the
Company maintained with Fleet at the Principal Office designated by the Company.
2.03 Letters of Credit. Subject to the terms and conditions of
this Agreement, the Commitments may be utilized, upon the request of the
Company, in addition to the Loans provided for by Section 2.01 hereof, by the
issuance by the Issuing Bank of letters of credit and the Letter of Indemnity
(such letters of credit and the Letter of Indemnity are collectively referred to
herein as, "Letters of Credit") for account of the Company, provided that in no
event shall (i) the aggregate amount of all Letter of Credit Liabilities,
together with the aggregate principal amount of the Loans and the aggregate
amount of Acceptance Liabilities exceed the aggregate amount of the Commitments
as in effect from time to time, (ii) the aggregate amount of all Letter of
Credit Liabilities, together with the aggregate principal amount of the Tier I
Loans and the aggregate amount of Acceptance Liabilities exceed the amount of
the Tier I Commitment as in effect from time to time, (iii) the outstanding
aggregate amount of all Letter of Credit Liabilities arising out of performance
or standby Letters of Credit exceed $2,000,000, (iv) the aggregate amount of all
Letter of Credit Liabilities arising out of commercial (documentary) Letters of
Credit (whether issued by Fleet or arising out of the Letter of Indemnity)
exceed $35,000,000, (v) the expiration date of any standby Letter of Credit
extend beyond the Revolving Credit Commitment Termination Date and/or (vi) the
expiration date of any sight or time commercial Letter of Credit extend beyond
the earlier to occur of the date 180 days following the issuance of such Letters
of Credit and the date 180 days following the Revolving Credit Commitment
Termination Date. The following additional provisions shall apply to Letters of
Credit:
(a) The Company shall give the Agent at least three
Business Days' irrevocable prior notice (effective upon receipt)
specifying the Business Day (which shall be no later than 30 days
preceding the Revolving Credit Commitment Termination Date) each Letter
of Credit is to be issued and the account party or parties therefor and
describing in reasonable detail the proposed terms of such Letter of
Credit (including the beneficiary thereof) and the nature of the
transactions or obligations proposed to be
-20-
<PAGE>
supported thereby (including whether such Letter of Credit is to be a
commercial letter of credit or a standby letter of credit).
(b) Upon receipt from the beneficiary of any Letter
of Credit of any demand for payment under such Letter of Credit, the
Issuing Bank shall promptly notify the Company (through the Agent) of
the amount to be paid by the Issuing Bank as a result of such demand
and the date on which payment is to be made by the Issuing Bank to such
beneficiary in respect of such demand. Notwithstanding the identity of
the account party of any Letter of Credit, the Company hereby
unconditionally agrees to pay and reimburse the Agent for the account
of the Issuing Bank for the amount of each demand for payment under
such Letter of Credit at or prior to the date on which payment is to be
made by the Issuing Bank to the beneficiary thereunder, without
presentment, demand, protest or other formalities of any kind.
(c) Forthwith upon its receipt of a notice referred
to in clause (b) of this Section 2.03, the Company shall advise the
Agent whether or not the Company intends to borrow hereunder to finance
its obligation to reimburse the Issuing Bank for the amount of the
related demand for payment and, if it does, submit a notice of such
borrowing as provided in Section 4.05 hereof. In the event that the
Company fails to reimburse the Issuing Bank for a payment under a
Letter of Credit by the date of such payment, the Agent shall give each
Bank prompt notice of the amount of the demand for payment, specifying
such Bank's Commitment Percentage of the amount of the related demand
for payment.
(d) Each Bank (other than the Issuing Bank) shall pay
to the Agent for account of the Issuing Bank at the Principal Office in
Dollars and in immediately available funds, the amount of such Bank's
Commitment Percentage of any payment under a Letter of Credit upon
notice by the Issuing Bank (through the Agent) to such Bank requesting
such payment and specifying such amount. Each such Bank's obligation to
make such payment to the Agent for account of the Issuing Bank under
this clause (d), and the Issuing Bank's right to receive the same,
shall be absolute and unconditional and shall not be affected by any
circumstance whatsoever, including, without limitation, the failure of
any other Bank to make its payment under this clause (d), the financial
condition of the Company (or any other account party), the existence of
any Default or the termination of the Commitment. Each such payment to
the Issuing Bank shall be made without any offset, abatement,
withholding or reduction whatsoever. If any Bank shall default in its
obligation to make any such payment to the Agent for account of the
Issuing Bank, for so long as such default shall continue the Agent may
at the request of the Issuing Bank withhold from any payments received
by the Agent under this Agreement or any Note for account of such Bank
the amount so in default and, to the extent so withheld, pay the same
to the Issuing Bank in satisfaction of such defaulted obligation.
(e) Upon the making of each payment by a Bank to the
Issuing Bank pursuant to clause (d) above in respect of any Letter of
Credit, such Bank shall,
-21-
<PAGE>
automatically and without any further action on the part of the Agent,
the Issuing Bank or such Bank, acquire (i) a participation in an amount
equal to such payment in the Reimbursement Obligation owing to the
Issuing Bank by the Company hereunder and under the Letter of Credit
Documents relating to such Letter of Credit and (ii) a participation in
a percentage equal to such Bank's Commitment Percentage in any interest
or other amounts payable by the Company hereunder and under such Letter
of Credit Documents in respect of such Reimbursement Obligation (other
than the commissions, charges, costs and expenses payable to the
Issuing Bank pursuant to clause (f) of this Section 2.03). Upon receipt
by the Issuing Bank from or for account of the Company of any payment
in respect of any Reimbursement Obligation or any such interest or
other amount (including by way of setoff or application of proceeds of
any collateral security) the Issuing Bank shall promptly pay to the
Agent for account of each Bank entitled thereto, such Bank's Commitment
Percentage of such payment, each such payment by the Issuing Bank to be
in the same money and funds in which received by the Issuing Bank. In
the event any payment received by the Issuing Bank and so paid to the
Banks hereunder is rescinded or must otherwise be returned by the
Issuing Bank, each Bank shall, upon the request of the Issuing Bank
(through the Agent), repay to the Issuing Bank (through the Agent) the
amount of such payment paid to such Bank, with interest at the rate
specified in clause (i) of this Section 2.03.
(f) The Company shall pay to the Agent for account of
each Bank (ratably in accordance with their respective Commitment
Percentages) a letter of credit fee (i) in respect of each commercial
Letter of Credit in an amount equal to 3/20 of 1% of the amount drawn,
payable on the date such Letter of Credit is drawn and (ii) in respect
of each standby Letter of Credit in an amount equal to 2% per annum,
payable upon issuance of each standby Letter of Credit. In addition,
the Company shall pay to the Agent for account of the Issuing Bank a
fronting fee in respect of each Letter of Credit in an amount equal to
1/10 of 1% of the amount drawn, payable on the date such Letter of
Credit is drawn, plus all commissions, charges, costs and expenses in
the amounts customarily charged by the Issuing Bank from time to time
in like circumstances with respect to the issuance of each Letter of
Credit and drawings and other transactions relating thereto. Accrued
fees shall be due and payable quarterly in arrears on the last Business
Day of each March, June, September and December of each year and on the
date upon which the Commitments shall be terminated.
(g) At the request of any Bank, the Issuing Bank
shall deliver (through the Agent) to such Bank a notice describing the
aggregate amount of all Letters of Credit outstanding at the end of any
month. Upon the request of any Bank from time to time, the Issuing Bank
shall deliver any other information reasonably requested by such Bank
with respect to each Letter of Credit then outstanding.
(h) The issuance by the Issuing Bank of each Letter
of Credit shall, in addition to the conditions precedent set forth in
Section 6 hereof, be subject to the conditions precedent that (i) such
Letter of Credit shall be in such form, contain such terms and support
such transactions as shall be satisfactory to the Issuing Bank
consistent
-22-
<PAGE>
with its then current practices and procedures with respect to letters
of credit of the same type, (ii) all documents of title covering goods
financed with a Letter of Credit shall either be issued (A) in the name
of the Issuing Bank or (B) to the order of the shipper and endorsed in
blank and delivered to the Issuing Bank and (iii) the Company shall
have executed and delivered such applications, agreements and other
instruments relating to such Letter of Credit as the Issuing Bank shall
have reasonably requested consistent with its then current practices
and procedures with respect to letters of credit of the same type,
provided that in the event of any conflict between any such
application, agreement or other instrument and the provisions of this
Agreement or any Security Document, the provisions of this Agreement
and the Security Documents shall control.
(i) To the extent that any Bank shall fail to pay any
amount required to be paid pursuant to clause (d) or (e) of this
Section 2.03 on the due date therefor, such Bank shall pay interest to
the Issuing Bank (through the Agent) on such amount from and including
such due date to but excluding the date such payment is made, provided
that if such Bank shall fail to make such payment to the Issuing Bank
within three Business Days of such due date, then, retroactively to the
due date, such Bank shall be obligated to pay interest on such amount
at the Post-Default Rate.
(j) The issuance by the Issuing Bank of any
modification or supplement to any Letter of Credit hereunder shall be
subject to the same conditions applicable under this Section 2.03 to
the issuance of new Letters of Credit, and no such modification or
supplement shall be issued hereunder unless either (i) the respective
Letter of Credit, affected thereby would have complied with such
conditions had it originally been issued hereunder in such modified or
supplemented form or (ii) each Bank shall have consented thereto.
The Company hereby indemnifies and holds harmless each Bank and the Agent from
and against any and all claims and damages, losses, liabilities, costs or
expenses that such Bank or the Agent may incur (or that may be claimed against
such Bank or the Agent by any Person whatsoever) by reason of or in connection
with the execution and delivery or transfer of or payment or refusal to pay by
the Issuing Bank under any Letter of Credit; provided that the Company shall not
be required to indemnify any Bank or the Agent for any claims, damages, losses,
liabilities, costs or expenses to the extent, but only to the extent, caused by
(x) the willful misconduct or gross negligence of the Issuing Bank in
determining whether a request presented under any Letter of Credit complied with
the terms of such Letter of Credit or (y) the Issuing Bank's failure to pay
under any Letter of Credit after the presentation to it of a request strictly
complying with the terms and conditions of such Letter of Credit or (z) the
requirement of any Bank to pay interest pursuant to Section 2.03(i) hereof.
Nothing in this Section 2.03 is intended to limit the other obligations of the
Company, any Bank or the Agent under this Agreement.
2.04 Acceptances. Subject to the terms and conditions of
this Agreement, the commitment may be utilized, upon the request of the Company,
for the creation and discount by the Accepting Bank of Acceptances, provided
that such Acceptances shall only arise out of and be directly related to trade
Letters of Credit and provided further that in no event shall (i) the
-23-
<PAGE>
aggregate amount of all Acceptance Liabilities, together with the outstanding
principal amount of Loans and the aggregate amount of Letter of Credit
Liabilities exceed the aggregate amount of the Commitments as in effect at such
time, (ii) the aggregate amount of all Acceptance Liabilities, together with the
aggregate principal amount of the Tier I Loans and the aggregate amount of
Letter of Credit Liabilities exceed the amount of the Tier I Commitment as in
effect from time to time, (iii) the aggregate amount of all Acceptance
Liabilities exceed $35,000,000 and (iv) the Maturity Date of any Acceptance
extend beyond the earlier to occur of the date 180 days following the creation
of such Acceptance and the date 180 days following the Revolving Credit
Commitment Termination Date. The following additional provisions shall apply to
Acceptances:
(a) When the Company wishes to request that the Accepting Bank
create and discount Acceptances for account of the Company, the Company
shall give the Accepting Bank notice of such request so as to be
received by the Accepting Bank no later than 11:00 a.m. New York time
on the Business Day next preceding the date proposed therein for the
creation and discount of such Acceptances, specifying:
(i) the aggregate face amount of such Acceptances;
(ii) the tenor of such Acceptances (which in any
event shall not exceed six months);
(iii) the type and C.I.F. (or other applicable) value
of the goods out of whose shipment such Acceptance will arise;
(iv) the date of shipment of such goods (which in any
event may not be more than 30 days prior to the date proposed
in the notice requesting the creation and discount of such
Acceptances);
(v) the city and country of origin of shipment of
such goods; and
(vi) the city and state of destination of shipment of
such goods.
(b) The Accepting Bank shall, not later than 1:00 p.m. New
York time on the date specified for the creation and discount of such
Acceptances:
(i) create such Acceptances in such aggregate amount
by the acceptance at the Principal Office of a draft or drafts
in the form customarily employed by the Accepting Bank in
creating bankers' acceptances (the denomination of each such
Acceptance to be selected by the Accepting Bank in its sole
discretion);
(ii) discount such Acceptances at the All In Rate and
shall notify each Bank of such rate; and
-24-
<PAGE>
(iii) promptly make available to the Company the
proceeds of such discount by depositing the same, in
immediately available funds, in an account of the Company
maintained with the Accepting Bank at the Principal Office
designated by the Company.
(c) On each day during the period commencing with the creation
and discount by the Accepting Bank of any Acceptance and until the
related Acceptance Liability shall have been paid in full, the
Commitment of each Bank shall be deemed to be utilized for all purposes
of this Agreement in an amount equal to such Bank's Commitment
Percentage of the face amount of such Acceptance. Each Bank (other than
the Accepting Bank) agrees that, upon the creation and discount of any
Acceptance hereunder, it shall automatically and without any further
action on the part of the Agent, the Accepting Bank or such Bank
acquire a participation in the Accepting Bank's liability under such
Acceptance in an amount equal to such Bank's Commitment Percentage of
such liability, and each Bank (other than the Accepting Bank) thereby
shall absolutely, unconditionally and irrevocably assume, as primary
obligor and not as surety, and shall be unconditionally obligated to
the Accepting Bank to pay and discharge when due, and to pay and
reimburse the Accepting Bank in accordance with clause (f) below, its
Commitment Percentage of the Accepting Bank's liability under such
Acceptance.
(d) With respect to any Acceptance created and discounted
hereunder, the Company unconditionally agrees to pay to the Agent for
the account of the Accepting Bank, on the Maturity Date of such
Acceptance, or such earlier date as may be required pursuant to the
terms of this Agreement, the face amount of such Acceptance.
(e) The Company shall advise the Agent whether or not the
Company intends to borrow hereunder to finance its obligation to
reimburse the Accepting Bank in the face amount of any Acceptance and,
if it does, submit a notice of such borrowing as provided in Section
4.05 hereof. In the event that the Company fails to reimburse the
Accepting Bank for the face amount of an Acceptance on the Maturity
Date therefor, the Agent shall give each Bank prompt notice of such
face amount, specifying such Bank's Commitment Percentage of such face
amount.
(f) Upon demand of the Accepting Bank made through the Agent
at any time from and including the Maturity Date of any Acceptance
until the Company shall have reimbursed the Accepting Bank in the face
amount of such Acceptance under clause (e) hereof, each Bank (other
than the Accepting Bank) shall pay to the Agent for account of the
Accepting Bank at the Principal Office in Dollars and in immediately
available funds, the amount of such Bank's Commitment Percentage of the
face amount of such Acceptance. Each such Bank's obligation to make
such payment to the Agent for account of the Accepting Bank under this
clause (f), and the Accepting Bank's right to receive the same, shall
be absolute and unconditional and shall not be affected by any
circumstance whatsoever, including, without limitation, the failure of
any other Bank to make its payment under this clause (f), the financial
condition of the Company (or any other account party), the existence of
any Default or the termination of the Commitment. Each
-25-
<PAGE>
such payment to the Accepting Bank shall be made without any offset,
abatement, withholding or reduction whatsoever. If any Bank shall
default in its obligation to make any such payment to the Agent for
account of the Accepting Bank, for so long as such default shall
continue the Agent may at the request of the Accepting Bank withhold
from any payments received by the Agent under this Agreement or any
Note for account of such Bank the amount so in default and, to the
extent so withheld, pay the same to the Accepting Bank in satisfaction
of such defaulted obligation.
(g) Upon the making of each payment by a Bank to the Accepting
Bank pursuant to clause (f) above in respect of any Acceptance, such
Bank shall, automatically and without any further action on the part of
the Agent, the Accepting Bank or such Bank, acquire (i) a participation
in an amount equal to such payment in the Acceptance Liability owing to
the Accepting Bank by the Company hereunder and under the Acceptance
Documents relating to such Acceptance and (ii) a participation in a
percentage equal to such Bank's Commitment Percentage in any interest
or other amounts payable by the Company hereunder and under such
Acceptance Documents in respect of such Acceptance Liability. Upon
receipt by the Accepting Bank from or for account of the Company of any
payment in respect of any Acceptance Liability or any such interest or
other amount (including by way of setoff or application of proceeds of
any collateral security) the Accepting Bank shall promptly pay to the
Agent for account of each Bank entitled thereto, such Bank's Commitment
Percentage of such payment, each such payment by the Accepting Bank to
be made in the same money and funds in which received by the Accepting
Bank. In the event any payment received by the Accepting Bank and so
paid to the Banks hereunder is rescinded or must otherwise be returned
by the Accepting Bank, each Bank shall, upon the request of the
Accepting Bank (through the Agent), repay to the Accepting Bank
(through the Agent) the amount of such payment paid to such Bank, with
interest at the rate specified in clause (j) of this Section 2.04.
(h) In the event the Accepting Bank is unable to rediscount
any Acceptance in the secondary bankers' acceptance market for any
reason whatsoever (or in the event the Accepting Bank repurchases any
Acceptance theretofore rediscounted in such market because such
Acceptance is not eligible for discount and purchase by a Federal
Reserve Bank, each Bank (other than the Accepting Bank) shall, upon
notice from the Accepting Bank, purchase from the Accepting Bank a
participation in the Accepting Bank's right, title and interest in and
to such Acceptance equal to its Commitment Percentage of such
Acceptance by paying to the Agent for account of the Accepting Bank an
amount equal to its Commitment Percentage of the proceeds of the
discount of such Acceptance paid by the Accepting Bank. Each such
Bank's obligation to make such payments to the Agent for account of the
Accepting Bank under this clause (h), and the Accepting Bank's right to
receive the same, shall be absolute and unconditional and shall not be
affected by any circumstance whatsoever, including, without limitation,
the failure of any other Bank to make its payment under this clause
(h), the financial condition of the Company or any of its Subsidiaries,
the existence of any Default or the termination of the Commitments.
Each such payment to the Agent for account of the Accepting Bank shall
be made without any offset, abatement, withholding or reduction
whatsoever. Upon the making of
-26-
<PAGE>
any payment by a Bank to the Agent for account of the Accepting Bank
pursuant to the first sentence of this clause (h) in respect of any
Acceptance, such Bank shall, automatically and without any further
action on the part of the Agent, the Accepting Bank or such Bank,
acquire a participation in its Commitment Percentage of any proceeds
received by the Accepting Bank from the subsequent rediscount of such
Acceptance in the secondary banker's acceptance market.
(i) To the extent that any Bank shall fail to pay any amount
required to be paid pursuant to clause (f) or (g) of this Section 2.04
on the due date therefor, such Bank shall pay interest to the Accepting
Bank (through the Agent) on such amount from and including such due
date to but excluding the date such payment is made, provided that if
such Bank shall fail to make such payment to the Accepting Bank within
three Business Days of such due date, then, retroactively to the due
date, such Bank shall be obligated to pay interest on such amount at
the Post-Default Rate.
(j) The Company hereby appoints the Accepting Bank to be, and
the Accepting Bank hereby accepts such appointment to be, the Company's
true and lawful attorney-in-fact for and on behalf of the Company to
sign in the name of the Company, as drawer, drafts naming the Accepting
Bank as drawee and payee and otherwise in the form customarily employed
by the Accepting Bank in creating bankers' acceptances, and to complete
such drafts as to amount, date and maturity (in such numbers and
denominations as the Accepting Bank is hereby authorized to determine)
in accordance with any request for the creation and discount of
Acceptances under Section 2.04(a) hereof.
2.05 Changes of the Commitment.
(a) The aggregate Commitment of all the Banks shall be
automatically reduced to $35,000,000 on September 30, 1999.
(b) The Commitment shall be automatically reduced to zero on
the Revolving Credit Commitment Termination Date.
(c) The Company shall have the right at any time or from time
to time (i) so long as no Loans or Letter of Credit Liabilities or Acceptance
Liabilities are outstanding, to terminate the Commitment and (ii) to reduce the
unused amount of the Tier I Commitment, the Tier II Commitment, or both (for
which purpose use of the Tier I Commitment shall be deemed to include the
aggregate amount of Letter of Credit Liabilities and Acceptance Liabilities);
provided that (x) the Company shall give notice of each such termination or
reduction as provided in Section 4.05 hereof and (y) each partial reduction
shall be in an amount at least equal to $5,000,000 and in integral multiples of
$1,000,000 for amounts in excess thereof. Upon termination or reduction of the
Tier I Commitment, the Tier II Commitment, or both, the Company will pay to the
Agent for the pro rata account of the Banks, the accrued commitment fee required
by Section 2.06 (to the date of termination or reduction) on the terminated or
reduced portion of such Commitment and if there is also a prepayment required,
compensation of
-27-
<PAGE>
the Banks for all break funding costs. Notwithstanding the foregoing, no
reduction in a Commitment shall be effective unless and until the Company shall
have provided written notice to the Agent and the Banks as to whether (and to
what extent) the reduction is for the Tier I Commitment, the Tier II Commitment
or both.
(d) The Commitment once terminated or reduced may not be
reinstated.
2.06 Commitment Fee. The Company shall pay to the Agent for
account of each Bank a commitment fee on the daily average unused amount of the
Commitment (for which purpose the aggregate amount of any Letter of Credit
Liabilities (other than the face amount of any letters of indemnity) and any
Acceptance Liabilities shall be deemed to be a use of the Commitment), for the
period from and including the date of this Agreement to but not including the
earlier of the date the Commitment is terminated and the Revolving Credit
Commitment Termination Date, at a rate per annum equal to 1/8 of 1%. Accrued
commitment fees shall be payable on each Quarterly Date and on the earlier of
the date the Commitment is terminated and the Revolving Credit Commitment
Termination Date.
2.07 Lending Offices. The Loans of each Type made by each Bank
shall be made and maintained at such Bank's Applicable Lending Office for Loans
of such Type.
2.08 Several Obligations Remedies Independent. The failure of
any Bank to make any Loan to be made by it on the date specified therefor shall
not relieve any other Bank of its obligation to make its Loan on such date, but
neither any Bank nor the Agent shall be responsible for the entire failure of
any other Bank to make a Loan to be made by such other Bank, and no Bank shall
have any obligation to the Agent or any other Bank for the failure by such Bank
to make any Loan required to be made by such Bank. The amounts payable by the
Company at any time hereunder and under the Notes to each Bank shall be a
separate and independent debt and subject to the terms and conditions of this
Agreement each Bank shall be entitled to protect and enforce its rights arising
out of this Agreement and the Notes, and it shall not be necessary for any other
Bank or the Agent to consent to, or be joined as an additional party in, any
proceedings for such purposes.
2.09 Notes; Limitations on Interest Periods.
(a) The Loans made by each Bank shall be evidenced by a
single promissory note of the Company substantially in the form of Exhibit A
hereto, dated the date hereof, payable to such Bank in a principal amount equal
to the amount of the Commitment as originally in effect and otherwise duly
completed.
(b) The date, amount, Type, interest rate and duration of
Interest Period (if applicable) of each Loan made by each Bank to the Company,
and each payment made on account of the principal thereof, shall be recorded by
each Bank on its books and, prior to any transfer of the Note, endorsed by each
Bank on the schedule attached to the Note or any continuation thereof; provided
that the failure of such Bank to make any such recordation or
-28-
<PAGE>
endorsement shall not affect the obligations of the Company to make a payment
when due of any amount owing hereunder or under the Note.
(c) No Bank shall be entitled to have the Notes subdivided, by
exchange for promissory notes of lesser denominations or otherwise, except in
connection with a permitted assignment of all or any portion of the relevant
Commitment, Loans and Notes pursuant to Section 11.06(b) hereof.
(d) The Company shall not be permitted to have more than (i)
six Eurodollar Loans outstanding at any one time (ii) or six Money Market Loans
outstanding at any one time, it being agreed that for the purpose of calculating
such limitation each borrowing of a Eurodollar Loan, or Money Market Loan, as
the case may be, pursuant to a single Credit request shall constitute the making
of one Eurodollar Loan, or Money Market Loan, as the case may be.
2.10 Optional Prepayments and Conversions or Continuations of
Loans. Subject to Section 4.04 hereof, the Company shall have the right to
prepay Loans, or to Convert Loans of one Type into Loans of another Type or
Continue Loans of one Type as Loans of the same Type, at any time or from time
to time, provided that: (a) the Company shall give the Agent notice of each such
prepayment, Conversion or Continuation as provided in Section 4.05 hereof (and,
upon the date specified in any such notice of prepayment, the amount to be
prepaid shall become due and payable hereunder, which amounts shall be in the
minimum amount of $1,000,000 and in integral multiples of $100,000 for amounts
in excess thereof); and (b) a Eurodollar Loan and a Money Market Loan may be
prepaid or Converted only on the last day of an Interest Period for such Loan.
Notwithstanding the foregoing, and without limiting the rights and remedies of
the Banks under Section 9 hereof, in the event that any Event of Default shall
have occurred and be continuing, the Agent may (and at the request of the
Required Banks shall) suspend the right of the Company to Convert any Loan into
a Eurodollar Loan or a Money Market Loan, or to Continue any Loan as a
Eurodollar Loan or a Money Market Loan, in which event all Loans shall be
Converted (on the last day(s) of the respective Interest Periods therefor) or
Continued, as the case may be, as Base Rate Loans.
2.11 Mandatory Prepayments.
(a) Borrowing Base and Tier II Borrowing Base. Until the
Revolving Credit Commitment Termination Date, the Company shall from time to
time prepay the Loans (and/or provide cover for Letter of Credit Liabilities as
specified in clause (b) below) in such amounts as shall be necessary so that at
all times the (i) aggregate outstanding amount of the Tier I Loans together with
the outstanding Letter of Credit Liabilities and Acceptance Liabilities shall
not exceed the Borrowing Base, and (ii) aggregate outstanding amount of the Tier
II Credits shall not exceed the Tier II Borrowing Base, each such amount to be
applied, first, to Tier I Loans outstanding, second, to Acceptance Liabilities
outstanding, and, third, as cover for Letter of Credit Liabilities outstanding.
(b) Cover for Letter of Credit Liabilities. In the event that
the Company shall be required pursuant to this Section 2.11 to provide cover for
Letter of Credit Liabilities, the
-29-
<PAGE>
Company shall effect the same by paying to the Agent immediately available funds
in an amount equal to the required amount, which funds shall be retained by the
Agent in the Collateral Account (as collateral security in the first instance
for the Letter of Credit Liabilities) until such time as the Letters of Credit
shall have been terminated and all of the Letter of Credit Liabilities paid in
full.
(c) Prepayment for Mandatory Reduction of Commitment. On
September 30, 1999 the Company shall prepay the Loans in such amounts as shall
be necessary so that the aggregate outstanding amount of Loans together with the
outstanding Letter of Credit Liabilities and Acceptance Liabilities shall not
exceed $35,000,000.
Section 3. Payments of Principal and Interest.
3.01 Repayment of Loans. The Company hereby promises to pay to
the Agent for account of each Bank the entire outstanding principal amount of
the Loans, and each Loan shall mature, on the Revolving Credit Commitment
Termination Date, other than Loans which are included in Tier II Credits, which
Loans shall mature on September 30, 1999.
3.02 Interest. The Company hereby promises to pay to the Agent
for account of each Bank interest on the unpaid principal amount of each Loan
made by such Bank for the period from and including the date of such Loan to but
excluding the date such Loan shall be paid in full, at the following rates per
annum:
(a) during such periods as such Loan is a Base Rate Loan, the
Base Rate (as in effect from time to time) plus the Applicable Margin;
(b) during such periods as such Loan is a Eurodollar Loan, for
each Interest Period relating thereto, the Eurodollar Rate for such
Loan for such Interest Period plus the Applicable Margin;
(c) during such periods as such Loan is a Money Market Loan,
the Money Market Rate for such Loan for such period.
Notwithstanding the foregoing, the Company hereby promises to pay to the Agent
for account of each Bank interest at the applicable Post-Default Rate on any
principal of any Loan, on any Reimbursement Obligation on any Acceptance
Liabilities and on any other amount payable by the Company hereunder or under
the Notes that shall not be paid in full when due (whether at stated maturity,
by acceleration, by mandatory prepayment or otherwise), for the period from and
including the due date thereof to but excluding the date the same is paid in
full. Accrued interest on each Loan shall be payable (i) in the case of a Base
Rate Loan, monthly on the last Business Day of each month, (ii) in the case of a
Eurodollar Loan and a Money Market Loan, on the last day of each Interest Period
therefor and, if such Interest Period is longer than one month, at one-month
intervals following the first day of such Interest Period, and (iii) in the case
of any Loan, upon the payment or prepayment thereof or the Conversion of such
Loan to a Loan of another Type (but only on the principal amount so paid,
prepaid or Converted), except that interest
-30-
<PAGE>
payable at the Post-Default Rate shall be payable from time to time on demand.
Promptly after the determination of any interest rate provided for herein or any
change therein, the Agent shall give notice thereof to the Banks to which such
interest is payable and to the Company.
Section 4. Payments; Computations; Etc.
4.01 Payments.
(a) Except to the extent otherwise provided herein, all
payments of principal, interest, Reimbursement Obligations, Acceptance
Liabilities and other amounts to be made by the Company under this Agreement and
the Notes, and, except to the extent otherwise provided therein, all payments to
be made by the Company under any other Basic Document, shall be made in Dollars,
in immediately available funds, without deduction, set-off or counterclaim, to
the Agent at the Principal Office, not later than 1:00 p.m. New York time on the
date on which such payment shall become due (each such payment made after such
time on such due date to be deemed to have been made on the next succeeding
Business Day).
(b) Subject to Section 4.07, any Bank for whose account such
payment is to be made may (but shall not be obligated to) debit the amount of
any such payment that is not made by such time to any ordinary deposit account
of the Company with such Bank (with notice to the Company and the Agent).
(c) The Company shall, at the time of making each payment
under this Agreement or any Note, for account of any Bank specify to the Agent
(which shall so notify the intended recipient(s) thereof) the Loans, Acceptance
Liabilities, Reimbursement Obligations or other amounts payable by the Company
hereunder to which such payment is to be applied (and in the event that the
Company fails to so specify, or if an Event of Default has occurred and is
continuing, the Agent may distribute such payment to the Banks for application
in such manner as it, subject to Section 4.03 hereof, may determine to be
appropriate).
(d) Except to the extent otherwise provided in the last
sentence of Section 2.03(d) and Section 2.04(f) hereof, each payment received by
the Agent under this Agreement or any Note for account of any Bank shall be paid
by the Agent promptly to such Bank, in immediately available funds, for account
of such Bank's Applicable Lending Office for the Loan or other obligation in
respect of which such payment is made.
(e) If the due date of any payment under this Agreement or any
Note would otherwise fall on a day that is not a Business Day, such date shall
be extended to the next succeeding Business Day, and interest shall be payable
for any principal so extended for the period of such extension.
4.02 Computations. Interest on Loans, Reimbursement
Obligations, Acceptance Liabilities and commitment fee shall be computed on the
basis of a year of 360 days and actual days elapsed (including the first day but
excluding the last day) occurring in the period for which payable.
-31-
<PAGE>
4.03 Pro Rata Treatment. Except to the extent otherwise
provided herein: (a) each borrowing of Loans from the Banks under Section 2.01
hereof shall be made from the Banks, each payment of commitment fee under
Section 2.06 hereof in respect of Commitments shall be made for account of the
Banks, and each termination or reduction of the amount of the Commitments under
Section 2.05 hereof shall be applied to the Commitments of the Banks, pro rata
according to the amounts of their respective Commitments; (b) each payment or
prepayment of principal of loans by the Company shall be made for account of the
Banks pro rata in accordance with the respective unpaid principal amounts of the
Loans held by them; and (c) each payment of interest on Loans by the Company
shall be made for account of the Banks pro rata in accordance with the amounts
of interest on such Loans then due and payable to the Banks.
4.04 Minimum Amounts. Except for mandatory prepayments made
pursuant to Section 2.11 hereof, each borrowing, Conversion and partial
prepayment of principal of Loans shall be in an amount at least equal to
$1,000,000 (or $500,000 in the case of Base Rate Loans) and in integral
multiples in excess of $100,000 for amounts in excess thereof (borrowings,
Conversions or prepayments of or into Loans of different Types or, in the case
of Eurodollar Loans, having different Interest Periods at the same time
hereunder to be deemed separate borrowings, Conversions and prepayments for
purposes of the foregoing, one for each Type or Interest Period).
4.05 Certain Notices. Notices by the Company to the Agent of
terminations or reductions of the Commitment, of borrowings, Conversions,
Continuations and optional prepayments of Loans, of Types of Loans and of the
duration of Interest Periods shall be irrevocable and shall be effective only if
received by the Agent not later than 10:00 a.m. New York time on the number of
Business Days prior to the date of the relevant termination, reduction,
borrowing, Conversion, Continuation or prepayment or the first day of such
Interest Period specified below:
Notice Number of
------ Business Days Prior
-------------------
Termination or reduction Ten
of the Commitment
Borrowing or prepayment of, Same day
or Conversions into,
Base Rate Loans
Borrowing or prepayment of, Conversions Two
into, Continuations as, or duration of
Interest
Period for, Eurodollar Loans
Borrowing or prepayment of, Conversions Same day
into, Continuations
-32-
<PAGE>
as, or duration of Interest
Period for, Money Market Loans
Each such notice of termination or reduction shall specify the amount of the
Commitment to be terminated or reduced. Each such notice of borrowing,
Conversion, Continuation or optional prepayment shall specify the amount
(subject to Section 4.04 hereof) and Type of each Loan to be borrowed,
Converted, Continued or prepaid and the date of borrowing, Conversion,
Continuation or optional prepayment (which shall be a Business Day). Each such
notice of the duration of an Interest Period shall specify the Loans to which
such Interest Period is to relate. In the event that the Company fails to select
the Type of Loan, or the duration of any Interest Period for any Eurodollar Loan
or Money Market Loan, within the time period and otherwise as provided in this
Section 4.05, such Loan (if outstanding as a Eurodollar Loan or a Money Market
Loan) will be automatically Converted into a Base Rate Loan on the last day of
the then current Interest Period for such Loan or (if outstanding as a Base Rate
Loan) will remain as, or (if not then outstanding) will be made as, a Base Rate
Loan.
4.06 Non-Receipt of Funds by the Agent. Unless the Agent shall
have been notified by a Bank or the Company (either or both the "Payor") prior
to the date on which the Payor is to make payment to the Agent of (in the case
of a Bank) the proceeds of a Loan to be made by such Bank hereunder or (in the
case of the Company) a payment to the Agent for account of one or more of the
Banks hereunder (such payment being herein called the "Required Payment"), which
notice shall be effective upon receipt, that the Payor does not intend to make
the Required Payment to the Agent, the Agent may assume that the Required
Payment has been made and may, in reliance upon such assumption (but shall not
be required to), make the amount thereof available to the intended recipient(s)
on such date; and, if the Payor has not in fact made the Required Payment to the
Agent, the recipient(s) of such payment shall, on demand, repay to the Agent the
amount so made available together with interest thereon in respect of each day
during the period commencing on the date (the "Advance Date") such amount was so
made available by the Agent until the date the Agent recovers such amount at a
rate per annum equal to the Federal Funds Rate for such day and, if such
recipient(s) shall fail promptly to make such payment, the Agent shall be
entitled to recover such amount, on demand, from the Payor, together with
interest as aforesaid, provided that if neither the recipient(s) nor the Payor
shall return the Required Payment to the Agent within three Business Days of the
Advance Date, then, retroactively to the Advance Date, the Payor and the
recipient(s) shall each be obligated to pay interest on the Required Payment as
follows:
(i) if the Required Payment shall represent a payment to be
made by the Company to the Banks, the Company and the recipient(s)
shall each be obligated retroactively to the Advance Date to pay
interest in respect of the Required Payment at the Post-Default Rate
(and, in case the recipient(s) shall return the Required Payment to the
Agent, without limiting the obligation of the Company under Section
3.02 hereof to pay interest to such recipient(s) at the Post-Default
Rate in respect of the Required Payment) and
-33-
<PAGE>
(ii) if the Required Payment shall represent proceeds of a
Loan to be made by the Banks to the Company, the Payor and the Company
shall each be obligated retroactively to the Advance Date to pay
interest in respect of the Required Payment at the rate of interest
provided for such Required Payment pursuant to Section 3.02 hereof
(and, in case the Company shall return the Required Payment to the
Agent, without limiting any claim the Company may have against the
Payor in respect of the Required Payment).
4.07 Sharing of Payments, etc.
(a) The Company agrees that, in addition to (and without
limitation of) any right of set-off, banker's lien or counterclaim a Bank may
otherwise have, each Bank shall be entitled, at its option, to offset balances
held by it for account of the Company at any of its offices, in Dollars or in
any other currency, against any principal of or interest on any of such Bank's
Loans, Reimbursement Obligations, Acceptance Liabilities or any other amount
payable to such Bank hereunder, that is not paid when due (regardless of whether
such balances are then due to the Company), in which case it shall promptly
notify the Company and the Agent thereof, provided that such Bank's failure to
give such notice shall not affect the validity thereof.
(b) If any Bank shall obtain from the Company payment of any
principal of or interest on any Loan, Acceptance Liabilities or Letter of Credit
Liability owing to it or payment of any other amount under this Agreement or any
other Basic Document through the exercise of any right of set-off, banker's lien
or counterclaim or similar right or otherwise (other than from the Agent as
provided herein), and, as a result of such payment, such Bank shall have
received a greater percentage of the principal of or interest on the Loans or
Letter of Credit Liabilities, Acceptance Liabilities or such other amounts then
due hereunder or thereunder by the Company to such Bank than the percentage
received by any other Bank of the principal of or interest on the Loans or
Letter of Credit Liabilities, Acceptance Liabilities or such other amounts then
due hereunder or thereunder by the Company to such other Bank, it shall promptly
purchase from such other Banks participations in (or, if and to the extent
specified by such Bank, direct interests in) the Loans or Letter of Credit
Liabilities, Acceptance Liabilities or such other amounts, respectively, owing
to such other Banks (or in interest due thereon, as the case may be) in such
amounts, and make such other adjustments from time to time as shall be
equitable, to the end that all the Banks shall share the benefit of such excess
payment (net of any expenses that may be incurred by such Bank in obtaining or
preserving such excess payment) pro rata in accordance with the unpaid principal
of and/or interest on the Loans, Acceptance Liabilities or Letter of Credit
Liabilities or such other amounts, respectively, owing to each of the Banks,
provided, that no Bank shall be required to acquire any participation or direct
interest in any other Bank's Loans, Letter of Credit Liabilities or Acceptance
Liabilities or other amounts as a result of the receipt by such Bank of any
proceeds of any realization on any collateral with respect to which such other
Bank does not have a perfected security interest if such a security interest
could have been perfected by filing Uniform Commercial Code financing
statements. To such end all the Banks shall make appropriate adjustments among
themselves (by the resale of participations sold or otherwise) if such payment
is rescinded or must otherwise be restored.
-34-
<PAGE>
(c) The Company agrees that any Bank so purchasing such a
participation (or direct interest) may exercise all rights of set-off, banker's
lien, counterclaim or similar rights with respect to such participation as fully
as if such Bank were a direct holder of Loans or other amounts (as the case may
be) owing to such Bank in the amount of such participation.
(d) Nothing contained herein shall require any Bank to
exercise any such right or shall affect the right of any Bank to exercise, and
retain the benefits of exercising, any such right with respect to any other
indebtedness or obligation of the Company. If, under any applicable bankruptcy,
insolvency or other similar law, any Bank receives a secured claim in lieu of a
set-off to which this Section 4.07 applies, such Bank shall, to the extent
practicable, exercise its rights in respect of such secured claim in a manner
consistent with the rights of the Banks entitled under this Section 4.07 to
share in the benefits of any recovery on such secured claim.
Section 5. Yield Protection, etc.
5.01 Additional Costs.
(a) The Company shall pay directly to each Bank from time to
time such amounts as such Bank may determine to be necessary to compensate such
Bank for any costs that such Bank determines are attributable to its making or
maintaining of any Eurodollar Loans or its obligation to make any Eurodollar
Loans hereunder, or any reduction in any amount receivable by such Bank
hereunder in respect of any of such Loans or such obligation (such increases in
costs and reductions in amounts receivable being herein called "Additional
Costs"), resulting from any Regulatory Change that:
(i) shall subject any Bank (or its Applicable Lending
Office for any of such Loans) to any tax, duty or other charge in
respect of such Loans or its Notes or changes the basis of taxation of
any amounts payable to such Bank under this Agreement or its Notes in
respect of any of such Loans (excluding changes in the rate of tax on
the overall net income of such Bank or of such Applicable Lending
Office by the jurisdiction in which such Applicable Lending Office or
the Principal Office is located); or
(ii) imposes or modifies any reserve, special deposit
or similar requirements (other than the Reserve Requirement utilized in
the determination of the Eurodollar Rate for such Loan) relating to any
extensions of credit or other assets of, or any deposits with or other
liabilities of, such Bank (including, without limitation, any of such
Loans or any deposits referred to in the definition of "Eurodollar Base
Rate" in Section 1.01 hereof), or any commitment of such Bank
(including, without limitation, the Commitment of such Bank hereunder);
or
(iii) imposes any other condition affecting this
Agreement or the Note (or any of such extensions of credit or
liabilities) or the Commitment.
If any Bank requests compensation from the Company under this Section 5.01(a),
the Company may, by notice to such Bank (with a copy to the Agent), suspend the
obligation of such Bank
-35-
<PAGE>
thereafter to make or Continue Eurodollar Loans, or to Convert Base Rate Loans
into Eurodollar Loans, until the Regulatory Change giving rise to such request
ceases to be in effect), provided that such suspension shall not affect the
right of such Bank to receive the compensation so requested.
(b) Without limiting the effect of the provisions of paragraph
(a) of this Section 5.01, in the event that, by reason of any Regulatory Change,
any Bank either (i) incurs Additional Costs based on or measured by the excess
above a specified level of the amount of a category of deposits or other
liabilities of such Bank that includes deposits by reference to which the
interest rate on Eurodollar Loans is determined as provided in this Agreement or
a category of extensions of credit or other assets of such Bank that includes
Eurodollar Loans or (ii) becomes subject to restrictions on the amount of such a
category of liabilities or assets that it may hold, then, if such Bank so elects
by notice to the Company, the obligation of such Bank to make or Continue, or to
Convert Base Rate Loans into, Eurodollar Loans hereunder shall be suspended
until such Regulatory Change ceases to be in effect and the Company shall, upon
the request of such Bank, prepay any of such Loans then outstanding hereunder
together with accrued interest thereon.
(c) Without limiting the effect of the foregoing provisions of
this Section 5.01 (but without duplication), the Company shall pay directly to
each Bank from time to time on request such amounts as such Bank may determine
to be necessary to compensate such Bank (or, without duplication, the bank
holding company of which such Bank is a subsidiary) for any costs that it
determines are attributable to the maintenance by such Bank (or any Applicable
Lending Office or such bank holding company), pursuant to any law or regulation
or any interpretation, directive or request (whether or not having the force of
law and whether or not failure to comply therewith would be unlawful) of any
court or governmental or monetary authority (i) following any Regulatory Change
or (ii) implementing any risk-based capital guideline or other requirement
(whether or not having the force of law and whether or not the failure to comply
therewith would be unlawful) heretofore or hereafter issued by any government or
governmental or supervisory authority implementing at the national level the
Basle Accord (including, without limitation, the Final Risk-Based Capital
Guidelines of the Board of Governors of the Federal Reserve System (12 C.F.R.
Part 208, Appendix A; 12 C.F.R. Part 225, Appendix A) and the Final Risk-Based
Capital Guidelines of the Office of the Comptroller of the Currency (12 C.F.R.
Part 3, Appendix A)), of capital in respect of its Commitments or Loans (such
compensation to include, without limitation, an amount equal to any reduction of
the rate of return on assets or equity of such Bank (or any Applicable Lending
Office or such bank holding company) to a level below that which such Bank (or
any Applicable Lending Office or such bank holding company) could have achieved
but for such law, regulation, interpretation, directive or request). For
purposes of this Section 5.01(c) and Section 5.05 hereof, "Basle Accord" shall
mean the proposals for risk-based capital framework described by the Basle
Committee on Banking Regulations and Supervisory Practices in its paper entitled
"International Convergence of Capital Measurement and Capital Standards" dated
July 1988, as amended, modified and supplemented and in effect from time to time
or any replacement thereof.
-36-
<PAGE>
(d) Each Bank shall notify the Company of any event occurring
after the date of this Agreement entitling such Bank to compensation under
paragraph (a) or (c) of this Section 5.01 as promptly as practicable, but in any
event within 45 days, after such Bank obtains actual knowledge thereof; provided
that (i) if any Bank fails to give such notice within 45 days after it obtains
actual knowledge of such an event, such Bank shall, with respect to compensation
payable pursuant to this Section 5.01 in respect of any costs resulting from
such event, only be entitled to payment under this Section 5.01 for costs
incurred from and after the date 45 days prior to the date that such Bank does
give such notice and (ii) each Bank will designate a different Applicable
Lending office for the Loans affected by such event if such designation will
avoid the need for, or reduce the amount of, such compensation and will not, in
the sole opinion of such Bank, be disadvantageous to such Bank, except that such
Bank shall have no obligation to designate an Applicable Lending office located
in the United States of America. Each Bank will furnish to the Company a
certificate setting forth the basis and amount of each request by such Bank for
compensation under paragraph (a) or (c) of this Section 5.01. Determinations and
allocations by any Bank for purposes of this Section 5.01 of the effect of any
Regulatory Change pursuant to paragraph (a) or (b) of this Section 5.01, or of
the effect of capital maintained pursuant to paragraph (c) of this Section 5.01,
on its costs or rate of return of maintaining Loans or its obligation to make
Loans, or on amounts receivable by it in respect of Loans, and of the amounts
required to compensate such Bank under this Section 5.01, shall be conclusive,
provided that such determinations and allocations are made on a reasonable
basis.
5.02 Limitation on Types of Loans. Anything herein to the
contrary notwithstanding, if, on or prior to the determination of any Eurodollar
Base Rate for any Interest Period, the Agent determines (which determination
shall be conclusive) that:
(a) quotations of interest rates for the relevant deposits
referred to in the definition of "Eurodollar Base Rate" in Section 1.01
hereof are not being provided in the relevant amounts or for the
relevant maturities for purposes of determining rates of interest for
Eurodollar Loans as provided herein; or
(b) the relevant rates of interest referred to in the
definition of "Eurodollar Base Rate" in Section 1.01 hereof upon the
basis of which the rate of interest for Eurodollar Loans for such
Interest Period is to be determined are not likely adequate to cover
the cost to the Bank of making or maintaining Eurodollar Loans for such
Interest Period;
then the Agent shall give the Company and each Bank prompt notice thereof and,
so long as such condition remains in effect, the Banks (or such quoting Bank)
shall be under no obligation to make additional Eurodollar Loans, to Continue
Eurodollar Loans or to Convert Base Rate Loans into Eurodollar Loans, and the
Company shall, on the last day(s) of the then current Interest Period(s) for the
outstanding Eurodollar Loans, either prepay such Loans or Convert such Loans
into Base Rate Loans in accordance with Section 2.10 hereof.
5.03 Illegality. Notwithstanding any other provision of this
Agreement, in the event that it becomes unlawful for any Bank or its Applicable
Lending Office to honor its
-37-
<PAGE>
obligation to make or maintain Eurodollar Loans hereunder, then such Bank shall
promptly notify the Company (with a copy to the Agent) thereof and such Bank's
obligation to make or Continue, or to Convert Loans of any other Type into,
Eurodollar Loans shall be suspended until such time as the Bank may again make
and maintain Eurodollar Loans and the Company shall, upon the request of such
Bank, prepay any of such Loans then outstanding hereunder together with accrued
interest thereon.
5.04 Compensation. The Company shall pay to the Agent for
account of each Bank, upon the request of such Bank (through the Agent), such
amount or amounts as shall be sufficient (in the reasonable opinion of such
Bank) to compensate it for any loss, cost or expense that such Bank determines
is attributable to:
(a) any payment, mandatory or optional prepayment or
Conversion of a Eurodollar Loan, a Money Market Loan or an Acceptance
for any reason (including, without limitation, the acceleration of the
Loans and the Acceptances pursuant to Section 9 hereof) on a date other
than the last day of the Interest Period for such Loan of the Maturity
Date of such Acceptance; or
(b) any failure by the Company for any reason (including,
without limitation, the failure of any of the conditions precedent
specified in Section 6 hereof to be satisfied) to borrow a Eurodollar
Loan or a Money Market Loan on the date for such borrowing specified in
the relevant notice of borrowing given pursuant to Section 2.02 hereof
or draw any Acceptance requested pursuant to Section 2.04 hereof.
Without limiting the effect of the preceding sentence, such compensation shall
include, with respect to Eurodollar Loans, an amount equal to the excess, if
any, of (i) the amount of interest that otherwise would have accrued on the
principal amount so paid, prepaid, Converted or not borrowed for the period from
the date of such payment, prepayment, Conversion or failure to borrow to the
last day of the then current Interest Period for such Loan (or, in the case of a
failure to borrow, the Interest Period for such Loan that would have commenced
on the date specified for such borrowing) at the applicable rate of interest for
such Loan provided for herein over (ii) the amount of interest that otherwise
would have accrued on such principal amount at a rate per annum equal to the
interest component of the amount such Bank would have bid in the London
interbank market for Dollar deposits of leading banks in amounts comparable to
such principal amount and with maturities comparable to such period (as
reasonably determined by such Bank).
5.05 Additional Costs in Respect of Letters of Credit. Without
limiting the obligations of the Company under Section 5.01 hereof (but without
duplication), if as a result of any Regulatory Change or any risk-based capital
guideline or other requirement heretofore or hereafter issued by any government
or governmental or supervisory authority implementing at the national level the
Basle Accord there shall be imposed, modified or deemed applicable any tax,
reserve, special deposit, capital adequacy or similar requirement against or
with respect to or measured by reference to Letters of Credit issued or to be
issued hereunder and the result shall be to increase the cost to any Bank or
Banks of issuing (or purchasing participations in) or
-38-
<PAGE>
maintaining its obligation hereunder to issue any Letter of Credit hereunder or
reduce any amount receivable by any Bank hereunder in respect of any Letter of
Credit (which increases in cost, or reductions in amount receivable, shall be
the result of such Bank's or Banks' reasonable allocation of the aggregate of
such increases or reductions resulting from such event), then, upon demand by
such Bank or Banks (through the Agent), the Company shall pay immediately to the
Agent for account of such Bank or Banks, from time to time as specified by such
Bank or Banks (through the Agent), such additional amounts as shall be
sufficient to compensate such Bank or Banks (through the Agent) for such
increased costs or reductions in amount. A statement as to such increased costs
or reductions in amount incurred by any such Bank or Banks, submitted by such
Bank or Banks to the Company shall be conclusive in the absence of manifest
error as to the amount thereof.
Section 6. Conditions Precedent.
6.01 Effectiveness of Agreement. The effectiveness of this
Credit Agreement and the obligation of any Bank to make any extension of credit
hereunder (whether by making a Loan, creating and discounting an Acceptance or
issuing a Letter of Credit) is subject to the conditions precedent that the
Agent shall have received the following documents, each of which shall be
satisfactory to the Agent (and to the extent specified below to each Bank) in
form and substance on or before May 20, 1999:
(a) Opinion of Counsel. An opinion, dated the Closing Date, of
Proskauer Rose LLP, counsel to the Company, substantially in the form
of Exhibit D hereto, and covering such other matters as the Agent or
any Bank may reasonably request (and the Company hereby instructs such
counsel to deliver such opinion to the Bank and the Agent).
(b) Resolutions; Good Standing Certificates. Resolutions of
the board of directors of the Company and each Guarantor and evidence
of incumbency of the officers with respect to the execution, delivery
and performance of the Basic Documents and each other document to be
delivered by the Company and/or such Guarantor, as the case may be,
from time to time in connection herewith and the Loans hereunder and
certificates of good standing with respect to the Company and each
Guarantor for each jurisdiction where such corporation is authorized to
conduct business.
(c) Notes. The Company shall have delivered to the Agent
promissory notes, duly completed and executed, substantially in the
form of Exhibit A hereto.
(d) Basic Documents, Collateral Issues and Subordination
Documents.
(i) The Company shall have delivered to the Agent all
of the Basic Documents, duly completed and executed;
-39-
<PAGE>
(ii) A certificate, signed by the chief financial
officer of the Company, setting forth each location at which
any the Company's Inventory is located on the Closing Date;
(iii) Copies of each of the policies of insurance, as
in effect on the Closing Date, covering any of the
Receivables;
(iv) The Agent shall have received the results of a
search of the Uniform Commercial Code (or equivalent) filings and the results of
tax and judgment lien searches made with respect to the Company and each
Guarantor in the jurisdictions where they conduct business and such other
jurisdictions as the Agent may reasonably request, and copies of the financing
statements (or similar documents) disclosed by such search and evidence
reasonably satisfactory to the Agent that the Liens indicated by such financing
statements (or similar documents) are permitted by this Agreement or have been
released;
(v) The Agent shall have received such Uniform
Commercial Code Financing Statements, executed by the Borrower and the
Guarantors, as shall be reasonably requested by the Agent;
(vi) The Agent shall have received one or more stock
certificates, evidencing (A) 100% of the issued and outstanding capital stock of
each Domestic Subsidiary owned by the Company or any Guarantor, and (B) not less
than 65% of the issued and outstanding capital stock of each Foreign Subsidiary
owned by the Company or any Guarantor, in each case, together with undated stock
powers with respect thereto, executed in blank by the Company or such Guarantor,
as the case may be, and bearing a signature guarantee in all respects
satisfactory to the Agent, and, if requested by the Agent, an Additional Pledge
Agreement with respect to the pledge of the capital stock of a Foreign
Subsidiary; and
(vii) The Agent and the Banks shall be satisfied with
the form and substance of the Junior Security Agreement.
(e) Other Documents. Such other documents as the Agent or any
Bank or special New York counsel to Fleet may reasonably request.
The effectiveness of this Credit Agreement and the obligation of any Bank to
make any extension of credit hereunder is also subject to the satisfaction (to
the satisfaction of the Agent and the Required Banks) of all of the following
conditions set forth in the Commitment Letter under "Conditions Precedent to
Initial Extension of Credit" (unless waived by the Agent and the Required
Banks), (ii) the payment by the Company of a fee to the Agent, for the ratable
benefit of the Banks, in an amount equal to $48,750, (ii) the payment by the
Company of the reasonable fees and expenses of Emmet, Marvin & Martin, LLP,
special New York counsel to the Agent and Rothschild & Quaid, LLP, Citi's
counsel, in connection with the negotiation, preparation, execution and delivery
of this Agreement and the Notes and the other Basic Documents and the extensions
of credit hereunder (to the extent that statements for such fees and expenses
have been delivered to the Company).
-40-
<PAGE>
6.02 Initial and Subsequent Extensions of Credit.
Notwithstanding anything to the contrary in this Credit Agreement, the
obligation of any Bank to make any Loan or otherwise extend any credit to the
Company upon the occasion of each borrowing or other extension of credit
hereunder (including the initial borrowing or other extension of Credit) is
subject to the further conditions precedent that, both immediately prior to the
making of such Loan or other extension of credit and also after giving effect
thereto and to the intended use thereof: (a) no Default shall have occurred and
be continuing; (b) the representations and warranties made by the Company in
Section 7 and 8 hereof, and by the Company in each of the other Basic Documents
to which it is a party, shall be true and complete on and as of the date of the
making of such Loan or other extension of credit with the same force and effect
as if made on and as of such date (or, if any such representation or warranty is
expressly stated to have been made as of a specific date, as of such specific
date); (c) the aggregate amount of the Tier I Credits shall not exceed the
lesser of the Tier I Commitment or the Borrowing Base reflected on the most
recent Borrowing Base Certificate delivered pursuant to Section 8.01(d) hereof;
(d) the aggregate amount of the Tier II Credits shall not exceed the lesser of
the Tier II Commitment or the Tier II Borrowing Base reflected on the most
recent Borrowing Base Certificate delivered pursuant to Section 8.01(d) hereof;
and (e) the aggregate amount of all the outstanding Credits shall not exceed the
amount of the Commitments of all the Banks then in effect. Each notice of
borrowing or request for the issuance of a Letter of Credit or for the creation
and discount of Acceptances by the Company hereunder shall constitute a
certification by the Company to the effect set forth in the preceding sentence
(both as of the date of such notice or request and, unless the Company otherwise
notifies the Bank prior to the date of such borrowing, issuance or creation and
discount, as of the date of such borrowing, issuance or creation and discount).
6.03 Conditions Precedent to Merger. The Merger shall not be
consummated unless each of the following conditions shall have been satisfied to
the satisfaction of the Agent and the Required Banks (or waived in the sole and
absolute discretion of the Agent and the Required Banks):
(i) The Merger is to be consummated in a manner satisfactory to
the Agent and the Banks and their counsel and the Agent shall
have received a copy of the ITI Merger Agreement and each of
the documents to be executed and delivered in connection with
the Merger, each of which shall be in form and substance
reasonably satisfactory to the Agent.
(ii) ITI shall have assumed, in a manner reasonably satisfactory to
the Agent, all of the Company's liabilities and obligations,
including all those arising under or in any way connected to
this Credit Agreement.
(iii) The Banks shall be reasonably satisfied with the corporate and
legal structure and capitalization of ITI, both prior and
after giving effect to the Merger, including, without
limitation, the charter and bylaws and each agreement or
instrument relating thereto.
-41-
<PAGE>
(iv) There shall exist no action, suit, investigation, litigation
or proceeding pending or threatened in any court or before any
arbitrator or governmental or regulatory agency or authority
that (i) could reasonably be expected to (A) have a material
adverse effect on the business, condition (financial or
otherwise), operations, performance, properties or prospects
of the Company or ITI; (B) adversely affect the ability of the
Company to perform its obligations under this Credit Agreement
or any of the Basic Documents or (C) adversely affect the
rights and remedies of the Agent and the Banks under this
Credit Agreement or any of the Basic Documents or (ii)
purports to adversely affect any aspect of the Facility
(collectively, a "Merger Material Adverse Effect"); and there
shall have been no material adverse change in the status, or
financial effect on the Company.
(v) ITI shall have complied with any applicable state takeover law
and any applicable supermajority charter provisions and all
governmental (including without limitation the United States
Securities and Exchange Commission) and third party consents
and approvals necessary in connection with each aspect of the
Merger shall have been obtained (without the imposition of any
conditions that are not acceptable to the Banks) and shall
remain in effect; all applicable waiting periods shall have
expired without any adverse action being taken by any
competent authority; and no law or regulation shall be
applicable in the judgment of the Banks that restrains,
prevents or imposes material adverse conditions upon any
aspect of the Facility or the Merger.
(vi) The Banks shall have received all additional financial,
business and other information regarding ITI and its
subsidiaries as they shall have reasonably requested.
(vii) The Banks shall have received (i) satisfactory opinions of
counsel for the Company and ITI as to the transactions
contemplated by the Merger and (ii) such corporate
resolutions, certificates and other documents as the Banks
shall reasonably request.
(viii) The Company shall have delivered to the Agent and each Bank,
not less than 10 days prior to the consummation of such
Merger, a certificate of a financial officer of the Company
and ITI, in all respects reasonably satisfactory to the Agent
and dated the date of such consummation, attaching a pro-forma
compliance certificate (in a format satisfactory to the Agent)
evidencing compliance with all financial covenants (as the
same may be amended from time to time) after giving effect to
such Merger and based on the most recent financial statements
delivered to the Administrative Agent pursuant to Section 8.01
of the Credit Agreement; provided, that, as to such financial
covenants (and any other financial covenants now or hereafter
applying to the facilities described in the loan documents),
all of such covenants shall be deemed amended to require
compliance as to New Empire with ITI and (B) copies of the
purchase or merger agreement or any other material documents
executed in connection with the Merger..
-42-
<PAGE>
(ix) The Agent and the Banks shall be reasonably satisfied with
their legal due diligence concerning ITI, its subsidiaries,
affiliates, officers and directors.
(x) After giving effect to the Merger, and at all times
thereafter, Nathan Kahn and Sandra Kahn will beneficially own
not less than 42% of the issued and outstanding capital stock
of New Empire and will have full voting rights with respect to
not less than 51% of the issued and outstanding voting stock
of New Empire.
(xi) The Agent shall have been provided the results of lien,
litigation and judgment searches with respect to ITI and the
results thereof shall disclose no such liens, judgment or
litigation and upon consummation of the Merger, New Empire
shall have executed and delivered to the Agent Uniform
Commercial Code financing statements adequately describing the
Security and appropriate for filing in the state where new
Empire's chief executive office is located and in each other
state where any inventory of New Empire is or may be located.
New Empire shall execute all documentation reasonably
requested by the Agent in order to grant the Agent, for the
ratable benefit of the Banks, a first priority perfected
security interest in (i) all personal property and fixtures of
New Empire, (ii) all marine and credit insurance in favor of
New Empire, (iii) a key man life insurance policy in the
amount of $2,000,000 owned by New Empire on the life of Nathan
Kahn, (iv) 65% of New Empire's and each Guarantor's direct or
indirect ownership interests in all material Foreign
Subsidiaries of New Empire and (v) all intercompany debt.
Furthermore, New Empire will (A) grant the Banks a negative
pledge on all assets, tangible and intangible, and property of
New Empire and its Subsidiaries and (B) agree not to grant any
other third party any such negative pledge.
(xii) Neither the Company nor ITI has incurred any additional
indebtedness to finance, or otherwise in connection with such
Merger, whether in the form of seller notes, third party
indebtedness or otherwise.
(xiii) There shall exist no Default or Event of Default and the
representations and warranties of the Company and New Empire
(after it has assumed all of the Company's liabilities and
obligations) and each of its Subsidiaries therein shall be
true and correct in all material respects immediately prior
to, and after giving effect to, the Merger.
(xiv) The Agent shall have received such other information or
documents as it shall have reasonably requested in connection
with such Merger.
(xv) The Merger shall have been consummated in accordance with the
ITI Merger Agreement, without any waiver or amendment of any
material term or condition therein not consented to by the
Agent and in compliance with all applicable laws and all
necessary approvals, except where the failure to so comply
could not
-43-
<PAGE>
reasonably be expected to have a Material Adverse Effect.
Section 7. Representations and Warranties. The Company
represents and warrants to the Agent and the Banks that:
7.01 Corporate Existence. The Company: (a) is a corporation,
partnership or other entity duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization; (b) has all
requisite corporate or other power, and has all material governmental licenses,
authorizations, consents and approvals necessary to own its assets and carry on
its business as now being or as proposed to be conducted; and (c) is qualified
to do business and is in good standing in all jurisdictions in which the nature
of the business conducted by it makes such qualification necessary and where
failure so to qualify could (either individually or in the aggregate) have a
Material Adverse Effect.
7.02 Financial Condition. The Company has heretofore furnished
to each of the Banks the balance sheet of the Company as at December 31, 1998
and the related statements of income and retained earnings of the Company for
the fiscal year ended on said date, as certified by the chief financial officer
of the Company. All such financial statements fairly present the financial
condition of the Company as at said date and the results of its operations for
the fiscal year ended on said date, all in accordance with generally accepted
accounting principles applied on a consistent basis. The Company does not have
on the date hereof any material contingent liabilities, liabilities for taxes,
unusual forward or long-term commitments or unrealized or anticipated losses
from any unfavorable commitments, except as referred to or reflected or provided
for in said balance sheet as at said date. Since December 31, 1998, there has
been no material adverse change in the consolidated financial condition,
operations, business or prospects of the Company from that set forth in said
financial statements as at said date.
7.03 Litigation. There are no legal or arbitral proceedings,
or any proceedings by or before any governmental or regulatory authority or
agency, now pending or (to the knowledge of the Company) threatened against the
Company that, if adversely determined could (either individually or in the
aggregate) have a Material Adverse Effect.
7.04 No Breach. None of the execution and delivery of this
Agreement and the Notes and the other Basic Documents, the consummation of the
transactions herein and therein contemplated or compliance with the terms and
provisions hereof and thereof will conflict with or result in a breach of, or
require any consent under, the charter or bylaws of the Company, or any
applicable law or regulation, or any order, writ, injunction or decree of any
court or governmental authority or agency, or any agreement or instrument to
which the Company is a party or by which any of them or any of their Property is
bound or to which any of them is subject, or constitute a default under any such
agreement or instrument, or (except for the Liens created pursuant to the
Security Documents) result in the creation or imposition of any Lien upon any
Property of the Company pursuant to the terms of any such agreement or
instrument.
7.05 Action. The Company has all necessary corporate power,
authority and legal right to execute, deliver and perform its obligations under
each of the Basic Documents to
-44-
<PAGE>
which it is a party; the execution, delivery and performance by the Company of
each of the Basic Documents to which it is a party have been duly authorized by
all necessary corporate action on its part (including, without limitation, any
required shareholder approvals); and this Agreement has been duly and validly
executed and delivered by the Company and constitutes, and each of the Notes and
the other Basic Documents to which it is a party when executed and delivered by
the Company (in the case of the Notes, for value) will constitute, its legal,
valid and binding obligation, enforceable against the Company in accordance with
its terms.
7.06 Approvals. No authorizations, approvals or consents of,
and no filings or registrations with, any governmental or regulatory authority
or agency, or any securities exchange, are necessary for the execution, delivery
or performance by the Company of the Basic Documents to which it is a party or
for the legality, validity or enforceability hereof or thereof, except for
filings and recordings in respect of the Liens created pursuant to the Security
Documents.
7.07 Use of Credit. The Company is not engaged principally, or
as one of its important activities, in the business of extending credit for the
purpose, whether immediate, incidental or ultimate, of buying or carrying Margin
Stock, and no part of the proceeds of any extension of credit hereunder will be
used to buy or carry any Margin Stock.
7.08 ERISA. Each Plan, and, to the knowledge of the Company,
each Multiemployer Plan, is in compliance in all material respects with, and has
been administered in all material respects in compliance with, the applicable
provisions of ERISA, the Code and any other Federal or State law, and no event
or condition has occurred and is continuing as to which the Company would be
under an obligation to furnish a report to the Banks under Section 8.01(c)
hereof.
7.09 Taxes. The Company has filed, or has valid extensions for
the filing of, all Federal income tax returns and all other material tax returns
that are required to be filed by it and have paid all taxes due pursuant to such
returns or pursuant to any assessment received by the Company. The charges,
accruals and reserves on the books of the Company in respect of taxes and other
governmental charges are, in the opinion of the Company, adequate. The Company
has not given or been requested to give a waiver of the statute of limitations
relating to the payment of Federal, state, local and foreign taxes or other
impositions.
7.10 True and Complete Disclosure. The information, reports,
financial statements, exhibits and schedules furnished in writing by or on
behalf of the Company to the Agent or any Bank in connection with the
negotiation, preparation or delivery of this Agreement and the other Basic
Documents or included herein or therein or delivered pursuant hereto or thereto,
when taken as a whole do not contain any untrue statement of material fact or
omit to state any material fact necessary to make the statements herein or
therein, in light of the circumstances under which they were made, not
misleading. All written information furnished after the date hereof by the
Company to the Agent and the Banks in connection with this Agreement and the
other Basic Documents and the transactions contemplated hereby and thereby will
be true, complete and accurate in every material respect, or (in the case of
projections) based
-45-
<PAGE>
on reasonable estimates, on the date as of which such information is stated or
certified. There is no fact known to the Company that could have a Material
Adverse Effect that has not been disclosed herein, in the other Basic Documents
or in a report, financial statement, exhibit, schedule, disclosure letter or
other writing furnished to the Banks for use in connection with the transactions
contemplated hereby or thereby.
7.11 Year 2000 Issue. The Company and its Subsidiaries have
reviewed the effect of the Year 2000 Issue on the computer software, hardware
and firmware systems and equipment containing embedded microchips owned or
operated by or for the Company and its Subsidiaries or used or relied upon in
the conduct of their business (including systems and equipment supplied by
others or with which such computer systems of the Company and its Subsidiaries
interface). The costs to the Company and its Subsidiaries of any reprogramming
required as a result of the Year 2000 Issue to permit the proper functioning of
such systems and equipment and the proper processing of data, and the testing of
such reprogramming, and of the reasonably foreseeable consequences of the Year
2000 Issue to the Company or any of its Subsidiaries (including reprogramming
errors and the failure of systems or equipment supplied by others) are not
reasonably expected to result in a Default or Event of Default or to have a
material adverse effect on the business, assets, operations or condition
(financial or otherwise) of the Company or any of its Subsidiaries.
Section 8. Covenants of the Company. The Company covenants and
agrees with the Banks and the Agent that, so long as any Commitment, Loan or
Letter of Credit Liability is outstanding and until payment in full of all
amounts payable by the Company hereunder:
8.01 Financial Statements, Etc. The Company shall deliver to
each of the Banks:
(a) as soon as available and in any event within 14 Business
Days after the end of each month, a statement of income and retained
earnings of the Company for such period and for the period from the
beginning of the respective fiscal year to the end of such period, and
the related balance sheet of the Company as at the end of such period,
accompanied by a certificate of a senior financial officer of the
Company, which certificate shall state that said financial statements
fairly present the financial condition and results of operations of the
Company, in each case in accordance with generally accepted accounting
principles, consistently applied, as at the end of, and for, such
period (subject to normal year-end audit adjustments);
(b) as soon as available and in any event within 90 days after
the end of each fiscal year of the Company, a statement of income,
retained earnings and cash flow of the Company for such fiscal year and
the related balance sheet as at the end of such fiscal year, and
accompanied by an opinion thereon of independent certified public
accountants acceptable to the Banks, which opinion shall state that
said audited financial statements fairly present the financial
condition and results of operations of the Company as at the
-46-
<PAGE>
end of, and for, such fiscal year in accordance with generally accepted
accounting principles;
(c) as soon as possible, and in any event within ten days
after the Company knows or has reason to believe that any of the events
or conditions specified below with respect to any Plan or Multiemployer
Plan has occurred or exists, a statement signed by a senior financial
officer of the Company setting forth details respecting such event or
condition and the action, if any, that the Company or its ERISA
Affiliate proposes to take with respect thereto (and a copy of any
report or notice required to be filed with or given to PBGC by the
Company or an ERISA Affiliate with respect to such event or condition):
(i) any reportable event, as defined in Section
4043(b) of ERISA and the regulations issued thereunder, with
respect to a Plan, as to which PBGC has not by regulation
waived the requirement of Section 4043(a) of ERISA that it be
notified within 30 days of the occurrence of such event
(provided that a failure to meet the minimum funding standard
of Section 412 of the Code or Section 302 of ERISA, including,
without limitation, the failure to make on or before its due
date a required installment under Section 412(m) of the Code
or Section 302(e) of ERISA, shall be a reportable event
regardless of the issuance of any waivers in accordance with
Section 412(d) of the Code); and any request for a waiver
under Section 412(d) of the Code for any Plan;
(ii) the distribution under Section 4041 of ERISA of
a notice of intent to terminate any Plan or any action taken
by the Company or an ERISA Affiliate to terminate any Plan;
(iii) the institution by PBGC of proceedings under
Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Plan, or the
receipt by the Company or any ERISA Affiliate of a notice from
a Multiemployer Plan that such action has been taken by PBGC
with respect to such Multiemployer Plan;
(iv) the complete or partial withdrawal from a
Multiemployer Plan by the Company or any ERISA Affiliate that
results in liability under Section 4201 or 4204 of ERISA
(including the obligation to satisfy secondary liability as a
result of a purchaser default) or the receipt by the Company
or any ERISA Affiliate of notice from a Multiemployer Plan
that it is in reorganization or insolvency pursuant to Section
4241 or 4245 of ERISA or that it intends to terminate or has
terminated under Section 4041A of ERISA;
(v) the institution of a proceeding by a fiduciary of
any Multiemployer Plan against the Company or any ERISA
Affiliate to enforce Section 515 of ERISA, which proceeding is
not dismissed within 30 days; and
-47-
<PAGE>
(vi) the adoption of an amendment to any Plan that,
pursuant to Section 401(a)(29) of the Code or Section 307 of
ERISA, would result in the loss of tax exempt status of the
trust of which such Plan is a part if the Company or an ERISA
Affiliate fails to timely provide security to the Plan in
accordance with the provisions of said Sections;
(d) as soon as available and in any event within 14 Business
Days after:
(i) the end of each biweekly accounting period
(ending each Friday of each other calendar week) of the
Company if the Borrowing Base at the end of such biweekly
accounting period is an amount that is less than the aggregate
outstanding amount of Tier I Credits plus $1,000,000,
(ii) the end of each monthly accounting period
(ending on the last day of the second complete week occurring
in such month), if the Borrowing Base at the end of such
monthly accounting period is an amount that is equal to or
greater than the aggregate outstanding amount of Tier I
Credits plus $1,000,000, and
(iii) any other accounting period for which the Banks
request a Borrowing Base Certificate, each of the following:
(x) a Borrowing Base Certificate as at the last day of such
accounting period,
(y) a report, as of the last day of such accounting period,
setting forth (A) the aging of the Receivables, specifying both the
names of the respective account debtors and the period of time each
such account has been past due and (B) a list of the Eligible
Receivables and, on and after the Australian Effective Date,
Australian Receivables, and
(z) a report setting forth the respective locations (by State) of
the Eligible Warehouse Inventory, and a list of the Eligible
In-transit Inventory, included in such Borrowing Base Certificate;
(e) as soon as available after the end of the second and
fourth fiscal quarter of each fiscal year of the Company, a report, in
form and substance satisfactory to the Required Banks, of an
independent collateral auditor satisfactory to the Required Banks
(which may be, or be affiliated with, one of the Banks):
(i) with respect to the Receivables and Inventory
components included in the Borrowing Base as at the end of
such fiscal quarter which report shall indicate that, based
upon a review by such auditors of the Receivables (including,
without limitation, verification with respect to the amount,
aging, identity and credit of the respective account debtors
and the billing practices of the Company) and Inventory
(including, without limitation, verification as to the value,
location and respective types), the information set forth in
the Borrowing
-48-
<PAGE>
Base Certificate delivered by the Company as at the end of
such fiscal quarter is accurate and complete in all material
respects,
(ii) with respect to the insurance policy or policies
covering any of the Receivables, and
(iii) with respect to the agreements entered into by
the Company with its customers and its suppliers;
(f) promptly after the Company knows or has reason to believe
that any Default has occurred, a notice of such Default describing the
same in reasonable detail and, together with such notice or as soon
thereafter as possible, a description of the action that the Company
has taken or proposes to take with respect thereto;
(g) together with the Financial Statements required by Section
8.01(b), a copy of the most recent management letter from the Company's
outside accountants and a letter from such accountants whereby such
accountants acknowledge that the Agent and the Banks are entitled to
rely on the Company's financial statements certified to by such
accountants.
(h) from time to time such other information regarding the
financial condition, operations, business or prospects of the Company
(including, without limitation, any Plan or Multiemployer Plan and any
reports or other information required to be filed under ERISA) as any
Bank or the Agent may reasonably request.
The Company will furnish to each Bank, at the time it furnishes each set of
financial statements pursuant to paragraph (a) or (b) above, a certificate of a
senior financial officer of the Company (i) to the effect that no Default has
occurred and is continuing (or, if any Default has occurred and is continuing,
describing the same in reasonable detail and describing the action that the
Company has taken or proposes to take with respect thereto) and (ii) setting
forth in reasonable detail the computations necessary to determine whether the
Company is in compliance with Sections 8.07, 8.08(c), 8.08(d), 8.09, 8.10 and
8.11 hereof as of the end of the respective quarterly fiscal period or fiscal
year. Together with its delivery of the Company's annual financial statements,
the Company's outside accountants shall also deliver a certificate that such
accountants have no knowledge of any default or event of default.
Upon the effectiveness of the Merger, the annual financial
statements required by Section 8.01(b) above shall no longer be required;
provided, that, New Empire shall furnish to the Agent and the Banks all reports
and materials furnished to or filed with the United States Securities and
Exchange Commission, including without limitation its annual report on Form 10-K
(to be furnished to the Agent and the Banks within 90 days of the last day of
each fiscal year) and its quarterly report on Form 10-Q (to be furnished to the
Agent and the Banks within 60 days of the last day of each of the first three
fiscal quarters). At the time it delivers each such Form 10-K and Form 10-Q, New
Empire shall also deliver a certificate of its president or chief financial
and/or chief accounting officer evidencing New Empire's compliance with all
financial
-49-
<PAGE>
covenants and stating that except as disclosed on such certificate, the person
making such certificate has no knowledge of any Default or Event of Default.
8.02 Litigation. The Company will promptly give to each Bank
notice of all legal or arbitral proceedings, and of all proceedings by or before
any governmental or regulatory authority or agency, and any material development
in respect of such legal or other proceedings, affecting the Company, except
proceedings that, if adversely determined, would not (either individually or in
the aggregate) have a Material Adverse Effect. Without limiting the generality
of the foregoing, the Company will give to each Bank notice of the assertion of
any environmental matter by any Person against, or with respect to the
activities of, the Company and notice of any alleged violation of or
noncompliance with any Environmental Laws or any permits, licenses or
authorizations, other than any environmental matter or alleged violation that,
if adversely determined, would not (either individually or in the aggregate)
have a Material Adverse Effect.
8.03 Existence, Etc. The Company will:
(a) preserve and maintain its legal existence and all of its
material rights, privileges, licenses and franchises;
(b) comply with the requirements of all applicable laws,
rules, regulations and orders of governmental or regulatory authorities
if failure to comply with such requirements could (either individually
or in the aggregate) have a Material Adverse Effect;
(c) pay and discharge all taxes, assessments and governmental
charges or levies imposed on it or on its income or profits or on any
of its Property prior to the date on which penalties attach thereto,
except for any such tax, assessment, charge or levy the payment of
which is being contested in good faith and by proper proceedings and
against which adequate reserves are being maintained;
(d) maintain all of its Properties used or useful in its
business in good working order and condition, ordinary wear and tear
excepted;
(e) keep adequate records and books of account, in which
complete entries will be made in accordance with generally accepted
accounting principles consistently applied; and
(f) permit representatives of any Bank or the Agent, during
normal business hours and upon reasonable prior notice, to examine,
copy and make extracts from its books and records, to inspect any of
its Properties, and to discuss its business and affairs with its
officers, all to the extent reasonably requested by such Bank or the
Agent (which notice shall specify the reasons (determined by such Bank
or the Agent in its sole discretion) for such examination, inspections
or discussions).
-50-
<PAGE>
8.04 Insurance. The Company will maintain insurance with
financially sound and reputable insurance companies, and with respect to
Property and risks of a character usually maintained by corporations engaged in
the same or similar business similarly situated, against loss, damage and
liability of the kinds and in the amounts customarily maintained by such
corporations, including, in any event, marine and credit insurance policies
covering the Company's inventory and accounts receivable, respectively, in
amounts, pursuant to policies, and issued by insurers, acceptable to the
Required Banks. The Company shall maintain keyman insurance on the life of
Nathan Kahn in an amount equal to $2,000,000. The Company shall (a) cause all
such insurance (other than workers' compensation) to name the Agent as loss
payee (to the extent covering risk of loss or damage to tangible property) and
as an additional named insured as its interests may appear (to the extent
covering any other risk) and (b) at least annually, furnish to the Agent
certificates of insurance evidencing the existence of all insurance required to
be maintained by the Company pursuant to this Section 8.04 and the designation
of the Agent as the loss payee or additional named insured, as the case may be,
thereunder to the extent required by this Section 8.04. With respect to the
keyman insurance, (x) such insurance shall be assigned to the Agent (for the
benefit of the Banks), (y) the Company shall furnish to the Banks evidence of
notice to the insurer of such assignment and acknowledgment of receipt by such
insurer, and (z) the Agent and the Banks agree to release their security
interest in such insurance upon the termination or expiration of the Commitments
and the payment in full of all amounts payable by the Company hereunder and
under the other Basic Documents, and to remit any proceeds received by the Agent
or any Bank thereafter (or after the payment in full of all such amounts) to the
beneficiary or beneficiaries of such insurance.
8.05 Prohibition of Fundamental Changes. The Company will not
enter into any transaction of merger or consolidation or amalgamation, or
liquidate, wind up or dissolve itself (or suffer any liquidation or
dissolution), except that upon satisfaction of the conditions set forth in
Section 6.03 to the satisfaction of the Agent and the Required Banks, the
Company may consummate the Merger. The Company will not acquire any business or
Property from, or capital stock of, or be a party to any acquisition of, any
Person except for purchases of inventory and other Property to be sold or used
in the ordinary course of business. The Company will not convey, sell, lease,
transfer or otherwise dispose of, in one transaction or a series of
transactions, any part of its business or Property, whether now owned or
hereafter acquired (including, without limitation, receivables and leasehold
interests, but excluding any inventory or other Property sold or disposed of in
the ordinary course of business and on ordinary business terms).
8.06 Limitation on Liens. The Company will not create, incur,
assume or suffer to exist any Lien upon any of its Property, whether now owned
or hereafter acquired, except:
(a) Liens created pursuant to the Security Documents;
(b) Liens imposed by any governmental authority for taxes,
assessments or charges not yet due or that are being contested in good
faith and by appropriate proceedings if adequate reserves with respect
thereto are maintained on the books of the Company in accordance with
GAAP;
-51-
<PAGE>
(c) carriers', warehousemen's, mechanics', materialmen's,
repairmen's or other like Liens arising in the ordinary course of
business that are not overdue for a period of more than 30 days or that
are being contested in good faith and by appropriate proceedings and
Liens securing judgments but only to the extent for an amount and for a
period not resulting in an Event of Default under Section 9(h) hereof;
(d) pledges or deposits under worker's compensation,
unemployment insurance and other social security legislation;
(e) deposits to secure the performance of bids, trade
contracts (other than for Indebtedness), leases, statutory obligations,
surety and appeal bonds, performance bonds and other obligations of a
like nature incurred in the ordinary course of business; and
(f) Liens created under the Junior Security Agreement.
8.07 Indebtedness. The Company will not create, incur or
suffer to exist any Indebtedness except:
(a) Indebtedness to the Banks hereunder;
(b) Subordinated Debt;
(c) Indebtedness under the Subordinated Notes (which shall not
be repaid if at the time of such payment or distribution or immediately
after giving effect thereto, any Default or Event of Default shall
occur or be continuing);
(d) additional Indebtedness owing to the Shareholders
representing increases to stockholder equity during the period February
1, 1999 through the date of the Merger (but this Indebtedness shall
only be allowed if such Indebtedness is subordinated to all of the
Company's obligations owing to the Issuing Bank, the Banks and the
Agent on terms similar to the Subordinated Notes and in any event is
not allowed to be repaid if at the time of such payment or distribution
or immediately after giving effect thereto, any Default or Event of
Default shall occur or be continuing); and
(e) Hedging Agreements.
8.08 Investments. The Company will not make or permit to
remain outstanding any Investments except:
(a) operating deposit accounts with banks;
(b) Permitted Investments;
-52-
<PAGE>
(c) additional Investments up to but not exceeding $1,000,000
in the aggregate at any one time outstanding; and
(d) an advance heretofore made to Empire Resources Pacific,
Ltd. in an amount not to exceed $205,000.
8.09 Leverage Ratio. The Company will not permit the Leverage
Ratio to exceed 4.5 to 1 at any time.
8.10 Tangible Net Worth. The Company will not permit its
Tangible Net Worth to be less than $9,000,000 at any time. For purposes of
determining whether any payment by the Company in respect of any Indebtedness of
the Company would result in a breach of this Section 8.10, it shall be assumed
that (a) the Company's Tangible Net Worth immediately prior to making such
payment is the amount set forth on the most recent financial statements of the
Company furnished to the Banks pursuant to Section 8.01 hereof and (b) such
Indebtedness is being repaid in full and not in part.
8.11 Working Capital Ratio. The Company will not permit the
Working Capital Ratio to be greater than 4.5 to 1 at any time.
8.12 Lines of Business. The Company will not engage to any
substantial extent in any line or lines of business activity other than the
businesses engaged in by it on the date hereof and related businesses.
8.13 Transactions with Affiliates. Except as expressly
permitted by this Agreement, the Company will not directly or indirectly: (a)
make any Investment in an Affiliate; (b) transfer, sell, lease, assign or
otherwise dispose of any Property to an Affiliate; (c) merge into or consolidate
with or purchase or acquire Property from an Affiliate; or (d) enter into any
other transaction directly or indirectly with or for the benefit of an Affiliate
(including, without limitation, Guarantees and assumptions of obligations of an
Affiliate); provided that (x) any Affiliate who is an individual may serve as a
director, officer or employee of the Company and receive reasonable compensation
for his or her services in such capacity and (y) the Company may enter into
transactions (other than extensions of credit by the Company to an Affiliate)
providing for the leasing of Property, the rendering or receipt of services or
the purchase or sale of inventory and other Property in the ordinary course of
business if the monetary or business consideration arising therefrom would be
substantially as advantageous to the Company as the monetary or business
consideration that would obtain in a comparable transaction with a Person not an
Affiliate.
8.14 Use of Proceeds. The Company will use the proceeds of the
extensions of credit hereunder for its general corporate purposes (in compliance
with all applicable legal and regulatory requirements, including, without
limitation, Regulations U and X and the Securities Act of 1933 and the
Securities Act of 1934 and the regulations thereunder); provided that neither
the Agent nor any Bank shall have any responsibility as to the use of any of
such proceeds.
-53-
<PAGE>
8.15 Subordinated Notes.
(a) The Company shall not purchase, redeem, retire or
otherwise acquire for value, or make any payment or prepayment of the principal
of or interest on, or any other amount owing in respect of, the Subordinated
Notes if at the time of such payment or distribution or immediately after giving
effect thereto, any Default shall occur or be continuing.
(b) The Company shall not enter into any amendment or
modification of the Subordinated Notes or the Junior Security Agreement other
than as extensions of the maturity thereof.
8.16 Additional Subsidiaries.
(a) Domestic Subsidiaries. In the event that on or after
the date of this Credit Agreement, any Person shall become a Domestic
Subsidiary, the Company shall (i) notify the Agent in writing thereof within
three Business Days thereof, (ii) cause such Person to execute and deliver to
the Agent a Guarantee Supplement and to become a party to each applicable
Security Document in the manner provided therein within five Business Days
thereafter and to promptly take such actions to create and perfect Liens on such
Person's assets to secure such Person's obligations under the Basic Documents as
the Agent or the Required Lenders shall reasonably request, (iii) cause any
shares of capital stock of such new Domestic Subsidiary owned by or on behalf of
the Borrower or any Subsidiary of the Borrower to be pledged pursuant to the
Security Agreement within five Business Days thereafter (iv) cause each such new
Domestic Subsidiary to deliver to the Agent any shares of capital stock of any
Subsidiary that are owned by or on behalf of such new Domestic Subsidiary within
five Business Days after such Subsidiary is formed or acquired (except that, if
any such Subsidiary is a Foreign Subsidiary, shares of Capital Stock of such
Person to be so pledged may be limited as provided in subsection (b) below and,
if requested by the Agent with respect to the pledge of capital stock of a
Foreign Subsidiary, the Agent shall receive the documents referred to in
subsection (b)(iii) below), and (v) deliver to the Agent such additional Uniform
Commercial Code Financing Statements, Grants of Security Interest and Powers of
Attorney (as each such term is defined in the Security Agreement) certificates,
instruments and opinions as the Agent may reasonably request.
(b) Foreign Subsidiaries. In the event that on or after
the date of this Credit Agreement, any Person shall become a Foreign Subsidiary,
the Company shall (i) notify the Agent in writing thereof within three Business
Days thereof, (ii) cause the lesser of (x) 65% of the outstanding shares of
capital stock of such Foreign Subsidiary or (y) all of such shares owned by the
Borrower and/or any Subsidiary of the Borrower to be pledged pursuant to the
Security Agreement within five Business Days thereafter, provided, that if
requested by the Agent with respect to the pledge of capital stock of a Foreign
Subsidiary, deliver to the Agent an additional pledge agreement, in form and
substance reasonably satisfactory to the Agent (each an "Additional Pledge
Agreement") and an opinion of counsel (including counsel practicing under the
laws of the jurisdiction under which such Foreign Subsidiary was formed) with
respect to the enforceability of such Pledge Agreement or Additional Pledge
Agreement and the validity and
-54-
<PAGE>
perfection of the Lien granted therein and (iii) deliver to the Agent such
certificates, instruments and opinions as the Agent may reasonably request.
8.17 Additional Collateral. If after the date of this
Agreement, the Company or any Subsidiary of the Company acquires any property
which would constitute Collateral (as defined in the Security Agreement), the
Company shall, and shall cause each such Subsidiary of the Company to, execute
any and all documents, financing statements, agreements and instruments, and
take all such further actions (including the filing and recording of financing
statements, fixture filings, mortgages, deeds of trust and other documents),
that may be required under any applicable law, or which the Agent or the
Required Lenders may reasonably request, to effectuate the transactions
contemplated by the Basic Documents or to grant, preserve, protect or perfect
the Liens created or intended to be created by the Security Documents or the
validity or priority of any such Lien, all at the expense of the Company.
8.18 Year 2000 Issue. The Company shall take, and cause each
of its Subsidiaries to take, all necessary action to complete in all material
respects by September 30, 1999, the reprogramming of computer software, hardware
and firmware systems and equipment containing embedded microchips owned or
operated by or for the Company and its Subsidiaries or used or relied upon in
the conduct of their business (including systems and equipment supplied by
others or with which such systems of the Company or any of its Subsidiaries
interface) required as a result of the Year 2000 Issue to permit the proper
functioning of such computer systems and other equipment and the testing of such
systems and equipment, as so reprogrammed. At the request of the Agent, the
Company shall provide, and shall cause each of its Subsidiaries to provide, to
the Bank reasonable assurance of its compliance with the preceding sentence.
Section 9. Events of Default. If one or more of the following
events (herein called "Events of Default") shall occur and be continuing:
(a) The Company shall default in the payment when due (whether
at stated maturity or upon mandatory or optional prepayment) of (i) any
principal of any Loan or any Acceptance or any Reimbursement
Obligation, any fee or any other amount payable by it hereunder (other
than interest) or under any other Basic Document or (ii) any interest
on any Loan or any Acceptance or any Reimbursement Obligation and, if
the Company has sufficient funds in its accounts maintained at the
Agent and the Agent has not debited such accounts to make such payment
of interest, such default shall continue unremedied for two Business
Days after notice thereof to the Company by the Agent; or
(b) The Company shall default in the payment when due of any
principal of or interest on any of its other material Indebtedness; or
any event specified in any note, agreement, indenture or other document
evidencing or relating to any such indebtedness shall occur if the
effect of such event is to cause, or (with the giving of any notice or
the lapse of time or both) to permit the holder or holders of such
indebtedness (or a trustee or agent on behalf of such holder or
holders) to cause, such indebtedness to become due, or
-55-
<PAGE>
to be prepaid in full (whether by redemption, purchase, offer to
purchase or otherwise), prior to its stated maturity; or
(c) Any representation, warranty or certification made or
deemed made herein or in any other Basic Document (or in any
modification or supplement hereto or thereto) by the Company, or any
certificate furnished to any Bank or the Agent pursuant to the
provisions hereof or thereof, shall prove to have been false or
misleading as of the time made or furnished in any material respect; or
(d) The Company shall default in the performance of any of its
obligations under any of Sections 8.01(g), 8.05, 8.06, 8.07, 8.08,
8.09, 8.10, 8.11 or 8.15 hereof or the Company shall default in the
performance of any of its obligations under the Security Agreement, or
(after the Australian Effective Date) the Floating Charge; the Company
shall default in the performance of its obligations under Section
8.01(d) hereof and such default shall continue unremedied for a period
of three Business Days after notice thereof to the Company by the Agent
or any Bank (through the Agent); any Guarantor shall default in the
performance of any of its obligations under this Credit Agreement; or
the Company shall default in the performance of any of its other
obligations in this Agreement or any Hedging Agreement or any other
Basic Document and such default shall continue unremedied for a period
of thirty or more days after notice thereof to the Company by the Agent
or any Bank (through the Agent); or
(e) The Company shall admit in writing its inability to, or be
generally unable to, pay its debts as such debts become due; or
(f) The Company shall (i) apply for or consent the to
appointment of, or the taking of possession by, a receiver, custodian,
trustee, examiner or liquidator of itself or of all or a substantial
part of its Property, (ii) make a general assignment for the benefit of
its creditors, (iii) commence a voluntary case under the Bankruptcy
Code, (iv) file a petition seeking to take advantage of any other law
relating to bankruptcy, insolvency, reorganization, liquidation,
dissolution, arrangement or winding-up, or composition or readjustment
of debts, (v) fail to controvert in a timely and appropriate manner, or
acquiesce in writing to, any petition filed against it in an
involuntary case under the Bankruptcy Code or (vi) take any corporate
action for the purpose of effecting any of the foregoing; or
(g) A proceeding or case shall be commenced, without the
application or consent of the Company, in any court of competent
jurisdiction, seeking (i) its reorganization, liquidation, dissolution,
arrangement or winding-up, or the composition or readjustment of its
debts, (ii) the appointment of a receiver, custodian, trustee,
examiner, liquidator or the like of the Company or of all or any
substantial part of its Property, or (iii) similar relief in respect of
the Company under any law relating to bankruptcy, insolvency,
reorganization, winding-up, or composition or adjustment of debts, and
such proceeding or case shall continue undismissed, or an order,
judgment or decree approving or ordering any of the foregoing shall be
entered and continue unstayed
-56-
<PAGE>
and in effect, for a period of 60 or more days; or an order for relief
against the Company shall be entered in an involuntary case under the
Bankruptcy Code; or
(h) A final judgment or judgments for the payment of money in
excess of $50,000 (exclusive of judgment amounts fully covered by
insurance where the insurer has admitted liability in respect of such
judgment) shall be rendered by one or more courts, administrative
tribunals or other bodies having jurisdiction against the Company and
the same shall not be discharged (or provision shall not be made for
such discharge), or a stay of execution thereof shall not be procured,
within 30 days from the date of entry thereof and the Company shall
not, within said period of 30 days, or such longer period during which
execution of the same shall have been stayed, appeal therefrom and
cause the execution thereof to be stayed during such appeal; or
(i) An event or condition specified in Section 8.01(c) hereof
shall occur or exist with respect to any Plan or Multiemployer Plan
and, as a result of such event or condition, together with all other
such events or conditions, the Company or any ERISA Affiliate shall
incur or in the opinion of the Required Banks shall be reasonably
likely to incur a liability to a Plan, a Multiemployer Plan or PBGC (or
any combination of the foregoing) that, in the determination of the
Required Banks, would (either individually or in the aggregate) have a
Material Adverse Effect; or
(j) At any time prior to the date the Merger has been
consummated (or if the Merger is not consummated), the Shareholders
shall cease to own beneficially and of record all of the issued and
outstanding voting capital stock of the Company; or
(k) Commencing with the date the Merger has been consummated
or at any time thereafter, (i) the Shareholders cease to own
beneficially and or record at least 42% of the issued and outstanding
voting capital stock of New Empire, or (ii) the Shareholders cease to
have full voting rights with respect to at least 51% of the issued and
outstanding voting stock of New Empire; or
(l) The Liens created by the Security Documents shall at any
time not constitute a valid and perfected Lien on the collateral
intended to be covered thereby (to the extent perfection by filing,
registration, recordation or possession is required herein or therein)
in favor of the Banks, free and clear of all other Liens (other than
Liens permitted under Section 8.06 hereof or under the respective
Security Documents), or, except for expiration in accordance with its
terms, any of the Security Documents shall for whatever reason be
terminated or cease to be in full force and effect, or the
enforceability thereof shall be contested by the Company;
THEREUPON: (1) in the case of an Event of Default other than one referred to in
clause (f) or (g) of this Section 9, the Agent may, and, upon request of the
Required Banks shall by notice to the Company, terminate the Commitments and/or
declare the principal amount then outstanding of, and the accrued interest on,
the Loans, the Acceptances, the Reimbursement Obligations and all other amounts
payable by the Company hereunder and under the Notes (including, without
-57-
<PAGE>
limitation, any amounts payable under Section 5.04 or 5.05 hereof) to be
forthwith due and payable, whereupon such amounts shall be immediately due and
payable without presentment, demand, protest or other formalities of any kind,
all of which are hereby expressly waived by the Company; and (2) in the case of
the occurrence of an Event of Default referred to in clause (f) or (g) of this
Section 9, the Commitment shall automatically be terminated and the principal
amount then outstanding of, and the accrued interest on, the Loans, the
Acceptances, the Reimbursement Obligations and all other amounts payable by the
Company hereunder and under the Notes (including, without limitation, any
amounts payable under Section 5.04 or 5.05 hereof) shall automatically become
immediately due and payable without presentment, demand, protest or other
formalities of any kind, all of which are hereby expressly waived by the
Company.
In addition, upon the occurrence and during the continuance of any
Event of Default (if the Agent has declared the principal amount then
outstanding of, and accrued interest on; the Loans and all other amounts payable
by the Company hereunder and under the Notes to be due and payable), the Company
agrees that it shall, if requested by the Agent or the Required Banks the Agent
(and, in the case of any Event of Default referred to in clause (f) or (g) of
this Section 9, forthwith, without any demand or the taking of any other action
by the Agent or such Banks) provide cover for the Letter of Credit Liabilities
by paying to the Agent immediately available funds in an amount equal to the
then aggregate undrawn face amount of all Letters of Credit, which funds shall
be held by the Agent in the Collateral Account as collateral security in the
first instance for the Letter of Credit Liabilities and be subject to withdrawal
only as therein provided.
Section 10. The Agent.
10.01 Appointment, Powers and Immunities. Each Bank hereby
irrevocably appoints and authorizes the Agent to act as its agent hereunder and
under the other Basic Documents with such powers as are specifically delegated
to the Agent by the terms of this Agreement and of the other Basic Documents,
together with such other powers as are reasonably incidental thereto. The Agent
(which term as used in this sentence and in Section 10.05 and the first sentence
of Section 10.06 hereof shall include reference to its affiliates and its own
and its affiliates, officers, directors, employees and agents): (a) shall have
no duties or responsibilities except those expressly set forth in this Agreement
and in the other Basic Documents, and shall not by reason of this Agreement or
any other Basic Document be a trustee for any Bank; (b) shall not be responsible
to the Banks for any recitals, statements, representations or warranties
contained in this Agreement or in any other Basic Document, or in any
certificate or other document referred to or provided for in, or received by any
of them under, this Agreement or any other Basic Document, or for the value,
validity, effectiveness, genuineness, enforceability or sufficiency of this
Agreement, any Note or any other Basic Document or any other document referred
to or provided for herein or therein or for any failure by the Company or any
other Person to perform any of its obligations hereunder or thereunder; (c)
shall not be required to initiate or conduct any litigation or collection
proceedings hereunder or under any other Basic Document; (d) shall not be
required to act as collateral agent hereunder or otherwise be responsible for
any collateral security granted in connection herewith except with respect to
any collateral that cannot be perfected by filing Uniform Commercial Code
financing statements; and
-58-
<PAGE>
(e) shall not be responsible for any action taken or omitted to be taken by it
hereunder or under any other Basic Document or under any other document or
instrument referred to or provided for herein or therein or in connection
herewith or therewith, 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 in good faith. The Agent may deem and treat the
payee of any Note as the holder thereof for all purposes hereof unless and until
a notice of the assignment or transfer thereof shall have been filed with the
Agent.
10.02 Reliance by Agent. The Agent shall be entitled to rely
upon any certification, notice or other communication (including, without
limitation, any thereof by telephone, telecopy, telex, telegram or cable)
believed by it to be genuine and correct and to have been signed or sent by or
on behalf of the proper Person or Persons, and upon advice and statements of
legal counsel, independent accountants and other experts selected by the Agent.
As to any matters not expressly provided for by this Agreement or any other
Basic Document, the Agent shall in all cases be fully protected in acting, or in
refraining from acting, hereunder or thereunder in accordance with instructions
given by the Required Banks and such instructions of such Banks and any action
taken or failure to act pursuant thereto shall be binding on all of the Banks.
10.03 Defaults. The Agent shall not be deemed to have
knowledge or notice of the occurrence of a Default unless the Agent has received
notice from a Bank or the Company specifying such Default and stating that such
notice is a "Notice of Default". In the event that the Agent receives such a
notice of the occurrence of a Default, the Agent shall give prompt notice
thereof to the Banks. The Agent shall (subject to Section 10.07 hereof) take
such action with respect to such Default as shall be directed by the Required
Banks, 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 as it shall deem
advisable in the best interest of the Banks except to the extent that this
Agreement expressly requires that such action be taken, or not be taken, only
with the consent or upon the authorization of the Required Banks.
10.04 Rights as a Bank. With respect to its Commitments and
the Loans made by it, Fleet (and any successor acting as Agent) in its capacity
as a Bank hereunder shall have the same rights and powers hereunder as any other
Bank and may exercise the same as though it were not acting as the Agent, and
the term "Bank" or "Banks" shall, unless the context otherwise indicates,
include the Agent in its individual capacity. Fleet (and any successor acting as
Agent) and its affiliates may (without having to account therefor to any Bank)
accept deposits from, lend money to, make investments in and generally engage in
any kind of banking, trust or other business with the Company (and any of its
Subsidiaries or Affiliates) as if it were not acting as the Agent, and Fleet and
its affiliates may accept fees and other consideration from the Company for
services in connection with this Agreement or otherwise without having to
account for the same to the Banks.
-59-
<PAGE>
10.05 Indemnification. The Banks agree to indemnify the Agent
(to the extent not reimbursed under Section 11.03 hereof, but without limiting
the obligations of the Company under said Section 11.03, ratably in accordance
with their respective Commitments, for any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind and nature whatsoever that may be imposed on, incurred
by or asserted against the Agent (including by any Bank) arising out of or by
reason of any investigation in or in any way relating to or arising out of this
Agreement or any other Basic Document or any other documents contemplated by or
referred to herein or therein or the transactions contemplated hereby or thereby
(including, without limitation, the costs and expenses that the Company is
obligated to pay under Section 11.03 hereof but excluding, unless a Default has
occurred and is continuing, normal administrative costs and expenses incident to
the performance of its agency duties hereunder) or the enforcement of any of the
terms hereof or thereof or of any such other documents, provided that no Bank
shall be liable for any of the foregoing to the extent they arise from the gross
negligence or willful misconduct of the party to be indemnified.
10.06 Non-Reliance on Agent and Other Banks. Each Bank agrees
that it has, independently and without reliance on the Agent or any other Bank,
and based on such documents and information as it has deemed appropriate, made
its own credit analysis of the Company and decision to enter into this Agreement
and that it will, independently and without reliance upon the Agent or any other
Bank, 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 this Agreement or under any other Basic Document. The Agent
shall not be required to keep itself informed as to the performance or
observance by any Obligor of this Agreement or any of the other Basic Documents
or any other document referred to or provided for herein or therein or to
inspect the Properties or books of the Company. Except for notices, reports and
other documents and information expressly required to be furnished to the Banks
by the Agent hereunder or under the Security Documents, the Agent shall not have
any duty or responsibility to provide any Bank with any credit or other
information concerning the affairs, financial condition or business of the
Company (or any of its affiliates) that may come into the possession of the
Agent or any of its affiliates.
10.07 Failure to Act. Except for action expressly required of
the Agent hereunder and under the other Basic Documents, the Agent shall in all
cases be fully justified in failing or refusing to act hereunder and thereunder
unless it shall receive further assurances to its satisfaction from the Banks of
their indemnification obligations under Section 10.05 hereof against any and all
liability and expense that may be incurred by it by reason of taking or
continuing to take any such action.
10.08 Resignation or Removal of Agent. Subject to the
appointment and acceptance of a successor Agent as provided below, the Agent may
resign at any time by giving notice thereof to the Banks and the Company, and
the Agent may be removed at any time with or without cause by the Required
Banks. Upon any such resignation or removal, the Required Banks shall have the
right to appoint a successor Agent, subject to the Company's approval of such
successor Agent (which approval will not be unreasonably withheld). If no
successor
-60-
<PAGE>
Agent shall have been so appointed by the Required Banks (or if the Company
shall fail to approve such a successor Agent) and shall have accepted such
appointment within 30 days after the retiring Agent's giving of notice of
resignation or the Required Banks' removal of the retiring Agent, then the
retiring Agent may, on behalf of the Banks, subject to the Company's approval,
appoint a successor Agent, that shall be a bank that has an office in New York,
New York. Upon the acceptance of any appointment as Agent hereunder by a
successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, 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 or removal 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
the Agent.
10.09 Agency Fee. So long as the Commitments are in effect and
until payment in full of the principal of and interest on the Loans and all
other amounts payable by the Company hereunder, the Company will pay to the
Agent an agency fee as mutually agreed upon.
10.10 Consents under Other Basic Documents. Except as
otherwise provided in Section 11.04 hereof with respect to this Agreement, the
Agent may, with the prior consent of the Required Banks (but not otherwise),
consent to any modification, supplement or waiver under any of the Basic
Documents, provided that, without the prior consent of each Bank, the Agent
shall not (except as provided herein or in the Security Documents) release any
collateral or otherwise terminate any Lien under any Basic Document providing
for collateral security, or agree to additional obligations being secured by
such collateral security (unless the Lien for such additional obligations shall
be junior to the Lien in favor of the other obligations secured by such Basic
Document).
Section 11. Miscellaneous.
11.01 Waiver. No failure on the part of the Agent or any Bank
to exercise and no delay in exercising, and no course of dealing with respect
to, any right, power or privilege under this Agreement or the Note shall operate
as a waiver thereof, nor shall any single or partial exercise of any right,
power or privilege under this Agreement or any Note preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
The remedies provided herein are cumulative and not exclusive of any remedies
provided by law.
11.02 Notices. All notices, requests and other communications
provided for herein and under the Security Documents (including, without
limitation, any modifications of, or waivers, requests or consents under, this
Agreement) shall be given or made in writing (including, without limitation, by
telex or telecopy) delivered to the intended recipient at the "Address for
Notices" specified below its name on the signature pages hereof; or, as to any
party, at such other address as shall be designated by such party in a notice to
each other party. Except as otherwise provided in this Agreement, all such
communications shall be deemed to have been duly given when transmitted by telex
or telecopier or personally delivered or, in the case of a mailed notice, upon
receipt, in each case given or addressed as aforesaid.
-61-
<PAGE>
11.03 Expenses, Etc. The Company agrees to pay or reimburse
each of the Banks and the Agent for: (a) all reasonable out-of-pocket costs and
expenses of each Bank and the Agent (including, without limitation, the
reasonable fees and expenses of Emmet, Marvin & Martin, LLP, special New York
counsel to the Agent, and Rothschild & Quaid, LLP, Citi's counsel, in connection
with (i) the negotiation, preparation, execution and delivery of this Agreement
and the other Basic Documents and the extension of credit hereunder and (ii) the
negotiation or preparation of any modification, supplement or waiver of any of
the terms of this Agreement or any of the other Basic Documents (whether or not
consummated); (b) all reasonable out-of-pocket costs and expenses of each Bank
and the Agent (including, without limitation, the reasonable fees and expenses
of legal counsel) in connection with (i) any Default and any enforcement or
collection proceedings resulting therefrom, including, without limitation, all
manner of participation in or other involvement with (x) bankruptcy, insolvency,
receivership, foreclosure, winding up or liquidation proceedings, (y) judicial
or regulatory proceedings and (z) workout, restructuring or other negotiations
or proceedings (whether or not the workout, restructuring or transaction
contemplated thereby is consummated) and (ii) the enforcement of this Section
11.03; and (c) all transfer, stamp, documentary or other similar taxes,
assessments or charges levied by any governmental or revenue authority in
respect of this Agreement or any of the other Basic Documents or any other
document referred to herein or therein and all costs, expenses, taxes,
assessments and other charges incurred in connection with any filing,
registration, recording or perfection of any security interest contemplated by
any Basic Document or any other document referred to therein.
The Company hereby agrees to indemnify the Agent and each Bank
and their respective directors, officers, employees, attorneys and agents from,
and hold each of them harmless against, any and all losses, liabilities, claims,
damages or expenses incurred by any of them arising out of or by reason of any
investigation or litigation or other proceedings (including, without limitation,
any and all losses, liabilities, claims, damages or expenses incurred by the
Agent to any Bank, whether or not the Agent or any Bank is a party thereto)
relating to the extensions of credit hereunder or any actual or proposed use by
the Company of the proceeds of any of the extensions of credit hereunder,
including, without limitation, the reasonable fees and disbursements of counsel
incurred in connection with any such investigation or litigation or other
proceedings (but excluding any such losses, liabilities, claims, damages or
expenses incurred by reason of the gross negligence or willful misconduct of the
Person to be indemnified).
11.04 Amendments, Etc. Except as otherwise expressly provided
in this Agreement, any provision of this Agreement may be modified or
supplemented only by an instrument in writing signed by the Company, the Agent
and the Required Banks, or by the Company and the Agent acting with the consent
of the Required Banks, and any provision of this Agreement may be waived by the
Required Banks or by the Agent acting with the consent of the Required Banks;
provided that: (a) no modification, supplement or waiver shall, unless by an
instrument signed by all of the Banks or by the Agent acting with the consent of
all of the Banks: (i) increase, or extend the term of any of the Commitments, or
extend the time or waive any requirement for the reduction or termination of any
of the Commitments, (ii) extend the date fixed for the payment of principal of
or interest on any Loan, the Reimbursement Obligations, the Acceptances or any
fee hereunder, (iii) reduce the amount of any such payment of principal,
-62-
<PAGE>
(iv) reduce the rate at which interest is payable thereon or any fee is payable
hereunder, (v) alter the rights or obligations of the Company to prepay Loans,
(vi) alter the terms of this Section 11.04, (vii) modify the definition of the
term "Required Banks," or modify in any other manner the number or percentage of
the Banks required to make any determinations or waive any rights hereunder or
to modify any provision hereof, or (viii) waive any of the conditions precedent
set forth in Section 7.01 hereof; and (b) any modification or supplement of
Section 11 hereof shall require the consent of the Agent.
11.05 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
11.06 Assignments and Participations.
(a) The Company may not assign any of its rights or
obligations hereunder, under the Acceptances or under the Notes without the
prior consent of all the Banks and the Agent.
(b) Each Bank may assign any of its Loans, its Acceptances, its Note, and its
Commitment (but only with the consent of, in the case of the outstanding
Commitment, the Company and the Agent and, in the case of the Commitment or a
Letter of Credit Interest, the Issuing Bank and, in the case of an Acceptance,
the Accepting Bank); provided that (i) no such consent by the Company or the
Agent shall be required in the case of any assignment to another Bank; (ii) any
such partial assignment shall be in an amount at least equal to $5,000,000;
(iii) each such assignment by a Bank of its Loans, Note, Commitment or Letter of
Credit Interest shall be made in such manner so that the same portion of its
Loans, Note, Commitment and Letter of Credit Interest is assigned to the
respective assignee and (iv) no such consent by the Company shall be required at
any time a Default or an Event of Default has occurred and is continuing. Upon
execution and delivery by the assignee to the Company, the Agent and the Issuing
Bank of an instrument in writing pursuant to which such assignee agrees to
become a "Bank" hereunder (if not already a Bank) having the Commitment(s),
Loans, Acceptances and, if applicable, Letter of Credit Interest specified in
such instrument, and upon consent thereto by the Company, the Agent and the
Issuing Bank, to the extent required above, the assignee shall have, to the
extent of such assignment (unless otherwise provided in such assignment with the
consent of the Company, the Agent and the Issuing Bank), the obligations, rights
and benefits of a Bank hereunder holding the Commitment(s), Loans, Acceptances
and, if applicable, Letter of Credit Interest (or portions thereof) assigned to
it (in addition to the Commitment(s), Loans, Acceptances and Letter of Credit
Interest, if any, theretofore held by such assignee) and the assigning Bank
shall, to the extent of such assignment, be released from the Commitment(s) (or
portion(s) thereof) so assigned. Upon each such assignment the assigning Bank
shall pay the Agent an assignment fee of $3,000, unless such assignment is to
another Bank. Notwithstanding the foregoing, (i) Fleet agrees that, unless Citi
has agreed in writing otherwise (which agreement, however, shall not be required
after the occurrence and continuance of a Default or Event of Default and in any
event shall not be unreasonably withheld), Fleet shall at all times have a
Commitment Percentage of at least 25% and (ii) Citi agrees that, unless Fleet
has agreed in writing otherwise (which agreement, however, shall not be required
after the occurrence
-63-
<PAGE>
and continuance of a Default or Event of Default and in any event shall not be
unreasonably withheld), Citi shall at all times have a Commitment Percentage of
at least 25%. It is expressly agreed that the Borrower is not a third party
beneficiary of the foregoing sentence and that the provisions of the foregoing
sentence are only for the benefit of Fleet and Citi, may only be enforced by
Fleet and Citi and may not be relied upon by the Borrower or any other Person.
(c) A Bank may sell or agree to sell to one or more other
Persons a participation in all or any part of any Loans, Acceptances or Letter
of Credit Interest, or in the Commitment, in which event each purchaser of a
participation (a "Participant") shall be entitled to the rights and benefits of
the provisions of Section 8.01(g) hereof with respect to its participation in
such Loans, Acceptances, Letter of Credit Interest and Commitment as if (and the
Company shall be directly obligated to such Participant under such provisions as
if) such Participant were a "Bank" for purposes of said Section, but shall not
have any other rights or benefits under this Agreement or any Note or any other
Basic Document (the Participant's rights against such Bank in respect of such
participation to be those set forth in the agreements executed by such Bank in
favor of the Participant).
(d) In addition to the assignments and participations
permitted under the foregoing provisions of this Section 11.06, any Bank may
(without notice to the Company, the Agent or any other Bank and without payment
of any fee) (i) assign and pledge all or any portion of the Loans, the
Acceptances and the Note to any Federal Reserve Bank as collateral security
pursuant to Regulation A and any Operating Circular issued by such Federal
Reserve Bank and (ii) assign all or any portion of its rights under this
Agreement and the Loans, the Acceptances and the Note to an affiliate. No such
assignment shall release the assigning Bank from its obligations hereunder.
(e) A Bank may furnish any information concerning the Company
in the possession of such Bank from time to time to assignees and participants
(including prospective assignees and participants).
(f) Anything in this Section 11.06 to the contrary
notwithstanding, no Bank may assign or participate any interest in any Loan,
Acceptance or Reimbursement Obligation held by it hereunder to the Company or
any of its Affiliates or Subsidiaries without the prior consent of each Bank.
11.07 Survival. The obligations of the Company under Sections
5.01, 5.04, 5.05 and 11.03 and the obligations of the Banks under Section 10.05
hereof shall survive the repayment of the Loans, the Acceptances and the
Reimbursement Obligations and the termination of the Commitment. In addition,
each representation and warranty made, or deemed to be made by a notice of any
extension of credit (whether by means of a Loan, an Acceptance or a Letter of
Credit), herein or pursuant hereto shall survive the making of such
representation and warranty, and no Bank shall be deemed to have waived, by
reason of making any extension of credit hereunder (whether by means of a Loan,
an Acceptance or a Letter of Credit), any Default that may arise by reason of
such representation or warranty proving to have been false or misleading,
notwithstanding that such Bank or the Agent may have had notice or knowledge or
-64-
<PAGE>
reason to believe that such representation or warranty was false or misleading
at the time such extension of credit was made.
11.08 Captions. The table of contents and captions and section
headings appearing herein are included solely for convenience of reference and
are not intended to affect the interpretation of any provision of this
Agreement.
11.09 Counterparts. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument and any of the parties hereto may execute this Agreement by
signing any such counterpart.
11.10 Governing Law; Submission to Jurisdiction. This
Agreement and the Notes shall be governed by, and construed in accordance with,
the law of the State of New York. The Company hereby submits to the nonexclusive
jurisdiction of the United States District Court for the Southern District of
New York and of any New York state court sitting in New York City for the
purposes of all legal proceedings arising out of or relating to this Agreement
or the transactions contemplated hereby. The Company irrevocably waives, to the
fullest extent permitted by applicable law, any objection that it may now or
hereafter have to the laying of the venue of any such proceeding brought in such
a court and any claim that any such proceeding brought in such a court has been
brought in an inconvenient forum.
11.11 Waiver of Jury Trial. EACH OF THE COMPANY, THE AGENT AND
THE BANKS HEREBY IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
11.12 Interest Adjustment. All agreements between the Company
and Guarantors and the Banks are hereby expressly limited so that in no
contingency or event whatsoever, whether by reason of acceleration of maturity
of the indebtedness evidenced hereby or otherwise, shall the amount paid or
agreed to be paid to the Banks for the use or the forbearance of the
indebtedness evidenced hereby exceed the maximum permissible under applicable
law. As used herein, the term "applicable law" shall mean the law in effect as
of the date hereof provided, however, that in the event there is a change in the
law which results in a higher permissible rate of interest, then the Basic
Documents shall be governed by such new law as of its effective date. In this
regard, it is expressly agreed that it is the intent of Company and the Agent
and the Banks in the execution, delivery and acceptance of this Credit Agreement
to contract in strict compliance with the laws of the State of New York from
time to time in effect. If, under or from any circumstances whatsoever,
fulfillment of any provision hereof or of any of the Basic Documents at the time
of performance of such provision shall be due, shall involve transcending the
limit of such validity prescribed by applicable law, then the obligation to be
fulfilled shall automatically be reduced to the limits of such validity, and if
under or from circumstances whatsoever the Banks should ever receive as interest
and amount which would exceed the highest lawful rate, such amount which would
be excessive interest shall be applied to the reduction of the principal balance
evidenced by a Note (in such manner as the Banks may
-65-
<PAGE>
determine in their sole discretion) and not to the payment of interest. This
provision shall control every other provision of all agreements between the
Company, Guarantors and the Agent and the Banks.
11.13 Lost Notes. Upon receipt of an affidavit of an officer
of any Bank as to the loss, theft, destruction or mutilation of any Note or any
other security document which is not of public record (which affidavit shall
contain an indemnity for such loss, reasonably satisfactory to the Company),
and, in the case of any such loss, theft, destruction or mutilation, upon
surrender and cancellation of such Note or other security document, the Company
will issue, in lieu thereof, a replacement Note or other security document in
the same principal amount thereof and otherwise of like tenor.
Section 12 Guarantee.
The Guarantors agree that, so long as any Commitment is in
effect and until the principal of, and interest on, each Loan, all Letter of
Credit Liabilities, all Acceptance Liabilities, all fees and all other amounts
payable under this Credit Agreement and the other Basic Documents shall have
been paid in full:
12.01 Guarantee Unconditional. (a) Subject to Section
12.01(b), each Guarantor hereby absolutely, irrevocably and unconditionally
guarantees the full and prompt payment when due (whether at stated maturity, by
acceleration or otherwise) of the Company Obligations. The agreements of each
Guarantor under this Section 12 constitute a guarantee of payment, and no Bank
shall have any obligation to enforce this Credit Agreement or any other Basic
Document or exercise any right or remedy with respect to any collateral security
thereunder by any action, including making or perfecting any claim against any
Person or any collateral security for any of the Company Obligations prior to
being entitled to the benefits of this Credit Agreement. The Agent may, at its
option, proceed against the Guarantors, or any one or more of them, in the first
instance, to enforce the Guarantor Obligations without first proceeding against
the Company or any other Person, and without first resorting to any other rights
or remedies, as the Agent may deem advisable. In furtherance hereof, if any Bank
is prevented by law from collecting or otherwise hindered from collecting or
otherwise enforcing any Company Obligation in accordance with its terms, such
Bank shall be entitled to receive hereunder from the Guarantors after demand
therefor, the sums that would have been otherwise due had such collection or
enforcement not been prevented or hindered.
(b) Notwithstanding anything to the contrary contained herein,
the maximum aggregate amount of the obligations of each Guarantor hereunder
shall not, as of any date of determination, exceed the lesser of (i) the
greatest amount that is valid and enforceable against such Guarantor under
principles of New York State contract law, and (ii) the greatest amount that
would not render such Guarantor's liability hereunder subject to avoidance as a
fraudulent transfer or conveyance under Section 548 of Title 11 of the United
States Code or any provisions of applicable state law (collectively, the
"Fraudulent Transfer Laws"), in each case after giving effect to all other
liabilities of such Guarantor, contingent or otherwise, that are relevant under
-66-
<PAGE>
the Fraudulent Transfer Laws (specifically excluding, however, any liability (A)
in respect of intercompany indebtedness to the Company or any affiliate or
subsidiary of the Company, to the extent that such intercompany indebtedness
would be discharged in an amount equal to the amount paid by such Guarantor
hereunder, and (B) under any guarantee of (1) senior unsecured indebtedness, or
(2) indebtedness subordinated in right of payment to any Company Obligation, in
either case that contains a limitation as to maximum liability similar to that
set forth in this Section 12.01(b) and pursuant to which the liability of such
Guarantor hereunder is included in the liabilities taken into account in
determining such maximum liability) and after giving effect as assets to the
value (as determined under the applicable provisions of the Fraudulent Transfer
Laws) of any rights to subrogation, contribution, reimbursement, indemnity or
similar rights of such Guarantor pursuant to applicable law or any agreement
providing for an equitable allocation among such Guarantor and other affiliates
or subsidiaries of the Company of obligations arising under guarantees by such
parties.
(c) Each Guarantor agrees that the Guarantor Obligations may
at any time and from time to time exceed the maximum aggregate amount of the
obligations of such Guarantor hereunder without impairing this Credit Agreement
or affecting the rights and remedies of any Bank hereunder.
12.02 Absolute Obligation. Subject to Section 12.05(c), no
Guarantor shall be released from liability hereunder unless and until the
Commitments have terminated and either (i) the Company shall have paid in full
the outstanding principal balance of the Loans, together with all accrued and
unpaid interest thereon, and all other amounts then due and owing under the this
Credit Agreement and the other Basic Documents, or (ii) the Guarantor
Obligations of such Guarantor shall have been paid in full in cash. Each
Guarantor acknowledges and agrees that (a) no Bank has made any representation
or warranty to such Guarantor with respect to the Company, any of its
Subsidiaries, any Basic Document, or any agreement, instrument or document
executed or delivered in connection therewith, or any other matter whatsoever,
and (b) such Guarantor shall be liable hereunder, and such liability shall not
be affected or impaired, irrespective of (A) the validity or enforceability of
any Basic Document, or any agreement, instrument or document executed or
delivered in connection therewith, or the collectability of any of the Company
Obligations, (B) the preference or priority ranking with respect to any of the
Company Obligations, (C) the existence, validity, enforceability or perfection
of any security interest or collateral security under any Basic Document, or the
release, exchange, substitution or loss or impairment of any such security
interest or collateral security, (D) any failure, delay, neglect or omission by
any Bank to realize upon or protect any direct or indirect collateral security,
indebtedness, liability or obligation, any Basic Document, or any agreement,
instrument or document executed or delivered in connection therewith, or any of
the Company Obligations, (E) the existence or exercise of any right of set-off
by any Bank, (F) the existence, validity or enforceability of any other
guarantee with respect to any of the Company Obligations, the liability of any
other Person in respect of any of the Company Obligations, or the release of any
such Person or any other guarantor of any of the Company Obligations, (G) any
act or omission of any Bank in connection with the administration of any Basic
Document or any of the Company Obligations, (H) the bankruptcy, insolvency,
reorganization or receivership of, or any other proceeding for the relief of
debtors commenced by or against, any Person, (I) the
-67-
<PAGE>
disaffirmance or rejection, or the purported disaffirmance or purported
rejection, of any of the Company Obligations, any Basic Document, or any
agreement, instrument or document executed or delivered in connection therewith,
in any bankruptcy, insolvency, reorganization or receivership, or any other
proceeding for the relief of debtor, relating to any Person, (J) any law,
regulation or decree now or hereafter in effect that might in any manner affect
any of the terms or provisions of any Basic Document, or any agreement,
instrument or document executed or delivered in connection therewith or any of
the Company Obligations, or that might cause or permit to be invoked any
alteration in the time, amount, manner or payment or performance of any of the
Company's obligations and liabilities (including the Company Obligations), (K)
the merger or consolidation of the Company into or with any Person (including
without limitation the Merger), (L) the sale by the Company of all or any part
of its assets, (M) the fact that at any time and from time to time none of the
Company Obligations may be outstanding or owing to any Bank, (N) any amendment
or modification of, or supplement to, any Basic Document, or (O) any other
reason or circumstance that might otherwise constitute a defense available to or
a discharge of the Company in respect of its obligations or liabilities
(including the Company Obligations) or of such Guarantor in respect of any of
the Guarantor Obligations (other than by the performance in full thereof).
12.03 Repayment in Bankruptcy, Etc. If, at any time or times
subsequent to the payment of all or any part of the Company Obligations or the
Guarantor Obligations, any Bank shall be required to repay any amounts
previously paid by or on behalf of the Company or any Guarantor in reduction
thereof by virtue of an order of any court having jurisdiction in the premises,
including as a result of an adjudication that such amounts constituted
preferential payments or fraudulent conveyances, the Guarantors unconditionally
agree to pay to the Agent, within 10 days after demand, a sum in cash equal to
the amount of such repayment, together with interest on such amount from the
date of such repayment by Bank to the date of payment to the Agent at the
applicable Post-Default Rate.
12.04 Additional Subsidiary Guarantors. Upon the execution and
delivery to the Agent of a Guarantee Supplement by any Person, appropriately
acknowledged, such Person shall be a Guarantor.
12.05 Miscellaneous.
(a) Each Guarantor agrees that any statement of account with
respect to the Company Obligations from any Bank that binds the Company shall
also be binding upon such Guarantor, and that copies of said statements of
account maintained in the regular course of such Bank's business may be used in
evidence against such Guarantor in order to establish its Guarantor Obligations.
(b) Subject to the limitations set forth in Section 12.01(b),
the Guarantor Obligations shall be joint and several.
(c) Notwithstanding anything to the contrary contained herein,
on and as of the date of any merger, consolidation, acquisition or disposition
permitted by this Credit Agreement, as the case may be, that shall result in any
Guarantor ceasing to be a Subsidiary, such Guarantor shall, without the consent
of any Bank, cease to be a Guarantor and shall have no further liability
hereunder.
-68-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered as of the day and year first above
written.
EMPIRE, RESOURCES, INC.
By: /s/ Sandra Kahn
---------------------------------
Title: Secretary and Treasurer
Address for Notices:
Empire Resources, Inc.
One Parker Plaza
Fort Lee, New Jersey 07024
Attention: Ms. Sandra R. Kahn
Telecopier No.: (201) 944-2226
Telephone No.: (201)944-2200
-69-
<PAGE>
BANKS
-----
Initial Commitment FLEET BANK, as Agent and a Bank
- ------------------
$23,460,000
By: /s/ Lori Moylan
----------------------------
Subsequent Commitment Name: Lori Moylan
- --------------------- Title: Vice President
$17,850,000
Lending Office for all Loans:
Fleet Bank, N.A.
1125 Route 22 West
Bridgewater, New Jersey 08807
Address for Notices:
Fleet Bank, N.A.
1125 Route 22 West
Bridgewater, New Jersey 08807
Attention: Lori Moylan
Telecopier No.: (908) 253-4205
Telephone No.: (908) 253-4840
-70-
<PAGE>
Initial Commitment CITICORP USA, INC., as a Bank
- ------------------
$22,540,000
By /s/ Elizabeth L. Boyle
----------------------------
Subsequent Commitment Name: Elizabeth L. Boyle
- --------------------- Title: Vice President
$17,150,000
Lending Office for all Loans:
Address for Notices:
153 East 53rd Street
56th Floor, Zone 9
New York, NY 10043
Attention: Elizabeth L. Boyle
Telecopier No.: (212) 527-9106
Telephone No.: (212) 559-4916
-71-
<PAGE>
EXHIBIT A
[Form of Note]
PROMISSORY NOTE
$ May 20, 1999
--------------------- New York, New York
FOR VALUE RECEIVED, EMPIRE RESOURCES, INC., a Delaware
corporation (the "Company"), hereby promises to pay to (the "Bank") , for
account of its respective Applicable Lending Offices provided for by the Credit
Agreement referred to below, at a principal office of Fleet Bank, National
Association, 1125 Route 22 West, Bridgewater, New Jersey 08807, the principal
sum of _________Dollars (or such lesser amount as shall equal the aggregate
unpaid principal amount of the Loans made by the Bank to the Company under the
Credit Agreement), in lawful money of the United States of America and in
immediately available funds, on the dates and in the principal amounts provided
in the Credit Agreement, and to pay interest on the unpaid principal amount of
each such Loan, at such office, in like money and funds, for the period
commencing on the date of such Loan until such Loan shall be paid in full, at
the rates per annum and on the dates provided in the Credit Agreement.
The date, amount, Type, interest rate and duration of interest
Period (if applicable) of each Loan made by the Bank to the Company, and each
payment made on account of the principal thereof, shall be recorded by the Bank
on its books and, prior to any transfer of this Note, endorsed by the Bank on
the schedule attached hereto or any continuation thereof, provided that the
failure of the Bank to make any such recordation or endorsement shall not affect
the obligations of the Company to make a payment when due of any amount owing
under the Credit Agreement or hereunder in respect of the Loans made by the
Bank.
This Note is the Note referred to in the Credit Agreement
dated as of May 20, 1999 (as modified and supplemented and in effect from time
to time, the "Credit Agreement") between the Company, the lenders named therein
and Fleet Bank, National Association, as Agent, and evidences Loans made by the
Bank thereunder. Terms used but not defined in this Note have the respective
meanings assigned to them in the Credit Agreement.
<PAGE>
The Credit Agreement provides for the acceleration of the
maturity of this Note upon the occurrence of certain events and for prepayments
of Loans upon the terms and conditions specified herein.
This Note is subject to mandatory prepayment as more fully set
forth in the Credit Agreement.
Except as permitted by Section 11.06(b) of the Credit
Agreement this Note may not be assigned by the Bank to any other Person.
This Note shall be governed by, and construed in accordance
with, the law of the State of New York.
EMPIRE RESOURCES, INC.
By
------------------------
Title:
-2-
<PAGE>
SCHEDULE OF LOANS
This Note evidences Loans made, Continued or Converted under
the within-described Credit Agreement to the Company, on the dates, in the
principal amounts, of the Types, bearing interest at the rates and having
Interest Periods (if applicable) of the durations set forth below, subject to
the payments, Continuations, Conversions and prepayments of principal set forth
below:
---------- --------- ------------ ------------- -----------
Date Made, Principal Type of Loan Interest Rate Duration of
Continued or Amount of Interest
Converted Loan Period
========== --------- ------------ ------------- -----------
- ------------ ------ --------
Amount Paid, Unpaid Notation
Prepaid, Principal Made by
Continued or Amount
Converted
- ------------ ------ --------
-3-
<PAGE>
EXHIBIT B
[Form of Borrowing Base Certificate]
EMPIRE RESOURCES, INC.
Borrowing Base
As of ______________
To: Fleet Bank, National Association (the "Agent"), as Agent under a
certain Credit Agreement dated May __, 1999 (the "Credit Agreement"),
by and between the Agent, lenders party thereto and Empire Resources,
Inc. (the "Company").
Terms used in this certificate shall have the same meaning as ascribed thereto
in the Credit Agreement.
The undersigned officers of the Company certify that the information furnished
herein as of __________ as to Insured Eligible Receivables, Eligible Receivables
(other than Australian Receivables and Insured Eligible Receivables), Australian
Receivables (only after the Australian Effective Date), Eligible In-transit
Inventory, Eligible Warehouse Inventory, Pledged Securities and Pledged Cash is
true and correct and that as of the date hereof no Event of Default, or event
which after notice or lapse of time or both would be an Event of Default exists
under the Credit Agreement.
I. TIER I CREDITS
================================================================================
Insured Eligible Receivables $ x.9 = $
------------ 0 -----------
- --------------------------------------------------------------------------------
Eligible Receivables (other than $ x.8 = $
Australian Receivables and Insured ------------ 0 -----------
Eligible Receivables)
- --------------------------------------------------------------------------------
Australian Receivables (only after the $ x.7 = $
Australian Effective Date) ------------ 0 -----------
- --------------------------------------------------------------------------------
Inventory $
------------
================================================================================
<PAGE>
================================================================================
Eligible In-transit Inventory $ x.8 = $
------------ 0 -----------
- --------------------------------------------------------------------------------
Eligible Warehouse Inventory $ x.7 = $
------------ 5 -----------
- --------------------------------------------------------------------------------
Pledged Securities $ x.8 = $
------------ 0 -----------
- --------------------------------------------------------------------------------
Pledged Cash (not included in II below) $ = $
------------ -----------
- --------------------------------------------------------------------------------
TOTAL (A) $ = $
------------ -----------
- --------------------------------------------------------------------------------
Loans $
------------
- --------------------------------------------------------------------------------
Letter of Credit Liabilities
- --------------------------------------------------------------------------------
Letters of Credit $
------------
- --------------------------------------------------------------------------------
Letters of Indemnity $
------------
- --------------------------------------------------------------------------------
Acceptances $
------------
- --------------------------------------------------------------------------------
TOTAL (B) $
------------
- --------------------------------------------------------------------------------
* * *
- --------------------------------------------------------------------------------
Surplus (Deficit) is Total (A) minus Total (B) $
------------
================================================================================
II. TIER II CREDITS
================================================================================
Pledged Cash (not included in I above) TOTAL (A) $
------------
- --------------------------------------------------------------------------------
Tier II Credits TOTAL (B) $
------------
- --------------------------------------------------------------------------------
* * *
- --------------------------------------------------------------------------------
Surplus (Deficit) is Total (A) minus Total (B) $
------------
================================================================================
<PAGE>
EMPIRE RESOURCES, INC.
By
-------------------------
Title:
Date
----------------------
EXHIBIT C
<PAGE>
EXHIBIT D
[ON PROSKAUER LETTERHEAD]
May ___, 1999
Fleet Bank, N.A.
1125 Route 22 West
Bridgewater, New Jersey 08807
Citicorp USA, Inc.
[address]
Ladies and Gentlemen:
We have acted as counsel to Empire Resources, Inc., a Delaware
corporation (the "Company"), in connection with (i) the Amended and Restated
Credit Agreement (the "Credit Agreement") dated as of the date hereof, among the
Company, Fleet Bank, National Association ("Fleet") as agent and a bank and
Citicorp USA, Inc. as a bank, providing for extensions of credit to be made to
the Company in an aggregate principal or face amount not exceeding $46,000,000
and (ii) the various other agreements and instruments referred to in the next
following paragraph. Terms defined in the Credit Agreement are used herein as
defined therein. This opinion is being delivered pursuant to Section 6.01(a) of
the Credit Agreement.
In rendering this opinion expressed below, we have examined
the following agreements, instruments and other documents.
(a) the Credit Agreement;
(b) The Notes; and
(c) The Security Agreement in the form of Exhibit C to
the Credit Agreement the "Security Agreement").
The agreements, instruments and other documents referred to in the foregoing
lettered clauses are collectively referred to as the "Credit Documents."
We have also examined and relied upon:
<PAGE>
(e) An Officers' Certificate being executed and delivered
by the Company concurrently with the delivery of this
opinion, a copy of which is attached hereto;
(f) Certificates of the Secretary of State of Delaware
and the Secretary of State of New Jersey attesting
to, respectively, the continued corporate existence
and qualification of the Company, copies of which are
attached hereto; and
(g) The Certificate of Fact dated of even date herewith,
a copy of which is attached hereto.
In our examination, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals and
the conformity with authentic original documents of all documents submitted to
us as copies.
We have not made any independent investigation in rendering
this opinion other than the document examination described above. Our opinion
is, therefore, qualified in all respects by the scope of that document
examination.
As to matters of facts material to our opinion we have relied
solely upon, and have assumed this accuracy of (without independent
investigation or verification) the recitals and representations made by the
various parties in the Credit Documents and in the documents referred to in the
foregoing letter clauses (e), (f) and (g).
In rendering the opinions expressed below, we have assumed,
with respect to all of the documents referred to in this opinion letter that
(except, to the extent set forth in the opinions expressed below, as to the
Company):
(i) such documents have been duly authorized by, have
been duly executed and delivered by, and constitute
legal, valid and binding obligations of, all of the
parties to such documents enforceable against them in
accordance with their terms;
(ii) All signatures to such documents have been duly
authorized; and
(iii) all of the parties to such documents are duly
organized and validly existing and have the power and
authority (corporate or other) to execute, deliver
and perform such documents.
<PAGE>
The phrase "of which we have knowledge" or any similar phrase
as used in this opinion means the actual present knowledge, without independent
investigation, of the lawyers involved in the rendering of this opinion.
Based upon and subject to the foregoing and subject also to
the comments and qualifications set forth below, and having considered such
questions of law as we have deemed necessary as a basis for the opinions
expressed below, we are of the opinion that:
1. The Company is a corporation validly existing and in good
standing under the laws of the State of Delaware and is duly qualified and in
good standing under the name Pam Metals Co. in the State of New Jersey.
2. The Company has all requisite corporate power under the laws
of the jurisdiction of its organization to execute and deliver, and to perform
its obligations under, the Credit Documents to which it is a party. The Company
has all requisite corporate power to borrow under the Credit Agreement and to
incur liability in respect of Acceptances and Letters of Credit under the Credit
Agreement.
3. The execution, delivery and performance by the Company of each
Credit Document to which it is a party, and the borrowings and incurrence of
liability in respect of Acceptances and Letters of Credit by the Company under
the Credit Agreement, have been duly authorized by all necessary corporate
action on the part of the Company.
4. Each Credit Document has been duly executed and delivered by
the Company.
5. Each of the Credit Documents constitutes the legal, valid and
binding obligation of the Company, enforceable against the company in accordance
with its terms, except as (i) may be limited by bankruptcy, insolvency,
fraudulent conveyance or fraudulent transfer laws, reorganization, moratorium or
other similar laws relating to or affecting the rights of creditors generally,
(ii) the enforceability of the Credit Documents is subject to the application of
general principles of equity (regardless of whether considered in a proceeding
in equity or at law), or at law including, without limitation, (a) the possible
unavailability of specific performance, injunctive relief or any other equitable
remedy and (b) concepts of materiality, reasonableness, good faith and fair
dealing, and (iii) any purported assignment of any agreement or any other
intangible property may be subject to contractual restrictions upon assignment
or transfer which may be required to be satisfied before you will be treated as
an assignee thereof.
6. No authorization, approval or consent of, and no filing or
registration with, any governmental or regulatory authority or agency of the
United States of America or the State of New York is required on the part of the
Company for the execution, delivery or performance by the Company of any of the
Credit Documents or for the borrowings or the incurrence of liability in respect
of any Acceptance or Letter of Credit by the Company under the Credit Agreement,
except for the filing of the financing statements or other notices or documents
in respect of the
<PAGE>
Liens created pursuant to the Security Documents and except that any purported
assignment of any governmental approval, license or permit may either be
prohibited by applicable law or regulation or subject to restrictions upon
assignment or transfer which may be required to be satisfied before you will be
treated as an assignee thereof.
7. The execution, delivery and performance by the Company of, and
the consummation by the Company of the transactions contemplated by, the Credit
Documents do not (a) violate any provision of the charter or by-laws of the
Company, (b) violate any applicable current law, rule or regulation of the State
of New York or (c) violate any order, writ, injunction or decree of any court or
governmental authority or agency or any arbitral award applicable to the Company
of which we have knowledge.
8. There are no legal or arbitral proceedings, or proceedings by
or before any governmental or regulatory authority or agency, pending or
threatened against or affecting the Company or any of its Properties of which we
have knowledge that, if adversely determined, could reasonably be expected to
have a Material Adverse Effect.
9. The Security Agreement is effective to create, in favor of
Fleet, as Agent for the Banks, a valid security interest under the Uniform
Commercial Code as in effect in the State of New York (the "UCC") in all of the
right, title and interest of the Company in, to and under the "Security" (as
defined in the Security Agreement and collectively referred to herein as the
"Collateral"), to the extent that Article 9 of the UCC is applicable thereto and
that the Collateral is governed exclusively by such Article of the UCC, as
collateral security for the payment of the obligations of the Company to the
Agent and/or the Banks, respectively, except that (a) such security interest
will continue in collateral after its sale, exchange or other disposition only
to the extent provided in Sections 9-306, 9-307, 9-308 and 9-309 of the UCC and
(b) the security interest in collateral in which the Company acquires rights
after the commencement of a case under the Bankruptcy Code in respect of the
Company may be limited by Section 552 of the Bankruptcy Code.
The foregoing opinions are subject to the following comments
and qualifications:
(A) The enforceability of Section 11.03 of the Credit
Agreement (and any similar provisions in any of the other Credit
Documents) may be limited by statute or case law rendering
unenforceable (i) indemnification contrary to Federal or state
securities laws and the public policy underlying such laws and (ii) the
release of a party from, or the indemnification of a party against,
liability for its own wrongful or negligent acts under certain
circumstances.
(B) The enforceability of provisions in the Credit Documents
to the effect that terms may not be waived or modified except in
writing may be limited under certain circumstances.
<PAGE>
(C) We express no opinion as to (i) any law in violation of
which would have no material adverse effect on you or to which the
Company may be subject as a result of
(D) We express no opinion as to the existence of, or the
right, title or interest of the Company in, to or under, any of the
Collateral.
(E) We express no opinion as to the perfection or priority of
any security interest in, or other Lien on, the Collateral, and except
as expressly provided in paragraph 9 above, we express no opinion as to
the creation of any security interest in or other Lien on, the
Collateral.
(F) We express no opinion as to any antitrust, securities or
tax laws or as to the applicability of any fraudulent conveyance or
fraudulent transfer laws.
The foregoing opinions are limited (except as to the
qualifications to do business in New Jersey, as to which we have relied
exclusively upon the attached Certificate of the Secretary of State of the State
of New Jersey) to matters involving the Federal laws of the United States of
America, the Delaware General Corporation Law and the law of the State of New
York, and we do not express any opinion as to the laws of any other
jurisdiction.
At the request of our clients this opinion letter is, pursuant
to Section 6.01(a) of the Credit Agreement, provided to you by and may be relied
upon by you only in connection with the transactions contemplated by the Credit
Agreement, and may not be relied upon by you for any other purpose, or by any
other person without, in each instance, our prior written consent.
Very truly yours,
<PAGE>
z
AMENDMENT NO. 1
to
LOAN AGREEMENT
This AMENDMENT NO. 1 dated as of December 23, 1999 (this "Amendment"),
is between Empire Resources, Inc. (the "Company"), a Delaware corporation and
the surviving company of the merger of Empire Resources, Inc. with and into
Integrated Technology USA, Inc., Fleet Bank N.A. ("Fleet"), Citicorp USA, Inc.
("Citicorp;" Fleet and Citicorp are collectively referred to herein as the
"Banks"), and Fleet as agent for the Banks (in such capacity, the "Agent").
RECITALS:
A. The Company, the Banks and the Agent have entered into a Credit
Agreement, dated as of May 20, 1999 (the "Loan Agreement").
B. Effective September 17, 1999 Empire resources, Inc. ("Old Empire")
was merged with and into Integrated Technology USA, Inc., a Delaware corporation
("Integrated") and Integrated changed its name to Empire Resources, Inc.
C. The Company, the Agent and the Banks entered into an Assumption
Agreement dated as of October 14, 1999 pursuant to which the Company, among
other things, assumed all of Old Empire's obligations under the Loan Agreement.
D. The Company desires to increase the Commitment (as defined in the
Loan Agreement referred to below), but solely as same relates to Letters of
Credit and the Agent and the Banks are agreeable to same.
E. The Company and the Banks desire to amend certain other provisions
of the Loan Agreement as hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration whose receipt and sufficiency are acknowledged, the
Company, the Banks and the Agent agree as follows:
Section 1. Definitions. Each capitalized term used but not defined in
this Amendment shall have the meaning ascribed to such term in the
Loan Agreement.
Section 2. Amendments of Loan Agreement.
(a) A new definition for "Amendment No. 1" shall be added to Section
1.01 of the Loan Agreement in its correct alphabetical order to read in its
entirety as follows:
<PAGE>
"Amendment No. 1" shall mean that certain Amendment No. 1 to
this Agreement dated as of December 23, 1999 among the parties thereto.
(b) The definition for "Commitment" contained in Section 1.01 of the
Loan Agreement is amended to read in its entirety as follows:
"Commitment" shall mean (A) the F/X Indemnity Commitments and
(B) the obligation of the Banks to make Loans, and to buy
participations in Letters of Credit and Acceptances issued or created
by the Issuing Bank or the Accepting Bank, as the case may be and the
obligation of the Issuing Bank to issue Letters of Credit and of the
Accepting Bank to create Acceptances in an aggregate amount equal to
$45,000,000, as the same may be reduced from time to time pursuant to
Section 2.05 hereof. As to each Bank, the obligation of such Bank to
make Loans, and to buy participations in Letters of Credit and
Acceptances issued or created by the Issuing Bank or the Accepting
Bank, as the case may be, under the Commitment shall be in an aggregate
principal or face amount at any one time outstanding up to but not
exceeding, the amount set opposite such Bank's name on the signature
pages to Amendment No. 1 under the caption "Commitment" (as the same
may be reduced from time to time pursuant to Section 2.05 hereof);
provided, that, the Commitment shall be further subject to the sublimit
limitations set forth in this Agreement.
(c) A new definition for "Balance Sheet Leverage Ratio" shall be added
to Section 1.01 of the Loan Agreement in its correct alphabetical order to read
in its entirety as follows:
"Balance Sheet Leverage Ratio" shall mean, at any time, the
ratio of (a) Total Liabilities at such time minus the then face amount
of letters of credit or similar instruments issued or accepted by banks
and other financial institutions for the account of the Company minus
the amount of Subordinated Debt at such time to (b) Tangible Net Worth
of the Company at such time.
(d) The definition for "Tier I Commitment" contained in Section 1.01 of
the Loan Agreement is amended to read in its entirety as follows:
"Tier I Commitment" shall mean (A) the F/X Indemnity
Commitments and (B) the obligation of the Banks to make Tier I Loans,
and to buy participations in Letters of Credit and Acceptances issued
or created by the Issuing Bank or the Accepting Bank, as the case may
be and the obligation of the Issuing Bank to issue Letters of Credit
and of the Accepting Bank to create Acceptances in an aggregate amount
equal to $45,000,000, as such amount may be reduced from time to time
pursuant to Section 2.05 hereof, and which may be used by the Company
in the form of Loans up to and not exceeding the sum of $30,000,000,
the total amount of which may be used by the Company for trade Letters
of Credit and Acceptances and $2,000,000 of which may be used by the
Company for standby Letters of Credit, all as more fully set forth in
this Agreement and subject to the Borrowing Base limitations of this
Agreement.
(e) The definition for "Tier I Credits" contained in Section 1.01 of
the Loan Agreement is amended to read in its entirety as follows:
"Tier I Credits" shall mean each of the following
independently: (i) all Credits, at any time, in an aggregate
outstanding amount up to and including the first $45,000,000 of
outstanding Credits and (ii) all Tier I Loans.
2
<PAGE>
(f) The introductory paragraph of Section 2.03 of the Loan Agreement is
amended to read in its entirety as follows:
2.03 Letters of Credit. Subject to the terms and conditions of
this Agreement, the Commitments may be utilized, upon the request of
the Company, in addition to the Loans provided for by Section 2.01
hereof, by the issuance by the Issuing Bank of letters of credit and
the Letter of Indemnity (such letters of credit and the Letter of
Indemnity are collectively referred to herein as, "Letters of Credit")
for account of the Company, provided that in no event shall (i) the
aggregate amount of all Letter of Credit Liabilities, together with the
aggregate principal amount of the Loans and the aggregate amount of
Acceptance Liabilities exceed the aggregate amount of the Commitments
as in effect from time to time, (ii) the outstanding aggregate amount
of all Letter of Credit Liabilities arising out of performance or
standby Letters of Credit exceed $2,000,000, (iii) the aggregate amount
of all Letter of Credit Liabilities arising out of commercial
(documentary) Letters of Credit (whether issued by Fleet or arising out
of the Letter of Indemnity) exceed $45,000,000, (iv) the expiration
date of any standby Letter of Credit extend beyond the Revolving Credit
Commitment Termination Date and/or (v) the expiration date of any sight
or time commercial Letter of Credit extend beyond the earlier to occur
of the date 180 days following the issuance of such Letters of Credit
and the date 180 days following the Revolving Credit Commitment
Termination Date. The following additional provisions shall apply to
Letters of Credit:
(g) Section 8.09 of the Loan Agreement is amended to read in its
entirety as follows:
8.09 Leverage Ratio; Balance Sheet Leverage Ratio. The Company
will not permit (i) the Leverage Ratio to exceed 5.5 to 1 at any time
or (ii) the Balance Sheet Leverage Ratio to exceed 4.5 to 1 at any
time.
(h) Section 8.11 of the Loan Agreement is amended to read in its
entirety as follows:
8.11 Working Capital Ratio. The Company will not permit the
Working Capital Ratio to be greater than 5.5 to 1 at any time.
Section 3. Conforming Amendments. The Loan Agreement and all
agreements, instruments and documents executed and delivered pursuant to or in
connection with the Loan Agreement (collectively the "Loan Documents") , shall
each be deemed to be amended and supplemented hereby to the extent necessary, if
any, to give effect to the provisions of this Amendment, and each Bank is
authorized to annex a copy of this Amendment to its respective Note. Except as
so amended hereby, the Loan Agreement and the other Loan Documents shall remain
in full force and effect in accordance with their respective terms.
Section 4. Acknowledgments, Confirmations and Consent.
The Company acknowledges and confirms that the Liens granted pursuant
to the Security Documents to which it is a party secure the indebtedness,
liabilities and obligations of the Company to the Banks, the Issuing Bank and/or
the Agent under the Notes and under the Loan Agreement as further amended by
this Amendment, whether or
3
<PAGE>
not so stated in such Security Documents, and that the term "Borrower
Obligations" as used in the Security Documents (or any other terms used in any
of the Loan Documents to describe or refer to the indebtedness, liabilities and
obligations of the Company to the Banks, the Issuing Bank and/or the Agent)
includes all other indebtedness, liabilities and obligations of the Company
under the Loan Agreement as amended by this Amendment and under the Notes.
Section 5. Representations and Warranties. The Company represents and
warrants to the Banks and the Agent as follows:
(a) After giving effect to this Amendment (i) each of the
representations and warranties set forth in Section 7 of the Loan Agreement is
true and correct in all respects as if made on the date of this Amendment,
except for changes in the ordinary course of business which, either singly or in
the aggregate, are not materially adverse to the business or financial condition
of the Company, and (ii) no Default or Event of Default exists under the Loan
Agreement.
(b) The Company has the power to execute, deliver and perform, and has
taken all necessary corporate action to authorize the execution, delivery and
performance of, this Amendment and the other agreements, instruments and
documents to be executed by it in connection with this Amendment. No consent or
approval of any Person, no consent or approval of any landlord or mortgagee, no
waiver of any Lien or right of distraint or other similar right and no consent,
license, certificate of need, approval, authorization or declaration of, or
filing with, any governmental authority, bureau or agency is or will be required
in connection with the execution, delivery or performance by the Company, or the
validity, enforcement or priority, of this Amendment and the other agreements,
instruments and documents executed in connection with this Amendment.
(c) The execution, delivery and performance by the Company of this
Amendment and each of the agreements, instruments and documents executed in
connection with this Amendment to which it is a party will not (i) violate any
provision of law, (ii) conflict with or result in a breach of any order, writ,
injunction, ordinance, resolution, decree or other similar document or
instrument of any court or governmental authority, bureau or agency, domestic or
foreign, or the certificate of incorporation or by-laws of the Company, (iii)
create (with or without the giving of notice or lapse of time, or both) a
default under or breach of any agreement, bond, note or indenture to which the
Company is a party or by which any of them is bound or any of their respective
properties or assets is affected, or (iv) result in the imposition of any Lien
of any nature whatsoever upon any of the properties or assets owned by or used
in connection with the business of the Company, except for the Liens created and
granted pursuant to the Security Documents.
(d) This Amendment and each of the other agreements, instruments and
documents executed in connection with this Amendment to which the Company is a
party
4
<PAGE>
has been duly executed and delivered by the Company and constitutes the valid
and legally binding obligation of the Company, enforceable in accordance with
its terms, except as such enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, or other similar laws, now or hereafter
in effect, relating to or affecting the enforcement of creditors' rights
generally and except that the remedy of specific performance and other equitable
remedies are subject to judicial discretion; provided, however, that such laws
shall not materially interfere with the practical realization of the benefits of
the Security Documents or the Liens created thereby, except for: (i) possible
delay, (ii) situations which may arise under Chapter II of the U.S. Bankruptcy
Code, II U.S.C. ss.ss. 10 1 et seq., and (iii) equitable orders of any United
States Bankruptcy Court.
Section 6. Fees. The Company shall pay an Administrative Fee to Fleet
in the amount of $6,375 and to Citicorp in the amount of $6,125, (each such fee
representing .125% of such Bank's pro rata share of the increase to the total
Commitment). Each such fee shall be paid directly to the Bank that is to receive
such fee.
Section 7. Miscellaneous.
(a) Except as specifically amended by this Amendment, the Loan
Agreement and each of the other agreements, instruments and documents executed
in connection with the Loan Agreement shall remain in full force and effect in
accordance with their respective terms.
(b) THIS AMENDMENT AND ALL OTHER AGREEMENTS, DOCUMENTS AND INSTRUMENTS
EXECUTED AND DELIVERED IN CONNECTION WITH THIS AMENDMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS EXECUTED IN AND TO BE PERFORMED ENTIRELY WITHIN THE STATE OF NEW YORK
BY RESIDENTS OF SUCH STATE.
(c) The provisions of this Amendment are severable, and if any clause
or provision shall be held invalid or unenforceable in whole or in part in any
jurisdiction, then such invalidity or unenforceability shall affect only such
clause, provision or part in such jurisdiction and shall not in any manner
affect such clause, provision or part in any other jurisdiction or any other
clause or provision in this Amendment in any jurisdiction.
(d) This Amendment may be signed in any number of counterparts with the
same effect as if all parties to this Amendment signed the same counterpart.
(e) This Amendment shall be binding upon and inure to the benefit of
the Company and its respective successors and to the benefit of the Agent and/or
the Banks and their respective successors and assigns. The rights and
obligations of the Company under this Amendment shall not be assigned or
delegated without the prior written
5
<PAGE>
consent of the Banks, and any purported assignment or delegation without such
consent shall be void.
(f) The Company agrees to pay the Agent upon demand all reasonable
expenses, including reasonable fees of attorneys and paralegals for the Agent
(who may be employees of the Agent), incurred by the Agent in connection with
the preparation, negotiation and execution of this Amendment and any agreements,
instruments and documents executed or furnished in connection with this
Amendment.
Section 8. Effectiveness of Amendment. This Amendment shall become
effective (the "Effective Date") upon the later of (i) receipt by the Agent of
this Amendment duly executed by each party hereto and (ii) receipt by the Agent
and each Bank of such evidence of proper corporate organization, existence,
authority and appropriate corporate proceedings with respect to Company and the
matters addressed by this Amendment and the documents, instruments and
agreements executed pursuant hereto or in connection herewith, and such other
certificates, instruments, and documents as the Agent or any Bank shall
reasonably request.
[signature pages follow]
6
<PAGE>
IN WITNESS WHEREOF, the Company, the Banks and the Agent have signed
and delivered this Amendment No. 1 as of the date fast written above.
EMPIRE RESOURCES, INC.,
as Borrower
By /s/ Sandra Kahn
---------------------------
Name: Sandra Kahn
Title: Vice President & C.F.O.
7
<PAGE>
Commitment FLEET BANK, as Agent and a Bank
- ----------
$22,950,000
By: /s/ Lori Moylan
----------------------------
Name: Lori Moylan
Title: Vice President
8
<PAGE>
Commitment CITICORP USA, INC., as a Bank
- ----------
$22,050,000
By /s/ William Demick
----------------------------
Name: William Demick
Title: Vice President
<PAGE>
AMENDMENT NO. 2
to
LOAN AGREEMENT
This AMENDMENT NO. 2 dated as of March 13, 2000 (this "Amendment"), is
between Empire Resources, Inc. (the "Company"), a Delaware corporation and the
surviving company of the merger of Empire Resources, Inc. with and into
Integrated Technology USA, Inc., Fleet Bank N.A. ("Fleet"), Citicorp USA, Inc.
("Citicorp;" Fleet and Citicorp are collectively referred to herein as the
"Banks"), and Fleet as agent for the Banks (in such capacity, the "Agent").
RECITALS:
A. The Company, the Banks and the Agent have entered into a Credit
Agreement, dated as of May 20, 1999, as amended by Amendment No. 1 thereto dated
December 23, 1999 (as so amended, the "Loan Agreement").
B. Effective September 17, 1999 Empire resources, Inc. ("Old Empire")
was merged with and into Integrated Technology USA, Inc., a Delaware corporation
("Integrated") and Integrated changed its name to Empire Resources, Inc.
C. The Company, the Agent and the Banks entered into an Assumption
Agreement dated as of October 14, 1999 pursuant to which the Company, among
other things, assumed all of Old Empire's obligations under the Loan Agreement.
D. The Company desires to increase the Commitment (as defined in the
Loan Agreement referred to below) to the extent hereinbelow provided and the
Agent and the Banks are agreeable to same.
E. The Company and the Banks desire to amend certain other provisions
of the Loan Agreement as hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration whose receipt and sufficiency are acknowledged, the
Company, the Banks and the Agent agree as follows:
Section 1. Definitions. Each capitalized term used but not defined in
this Amendment shall have the meaning ascribed to such term in the
Loan Agreement.
Section 2. Amendments of Loan Agreement.
<PAGE>
(a) A new definition for "Amendment No. 2" shall be added to Section
1.01 of the Loan Agreement in its correct alphabetical order to read in its
entirety as follows:
"Amendment No. 2" shall mean that certain Amendment No. 2 to
this Agreement dated as of March 13, 2000 among the parties thereto.
(b) The definition for "Commitment" contained in Section 1.01 of the
Loan Agreement is amended to read in its entirety as follows:
"Commitment" shall mean the obligation of the Banks to make
Loans, and to buy participations in Letters of Credit and Acceptances
issued or created by the Issuing Bank or the Accepting Bank, as the
case may be and the obligation of the Issuing Bank to issue Letters of
Credit and of the Accepting Bank to create Acceptances in an aggregate
amount equal to (i) $50,000,000 during the Temporary Increase Period
and (ii) $45,000,000 at all other times, as the same may be reduced
from time to time pursuant to Section 2.05 hereof. As to each Bank, the
obligation of such Bank to make Loans, and to buy participations in
Letters of Credit and Acceptances issued or created by the Issuing Bank
or the Accepting Bank, as the case may be, under the Commitment shall
be in an aggregate principal or face amount at any one time outstanding
up to but not exceeding, the amount set opposite such Bank's name on
the signature pages to Amendment No. 2 under the caption "Commitment"
(as the same may be reduced from time to time pursuant to Section 2.05
hereof); provided, that, the Commitment shall be further subject to the
sublimit limitations set forth in this Agreement and with respect to
each such sublimit each Bank's individual Commitment shall be equal to
the product of (x) the amount of such sublimit, multiplied by (y) such
Bank's Commitment Percentage.
(c) A new definition for "Temporary Increase Period" shall be added to
Section 1.01 of the Loan Agreement in its correct alphabetical order to read in
its entirety as follows:
"Temporary Increase Period" shall mean the period beginning
with the Effective Date of Amendment No. 2 and ending June 30, 2000.
(d) The definition for "Tier I Commitment" contained in Section 1.01 of
the Loan Agreement is amended to read in its entirety as follows:
"Tier I Commitment" shall mean the obligation of the Banks to
make Tier I Loans, and to buy participations in Letters of Credit and
Acceptances issued or created by the Issuing Bank or the Accepting
Bank, as the case may be and the obligation of the Issuing Bank to
issue Letters of Credit and of the Accepting Bank to create Acceptances
in an aggregate amount equal to (i) $50,000,000 during the Temporary
Increase Period and (ii) $45,000,000 at all other times, as such amount
may be reduced from time to time pursuant to Section 2.05 hereof, and
which may be used by the Company in the form of Loans up to and not
exceeding the sum of (i) $35,000,000 during the Temporary Increase
Period and (ii) $30,000,000 at all other times, the total amount of
which may be used by the Company for trade Letters of Credit and
Acceptances and $2,000,000 of which may be used by the Company for
standby Letters of Credit, all as more fully set forth in this
Agreement and subject to the Borrowing Base limitations of this
Agreement.
(e) The definition for "Tier I Credits" contained in Section 1.01 of
the Loan Agreement is amended to read in its entirety as follows:
2
<PAGE>
"Tier I Credits" shall mean each of the following
independently: (i) all Credits, at any time, in an aggregate
outstanding amount up to and including (x) during the Temporary
Increase Period, the first $50,000,000 of outstanding Credits and (y)
at all other times, the first $45,000,000 of outstanding Credits and
(ii) all Tier I Loans.
(f) Section 2.01(b) of the Loan Agreement is amended to read in its
entirety as follows:
(b) From and including September 30, 1999 and all times
thereafter until the Revolving Credit Commitment Termination Date, in
no event shall (i) the aggregate principal amount of all Loans exceed
(x) $35,000,000 during the Temporary Increase Period and (y)
$30,000,000 at all other times, (ii) the aggregate amount of all Letter
of Credit Liabilities, together with the aggregate principal amount of
all Loans and the aggregate amount of Acceptance Liabilities exceed the
amount of the Tier I Commitment or the Commitment, each as then in
effect from time to time or (iii) there be any Tier II Credits
outstanding.
(g) The introductory paragraph of Section 2.03 of the Loan Agreement is
amended to read in its entirety as follows:
2.03 Letters of Credit. Subject to the terms and conditions of
this Agreement, the Commitments may be utilized, upon the request of
the Company, in addition to the Loans provided for by Section 2.01
hereof, by the issuance by the Issuing Bank of letters of credit and
the Letter of Indemnity (such letters of credit and the Letter of
Indemnity are collectively referred to herein as, "Letters of Credit")
for account of the Company, provided that in no event shall (i) the
aggregate amount of all Letter of Credit Liabilities, together with the
aggregate principal amount of the Loans and the aggregate amount of
Acceptance Liabilities exceed the aggregate amount of the Commitments
as in effect from time to time, (ii) the outstanding aggregate amount
of all Letter of Credit Liabilities arising out of performance or
standby Letters of Credit exceed $2,000,000, (iii) the aggregate amount
of all Letter of Credit Liabilities arising out of commercial
(documentary) Letters of Credit (whether issued by Fleet or arising out
of the Letter of Indemnity) exceed (x) $50,000,000 during the Temporary
Increase Period and (y) $45,000,000 at all other times, (iv) the
expiration date of any standby Letter of Credit extend beyond the
Revolving Credit Commitment Termination Date and/or (v) commercial
Letters of Credit in an aggregate face amount of more than $45,000,000
(reduced dollar-for-dollar by the aggregate amount of outstanding other
Tier I Credits) have an expiration date later than the last day of the
Temporary Increase Period or the expiration date of any sight or time
commercial Letter of Credit extend beyond the earlier to occur of the
date 180 days following the issuance of such Letters of Credit and the
date 180 days following the Revolving Credit Commitment Termination
Date. The following additional provisions shall apply to Letters of
Credit:
(h) A new Section 2.11(d) shall be added to the Loan Agreement to read
in its entirety as follows:
(d) Prepayment After Termination of Temporary Increase Period.
On the last day of the Temporary Increase Period, to the extent that
(i) the aggregate amount of outstanding Tier I Loans exceeds
$30,000,000 on such date, within three days of such last day of such
Temporary Increase Period the Company shall prepay the Loans in such
amounts as shall be necessary so that the aggregate outstanding amount
of Loans shall not exceed $30,000,000, or (ii) the aggregate amount of
outstanding Tier I Loans does not exceed $30,000,000 on such date
(after giving effect to any prepayment required pursuant to Section
2.11(d)), but the aggregate amount of outstanding Tier I Credits
exceeds the Tier I Commitment as reduced on such date, then, in such
3
<PAGE>
event, within three days of such last day of such Temporary Increase
Period the Company shall deposit cash collateral with the Agent in an
amount not less than such excess and in connection therewith execute
all documents reasonably requested by the Agent to grant the Agent, for
the ratable benefit of the Banks, a first priority perfected security
interest in such cash collateral.
(i) Section 8.09 of the Loan Agreement is amended to read in its
entirety as follows:
8.09 Leverage Ratio; Balance Sheet Leverage Ratio. The Company
will not permit (i) the Leverage Ratio to exceed (x) 6.0 to 1.0 as at
March 31, 2000, or (y) 5.5 to 1.0 as at any time other than with
respect to the fiscal quarter ending March 31, 2000, or (ii) the
Balance Sheet Leverage Ratio to exceed 4.5 to 1 at any time.
Section 3. Conforming Amendments. The Loan Agreement and all
agreements, instruments and documents executed and delivered pursuant to or in
connection with the Loan Agreement (collectively the "Loan Documents") , shall
each be deemed to be amended and supplemented hereby to the extent necessary, if
any, to give effect to the provisions of this Amendment, and each Bank is
authorized to annex a copy of this Amendment to its respective Note. Except as
so amended hereby, the Loan Agreement and the other Loan Documents shall remain
in full force and effect in accordance with their respective terms.
Section 4. Acknowledgments, Confirmations and Consent.
The Company acknowledges and confirmsthat the Liens granted pursuant to
the Security Documents to which it is a party secure the indebtedness,
liabilities and obligations of the Company to the Banks, the Issuing Bank and/or
the Agent under the Notes and under the Loan Agreement as further amended by
this Amendment, whether or not so stated in such Security Documents, and that
the term "Borrower Obligations" as used in the Security Documents (or any other
terms used in any of the Loan Documents to describe or refer to the
indebtedness, liabilities and obligations of the Company to the Banks, the
Issuing Bank and/or the Agent) includes all other indebtedness, liabilities and
obligations of the Company under the Loan Agreement as amended by this Amendment
and under the Notes.
Section 5. Representations and Warranties. The Company represents and
warrants to the Banks and the Agent as follows:
(a) After giving effect to this Amendment (i) each of the
representations and warranties set forth in Section 7 of the Loan Agreement is
true and correct in all respects as if made on the date of this Amendment,
except for changes in the ordinary course of business which, either singly or in
the aggregate, are not materially adverse to the business or financial condition
of the Company, and (ii) no Default or Event of Default exists under the Loan
Agreement.
4
<PAGE>
(b) The Company has the power to execute, deliver and perform, and has
taken all necessary corporate action to authorize the execution, delivery and
performance of, this Amendment and the other agreements, instruments and
documents to be executed by it in connection with this Amendment. No consent or
approval of any Person, no consent or approval of any landlord or mortgagee, no
waiver of any Lien or right of distraint or other similar right and no consent,
license, certificate of need, approval, authorization or declaration of, or
filing with, any governmental authority, bureau or agency is or will be required
in connection with the execution, delivery or performance by the Company, or the
validity, enforcement or priority, of this Amendment and the other agreements,
instruments and documents executed in connection with this Amendment.
(c) The execution, delivery and performance by the Company of this
Amendment and each of the agreements, instruments and documents executed in
connection with this Amendment to which it is a party will not (i) violate any
provision of law, (ii) conflict with or result in a breach of any order, writ,
injunction, ordinance, resolution, decree or other similar document or
instrument of any court or governmental authority, bureau or agency, domestic or
foreign, or the certificate of incorporation or by-laws of the Company, (iii)
create (with or without the giving of notice or lapse of time, or both) a
default under or breach of any agreement, bond, note or indenture to which the
Company is a party or by which any of them is bound or any of their respective
properties or assets is affected, or (iv) result in the imposition of any Lien
of any nature whatsoever upon any of the properties or assets owned by or used
in connection with the business of the Company, except for the Liens created and
granted pursuant to the Security Documents.
(d) This Amendment and each of the other agreements, instruments and
documents executed in connection with this Amendment to which the Company is a
party has been duly executed and delivered by the Company and constitutes the
valid and legally binding obligation of the Company, enforceable in accordance
with its terms, except as such enforcement may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, or other similar laws, now
or hereafter in effect, relating to or affecting the enforcement of creditors'
rights generally and except that the remedy of specific performance and other
equitable remedies are subject to judicial discretion; provided, however, that
such laws shall not materially interfere with the practical realization of the
benefits of the Security Documents or the Liens created thereby, except for: (i)
possible delay, (ii) situations which may arise under Chapter II of the U.S.
Bankruptcy Code, II U.S.C. ss.ss. 10 1 et seq., and (iii) equitable orders of
any United States Bankruptcy Court.
Section 6. Fees. The Company shall pay an Administrative Fee to Fleet
in the amount of $3187.50 and to Citicorp in the amount of $3062.50, (each such
fee representing .125% of such Bank's pro rata share of the increase to the
total Commitment). Each such fee shall be paid directly to the Bank that is to
receive such fee.
5
<PAGE>
Section 7. Notes. The Borrower shall execute and deliver concurrently
herewith a promissory note which shall be in replacement of and substitution for
its existing promissory notes payable to the Banks. Such new promissory note
shall be in the form of Exhibit A annexed hereto and be deemed the Notes for all
purposes of the Loan Agreement and documents relating thereto.
Section 8. Miscellaneous.
(a) Except as specifically amended by this Amendment, the Loan
Agreement and each of the other agreements, instruments and documents executed
in connection with the Loan Agreement shall remain in full force and effect in
accordance with their respective terms.
(b) THIS AMENDMENT AND ALL OTHER AGREEMENTS, DOCUMENTS AND INSTRUMENTS
EXECUTED AND DELIVERED IN CONNECTION WITH THIS AMENDMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS EXECUTED IN AND TO BE PERFORMED ENTIRELY WITHIN THE STATE OF NEW YORK
BY RESIDENTS OF SUCH STATE.
(c) The provisions of this Amendment are severable, and if any clause
or provision shall be held invalid or unenforceable in whole or in part in any
jurisdiction, then such invalidity or unenforceability shall affect only such
clause, provision or part in such jurisdiction and shall not in any manner
affect such clause, provision or part in any other jurisdiction or any other
clause or provision in this Amendment in any jurisdiction.
(d) This Amendment may be signed in any number of counterparts with the
same effect as if all parties to this Amendment signed the same counterpart.
(e) This Amendment shall be binding upon and inure to the benefit of
the Company and its respective successors and to the benefit of the Agent and/or
the Banks and their respective successors and assigns. The rights and
obligations of the Company under this Amendment shall not be assigned or
delegated without the prior written consent of the Banks, and any purported
assignment or delegation without such consent shall be void.
(f) The Company agrees to pay the Agent upon demand all reasonable
expenses, including reasonable fees of attorneys and paralegals for the Agent
(who may be employees of the Agent), incurred by the Agent in connection with
the preparation, negotiation and execution of this Amendment and any agreements,
instruments and documents executed or furnished in connection with this
Amendment.
Section 9. Effectiveness of Amendment. This Amendment shall become
effective (the "Effective Date") upon the later of (i) receipt by the Agent of
this
6
<PAGE>
Amendment duly executed by each party hereto and (ii) receipt by the Agent
and each Bank of such evidence of proper corporate organization, existence,
authority and appropriate corporate proceedings with respect to Company and the
matters addressed by this Amendment and the documents, instruments and
agreements executed pursuant hereto or in connection herewith, and such other
certificates, instruments, and documents as the Agent or any Bank shall
reasonably request.
[signature pages follow]
7
<PAGE>
IN WITNESS WHEREOF, the Company, the Banks and the Agent have
signed and delivered this Amendment No. 2 as of the date fast written above.
EMPIRE RESOURCES, INC.,
as Borrower
By: /s/ Sandra Kahn
-----------------------
Name: Sandra Kahn
Title: Vice President & C.F.O.
8
<PAGE>
Commitment FLEET BANK, as Agent and a Bank
- ----------
$25,500,000
By: /s/ Stephen G. O'Keefe
-----------------------
Name: Stephen G. O'Keefe
Title: Vice President
9
<PAGE>
Commitment CITICORP USA, INC., as a Bank
- ----------
$24,500,000
By: /s/ William Demick
-----------------------
Name: William Demick
Title: Vice President
<PAGE>
THIRD MODIFICATION AND EXTENSION OF LEASE DATED AS OF THE 17th DAY OF FEBRUARY,
2000 TO THE LEASE BETWEEN 400 KELBY ASSOCIATES, AS LANDLORD AND EMPIRE
RESOURCES, INC., AS TENANT FOR LEASE OF PREMISES LOCATED ON THE TENTH (10TH)
FLOOR IN THE BUILDING AT 400 KELBY STREET, FORT LEE, NEW JERSEY
WHEREAS, the parties hereto executed a Lease dated March 30, 1993,
between 400 Kelby Associates, a New Jersey limited partnership with offices at
104-70 Queens Boulevard, Forest Hills, New York as Landlord and Empire
Resources, Inc., as Tenant, for premises on the tenth (10th) floor, Suite B, at
One Parker Plaza, Fort Lee, New Jersey, (hereinafter the "Lease");
WHEREAS, the parties hereto executed a Supplementary Agreement on or
about August 6, 1993 setting a Commencement Date of the Lease term of August 1,
1993 and an Expiration Date of July 31, 1998;
WHEREAS, the parties hereto executed a First Modification of Lease on or
about June 29, 1993 whereby the parties modified the provisions of the Original
Lease relating to the parking spaces to be made available to Tenant pursuant to
the Original Lease, (the "First Modification");
WHEREAS, the parties hereto executed a Second Modification and Extension
of Lease on or about May 1, 1995 whereby the parties modified the provisions of
the Lease to add additional space known as Suite C, on the tenth (10th) floor,
of the Building to the Demised Premises, and to the extend the term of the
Lease, (the "Second Modification");
WHEREAS, the parties hereto executed a Supplementary Agreement on or
about August 1, 1995 setting an Expansion Commencement Date of August 1, 1995
and an Expiration Date of March 31, 2000;
AND WHEREAS, the parties hereto desire to modify the Lease as modified
by the First Modification and Second Modification to among other things, extend
the term of the Lease;
NOW, THEREFORE, in consideration of the premises and the mutual terms,
covenants and conditions contained in the Lease, Landlord and Tenant hereby
agree as follows:
1. All capitalized terms herein shall have the same meanings as
contained in the Lease.
2. Except as amended herein, the terms of the Lease shall remain in
full force and effect.
3. In the event of any inconsistencies between the terms of this Third
Modification and Extension of Lease (the "Third Modification") and the Lease,
the First Modification or the Second Modification, then the terms of this Third
Modification shall govern.
<PAGE>
4. Article 1 shall be amended to reflect the following changes:
(a) Section 1.03(a) shall be amended so that the term of the Lease
shall be extended and the Expiration Date as defined in Section 1.03(a) shall be
amended to reflect an Expiration Date of March 31, 2005;
(b) Section 1.03(b) shall be deleted in its entirety; and
(c) Section 1.04(a) shall be amended so that effective as of
April 1, 2000 the fixed rent shall be $215,881.00 per annum ($17,990.08 per
month) through the Expiration Date.
5. Section 3.01 and Section 3.02 shall be deleted in their entirety and
replaced with the following language:
3.01 Neither Landlord or Landlord's agents have made any
representations or promises with respect to the physical condition of the
Building, the Demised Premises, or the Land except as expressly set forth
herein. Tenant has inspected the Building and the Demised Premises and is
thoroughly acquainted with their condition and agrees to take the same "as is"
and acknowledges that the taking of possession of the Demised Premises by Tenant
shall be conclusive evidence that the said Demised Premises and the Building
were in good and satisfactory condition at the time such possession was so
taken, except as to latent defects. Notwithstanding the foregoing, Landlord
agrees to perform and provide, at Landlord's sole cost and expense, the
following work in and to the Demised Premises: paint; install new building
standard carpet; repair or replace, as needed, existing cabinets in kitchen and
add ten (10) lineal feet of cabinetry; supply and install full size
refrigerator, sink, dishwasher, microwave oven and an additional light fixture
over the file cabinet; and install supplemental air conditioning equipment to
service three (3) adjacent offices.
6. Article 4 shall only apply for purposes of Article 39.
7. Article 5 shall be amended to reflect the following changes:
(a) Tenant's Base Tax Year as defined in Section 5.01(b) shall mean
the Tax Year commencing January 1, 2000 and ending December 31, 2000;
(b) Tenant's Base Operating Expenses as defined in Section
5.07(c) shall mean the Operating Expenses for the calendar year 2000;
(c) Section 5.07(g) shall be deleted and replaced with the
following language:
(g) "Tenant's Initial Projected Share of Operating Expense
Increase" shall mean one-twelfth (1/12th) of the product of (i) Tenant's
Operational Proportionate Share multiplied by (ii) the projected increase in
Operating Expenses for the
2
<PAGE>
calendar year 2001, as reasonably estimated by Landlord, above the Initial
Operating Expenses;
(d) As of April 1, 2000 all references to "Commencement Date" in
Section 5.07 only shall mean April 1, 2000; and
(e) Section 5.12 shall be deleted in its entirety.
8. Article 6 shall be amended as follows:
(a) The security deposit in Section 6.01 shall be amended to
reflect security of $17,990.08; and
(b) Section 6.02 shall be deleted in its entirety.
9. Article 7 shall be amended as follows:
(a) Section 7.01 shall be amended to include the following
language:
Tenant acknowledges that the current lender is the Metropolitan
Life Insurance Company with an address of 200 Park Avenue, 12th Floor, New York,
New York 10166, Attention: Senior Vice President Real Estate Investments and
Attention: Assistant Vice President Loan Administrator ("MetLife") and agrees
that this shall constitute written notice of such holder of a superior mortgage
as referred to in Section 7.02.
(b) The following Sections 7.03(d) and (e) shall be included and
made a part of the Lease:
(d) be bound by any obligation to perform any work for, or make
any payment to, Tenant which was required to be performed or made prior to the
time such successor landlord succeeded to any prior Landlord's interest; and
(e) be accountable for any monies deposited with any prior Landlord
(including security deposits), except to the extent such monies are actually
received by such successor landlord.
10. The following Section 18.07 (a), (b), (c) and (d) shall be included
and made a part of the Lease:
18.07 (a) Tenant shall require its personnel to park their
vehicles only in the parking spaces designated by Landlord. Tenant, its
personnel and visitors shall not at any time park any trucks or delivery
vehicles in any of the parking areas.
(b) All parking spaces, roadways and driveways used by
Tenant, its
3
<PAGE>
personnel and visitors will be at their own risk, and Landlord shall
not be liable for any injury to person or property, or for loss or damage to any
vehicle or its contents, resulting from theft, collision, vandalism or any other
cause whatsoever. Landlord shall have no obligation whatsoever to provide a
guard or any other personnel or device to patrol, monitor, guard or secure any
parking areas. Notwithstanding the foregoing, Landlord currently provides locked
gates after business hours and on weekends in the parking area and video
monitoring of the parking area. If Landlord does so provide, it shall be solely
for Landlord's convenience and Landlord shall in no way whatsoever be liable for
any acts or omissions of personnel or device in failing to prevent any such
theft, vandalism, or loss or damage by other cause.
(c) No storage or overnight parking of vehicles shall be
permitted unless previously approved by Landlord in writing, and except in those
areas, if any, designated by Landlord.
(d) Landlord reserves the right from time to time to: (i)
change the area, location and arrangement of parking areas, and parking spaces;
(ii) restrict parking by tenants, their officers, agents, employees, customers
and invitees to designated areas; (iii) discontinue, restrict or temporarily
suspend use of all, or any portion of, the parking areas for such period of time
as may be necessary in Landlord's sole discretion, to perform maintenance or
repairs; (iv) limit the parking of vans, limousines and other large vehicles to
specified areas; (v) exclude any and all vehicles other than as permitted in
Section 18.07(c); and (vi) institute control mechanisms and systems in order to
regulate the use of the common parking area.
11. Section 16.03(ii)(a) shall be amended to reflect a rent reduction
of $10,977.00 should Landlord exercise its option to discontinue providing
electrical service to the Tenant.
12. Article 31 shall be amended as follows with respect to this Third
Modification to Lease solely:
ARTICLE 31
Broker
31.01 Tenant covenants, warrants and represents that there was no
broker or finder except C.B. Richard Ellis, Inc. and Cushman & Wakefield of New
Jersey, Inc. in consummating this Third Modification to Lease and that no
conversations or negotiations were had with any broker or finder except C.B.
Richard Ellis, Inc. and Cushman & Wakefield of New Jersey, Inc. concerning the
Demised Premises. Tenant agrees to hold Landlord harmless against any claims for
a brokerage, finder or other commission or fee arising out of any claim by any
broker or finder except C.B. Richard Ellis, Inc. and Cushman & Wakefield of New
Jersey, Inc. Landlord agrees to hold Tenant harmless against any claims for a
brokerage, finder or other commission or fee arising out of any claim by C.B.
Richard Ellis, Inc. and Cushman & Wakefield of New Jersey, Inc.
13. Article 39 shall be amended effective April 1, 2000 as follows:
(a) Section 39.01(b) shall be deleted in its entirety and
replaced with the following language:
4
<PAGE>
The Relocation Notice shall include a floor plan of the space which
Tenant shall lease from Landlord in substitution of the Demised
Premises (hereinafter referred to as the "Relocated Space"), and
shall set forth the rentable square foot area thereof (hereinafter
referred to as the "New Area") which shall not be less than 7,300
rentable square feet nor more than 7,700 rentable square feet.
(b) Section 39.01(c)(ii) shall be amended to replace $22.50 with
$29.50;
(c) Section 39.01(c)(iv) shall be amended to replace $1.25 with
$1.50.
14. Exhibit A and Exhibit D as annexed to the Second Modification shall
each be deleted in their entirety.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands
and seals on the date and year first written above.
400 KELBY ASSOCIATES
By: Lynwood Construction Co., Inc., general partner
By: /s/ Jean-Pierre Vaganay
---------------------------------------
Jean-Pierre Vaganay, Vice President
EMPIRE RESOURCES, INC.
By: /s/ Nathan Kahn
---------------------------------------
Name: Nathan Kahn
Title: President
5
<PAGE>
EXHIBIT 11.1 Statement re computation of per share earnings
Pro forma earnings per share - basic, are based upon the Company's weighted
average number of common shares outstanding. The shares issued to the former
Empire stockholders in the merger, excluding the 3,824,511 contingent shares
which were placed in escrow, were considered outstanding for all periods
presented. The shares of the former Integrated shareholders were considered
outstanding only from the September 17, 1999 merger date.
1999 1998
Pro forma net income $1,308,676 $1,571,912
========== ==========
Weighted average shares outstanding - basic 7,327,663 5,560,250
Shares issuable upon exercise of dilutive 28,522 ----
options
Less: shares assumed repurchased (206) ----
----- ----
Weighted average shares outstanding - diluted 7,356,186 5,560,250
========= =========
Pro forma earnings per share -- basic $0.18 $0.28
Pro forma earnings per share - diluted $0.18 $0.28
<PAGE>
EXHIBIT 21.1 List of Subsidiaries
Name of Subsidiary Jurisdiction
Empire Resources Pacific Ltd. Delaware
I.T.I. Innovative Technology, Ltd. Israel
CompuPrint Ltd. Israel
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements and is qualified in its entirety by reference
to such consolidated financial statements and notes.
</LEGEND>
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 199,791
<SECURITIES> 0
<RECEIVABLES> 26,081,512
<ALLOWANCES> 125,788
<INVENTORY> 19,362,208
<CURRENT-ASSETS> 46,286,685
<PP&E> 308,783
<DEPRECIATION> 239,738
<TOTAL-ASSETS> 46,397,823
<CURRENT-LIABILITIES> 36,222,092
<BONDS> 0
0
0
<COMMON> 155,809
<OTHER-SE> 10,019,922
<TOTAL-LIABILITY-AND-EQUITY> 46,397,823
<SALES> 107,112,064
<TOTAL-REVENUES> 107,112,064
<CGS> 98,925,131
<TOTAL-COSTS> 98,925,131
<OTHER-EXPENSES> 3,913,597
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,162,568
<INCOME-PRETAX> 2,110,768
<INCOME-TAX> 154,553
<INCOME-CONTINUING> 1,956,215
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,956,215
<EPS-BASIC> 0.18
<EPS-DILUTED> 0.18
</TABLE>
