AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 14, 1997
REGISTRATION NO. 333-35575
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
POST EFFECTIVE AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
METALS USA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
DELAWARE 5051
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER)
76-0533626
(I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
ARTHUR L. FRENCH
CHIEF EXECUTIVE OFFICER
THREE RIVERWAY
SUITE 600
HOUSTON, TEXAS 77056
(713) 965-0990
(NAME AND ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES AND AGENT FOR SERVICE)
------------------
COPIES TO:
WILLIAM D. GUTERMUTH JOHN A. HAGEMAN
BRACEWELL & PATTERSON, L.L.P. METALS USA, INC.
SOUTH TOWER PENNZOIL PLACE THREE RIVERWAY
711 LOUISIANA STREET, SUITE 2900 SUITE 600
HOUSTON, TEXAS 77002-2781 HOUSTON, TEXAS 77056
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after this post-effective amendment to the Registration Statement
becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
10,000,000 SHARES
[LOGO]
METALS USA
COMMON STOCK
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
This Prospectus covers 10,000,000 shares of common stock, $.01 par value
(the "Common Stock"), which may be offered and issued by Metals USA, Inc. (the
"Company" or "Metals") from time to time in connection with merger or
acquisition transactions entered into by the Company. On September 26, 1997, the
Company issued 1,292,363 shares of Common Stock covered by this registration
statement, accordingly, 8,707,637 shares of Common Stock remain available
pursuant to this registration statement. The shares covered by this registration
statement may also be issued in connection with the conversion of securities
issued in connection with such transactions which by their terms are convertible
into Common Stock. It is expected that the terms of acquisitions involving the
issuance of securities covered by this Prospectus will be determined by direct
negotiations with the owners or controlling persons of the businesses or assets
to be merged with or acquired by the Company, and that the shares of Common
Stock issued will be valued at prices reasonably related to the market prices of
Common Stock either at the time the terms of a merger or acquisition are agreed
upon or at or about the time shares are delivered. No underwriting discounts or
commissions will be paid, although finder's fees may be paid from time to time
with respect to specific mergers or acquisitions. Any person receiving any such
fees may be deemed to be an underwriter within the meaning of the Securities Act
of 1933, as amended (the "Securities Act").
The Company currently has 26,982,969 shares of its Common Stock listed on
The New York Stock Exchange, of which 8,077,363 are registered and available for
unrestricted trading in the public markets unless owned by affiliates of the
Company. Application will be made to list the shares of Common Stock offered
hereby on The New York Stock Exchange. On November 13, 1997, the closing price
of the Common Stock on The New York Stock Exchange was $14.50 per share as
published in THE WALL STREET JOURNAL on November 14, 1997. The Company is
subject to the informational requirements of the Exchange Act of 1934 and in
accordance therewith files reports and other information with the Securities and
Exchange Commission.
All expenses of this offering will be paid by the Company. The executive
offices of the Company are located at Three Riverway, Suite 600, Houston, Texas
77056, and its telephone number is (713) 965-0990.
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN RISK
FACTORS THAT SHOULD BE CONSIDERED BEFORE ACQUIRING THE COMMON STOCK OFFERED
HEREBY.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
THE COMPANY INTENDS TO FURNISH ITS STOCKHOLDERS WITH ANNUAL REPORTS
CONTAINING FINANCIAL STATEMENTS AUDITED BY INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS AND WITH QUARTERLY REPORTS CONTAINING UNAUDITED SUMMARY FINANCIAL
INFORMATION FOR EACH OF THE FIRST THREE QUARTERS OF EACH FISCAL YEAR.
------------------
THE DATE OF THIS PROSPECTUS IS NOVEMBER 14, 1997
<PAGE>
[This page intentionally left blank]
2
<PAGE>
PROSPECTUS SUMMARY
IN CONNECTION WITH ITS INITIAL PUBLIC OFFERING ON JULY 11, 1997, METALS USA
ACQUIRED, IN SEPARATE MERGER TRANSACTIONS (THE "MERGERS") IN EXCHANGE FOR CASH
AND SHARES OF ITS COMMON STOCK, EIGHT COMPANIES (EACH A "FOUNDING COMPANY"
AND, COLLECTIVELY, THE "FOUNDING COMPANIES") ENGAGED IN THE VALUE-ADDED
PROCESSING OF STEEL, ALUMINUM AND SPECIALTY METALS AS WELL AS THE MANUFACTURE OF
METAL COMPONENTS. SINCE THAT DATE METALS USA HAS ACQUIRED OR AGREED TO ACQUIRE
FIVE ADDITIONAL COMPANIES IN SIMILAR BUSINESSES (THE "SUBSEQUENT ACQUISITIONS"
AND COLLECTIVELY WITH THE FOUNDING COMPANIES, THE "ACQUIRED COMPANIES").
UNLESS OTHERWISE INDICATED, ALL REFERENCES TO THE "COMPANY" HEREIN INCLUDE THE
FOUNDING COMPANIES, THE SUBSEQUENT ACQUISITIONS AND OTHER ENTITIES WHOLLY-OWNED
BY METALS USA, AND REFERENCES HEREIN TO "METALS USA" MEAN METALS USA, INC.
PRIOR TO THE CONSUMMATION OF THE MERGERS AND THE SUBSEQUENT ACQUISITIONS.
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ
IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND THE PRO FORMA COMBINED
AND INDIVIDUAL HISTORICAL FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO,
APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL
REFERENCES TO COMMON STOCK INCLUDE BOTH COMMON STOCK, $0.01 PAR VALUE, AND
RESTRICTED VOTING COMMON STOCK, $0.01 PAR VALUE (THE "RESTRICTED COMMON
STOCK"), OF THE COMPANY. NOTRE CAPITAL VENTURES II, L.L.C. ("NOTRE") HOLDS
ALL 3,122,914 SHARES OF THE COMPANY'S RESTRICTED COMMON STOCK. THE HOLDERS OF
RESTRICTED COMMON STOCK ARE ENTITLED TO ELECT ONE MEMBER OF THE COMPANY'S BOARD
OF DIRECTORS AND TO A 0.55 VOTE FOR EACH SHARE HELD ON ALL OTHER MATTERS ON
WHICH THEY ARE ENTITLED TO VOTE. HOLDERS OF RESTRICTED COMMON STOCK ARE NOT
ENTITLED TO VOTE ON THE ELECTION OF ANY OTHER DIRECTORS. EACH SHARE OF
RESTRICTED COMMON STOCK IS CONVERTIBLE INTO ONE SHARE OF COMMON STOCK UNDER
CERTAIN CIRCUMSTANCES. SEE "DESCRIPTION OF COMMON STOCK -- COMMON STOCK AND
RESTRICTED COMMON STOCK."
THE COMPANY
Metals USA was founded in 1996 to become a leading national value-added
metals processor/service center, to manufacture higher-value components from
processed metals and to pursue aggressively the consolidation of the
highly-fragmented metals processing industry. On July 11, 1997, the Company
acquired in separate concurrent transactions eight companies engaged principally
in the value-added metals processing business. These Founding Companies are
Texas Aluminum Industries, Inc. and the Cornerstone Group, headquartered in
Houston, Texas; Interstate Steel Supply Co., headquartered in Philadelphia,
Pennsylvania; Queensboro Steel Corporation, headquartered in Wilmington, North
Carolina; Affiliated Metals Company, headquartered in Granite Falls, Illinois;
Southern Alloy of America, Inc., headquartered in Salisbury, North Carolina;
Uni-Steel, Inc., headquartered in Enid, Oklahoma; Williams Steel & Supply Co.,
Inc., headquartered in Milwaukee, Wisconsin; and Steel Service Systems, Inc.,
headquartered in Horicon, Wisconsin. Since July 11, 1997, the Company has
acquired or agreed to acquire Harvey Titanium, Ltd., headquartered in Santa
Monica, California; Jeffreys Steel Company, Inc., headquartered in Mobile,
Alabama; Wayne Steel, Inc., headquartered in Wooster Ohio; Meier Metal
Servicenters, Inc., headquartered in Hazel Park, Michigan; and the business of
Federal Bronze Products, Inc., headquartered in Newark, New Jersey. The
acquisition of Wayne will be completed once certain approvals from the Federal
Trade Commission and certain other administrative matters are finalized. The
Company believes that the metals processor/service center industry in the United
States is consolidating and currently has as many as 3,500 participants
collectively generating over $75 billion in annual revenues. The Company intends
to play a major role in the consolidation of this industry by combining a
broad-based group of metals processing and manufacturing companies. To be a
leader in the consolidation of the metals processing industry, the Company will
be required to acquire and deploy the capital-intensive equipment and technology
necessary to meet rapidly changing customer requirements.
The Company engages in the preproduction processing of steel, aluminum and
specialty metals and intends to capitalize on trends occurring among both
primary metals producers and end-users of processed metals. In order to remain
competitive, primary metals producers are focusing on their core competencies of
high-volume production of a limited number of standardized metal products, and
are limiting or eliminating their processing services. At the same time, most
end-user customers are increasingly outsourcing their
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metals processing and inventory management requirements to reduce materials
costs, decrease capital required for raw materials inventory and processing
equipment and save time, labor and other expenses. Additionally, end-user
customers are seeking to reduce costs by limiting the number of
processors/service centers with whom they do business, often eliminating those
suppliers offering limited ranges of products and services. The Company intends
to provide just-in-time inventory management with a view to reducing its
customers' overall cost of their manufactured metal products. In addition to its
metals processing capabilities, the Company manufactures higher-value components
from processed metals, such as finished building products, and produces a number
of finished components machined from specialty metals, such as bushings, pump
parts and hydraulic cylinders. The Company intends to continue its focus on the
metal building products industry, the single fastest growing segment of the
metals processing industry.
The Acquired Companies sell to over 20,000 customers in industries such as
the aerospace, furniture, transportation equipment, power and process equipment,
industrial/commercial construction, consumer durables and electrical equipment
industries. The Company believes that its broad customer base and wide array of
metals processing capabilities, products and services, coupled with its
geographic coverage across the United States, reduce the Company's
susceptibility to economic fluctuations affecting any one industry or
geographical area.
To date, the primary acquirors in the metals processor/service center
industry have been a few large metals service center companies that have
acquired businesses on a service center-by-service center basis. Following an
acquisition, these acquirors typically install their operating systems,
procedures and management and eliminate the acquired service center's separate
identity, thereby effectively converting the business into a branch office. The
Company believes that the sale of well-established businesses to these acquirors
is not an attractive alternative for many owners, particularly those who do not
wish to retire from the business. The Company, therefore, believes that
significant acquisition opportunities exist for a well-capitalized, national
value-added metals processor/service center that employs a decentralized
operating strategy and preserves the identity of the acquired businesses. The
Company believes that this operating strategy and the highly-fragmented nature
of the metals industry should allow it to be a leader in the industry's
consolidation.
Key elements of the Company's strategy to achieve its objectives are:
o EXPANDING THROUGH ACQUISITIONS. The Company believes that the metals
processor/service center industry is highly fragmented and consolidating. The
Company intends to pursue aggressively this consolidation through its
acquisition program, the key elements of which are: to enter new geographic
markets, expand within existing geographic markets, and enter complementary
processing and service markets. The Company believes that there are significant
opportunities to expand through acquisition in geographic markets where the
Company does not currently have a strong presence by acquiring companies that
are leaders in their regional markets. The Company also plans to improve its
market share in existing geographic markets by pursuing "tuck-in" acquisitions
as well as acquisitions of companies that expand its range of products and
services.
o OPERATING ON A DECENTRALIZED BASIS. The Company intends to manage the
Acquired Companies and subsequently acquired companies on a decentralized basis,
with local management retaining responsibility for day-to-day operations,
profitability and growth of the business and the flexibility to capitalize on
the considerable regional market knowledge, name recognition and customer
relationships.
o ACCELERATING INTERNAL SALES GROWTH. A key component of the Company's
strategy is to accelerate internal sales growth at each Acquired Company and at
each subsequently acquired business. The key elements of this internal growth
strategy are: to expand products and services to existing customers and to add
new customers. The Company believes that there are significant opportunities to
accelerate internal growth by making capital investments in areas such as
inventory management, logistics systems and processing equipment, thereby
expanding the range of processes and services offered by the Company. The
Company also intends to implement a Company-wide marketing program which will
utilize professional marketing sources and to adopt "best-practices" among
Acquired Companies to demonstrate to the
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<PAGE>
numerous customers not currently served by the Company that they could reduce
their production costs by taking advantage of the Company's processing,
inventory management and other services.
o IMPROVING OPERATING MARGINS. The Company believes that the
combination of the Acquired Companies will provide significant opportunities to
realize purchasing economies and increase the Company's profitability. The key
components of this strategy are: to increase operating efficiencies and to
centralize appropriate admininistrative functions. The Company intends to use
its increased purchasing power to gain volume discounts and to develop more
effective inventory management systems. The Company expects measureable cost
savings in such areas as vehicle leasing and maintenance, information systems
and other purchases. The Company also believes there are significant
opportunities to improve operating margins by consolidating administrative
functions such as financing, insurance and employee benefits.
The Company's executive offices are located at Three Riverway, Suite 600,
Houston, Texas 77056, and its telephone number is (713) 965-0990.
RISK FACTORS
The Common Stock offered hereby involves a high degree of risk. See "Risk
Factors."
RECENT DEVELOPMENTS
During 1996 and 1997, members of the management team and certain
consultants were assembled by Notre to pursue the consolidation of the Founding
Companies. Notre, a consolidator of highly-fragmented industries, provided the
Company with expertise regarding the consolidation process and advanced the
Company the capital needed to pay organizational and Offering expenses.
In connection therewith, during 1996 and the first and second quarters of
1997, Metals USA sold an aggregate of 1,385,500 shares of Common Stock to
management of and consultants to the Company for $0.01 per share. As a result,
the Company has recorded non-recurring, non-cash compensation charges of $3.6
million in 1996 and $2.8 million and $4.7 million in the first and second
quarters of 1997, respectively, representing the difference between the amount
paid for the shares and the estimated fair value of the shares on the date of
sale, as if the Founding Companies were combined. In addition, the second
quarter reflects a reduction in compensation expense of $1.5 million
representing a revision of the estimated fair value of the shares sold to
management and consultants in 1996 and the first quarter of 1997.
On July 11, 1997 the Company consummated the Mergers. In connection
therewith the Company issued to the public, 5,900,000 shares of Common Stock at
a price of $10.00 per share resulting in net proceeds to the Company of $50.4
million after deducting underwriting commissions and discounts. On August 12,
1997, the Company sold 885,000 shares of Common Stock pursuant to the
over-allotment option granted to the underwriters. The Company realized net
proceeds from the sale of $8.2 million. The sale by the Company of the 6,785,000
shares of its Common Stock is hereinafter referred to as the "IPO".
Since July 11, 1997, the Company has completed the acquisition of four
Subsequent Acquisitions and has agreed to make one additional Subsequent
Acquisition. The aggregate consideration paid and to be paid by Metals USA for
the Acquired Companies consists of approximately $69.2 million in cash,
19,650,983 shares of Common Stock, plus the assumption of $133.1 million of
indebtedness of the Acquired Companies. The consideration paid by Metals USA for
each Acquired Company was determined by negotiations between Metals USA and
representatives of each Acquired Company and was based primarily upon the pro
forma adjusted net income of each Acquired Company. For a more detailed
description of certain of these transactions, see "Certain
Transactions -- Organization of the Company."
5
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The following historical and pro forma financial information should be read
in conjunction with the Unaudited Pro Forma Financial Statements and the Notes
thereto and the historical Consolidated Financial Statements of Metals USA and
the Notes thereto included elsewhere in this Prospectus. The historical
financial information for the fiscal years ended 1994 through 1996 and the nine
months ended September 30, 1996 and 1997, reflects the historical financial
statements of Metals USA, restated for the effects of the business combination
with Jeffreys accounted for as a "pooling-of-interests" and the remaining
Acquired Companies from their respective acquisition dates. The results of
operations for interim periods are unaudited and are not necessarily indicative
of the results for the full year.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31,(1) SEPTEMBER 30,
---------------------------------------- --------------------------
1994 1995 1996 1996 1997
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Consolidated:
Net sales.......................... $107,897 $121,537 $134,391 $103,363 $195,328
Cost of sales...................... 81,904 93,421 100,868 77,834 147,632
Operating and delivery............. 10,155 11,426 14,130 10,575 21,321
Selling, general and administrative
expenses......................... 9,020 9,565 14,047 7,966 20,199
Depreciation and amortization...... 1,175 1,703 2,339 1,710 3,075
Operating income................... 5,643 5,422 3,007 5,278 3,101
Interest and other expense, net.... 936 1,369 1,211 894 1,711
Income before income taxes......... 4,707 4,053 1,796 4,384 1,390
Net income (loss).................. 2,925 2,329 (239) 2,706 (1,714)
Net income (loss) per share........ $0.73 $0.58 $(0.04) $0.48 $(0.12)
Shares used in computing net income
(loss) per share................. 4,023,583 4,023,583 6,393,780 5,590,644 14,259,702
PRO FORMA (2):
Net sales.......................... $746,583 $626,474
Cost of sales...................... 568,630 482,300
Operating and delivery(3).......... 73,436 62,234
Selling, general and administrative
expenses(3)...................... 48,389 38,133
Depreciation and amortiza-
tion(4).......................... 10,776 8,372
Operating income................... 45,352 35,435
Interest and other expense,
net(5)........................... 6,974 6,117
Income before income taxes......... 38,378 29,318
Net income(6)...................... 21,844 16,921
Net income per share............... $0.70 $0.54
Shares used in computing net income
per share(7)..................... 31,189,397 31,189,397
YEARS ENDED(1) SEPTEMBER 30, 1997
------------------------------- -------------------------
1994 1995 1996 ACTUAL PRO FORMA(8)
--------- --------- --------- ---------- ------------
BALANCE SHEET DATA:
Working capital.................... 28,473 $ 29,736 $ 27,499 $ 158,576 $179,541
Total assets....................... 44,000 53,345 54,573 409,926 465,282
Long-term debt, net of current
maturities....................... 18,210 23,267 17,037 137,842 153,355
Stockholders' equity............... 18,619 21,542 26,836 190,934 215,495
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
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<PAGE>
(1) As a result of the merger with Metals USA, Jeffreys changed its fiscal year
to December 31 beginning January 1, 1996, to conform to the fiscal periods
of Metals USA and the other Acquired Companies. The historical financial
information of Jeffreys for the years ended July 31, 1994 and 1995 have
been included in the Company's consolidated financial statements for the
years ended December 31, 1994 and 1995.
(2) The pro forma statements of operations data assume that the Mergers, the
Subsequent Acquisitions and the IPO occurred on January 1, 1996 and are not
necessarily indicative of the results the Company would have obtained had
these events actually then occurred or of the Company's future results. The
historical combined net sales for the Acquired Companies for the twelve
months ended December 31, 1996 and the nine months ended September 30, 1997
were $735.3 million and $626.1 million, respectively.
(3) The pro forma statements of operations data reflect (a) in selling, general
and administrative expenses, an aggregate of approximately $8.3 million and
$5.6 million for the twelve months ended December 31, 1996 and the nine
months ended September 30, 1997, respectively, in pro forma reductions in
salary, bonuses and benefits to the owners of the Acquired Companies to
which they have agreed prospectively (the "Compensation Differential"),
(b) in operating and delivery, a $0.4 million and $0.2 million for the
twelve months ended December 31, 1996 and the nine months ended September
30, 1997, respectively, reduction in lease expense pursuant to the
renegotiation of certain leases (the "Rent Differential"), and (c)
selling, general and administrative expenses do not include the
non-recurring portion of the non-cash compensation charge ("Compensation
Charge") of $3.6 million and $6.0 million for the twelve months ended
December 31, 1996 and the nine months ended September 30, 1997,
respectively.
(4) Includes $3.4 million and $1.9 million for the twelve months ended December
31, 1996 and the nine months ended September 30, 1997, respectively, of
amortization on the $122.6 million of goodwill to be recorded as a result
of the Mergers and Subsequent Acquisitions computed on the basis described
in Notes to the Unaudited Pro Forma Combined Financial Statements.
(5) Includes $0.6 million and $0.4 million for the twelve months ended December
31, 1996 and nine months ended September 30, 1997, respectively, in
reductions in interest expense resulting from $9.2 million in outstanding
indebtedness assumed to be repaid with a portion of the IPO proceeds. Also
includes $0.8 million for both periods in reductions in interest expense
due to assumed refinancing of outstanding indebtedness with the Company's
Credit Facility. Interest expense is increased by $1.6 million and $1.2
million for the twelve months ended December 31, 1996 and the nine months
ended September 30, 1997 due to the assumed financing of the cash portion
of the Acquired Companies' purchase price with the Company's Credit
Facility.
(6) Assumes all income is subject to a corporate tax rate of 40%, the
Compensation Charge is non-deductible and goodwill of $81.2 million and
$29.6 million resulting from the Mergers and the Subsequent Acquisitions,
respectively, is nondeductible.
(7) Includes (i) 19,650,983 shares issued to owners of the Acquired Companies,
(ii) 1,385,500 shares issued to the management of and consultants to Metals
USA, (iii) 3,367,914 shares issued to Notre and, (iv) the 6,785,000 shares
sold in the IPO. Excludes the grant of options to purchase 3,227,524 shares
of Common Stock.
(8) The pro forma balance sheet data assumes that the acquisition of Wayne
Steel, Inc. was consummated on September 30, 1997.
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SUMMARY INDIVIDUAL ACQUIRED COMPANY HISTORICAL FINANCIAL DATA
The following table presents summary historical financial data for each of
the individual Acquired Companies for each of their three most recent years and
the nine months ended September 30, 1996 and 1997. Income from operations has
not been adjusted for the anticipated increase in income attributable to the
Compensation Differential or the Rent Differential or to take into account
increased costs associated with the Company's new corporate management and with
being a public company. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Introduction."
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEARS(1) SEPTEMBER 30,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
FOUNDING COMPANIES:
TEXAS ALUMINUM/CORNERSTONE:
Net sales........................ $ 26,105 $ 34,706 $ 40,651 $ 31,382 $ 36,667
Operating income................. 493 1,623 3,012 2,141 2,326
INTERSTATE:
Net sales........................ 49,299 61,375 66,806 51,345 55,348
Operating income................. 1,149 2,751 4,720 3,811 3,255
QUEENSBORO:
Net sales........................ 50,795 60,322 54,996 41,522 46,881
Operating income................. 1,366 2,096 3,454 2,344 2,451
AFFILIATED:
Net sales........................ 63,046 78,976 81,002 60,554 87,159
Operating income................. 1,474 2,319 3,476 2,078 2,250
SOUTHERN ALLOY:
Net sales........................ 9,463 12,018 10,815 8,429 8,613
Operating income................. 409 533 46 130 562
UNI-STEEL:
Net sales........................ 42,711 47,662 54,620 42,390 48,186
Operating income................. 1,334 1,694 2,361 1,864 2,018
WILLIAMS(2):
Net sales........................ 27,449 30,422 25,451 18,212 24,482
Operating income................. 694 1,518 1,425 1,075 1,137
SERVICE SYSTEMS:
Net sales........................ 28,214 31,062 35,750 28,078 25,583
Operating income................. 1,392 1,017 818 764 1,215
SUBSEQUENT ACQUISITIONS:
JEFFREYS:
Net sales........................ 107,897 121,537 134,391 103,363 93,281
Operating income................. 5,506 5,288 6,643 5,018 4,535
WAYNE:
Net sales........................ 104,376 113,663 105,754 78,337 99,977
Operating income................. 7,853 8,305 6,174 4,867 6,657
HARVEY:
Net sales........................ 11,793 19,157 35,810 33,280 44,283
Operating income................. 105 205 1,907 2,835 3,804
MEIER:
Net sales........................ 54,375 67,164 61,441 47,109 44,938
Operating income................. 2,659 3,186 3,058 2,345 1,203
FEDERAL BRONZE:
Net sales........................ 12,074 13,448 12,449 9,552 10,681
Operating income................. 204 371 314 343 305
</TABLE>
(1) The financial data are presented on a historical basis for the Founding
Companies' respective fiscal year ends. The fiscal periods presented are as
follows: Texas Aluminum/Cornerstone is comprised of Texas Aluminum with the
fiscal years ended June 30, 1994, 1995 and December 1996 and Cornerstone
with the nine months ended December 31, 1995 (founded in 1995), and fiscal
year ended December 31, 1996; Uni-Steel -- the fiscal years ended September
30, 1994, 1995 and 1996; Affiliated -- the fiscal years ended September 3,
1994, September 2, 1995 and August 31, 1996; Southern Alloy, Interstate,
Queensboro, and Service Systems -- years ended December 31, 1994, 1995 and
1996; and Williams -- ten months ended December 1996. The financial data are
presented on a historical basis for the Subsequent Acquisitions' respective
fiscal year ends. The fiscal periods presented are as follows:
Jeffreys -- fiscal years ended July 31, 1994, 1995 and December 31, 1996;
Harvey -- fiscal years ended June 30, 1994, 1995 and 1996; Wayne, Meier and
Federal Bronze -- fiscal years ended December 31, 1994, 1995 and 1996.
(2) Williams was purchased by its current owners effective March 1, 1996. The
September 30, 1996 financial data are for the seven months ended September
30, 1996. The financial data for the predecessor entity, prior to the
acquisition by its current owners, are presented for 1994 and 1995. For the
two months ended February 29, 1996, the predecessor entity had $5,258 and
$320 of net sales and operating income, respectively.
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THE COMPANY
Metals USA was founded in 1996 to become a leading national value-added
metals processor/service center, to manufacture higher-value components from
processed metals and to pursue aggressively the consolidation of the
highly-fragmented metals processing industry. In July 1997, Metals USA acquired
the eight Founding Companies. Since that date the Company has acquired or agreed
to acquire the five companies which comprise the Subsequent Acquisitions. In
1996, the Acquired Companies, which have been in business an average of 40
years, had pro forma net sales of $746.6 million, servicing over 20,000
customers. For a description of the transactions pursuant to which certain of
these businesses were acquired, see "Certain Transactions -- Organization of
the Company." The following is a description of the Acquired Companies:
TEXAS ALUMINUM INDUSTRIES, INC./THE CORNERSTONE GROUP -- Texas Aluminum
Industries, Inc. ("Texas Aluminum"), headquartered in Houston, Texas, was
founded in 1949 by Gene C. Elkins. The Cornerstone Group ("Cornerstone")
includes four entities founded in 1995, 1996 and 1997 by Michael E. Christopher
and Mark Elkins, who are the principal stockholders of Texas Aluminum (Texas
Aluminum and Cornerstone being collectively referred to herein as "Texas
Aluminum/Cornerstone"). Texas Aluminum/Cornerstone operates through five
manufacturing plants and 37 service centers and distribution facilities
primarily in the Sunbelt. Texas Aluminum/Cornerstone produces and distributes
aluminum and steel building products consisting of windows, doors, insulated
wall panels, canopies and awnings primarily for the commercial and residential
building products industries. Texas Aluminum/Cornerstone had fiscal 1996 and
nine months ended September 30, 1997 net sales of $40.6 million and $36.7
million, respectively, operating income of $3.0 million and $2.3 million,
respectively, and currently has about 275 employees. Michael E. Christopher has
been employed by Texas Aluminum for ten years, has signed a five-year employment
agreement with Texas Aluminum/Cornerstone as President of Texas
Aluminum/Cornerstone and is a Senior Vice President and a director of the
Company.
INTERSTATE STEEL SUPPLY CO. -- Interstate Steel Supply Co.
("Interstate"), headquartered in Philadelphia, Pennsylvania, was founded in
1949 and operates primarily in the northeast and mid-Atlantic regions of the
United States. Interstate operates service centers in Philadelphia and
Pittsburgh, Pennsylvania and Baltimore, Maryland and is a value-added metals
processor/service center providing products and services primarily to structural
steel fabricators of buildings and bridges and to the shipbuilding, railroad and
electric power generation industries. Interstate had fiscal 1996 and nine months
ended September 30, 1997 net sales of $66.8 million and $55.3 million,
respectively, operating income of $4.7 million and $3.3 million, respectively,
and currently has about 180 employees. Arnold W. Bradburd, the Chairman of the
Board and Chief Executive Officer of Interstate, has been employed by Interstate
for 23 years, has signed a five-year employment agreement with Interstate to
continue in those capacities and is the Vice-Chairman of the Board of the
Company.
QUEENSBORO STEEL CORPORATION -- Queensboro Steel Corporation
("Queensboro"), headquartered in Wilmington, North Carolina, was founded in
1952 by George and Seymour Alper and operates primarily in the southeastern
region of the United States. Queensboro operates service centers in Wilmington
and Greensboro, North Carolina and Norfolk, Virginia and is a value-added metals
processor/service center and fabricator, providing products and services
primarily to the shipbuilding, transportation, construction, pulp and paper and
chemical industries. Queensboro had fiscal 1996 and nine months ended September
30, 1997 net sales of $55.0 million and $46.9 million, respectively, operating
income of $3.5 million and $2.5 million, respectively, and currently has about
200 employees. Mark Alper, the President of Queensboro has been employed by
Queensboro for 26 years, has signed a five-year employment agreement with
Queensboro to continue in that capacity and is the Vice President -- Development
and a director of the Company.
AFFILIATED METALS COMPANY -- Affiliated Metals Company ("Affiliated"),
headquartered in Granite City, Illinois, was founded in 1979 and operates
primarily in the midwestern region of the United States. Affiliated operates
service centers in Granite City, Illinois and a newly-constructed facility in
Butler, Indiana and is a value-added metals processor/service center providing
products and services primarily to manufacturers of consumer durables,
commercial transportation equipment, appliances and furniture. Affiliated had
fiscal 1996 and nine months ended September 30, 1997 net sales of $81.0 million
and $87.2
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million, respectively, operating income of $3.5 million and $2.3 million,
respectively, and currently has about 130 employees. Patrick A. Notestine, the
President of Affiliated, has been employed by Affiliated for nine years, has
signed a five-year employment agreement with Affiliated to continue in that
capacity and is a director of the Company.
SOUTHERN ALLOY OF AMERICA, INC. -- Southern Alloy of America, Inc.
("Southern Alloy"), headquartered in Salisbury, North Carolina, was founded in
1977 and operates primarily in the southeastern region of the United States.
Southern Alloy operates a plant in Salisbury, North Carolina and is a specialty
metals processor, providing products and services primarily to the fluid power,
machine tools, pump and valve, power transmission and textile machinery
industries. Southern Alloy had fiscal 1996 and nine months ended September 30,
1997 net sales of $10.8 million and $9.6 million, respectively, operating income
of less than $0.1 million and $0.6 million, respectively, and currently has
about 30 employees. William B. Edge, the President of Southern Alloy, has been
employed by Southern Alloy for 16 years, has signed a five-year employment
agreement with Southern Alloy to continue in that capacity and is a director of
the Company.
UNI-STEEL, INC. -- Uni-Steel, Inc. ("Uni-Steel"), headquartered in Enid,
Oklahoma, was founded in 1987 as a result of the merger of two companies which
began operations in 1907 and 1924, and operates primarily in the southwestern
and midwestern regions of the United States. Uni-Steel operates service centers
in Enid, Muskogee and the Port of Muskogee, Oklahoma and is a value-added metals
processor/service center providing products and services primarily to customers
in the oil and gas, transportation, mining and manufacturing industries.
Uni-Steel had fiscal 1996 and nine months ended September 30, 1997 net sales of
$54.6 million and $48.2 million, respectively, operating income of $2.4 million
and $2.0 million, respectively, and currently has about 130 employees. Richard
A. Singer, the Chief Executive Officer of Uni-Steel, has been employed by
Uni-Steel for 32 years, has signed a five-year employment agreement with
Uni-Steel to continue in such capacities and is a Senior Vice President and a
director of the Company.
WILLIAMS STEEL & SUPPLY CO., INC. -- Williams Steel & Supply Co., Inc.
("Williams"), headquartered in Milwaukee, Wisconsin, was founded in 1944 and
operates primarily in the midwest region of the United States. Williams operates
a service center in Milwaukee, Wisconsin and is a value-added metals
processor/service center, providing products and services primarily to the
construction industry, original equipment manufacturers ("OEMs") and
fabricators. Williams had fiscal 1996 and nine months ended September 30, 1997
net sales of $25.5 million and $24.5 million, respectively, operating income of
$1.4 million and $1.1 million, respectively, and currently has about 80
employees. Lester G. Peterson, the President of Williams, has been employed by
Williams for 27 years, has signed a five-year employment agreement with Williams
to continue in that capacity and is a director of the Company.
STEEL SERVICE SYSTEMS, INC. -- Steel Service Systems, Inc. ("Service
Systems"), headquartered in Horicon, Wisconsin was founded in 1990 and operates
primarily in the midwestern region of the United States. Service Systems
operates a service center in Horicon, Wisconsin and is a value-added metals
processor/service center providing products and services primarily for
manufacturers of lawn and garden equipment, outdoor recreation vehicles and
furniture. Service Systems had fiscal 1996 and nine months ended September 30,
1997 net sales of $35.8 million and $25.6 million, respectively, operating
income of $0.8 million and $1.2 million, respectively, and currently has about
75 employees. Craig R. Doveala, the President of Service Systems, has been
employed by Service Systems since its founding, has signed a five-year
employment agreement with Service Systems to continue in that capacity and is a
director of the Company.
JEFFREYS STEEL COMPANY, INC. -- Jeffreys Steel Company, Inc.
("Jeffreys"), headquartered in Mobile, Alabama, was founded in 1966 by Mr.
Leon Jeffreys. Jeffreys operates steel service centers in the south and
southeastern United States. These service center operations include the
locations in Mobile, in Muscle Shoals and Attalla, Alabama, Columbus,
Mississippi, Kenner, Louisiana, Jacksonville, Lakeland and Ft. Lauderdale,
Florida and Oakwood, Georgia. Jeffreys is a value-added processor/service center
specializing in steel plate and structural components and provides products and
services to the marine (including new ship construction and repair), offshore
oil and gas, construction and fabrication, transportation pulp and
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paper and chemical industries. Jeffreys Steel had fiscal 1996 and nine months
ended September 30, 1997 net sales of $103.4 million and $93.3, million
respectively, operating income of $5.0 million and $4.5 million, respectively
and currently has about 450 employees. Mr. Toby Jeffreys, the President of
Jeffreys, has been employed by Jeffreys Steel for 10 years, and has signed a
five-year employment agreement with Jeffreys to continue in that capacity. Mr.
Leon Jeffreys, Chairman of the Board of Jeffreys, has signed a five-year
employment agreement with Jeffreys to continue in that capacity, and was
recently elected a director of the Company.
WAYNE STEEL, INC. -- Wayne Steel, Inc. ("Wayne"), headquartered in Wooster,
Ohio, was founded in 1921 by Meyer Shapiro and operates in Randleman, North
Carolina is scheduled to open as a newly-constructed processing facility in
Jeffersonville, Indiana in late 1997. Wayne is a value-added metals processor of
flat rolled steel providing products and services primarily in the
transportation, electrical and telecommunications equipment manufacturing
industries. Wayne had fiscal 1996 and nine months ended September 30, 1997 net
sales of $105.8 million and $100.0 million, respectively, operating income of
$6.2 million and $6.7 million, respectively, and currently has about 220
employees. Mr. Tom Sharpiro, President and Chief Executive Officer of Wayne, has
been employed by Wayne for 25 years and intends to sign a five-year employment
agreement with Wayne to continue in that capacity.
HARVEY TITANIUM, LTD. -- Harvey Titanium, Ltd. ("Harvey"), headquartered
in Santa Monica, California, was founded in 1978 by Barry Harvey and operates on
a global basis through its international sales office in the United Kingdom and
through agents around the world. Harvey is a value-added metal service center
supplying primarily custom orders of titanium products, as well as nickel-based
alloys, vacuum melted stainless steels and other exotic alloys. Harvey's
customers are primarily in the aerospace industry, however Harvey also serves
customers in the recreation, petrochemical and biomedical industries. Harvey had
fiscal 1996 and nine months ended September 30, 1997 net sales of $45.5 million
and $44.3 million, respectively, operating income of $4.0 million and $3.8
million, respectively, and currently has about 50 employees. Mr. Barry Harvey,
President and Chief Executive Officer of Harvey, has been employed by Harvey for
19 years and has signed a three-year employment agreement with Harvey to
continue in that capacity.
MEIER METAL SERVICENTERS, INC. -- Meier Metal Servicenters, Inc.
("Meier"), headquartered in Hazel Park, Michigan, was founded in 1945 by Louis
F. Meier and operates primarily in the upper midwest and southeastern regions of
the United States. Meier operates service centers in Hazel Park and Grand
Rapids, Michigan, Chicago, Illinois, Dayton and Cleveland, Ohio and Greensboro,
North Carolina and is a value-added processor and distributor of nonferrous
metals, including aluminum, brass, copper, bronze and stainless steel. Meier
sells its products to customers in the tool and die, screw machine products,
industrial machinery, transportation and aerospace industries. Meier had fiscal
1996 and nine months ended September 30, 1997 net sales of $47.1 million and
$44.9 million, respectively, operating income of $2.3 million and $1.2 million
respectively and currently has about 115 employees. Mr. William Targett,
President and Chief Executive Officer of Meier, has been employed by Meier
Metals for approximately 42 years and has signed a five-year employment
agreement with Meier to continue in that capacity.
FEDERAL BRONZE ALLOYS INC. -- Federal Bronze Alloys Inc. ("Federal
Bronze"), headquartered in Newark, New Jersey is the successor entity to
Federal Bronze Products, Inc. which was founded in 1947 by Steve Stefiuk and
operates primarily in the northeast region of the United States. Federal Bronze
is a specialty metals processor, providing products and services primarily to
the fluid power, machine tool, power transmission, and the pump valve
industries. Federal Bronze had fiscal 1996 and nine months ended September 30,
1997 net sales of $12.4 million and $10.7 million, respectively, operating
income of $0.3 million and $0.3 million, respectively, and currently has about
55 employees. Mr. John Stefiuk, President and Chief Executive Officer of Federal
Bronze, has been employed by Federal Bronze for 25 years and has signed a
five-year employment agreement with Federal Bronze to continue in that capacity.
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RISK FACTORS
AN INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED BY THIS PROSPECTUS
INVOLVES A HIGH DEGREE OF RISK. IN ADDITION TO THE OTHER INFORMATION IN THIS
PROSPECTUS, THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY IN
EVALUATING AN INVESTMENT IN THE COMMON STOCK. THIS PROSPECTUS CONTAINS CERTAIN
FORWARD-LOOKING STATEMENTS. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
PROJECTED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF ANY NUMBER OF
FACTORS, INCLUDING THE RISK FACTORS SET FORTH BELOW AND ELSEWHERE IN THIS
PROSPECTUS.
ABSENCE OF COMBINED OPERATING HISTORY; RISKS OF INTEGRATING FOUNDING
COMPANIES. Metals USA was founded in 1996 but conducted no operations and
generated no net sales prior to July 11, 1997. The Acquired Companies were
operated as separate independent entities prior to their acquisition, and there
can be no assurance that the Company will be able to integrate the operations of
these businesses successfully or to institute the necessary systems and
procedures, including accounting and financial reporting systems, to manage the
combined enterprise on a profitable basis. The Company's management group has
been assembled only recently, and there can be no assurance that the management
group will be able to manage the combined entity effectively or to implement
successfully the Company's acquisition and internal growth operating strategies.
The pro forma historical financial results of the Acquired Companies cover
periods when the Acquired Companies and Metals USA were not under common control
or management and may not be indicative of the Company's future financial or
operating results. The inability of the Company to integrate the Acquired
Companies successfully would have a material adverse effect on the Company's
business, financial condition and results of operations and would make it
unlikely that the Company's acquisition program will be successful. See
"Business -- Strategy" and "Management."
POSSIBLE IMPACT OF VARYING METAL PRICES. The principal raw materials used
by the Company are steel, aluminum and various specialty metals. The metals
industry as a whole is cyclical, and at times pricing and availability of raw
materials in the metals industry can be volatile due to numerous factors beyond
the control of the Company, including general, domestic and international
economic conditions, labor costs, production levels, competition, import duties
and tariffs and currency exchange rates. This volatility can significantly
affect the availability and cost of raw materials for the Company, and may,
therefore, adversely affect the Company's net sales, operating margin and net
income. During the last five years, carbon steel prices for the Acquired
Companies have increased an average of 2.7% per year. Aluminum prices have
declined approximately 7% per year for the past two years. While the overall
trend of steel and aluminum prices has been relatively stable, prices have
fluctuated approximately 10% up or down during interim periods. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The Company's service centers maintain substantial inventories of
metal to accommodate the short lead times and just-in-time delivery requirements
of its customers. Accordingly, the Company purchases metal in an effort to
maintain its inventory at levels that it believes to be appropriate to satisfy
the anticipated needs of its customers based on information derived from
customers, market conditions, historic usage and industry research. The
Company's commitments for metal purchases are generally at prevailing market
prices in effect at the time the Company places its orders. The Company has no
long-term, fixed-price purchase contracts. During periods of rising raw
materials pricing, there can be no assurance the Company will be able to pass
any portion of such increases on to customers. When raw material prices decline,
customer demands for lower prices could result in lower sale prices and, as the
Company uses existing inventory, lower margins. Changing metal prices could
adversely affect the Company's operating margin and net income.
CYCLICALITY OF DEMAND. Many of the Company's products are sold to
industries that experience significant fluctuations in demand based on economic
conditions, energy prices, consumer demand and other factors beyond the control
of the Company. No assurance can be given that the Company will be able to
increase or maintain its level of sales in periods of economic stagnation or
downturn.
RISKS RELATED TO THE COMPANY'S ACQUISITION STRATEGY. The Company intends
to grow significantly through the acquisition of additional value-added metals
processors/service centers and manufacturers. The Company expects to face
competition for acquisition candidates, which may limit the number of
acquisition opportunities and may lead to higher acquisition prices. There can
be no assurance that the Company will be
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able to identify, acquire or manage profitably additional businesses or to
integrate successfully any acquired businesses into the Company without
substantial costs, delays or other operational or financial difficulties.
Further, acquisitions involve a number of special risks, including failure of
the acquired business to achieve expected results, diversion of management's
attention, failure to retain key personnel of the acquired business and risks
associated with unanticipated events or liabilities, some or all of which could
have a material adverse effect on the Company's business, financial condition
and results of operations. In addition, there can be no assurance that the
Acquired Companies or other subsequently acquired businesses will achieve
anticipated net sales and earnings. See "Business -- Strategy."
RISKS RELATED TO ACQUISITION FINANCING. The timing, size and success of
the Company's acquisition efforts and the associated capital commitments cannot
be readily predicted. The Company currently intends to finance future
acquisitions by using shares of its Common Stock for all or a substantial
portion of the consideration to be paid. If the Common Stock does not maintain a
sufficient market value, or if potential acquisition candidates are otherwise
unwilling to accept Common Stock as part of the consideration for the sale of
their businesses, the Company may be required to utilize more of its cash
resources, if available, in order to initiate and maintain its acquisition
program. The Company's $150.0 million revolving credit facility became available
upon consummation of the IPO for working capital and acquisitions. As of
November 10, 1997, borrowings under the line of credit were $134.2 million. If
the Company does not have sufficient cash resources, its growth could be limited
unless it is able to obtain additional capital through debt or equity
financings. See "Use of Proceeds" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Combined liquidity and
capital resources."
RISKS RELATED TO INTERNAL GROWTH AND OPERATING STRATEGIES. Key elements of
the Company's strategy are to improve the profitability of the Acquired
Companies and subsequently acquired businesses and to continue to expand the net
sales of the Acquired Companies and any subsequently acquired businesses.
Although the Company intends to seek to improve the profitability of the
Acquired Companies and any subsequently acquired businesses by various means,
including realizing overhead and purchasing efficiencies, there can be no
assurances that the Company will be able to do so. The Company's ability to
increase the net sales of the Acquired Companies and any subsequently acquired
businesses will be affected by various factors, including demand for metals,
pricing and availability of raw materials, the Company's ability to expand the
range of products and services offered by each Acquired Company and any
subsequently acquired businesses and the Company's ability to successfully enter
new markets. Many of these factors are beyond the control of the Company, and
there can be no assurance that the Company's strategies will be successful or
that it will be able to generate cash flow adequate for its operations and to
support internal growth. A key component of the Company's strategy is to operate
the Acquired Companies and subsequently acquired businesses on a decentralized
basis, with local management retaining responsibility for day-to-day operations,
profitability and the growth of the business. If proper overall business
controls are not implemented, this decentralized operating strategy could result
in inconsistent operating and financial practices at the Acquired Companies and
subsequently acquired businesses and the Company's overall profitability could
be adversely affected. See "Business -- Strategy -- Operating on a
Decentralized Basis."
COMPETITION. The Company is engaged in a highly-fragmented and competitive
industry. The Company competes with a large number of other value-added metals
processors/service centers on a regional and local basis, some of which may have
greater financial resources than the Company and several of which are public
companies. The Company also competes to a lesser extent with primary metals
producers, who typically sell to very large customers requiring regular
shipments of large volumes of metals. The Company may also face competition for
acquisition candidates from those public companies that have acquired a number
of metals service center businesses during the past decade. Other smaller metals
processors/service centers may also seek acquisitions from time to time.
Increased competition could have a material adverse effect on the Company's net
sales and profitability. See "Business -- Competition."
REGULATION. The Company's operations are subject to a number of federal,
state and local regulations relating to the protection of the environment and to
workplace health and safety. In particular, the
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Company's operations are subject to extensive federal, state and local laws and
regulations governing waste disposal, air and water emissions, the handling of
hazardous substances, environment protection, remediation, workplace exposure
and other matters. Hazardous materials the Company uses in its operations
primarily include lubricants, cleaning solvents and hydrochloric acid used in
its pickling operations at two facilities.
Some of the properties owned or leased by the Company are located in
industrial areas close to properties with histories of heavy industrial use,
three of which are on or near sites listed on the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 ("CERCLA") National Priority
List. The Company believes that as many as three of the properties leased by
Founding Companies have been contaminated by pollutants which have migrated from
neighboring facilities or have been deposited by prior occupants.
Prior to entering into the agreements relating to the Mergers and the
Subsequent Acquisitions, the Company evaluated the properties owned or leased by
the Acquired Companies and engaged an independent environmental consulting firm
to conduct or review assessments of environmental conditions at these
properties. Although no environmental claims have been made against the Company
and it has not been named as a potentially responsible party by the
Environmental Protection Agency or any other party, it is possible that the
Company could be identified by the Environmental Protection Agency, a state
agency or one or more third parties as a potentially responsible party under
CERCLA or under analogous state laws. If so, the Company could incur substantial
litigation costs to prove it is not responsible for the environmental damage.
The Company has obtained limited indemnities from the stockholders of the
Acquired Companies (ranging from approximately $50,000 to $7.6 million per
Acquired Company) whose facilities are located at the contaminated sites. The
Company believes that these indemnities will be adequate to protect it from a
material adverse effect on its financial condition should the Company be found
to be responsible for a share of the clean-up costs. The limited indemnities are
subject to certain deductible amounts, however, and there can be no assurance
that the limited indemnities will fully protect the Company. See "Business --
Governmental Regulation and Environmental Matters."
RELIANCE ON KEY PERSONNEL. Due in part to the Company's decentralized
operating strategy, the Company is highly dependent on the continuing efforts of
its executive officers and the senior management of the Acquired Companies, and
the Company likely will depend on the senior management of any significant
business it acquires in the future. The business or prospects of the Company
could be affected adversely if any of these persons does not continue in his
management role until the Company is able to attract and retain qualified
replacements. See "Management."
CONTROL BY EXISTING MANAGEMENT AND STOCKHOLDERS. The Company's executive
officers and directors, former stockholders of the Acquired Companies (excluding
Wayne) and entities affiliated with them beneficially own approximately 61.7% of
the outstanding shares of Common Stock (not including the 8,707,637 shares of
Common Stock that remain available for issuance pursuant to this registration
statement). A portion of these shares are Restricted Common Stock, which are
entitled to elect one member of the Company's Board of Directors and 0.55 of one
vote for each share held on all other matters on which they are entitled to
vote. Holders of Restricted Common Stock are not entitled to vote on the
election of any other directors. Accordingly, the Company' s executive officers,
directors and the former stockholders of the Acquired Companies (excluding
Wayne) control in the aggregate approximately 63.3% of the votes of all shares
of Common Stock, and if acting in concert, will be able to exercise control over
the Company's affairs, to elect the entire Board of Directors and to control the
outcome of any matter submitted to a vote of stockholders. See "Principal
Stockholders."
SUBSTANTIAL PROCEEDS OF THE IPO WERE PAID TO AFFILIATES OF FOUNDING
COMPANIES. Of the net proceeds of the IPO, $27.8 million, or 47.4% was paid as
the cash portion of the purchase price for the Founding Companies. Some of the
recipients of these funds are directors of the Company or holders of more than
5% of the Common Stock. Prior to the IPO, 1,385,000 shares of Common Stock were
issued to management of and certain consultants to the Company at a price of
$0.01 per share. See "Certain Transactions."
LIMITED PRIOR PUBLIC MARKET AND DETERMINATION OF OFFERING PRICE. Prior to
the IPO, there was no public market for the Common Stock. The offering price for
the Common Stock to be issued pursuant to
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this Prospectus will be based upon the Company's closing stock price at a date
certain or the average closing stock price over a period of time determined by
negotiations between the Company and the owners of the companies to be acquired.
The negotiated price may bear no relationship to the price at which the Common
Stock will trade after the respective acquisition and there can be no assurance
that an active trading market will be sustained subsequent to any future
acquisition transactions. The market price of the Common Stock may be subject to
significant fluctuations in response to numerous factors, including the timing
of any acquisitions by the Company, variations in the Company's annual or
quarterly financial results or those of its competitors, changes by financial
research analysts in their estimates of the future earnings of the Company,
conditions in the economy in general or in the Company's industry in particular,
unfavorable publicity or changes in applicable laws and regulations (or judicial
or administrative interpretations thereof) affecting the Company or the metals
industry. From time to time, the stock market experiences significant price and
volume volatility, which may affect the market price of the Common Stock for
reasons unrelated to the Company's performance.
POTENTIAL EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE ON PRICE OF COMMON
STOCK. There are currently 26,982,969 shares of Common Stock issued and
outstanding, of which 8,077,363 shares are freely tradable (consisting
principally of the 6,875,000 shares sold in the IPO). The remaining outstanding
shares may be resold publicly only following their registration under the
Securities Act of 1933, as amended (the "Securities Act"), or pursuant to an
available exemption from registration (such as provided by Rule 144 following a
one year holding period for previously unregistered shares). The holders of
these remaining shares have certain demand rights to have their shares
registered in the future under the Securities Act, but may not exercise such
demand registration rights, and have agreed with the Company that they will not
sell, transfer or otherwise dispose of any of their shares, for one year
following the consummation of the IPO. Following the acquisition of Wayne, the
Company will have granted options to purchase up to a total of 3,227,524 shares
of Common Stock. The Company has filed a registration statement on Form S-8 for
the purpose of registering all the shares subject to these options under the
Securities Act for public resale. In addition, the 8,707,637 shares of Common
Stock that remain available for issuance pursuant to this registration statement
generally will be freely tradeable after their issuance by persons not
affiliated with the Company unless their resale is contractually restricted.
Sales, or the availability for sale of, substantial amounts of the Common Stock
in the public market could adversely affect prevailing market prices and the
future ability of the Company to raise equity capital and complete any
additional acquisitions for Common Stock. See "Shares Eligible for Future
Sale."
POSSIBLE ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS. Metals USA's
Amended and Restated Certificate of Incorporation (the "Certificate of
Incorporation") authorizes the Board of Directors to issue, without stockholder
approval, one or more series of preferred stock having such preferences, powers
and relative, participating, optional and other rights (including preferences
over the Common Stock respecting dividends and distributions and voting rights)
as the Board of Directors may determine. The issuance of this "blank-check"
preferred stock could render more difficult or discourage an attempt to obtain
control of the Company by means of a tender offer, merger, proxy contest or
otherwise. In addition, the Certificate of Incorporation provides for a
classified Board of Directors, which may also have the effect of inhibiting or
delaying a change in control of the Company. Certain provisions of the Delaware
General Corporation Law may also discourage takeover attempts that have not been
approved by the Board of Directors. See "Description of Capital Stock."
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PRICE RANGE OF COMMON STOCK
The Company's Common Stock has traded on the New York Stock Exchange since
July 11, 1997. On November 13, 1997, the last sale price of the Common Stock was
$14.50 per share, as published in THE WALL STREET JOURNAL on November 14, 1997.
At November 10, 1997, there were approximately 150 stockholders of record of the
Company's Common Stock.
The following table sets forth the range of high and low sales prices for
the Common Stock for the periods indicated:
HIGH LOW
--------- ---------
July 11, 1997 to September 30,
1997................................. $ 16.00 $ 10.00
October 1, 1997 to November 13,
1997................................. $ 16.50 $ 13.38
DIVIDEND POLICY
The Company intends to retain all of its earnings, if any, to finance the
expansion of its business and for general corporate purposes, including future
acquisitions, and does not anticipate paying any cash dividends on its Common
Stock for the foreseeable future. In addition, the Company's Credit Facility
(See Management's Discussion and Analysis of Financial Condition and Results of
Operations) includes restrictions on the ability of the Company to pay dividends
without the consent of the lender.
16
<PAGE>
CAPITALIZATION
The following table sets forth the current maturities of long-term
obligations and capitalization at September 30, 1997 (i) of Metals USA on a
consolidated basis and (ii) of Metals USA, pro forma, as adjusted to give effect
to the acquisition of Wayne. This table should be read in conjunction with the
Unaudited Pro Forma Financial Statements of the Company and the Notes thereto
included elsewhere in this Prospectus.
SEPTEMBER 30, 1997
------------------------------
CONSOLIDATED PRO FORMA
------------- ----------
(IN THOUSANDS OF DOLLARS)
Current maturities of long-term debt
obligations(1)........................ $ 3,812 $ 7,026
============= ==========
Long-term obligations, less current
maturities(1)......................... $ 137,842 $153,355
Stockholders' equity:
Preferred Stock: $0.01 par value,
5,000,000 shares authorized; none
issued or outstanding............ -- --
Common Stock: $0.01 par value,
53,122,914 shares authorized;
26,982,969 issued and
outstanding; and 31,189,397
shares issued and outstanding,
pro forma(2)..................... 270 312
Additional paid-in capital......... 169,360 170,479
Unearned compensation.............. (1,535) (1,535)
Retained earnings.................. 22,839 46,239
------------- ----------
Total stockholders' equity.... 190,934 215,495
------------- ----------
Total capitalization....... $ 328,776 $368,850
============= ==========
- - ------------
(1) For a description of the Company's debt, see the Notes to Unaudited Pro
Forma Financial Statements and Notes to the Founding Companies' Financial
Statements.
(2) Excludes 2,171,024 shares of Common Stock subject to options granted upon
consummation of the IPO with an exercise price of $10.00 per share and
1,056,500 shares of Common Stock subject to options granted or to be granted
in connection with the Subsequent Acquisitions. See "Management -- 1997
Long-Term Incentive Plan" and " -- 1997 Non-Employee Directors' Stock
Plan."
17
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The following historical and pro forma financial information should be read
in conjunction with the Unaudited Pro Forma Financial Statements and the Notes
thereto and the historical Consolidated Financial Statements of Metals USA and
certain of the Acquired Companies and the Notes thereto included elsewhere in
this Prospectus. The historical financial information for the fiscal years ended
1992 through 1996 and the nine months ended September 30, 1996 and 1997,
reflects the historical financial statements of Metals USA, restated for the
effects of the business combination with Jeffreys accounted for as a
"pooling-of-interests" and the remaining Acquired Companies from their
respective acquisition dates. The results of operations for interim periods are
unaudited and are not necessarily indicative of the results for the full year.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31,(1) SEPTEMBER 30,
----------------------------------------------------- -----------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
CONSOLIDATED:
Net sales........................... $ 49,319 $ 56,659 $ 107,897 $ 121,537 $ 134,391 $ 103,363 $ 195,328
Cost of sales....................... 36,769 41,698 81,904 93,421 100,868 77,834 147,632
Operating and delivery.............. 5,476 6,236 10,155 11,426 14,130 10,575 21,321
Selling, general and administrative
expenses.......................... 4,755 5,393 9,020 9,565 14,047 7,966 20,199
Depreciation and amortization....... 740 892 1,175 1,703 2,339 1,710 3,075
Operating income.................... 1,579 2,440 5,643 5,422 3,007 5,278 3,101
Interest and other expense, net..... (181) 52 936 1,369 1,211 894 1,711
Income before tax................... 1,760 2,388 4,707 4,053 1,796 4,384 1,390
Net income (loss)................... 1,090 1,510 2,925 2,329 (239) 2,706 (1,714)
Net income (loss) per share......... $ 0.27 $ 0.38 $ 0.73 $ 0.58 $ (0.04) $ 0.48 $ (0.17)
Shares used in computing net income
(loss) per share.................. 4,023,583 4,023,583 4,023,583 4,023,583 6,393,780 5,590,644 14,259,702
PRO FORMA(2):
Net sales........................... $ 746,583 $ 626,474
Cost of sales....................... 568,630 482,300
Operating and delivery(3)........... 73,436 62,234
Selling, general and administrative
expenses(3)....................... 48,389 38,133
Depreciation and amortization(4).... 10,776 8,372
Operating income.................... 45,352 35,435
Interest and other expense,
net(5)............................ 6,974 6,117
Income before tax................... 38,378 29,318
Net income(6)....................... 21,844 16,921
Net income per share................ $ 0.70 $ 0.54
Shares used in computing net income
per share(7)...................... 31,189,397 31,189,397
FISCAL YEARS ENDED(1) SEPTEMBER 30, 1997
----------------------------------------------------- -----------------------
1992 1993 1994 1995 1996 ACTUAL PRO FORMA(8)
--------- --------- --------- --------- --------- --------- ------------
BALANCE SHEET DATA:
Working capital (deficit)........... $ 12,233 $ 23,543 $ 28,473 $ 29,736 $ 27,499 $ 158,576 $179,541
Total assets........................ 20,704 34,571 44,000 53,345 54,573 409,926 465,282
Long-term debt, net of current
maturities........................ 491 15,496 18,210 23,267 17,037 137,842 153,355
Stockholders' equity................ 17,010 15,078 18,619 21,542 26,836 190,934 215,495
Dividends declared.................. -- -- -- -- -- -- --
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
18
<PAGE>
(1) As a result of the merger with Metals USA, Jeffreys changed its fiscal year
to December 31 beginning January 1, 1996, to conform to the fiscal periods
of Metals USA and the other Acquired Companies. The historical financial
information of Jeffreys for the years ended July 31, 1994 and 1995 have
been included in the Company's consolidated financial statements for the
years ended December 31, 1994 and 1995.
(2) The pro forma statements of operations data assume that the Mergers, the
Subsequent Acquisitions and the IPO and all acquisitions by the Acquired
Companies occurred on January 1, 1996 and are not necessarily indicative of
the results the Company would have obtained had these events actually then
occurred or of the Company's future results. The historical combined net
sales for the Founding Companies for the twelve months ended December 31,
1996 and the nine months ended September 30, 1997 were $735.3 million and
$626.1 million, respectively.
(3) The pro forma statements of operations data reflect the Compensation
Differential of $8.3 million and $5.6 million included in selling, general
and administrative expenses, the Rent Differential of $0.3 million and $0.2
million included in operating and delivery for the twelve months ended
December 31, 1996 and for the nine months ended September 30, 1997,
respectively, and selling, general and administrative expenses do not
include the nonrecurring portion of the Compensation Charge.
(4) Includes $3.4 million and $1.9 million of amortization for the twelve
months ended December 31, 1996 and for the nine months ended September 30,
1997, respectively, on the $122.6 million of goodwill recorded as a result
of the Mergers and Subsequent Acquisitions computed on the basis described
in Notes to the Unaudited Pro Forma Combined Financial Statements.
(5) Includes $0.6 million and $0.4 million for the twelve months ended December
31, 1996 and nine months ended September 30, 1997, respectively, in
reductions in interest expense resulting from $9.2 million in outstanding
indebtedness assumed to be repaid with a portion of the IPO proceeds. Also
incudes $0.8 million for both periods in reductions in interest expense due
to assumed refinancing of outstanding indebtedness with the Company's
Credit Faciity. Interest expense is increased by $1.6 million and $1.2
million for the twelve months ended December 31, 1996 and the nine months
ended September 30, 1997 due to the assumed financing of the cash portion
of the Acquired Companies' purchase price with the Company's Credit
Facility.
(6) Assumes all income is subject to a corporate tax rate of 40%, Compensation
Charge is non-deductible and goodwill of $81.2 million and $29.6 million
resulting from the Mergers and the Subsequent Acquisitions, respectively,
is nondeductible.
(7) Includes (i) 19,650,983 shares issued to owners of the Acquired Companies,
(ii) 1,385,500 shares issued to the management of and consultants to Metals
USA, (iii) 3,367,914 shares issued to Notre and, (iv) 6,785,000 shares sold
in the IPO. Excludes the grant of options to purchase 3,227,524 shares of
Common Stock.
(8) The pro forma combined balance sheet data assumes that the acquisition of
Wayne was consummated on September 30, 1997.
19
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with "Selected
Financial Data" and the Company's Consolidated Financial Statements and related
Notes thereto appearing elsewhere in this Prospectus.
INTRODUCTION
The Company's net sales are derived from the processing of steel, aluminum
and other specialty metals and the use of processed metals to manufacture
high-value end-use products. The majority of the metals sold by the Company are
processed by the Company. The Company processes various metals to specified
thickness, length, width, shape and surface quality pursuant to specific
customer orders. Additionally, certain of the Acquired Companies manufacture
finished building products for commercial and residential applications and
machine certain specialty metals.
The Acquired Companies have operated as privately-owned entities and their
results of operations reflect varying tax structures ("S Corporations" or "C
Corporations") which have influenced the level of owners' compensation. The
owners of the Acquired Companies have contractually agreed to certain reductions
in both their compensation and benefits and in certain cases lease payments for
their respective facilities in connection with the acquisitions. These cost
savings are reflected in the pro forma financial statements. Pro forma net sales
were $746.6 million and $626.5 million and operating income was $45.4 million
and $35.4 million for the year ended December 31, 1996 and for the nine months
ended September 30, 1997, respectively. The foregoing and other pro forma
financial information are more fully described in the Pro Forma Financial
Statements, and the notes thereto presented elsewhere in this Prospectus.
The Company anticipates that it will realize savings from: (i) greater
volume discounts from raw materials and other suppliers and (ii) consolidation
of insurance, employee benefit programs and other general and administrative
costs. It is anticipated that these savings will be offset by costs related to
the Company's new corporate management and by the costs attributable to being a
public company, at least until the Company's cost savings program can be fully
implemented. The Company's pro forma financial statements do not reflect any
amounts as may be realized from future cost savings.
During 1996 and the first half of 1997, the Company sold an aggregate of
1,385,500 shares of Common Stock to management of and consultants to the Company
for $0.01 per share. Accordingly, the Company has recorded a Compensation Charge
of $3.6 million in 1996, and $6.0 million in the first half of 1997,
respectively, representing the difference between the amount paid for the shares
and the estimated fair value of the shares on the date of sale, as if the
Founding Companies were combined. In addition, the second quarter reflects a
reduction in compensation expense of $1.5 million representing a revision of the
estimated fair value of the shares sold to management and consultants in 1996
and the first quarter of 1997.
In July 1996, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 97 ("SAB 97") relating to business combinations
immediately prior to an initial public offering. SAB 97 requires that these
combinations be accounted for using the purchase method of acquisition
accounting. Under SAB 97, the company receiving the largest voting position from
the shares issued in connection with the Mergers must be designated as the
accounting acquiror. Accordingly, Metals USA was the designated "accounting
acquiror." Accordingly, the Company recorded the excess of the fair value of
the Merger consideration paid (exclusive of debt assumed), over the fair value
of the net assets acquired with respect to the Founding Companies as
"goodwill." Collectively, the amount by which the excess of consideration paid
(exclusive of debt assumed) over the fair value of the net assets acquired from
the merger of the Founding Companies together with the merger of certain of the
Subsequent Acquisitions that were accounted for using the "purchase" method of
accounting, totaled approximately $122.6 million at September 30, 1997.
Generally accepted accounting principles require the amortization of goodwill
over its useful life, not to exceed 40 years. The amortization of goodwill is a
non-cash charge to operating income. The pro forma impact of the amortization
expense attributable to the goodwill created from the application
20
<PAGE>
of SAB 97, with respect to the Founding Companies is approximately, $2.1 million
per year and is not deductible for income tax purposes. The pro forma impact of
the amortization expense attributable to the goodwill created from the
Subsequent Acquisitions is approximately, $1.0 million per year, a portion of
which will be deductible for income tax purposes. See "Certain
Transactions -- Organization of the Company." Prior to the issuance of SAB 97,
most business combinations similar to the Mergers were accounted for by
combining the historical financial statements of the respective companies
without the revaluation of acquired assets and liabilities and, therefore, did
not result in the creation of "goodwill."
The accounting classifications used by the Company to present the combined
results of operations for the Founding Companies generally conform to the
conventions established by the Steel Service Center Institute ("SSCI") and the
National Association of Aluminum Distributors. Depreciation and amortization
expenses are shown separately as management believes certain investors find the
information beneficial. Brief descriptions of the classifications are as
follows:
NET SALES. Net sales include sales of materials, processing and
fabrication, less sales returns, allowances and cash discounts. Net sales also
exclude any sales and use taxes collected.
COST OF SALES. Cost of sales include the cost of material and freight and
all processing services purchased from unaffiliated third parties, less any
applicable purchase discounts realized. The Company carries a substantial
quantity of raw material inventories and five of its Subsidiaries use the
last-in first-out ("LIFO") method of accounting. The LIFO method of accounting
generally matches current costs more closely with current sales. However,
variations in inventory quantities and/or prices may have a significant impact
on cost of sales.
OPERATING AND DELIVERY EXPENSE. Operating and delivery expenses consist of
labor, utilities, rent, repairs and maintenance expenses attributable to
material processing operations, warehouse facilities and delivery operations,
including the cost of freight attributable to product shipments.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expenses include the cost of personnel conducting sales and
administrative activities (including commissions and other forms of incentive
compensation), advertising and marketing expenses, rent, utilities, repairs and
maintenance costs for non-warehouse facilities, professional fees, property
taxes and other costs not included in the preceding classifications that are
directly attributable to operations.
RESULTS OF OPERATIONS
The following historical financial information reflects the historical
financial statements of Metals USA, restated for the effects of the business
combination with Jeffreys accounted for as a "pooling-of-interests" and the
remaining Acquired Companies from their respective acquisition dates. Because of
the merger with Metals USA, Jeffreys changed its fiscal year end from July 31 to
December 31, beginning January 1, 1996 to conform to the fiscal periods of
Metals USA and the other Acquired Companies. The historical financial
information of Jeffreys for the years ended July 31, 1994 and 1995 have been
included in the Company's consolidated financial statements for the years ended
December 31, 1994 and 1995.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------------------- --------------------
1994 % 1995 % 1996 % 1996 %
-------------------- -------------------- -------------------- --------------------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............................... $ 107.9 100.0% $ 121.5 100.0% $ 134.4 100.0% $ 103.4 100.0%
Costs and expenses:
Cost of sales....................... 81.9 75.9 93.4 76.9 100.9 75.1 77.8 75.2
Operating and delivery.............. 10.2 9.4 11.4 9.4 14.1 10.5 10.6 10.3
Selling, general and administrative
expenses.......................... 9.0 8.4 9.6 7.9 14.0 10.5 8.0 7.7
Depreciation and amortization....... 1.2 1.1 1.7 1.4 2.3 1.7 1.7 1.7
--------- --------- --------- --------- --------- --------- --------- ---------
Operating income........................ 5.6 5.2 5.4 4.4 3.1 2.2 5.3 5.1
</TABLE>
1997 %
--------------------
Net sales............................... $ 195.3 100.0%
Costs and expenses:
Cost of sales....................... 147.6 75.6
Operating and delivery.............. 21.3 10.9
Selling, general and administrative
expenses.......................... 20.2 10.3
Depreciation and amortization....... 3.1 1.6
--------- ---------
Operating income........................ 3.1 1.6
The results of operations for the interim period are unaudited and are not
necessarily indicative of the results for the full year.
21
<PAGE>
RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THE NINE MONTHS
ENDED SEPTEMBER 30, 1996
NET SALES. Net sales increased $91.9 million, or 89.0%, from $103.4
million for the nine months ended September 30, 1996 to $195.3 million for the
nine months ended September 30, 1997. The increase in net sales was principally
due to increased shipments attributable to the acquisition of the Founding
Companies on July 11, 1997. The purchase acquisitions of Harvey, Meier and
Federal Bronze on September 26, 1997 did not have a significant impact on net
sales or results of operations for the nine months ended September 30, 1997.
COST OF SALES. Cost of sales increased $69.8 million, or 89.7%, from $77.8
million for the nine months ended September 30, 1996 to $147.6 million for the
nine months ended September 30, 1997. The increase in cost of sales was
principally due to the increased shipments attributable to the business
acquisitions described above. As a percentage of net sales, cost of sales
increased from 75.2% for the nine months ended September 30, 1996 to 75.6% for
the nine months ended September 30, 1997. This percentage increase was due to
higher cost of raw materials.
OPERATING AND DELIVERY. Operating and delivery expenses increased $10.7
million, or 100.9%, from $10.6 million for the nine months ended September 30,
1996 to $21.3 million for the nine months ended September 30, 1997. The increase
in operating and delivery expenses was principally due to the increased
shipments attributable to the business acquisitions described above. As a
percentage of net sales, operating and delivery expenses increased from 10.3%
for the nine months ended September 30, 1996 to 10.9% for the nine months ended
September 30, 1997. This percentage increase was primarily due to higher
transportation costs to support an expanding market area.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased $12.2 million, or 152.5%, from $8.0 million for the nine
months ended September 30, 1996 to $20.2 million for the nine months ended
September 30, 1997. This increase in selling, general and administrative
expenses was primarily attributable to the business acquisitions described
above. Additionally, the Company recorded a $6.0 million compensation charge
during the first and second quarters of 1997 related to 985,000 shares of Common
Stock that were sold to consultants and members of management at $0.01 per
share. As a percentage of net sales, selling, general and administrative
expenses increased from 7.7% for the nine months ended September 30, 1996 to
10.3% for the nine months ended September 30, 1997. This percentage increase was
primarily due to the compensation charge described above.
OPERATING INCOME. Operating income decreased $2.2 million, or 41.5%, from
$5.3 million for the nine months ended September 30, 1996 to $3.1 million for
the nine months ended September 30, 1997. The decrease in operating income was
primarily attributable to the $6.0 million compensation charge discussed above.
As a percentage of net sales, operating income decreased from 5.1% for the nine
months ended September 30, 1996 to 1.6% for the nine months ended September 30,
1997.
INTEREST EXPENSE. Interest expense increased $1.1 million, or 122.2%, from
$0.9 million for the nine months ended September 30, 1996 to $2.0 million for
the nine months ended September 30, 1997. The increase in interest expense was
primarily due to the purchase of the Founding Companies on July 11, 1997.
RESULTS FOR 1996 COMPARED TO 1995
NET SALES. Net sales increased $12.9 million, or 10.6%, from $121.5
million in 1995 to $134.4 million in 1996. The increase in net sales was
principally due to an 8.7% increase in shipments, from 213,500 tons in 1995 to
232,000 tons in 1996. Additionally, average realized prices increased by
approximately 1.8%. The substantial portion of the increased shipments were from
the Oakwood, Georgia facility that was acquired in March 1995.
COST OF SALES. Cost of sales increased $7.5 million, or 8.0%, from $93.4
million in 1995 to $100.9 million in 1996. The increase in cost of sales was
primarily attributable to the increased shipments described
22
<PAGE>
above. As a percentage of net sales, cost of sales decreased from 76.9% in 1995
to 75.1% in 1996 due primarily to a 2.0% decline in the cost of raw materials.
OPERATING AND DELIVERY EXPENSES. Operating and delivery expenses increased
$2.7 million, or 23.7%, from $11.4 million in 1995 to $14.1 million in 1996.
This increase was primarily attributable to the increased shipments described
above. As a percentage of net sales, operating and delivery expenses increased
from 9.4% in 1995 to 10.5% in 1996. This percentage increase was primarily due
to higher transportation costs to support an expanding market area.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $4.3 million, or 44.3%, from $9.7 million in
1995 to $14.0 million in 1996. The increase in selling, general and
administrative expenses was primarily due to a $3.6 million compensation charge
during the fourth quarter of 1996 related to 400,000 shares of Common Stock that
were sold to consultants and members of management at $0.01 per share. As a
percentage of net sales, selling, general and administrative expenses increased
from 8.0% for 1995 to 10.5% for 1996. This percentage increase was primarily due
to the compensation charge described above.
OPERATING INCOME. Operating income decreased $2.4 million, or 44.4%, from
$5.4 million in 1995 to $3.0 million in 1996. The decrease in operating income
was primarily attributable to the compensation charge discussed above. As a
percentage of net sales, operating income decreased from 4.4% in 1995 to 2.2% in
1996.
INTEREST EXPENSE. Interest expense decreased $0.3 million, or 20.0%, from
$1.6 million for 1995 to $1.3 million for 1996. The decrease in interest expense
was primarily due to lower average balances outstanding under the revolving
credit facility.
RESULTS FOR 1995 COMPARED TO 1994
NET SALES. Net sales increased $13.6 million, or 12.6%, from $107.9
million in 1994 to $121.5 million in 1995. The increase in net sales was
principally due to a 7.4% increase in shipments, from 198,800 tons in 1994 to
213,500 tons in 1995. Additionally, average realized prices increased by
approximately 4.8%. Approximately one half of the increased shipments were
attributable to the Oakwood, Georgia facility that was acquired in March 1995.
COST OF SALES. Cost of sales increased $11.5 million, or 14.0%, from $81.9
million in 1994 to $93.4 million in 1995. The increase in cost of sales was
principally due to the increase in shipments. As a percentage of net sales, cost
of sales increased from 75.9% in 1994 to 76.9% in 1995. This percentage increase
was primarily due to a 6.3% increase in the cost of raw materials.
OPERATING AND DELIVERY EXPENSES. Operating and delivery expenses increased
$1.2 million, or 11.8%, from $10.2 million in 1994 to $11.4 million in 1995. The
increase in operating and delivery expenses was primarily due to the increase in
product shipments from the Oakwood, Georgia facility. As a percentage of net
sales, operating and delivery expenses remained unchanged at 9.4% for 1994 and
1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.6 million, or 6.6%, from $9.0 million in
1994 to $9.6 million in 1995. The increase in selling, general and
administrative expenses was primarily attributable to the addition of the new
service center and the increase in net sales. As a percentage of net sales,
selling, general and administrative expenses decreased from 8.4% in 1994 to 7.9%
in 1995. This percentage decrease is primarily due to spreading of these
expenses over a higher volume of net sales.
OPERATING INCOME. Operating income decreased $0.2 million, or 3.6%, from
$5.6 million in 1994 to $5.4 million in 1995. The decrease in operating income
was primarily attributable to the higher costs of raw material and the opening
of the new service center as discussed above. As a percentage of net sales,
operating income decreased from 5.2% in 1994 to 4.4% in 1995.
INTEREST EXPENSE. Interest expense increased $0.5 million, or 45.5%, from
$1.1 million for 1994 to $1.6 million for 1995. The increase in interest expense
was primarily due to increased borrowings used to finance the purchase of the
Oakwood, Georgia facility.
23
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company generated $2.6 million of net cash from operating activities
during 1996 and generated $5.9 million in net cash from operating activities for
the nine months ended September 30, 1997. Net cash used in investing activities
was $3.8 million and $67.5 million for 1996 and for the nine months ended
September 30, 1997, respectively. The principal use of cash during the nine
months ended September 30, 1997 was to fund the cash portion of the acquisition
cost for the Acquired Companies. Net cash provided by financing activities was
$2.1 million for 1996 and $71.3 million for the nine months ended September 30,
1997. For the nine months ended September 30, 1997, the cash provided by
financing activities consisted primarily of the net proceeds from the sale of
Common Stock of $58.6 million in connection with the IPO and borrowings under
the Credit Facility. At December 31, 1996, the Company had cash of $1.2 million,
working capital of $27.5 million and total debt of $18.1 million. At September
30, 1997, the Company had cash of $10.9 million, working capital of $158.6
million and total debt of $141.7 million.
The Company has a five-year unsecured revolving credit facility of $150.0
million (the "Credit Facility"). The Credit Facility will be used to fund
acquisitions, make capital expenditures, refinance debt of the Acquired
Companies and for general working capital requirements. The Credit Facility
requires the Company to comply with various affirmative and negative covenants
including: (i) the maintenance of certain financial ratios, (ii) restrictions on
additional indebtedness, (iii) restrictions on liens, guarantees and dividends,
(iv) obtaining the lenders' consent with respect to certain individual
acquisitions, and (v) maintenance of a specified level of consolidated tangible
net worth. At September 30, 1997, $130.0 million was outstanding and $20.0
million was available to the Company under the Credit Facility.
The Company intends to continue to actively pursue acquisition
opportunities. The Company expects to fund future acquisitions through the
issuance of additional Common Stock, borrowings, including use of amounts
available under its Credit Facility, and cash flow from operations. Capital
expenditures for equipment and expansion of facilities are expected to be funded
from cash flow from operations and supplemented as necessary by borrowings from
the Credit Facility or other sources of financing. To the extent the Company
funds a significant portion of the consideration for future acquisitions with
cash, it may have to increase the amount of the Credit Facility or obtain other
sources of financing. The Company anticipates that its cash flow from operations
will be sufficient to meet the Company's normal working capital and debt service
requirements for at least the next several years. The Company has initiated
discussions with the agent bank to expand its Credit Facility to as much as $300
million.
In July 1997, the Company closed its IPO of 5,900,000 shares of common
stock for which it received net proceeds of approximately $54.9 million, before
payment of estimated offering costs of $4.5 million. Concurrent with the
completion of the IPO, Metals acquired the Founding Companies for $27.8 million
in cash and 10,128,609 shares of common stock. The Company used a portion of the
Credit Facility together with the net proceeds from the IPO to retire
substantially all of the indebtedness of the Founding Companies. Additionally,
on August 12, 1997, the Company sold 885,000 shares of its common stock pursuant
to the overallotment option granted to the underwriters in connection with the
IPO for net proceeds of $8.2 million. The Company used the net proceeds to repay
borrowings on the Credit Facility and for other corporate purposes.
On September 26, 1997, the Company acquired four additional metal
processing companies. These acquisitions include Jeffreys, Meier, Harvey and
Federal Bronze. The acquisition of Jeffreys has been accounted for using the
"pooling-of-interests" method of accounting. The other acquisitions were
accounted for using the "purchase" method of accounting. Collectively, the
Company paid a total of $41.4 million in cash and issued 5,315,946 shares of
Common Stock in connection with these acquisitions. Additionally, the Company
also assumed $21.8 million of existing indebtedness of these companies.
RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation," allows entities to choose between a
new fair value based method of accounting for employee stock options or similar
equity instruments and the current intrinsic, value-based method of
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accounting prescribed by Accounting Principles Board Opinion No. 25 ("APB No.
25"). Entities electing to remain with the accounting in APB Opinion No. 25
must make pro forma disclosures of net income and earnings per share as if the
fair value method of accounting had been applied. The Company will provide pro
forma disclosure of net income and earnings per share, as applicable, in the
notes to future consolidated financial statements.
In February 1997, the Financial Accounting Standards Board issued Statement
of Accounting Standards No. 128, Earnings Per Share ("SFAS No. 128"). For the
Company, SFAS No. 128 will be effective for the year ended December 31, 1997.
SFAS No. 128 simplifies the standards required under current accounting rules
for computing earnings per share and replaces the presentation of primary
earnings per share and fully diluted earnings per share with a presentation of
basic earnings per share ("basic EPS") and diluted earnings per share
("diluted EPS"). Basic EPS excludes dilution and is determined by dividing
income available to common stockholders by the weighted average number of common
shares outstanding during the period. Diluted EPS reflects the potential
dilution that could occur if securities and other contracts to issue common
stock were exercised or converted into common stock. Diluted EPS is computed
similarly to fully diluted earnings per share under current accounting rules.
The implementation of SFAS No. 128 is not expected to have a material effect on
the Company's earnings per share as determined under current accounting rules.
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BUSINESS
Metals USA was founded to become a leading national value-added metals
processor/service center, to manufacture higher-value components from processed
metals and to pursue aggressively the consolidation of the highly-fragmented
metals processing industry. The Company believes that the metals
processor/service center industry in the United States is consolidating and
currently has as many as 3,500 participants collectively generating over $75
billion in annual revenues. The Company intends to play a major role in the
consolidation of this industry by combining a broad-based group of metals
processing and manufacturing companies. To be a leader in the consolidation of
the metals processing industry, the Company will be required to acquire and
deploy the capital-intensive equipment and technology necessary to meet rapidly
changing customer requirements. On July 11, 1997, Metals USA acquired the eight
Founding Companies which had 1996 pro forma net sales of $387.0 million. On
September 26, 1997, Metals USA acquired four additional companies and on October
29, 1997 agreed to acquire Wayne. Collectively, the Subsequent Acquisitions had
1996 pro forma net sales of $359.6 million. On average, the Acquired Companies
have been in business for over 40 years.
The Company intends to capitalize on the trend of both primary metals
producers and end-users of metal products to reduce in-house processing and
outsource processing and inventory management requirements. The Company's metals
processing business purchases metals from primary producers, who focus on large
volume sales of unprocessed metals, and in most cases performs customized
processing services to meet specifications provided by end-use customers. By
providing these services, as well as offering inventory management and
just-in-time delivery services, the Company enables its customers to reduce
material costs, enhance quality, decrease capital required for raw materials
inventory and processing equipment and save time, labor and other expenses. The
Company believes that these "partnering" relationships with suppliers and
customers enable it to reduce its customers' overall cost of their manufactured
metal products. In addition to its metals processing capabilities, the Company
manufactures higher-value components from processed metals, such as finished
building products, and produces a number of finished components machined from
specialty metals, such as bushings, pump parts and hydraulic cylinder parts. The
Company intends to continue its focus on the metal building products industry,
the single fastest growing segment of the metals processing industry.
The Acquired Companies sell to over 20,000 customers in businesses such as
the machining, furniture, transportation equipment, power and process equipment,
industrial/commercial construction, consumer durables and electrical equipment
industries, and machinery and equipment manufacturers. The Company believes that
its broad customer base and its wide array of metals processing capabilities,
products and services, coupled with its broad geographic coverage of the United
States, reduce the Company's susceptibility to economic fluctuations affecting
any one industry or geographical area.
INDUSTRY OVERVIEW
Companies operating in the metals industry can be generally characterized
as: (i) primary metals producers, (ii) metals processors/service centers or
(iii) end-users. The Company believes that both primary metals producers and
end-users are increasingly seeking to have their metals processing and inventory
management requirements met by value-added metals processors/service centers.
Primary metals producers, which manufacture and sell large volumes of steel,
aluminum and specialty metals in standard sizes and configurations, generally
sell only to those large end-users and metals processors/service centers who do
not require processing of the products and who can tolerate relatively long lead
times. Metals processors/service centers, which offer services ranging from
precision, value-added preproduction processing in accordance with specific
customer demands to storage and distribution of unprocessed metal products,
function as intermediaries between primary metals producers and end-users, such
as contractors and OEMs. End-users incorporate the processed metal into a
product, in some cases without further modification.
Historically, metals service centers provided few value-added services and
were little more than distribution centers, linking metals producers with all
but the largest end-users of metals. In the past two decades, however, the
metals service center business has evolved significantly, and the most
successful metals service centers have added processing capabilities, thereby
offering an increasingly broad range of
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value-added services and products both to primary metals producers and
end-users. This evolution has resulted from several trends in the primary metals
industry as well as trends among end-users.
The current trend among primary metals producers is to focus on their core
competency of high-volume production of a limited number of standardized metal
products. This change in focus has been driven by their need to develop and
improve efficient, volume-driven production techniques in order to remain
competitive. As a result, during the past two decades, most of the primary
producers have sold their service centers, many of which are now independently
owned, including several of the Acquired Companies.
At the same time, most end-users are no longer able to obtain processed
products directly from primary metals producers and have recognized the economic
advantages associated with outsourcing their customized metals processing and
inventory management requirements. Outsourcing permits end-users to reduce total
production cost by shifting the responsibility for preproduction processing to
value-added metals processors/service centers, whose higher efficiencies in
performing these processing services make the ownership and operation of the
necessary equipment more financially feasible.
Value-added metals processors/service centers have also benefitted from
growing customer demand for inventory management and just-in-time delivery
services. These services, which are not normally available from primary metals
producers, enable end-users to reduce material costs, decrease capital required
for inventory and equipment and save time, labor and other expenses. In response
to customer expectations, the more sophisticated value-added metals
processors/service centers have acquired specialized and expensive equipment to
perform customized processing and have installed sophisticated computer systems
to automate order entry, inventory tracking, management and sourcing and
work-order scheduling. Additionally, some value-added metals processors/service
centers have installed electronic data interchange ("EDI") between their
computer systems and those of their customers to facilitate order entry, timely
delivery and billing.
These trends have resulted in value-added metals processors/service centers
playing an increasingly important role in all segments of the metals industry.
For example, the percentage of total flat-rolled steel shipments sold by service
centers in the United States increased from approximately one-quarter in 1975 to
approximately one-half in 1995. Metals processors/service centers now serve the
needs of over 300,000 OEMs and fabricators nationwide.
INDUSTRY CONSOLIDATION
Based on industry data, the Company believes that the metals
processor/service center industry is highly fragmented, with as many as 3,500
participants. The Company believes that this industry is consolidating and that
most companies are small, owner-operated businesses with limited access to
capital for modernization and expansion. These owners traditionally have not had
a viable exit strategy, leaving them with few attractive liquidity options.
According to industry data, the metals processor/service center industry
generates over $75 billion in annual net sales.
The necessity for value-added metals processors/service centers to add
specialized processing equipment, manage inventory on behalf of their customers
and utilize sophisticated computer systems is requiring industry participants to
make substantial capital investments in order to remain competitive. In
addition, many customers are seeking to reduce their operating costs by limiting
the number of suppliers with whom they do business, often eliminating those
suppliers offering limited ranges of products and services. These trends have
placed the substantial number of small, owner-operated businesses at a
competitive disadvantage because their operations are limited as to product
line, processing equipment, inventory and service area, and they have limited
access to the capital resources necessary to increase their capabilities. As a
result, smaller companies without access to capital for expansion and
modernization are finding it increasingly difficult to compete as present
industry trends continue, and the Company believes these businesses are
potential acquisition candidates.
To date, the primary acquirors in the metals processor/service center
industry have been a few large metals service center companies that have
acquired businesses on a service center-by-service center basis. Following an
acquisition, the acquiror typically installs its operating systems, procedures
and management and eliminates the acquired service center's separate identity,
thereby effectively converting the business
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into a branch office. The Company believes that the sale of well-established
businesses to these acquirors is not an attractive alternative for many owners,
particularly those who do not wish to retire from the business. The Company,
therefore, believes significant acquisition opportunities exist for a
well-capitalized, national value-added metals processor/service center that
employs a decentralized operating strategy and preserves the identity of the
acquired businesses. The Company believes that this operating strategy and the
highly fragmented nature of the metals industry should allow it to be a leader
in the industry's consolidation.
STRATEGY
The Company's objective is to become a leading national value-added metals
processor/service center, to manufacture higher-value components from processed
metals and to pursue aggressively the consolidation of the highly-fragmented
metals processing industry. Management plans to achieve this goal by:
EXPANDING THROUGH ACQUISITIONS. The Company believes that the metals
processor/service center industry is highly fragmented and consolidating, with
as many as 3,500 participants, collectively generating over $75 billion in
annual net sales. The key elements of the Company's acquisition strategy are:
ENTER NEW GEOGRAPHIC MARKETS. The Company intends to expand into
geographic markets not currently served by the Founding Companies by
acquiring well-established value-added metals processors/service centers
that, like the Acquired Companies, are leaders in their regional markets.
EXPAND WITHIN EXISTING GEOGRAPHIC MARKETS. The Company also plans to
acquire additional value-added metals processors/service centers in many of
the markets in which it currently operates in order to expand the volume
and scope of the Company's operations in a particular market. The Company
also intends to pursue "tuck-in" acquisitions of smaller operations to
increase utilization at existing facilities, thereby improving operating
efficiencies and more effectively using its capital without a proportionate
increase in administrative costs.
ENTER COMPLEMENTARY PROCESSING AND SERVICES MARKETS. The Company
intends to acquire companies offering complementary processes and services
to those industries currently served by the Company as well as new
industries. This will enable existing and future customers to obtain a
broader range of value-added processes and services from the Company. The
Company also intends to leverage its metals processing capabilities by
acquiring leading companies who manufacture higher-value components from
processed metals.
OPERATING ON A DECENTRALIZED BASIS. The Company intends to manage the
Acquired Companies and subsequently acquired companies on a decentralized basis,
with local management retaining responsibility for day-to-day operations,
profitability and growth of the business. The Company believes that, while
maintaining strong operating and financial controls, a decentralized structure
will retain the entrepreneurial culture present in each of the Acquired
Companies and will allow the Company to capitalize on the considerable local and
regional market knowledge, goodwill, name recognition and customer relationships
possessed by each Acquired Company and subsequently acquired businesses.
ACCELERATING INTERNAL SALES GROWTH. A key component of the Company's
strategy is to accelerate internal sales growth at each Acquired Company and at
each subsequently acquired business. The key elements of this internal growth
strategy are:
EXPAND PRODUCTS AND SERVICES TO EXISTING CUSTOMERS. The Company
believes it will be able to expand the products and services it offers to
its existing customers by leveraging the specialized and diverse product,
processing and marketing expertise of individual Acquired Companies.
Additionally, the Company believes that there are significant opportunities
to accelerate internal growth by making capital investments in areas such
as inventory management, logistics systems and processing equipment,
thereby expanding the range of processes and services offered by the
Company. The Company intends to develop and maintain long-term
"partnering" relationships with customers in response to their demand for
shorter production cycles, outsourcing, just-in-time delivery and other
services that lower customers' total production costs.
ADD NEW CUSTOMERS. The Company believes that there are numerous OEMs
not currently served by the Company that could reduce their production
costs by taking advantage of the Company's
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processing, inventory management and other services. Many of these OEMs
currently perform in-house metals processing tasks and maintain significant
inventories of metal. Through its well-trained, technically competent sales
force, the Company believes that it can demonstrate to these OEMs the cost
savings achievable through the Company's processing, inventory management
and other services. The Company also intends to implement a Company-wide
marketing program that will utilize professional marketing services and to
adopt "best practices" among the Acquired Companies to identify, obtain
and maintain new customers. In addition, the Company intends to increase
its visibility through trade shows, associations, publications and
telemarketing.
IMPROVING OPERATING MARGINS. The Company believes that the combination of
the Acquired Companies will provide significant opportunities to realize
purchasing economies and increase the Company's profitability. The key
components of this strategy are:
INCREASE OPERATING EFFICIENCIES. The Company believes that the
combination of the Acquired Companies presents significant opportunities to
achieve operating efficiencies and cost savings. The Company intends to use
its increased purchasing power to gain volume discounts and to develop more
effective inventory management systems. The Company expects measurable cost
savings in such areas as vehicle leasing and maintenance, information
systems and contractual relationships with key suppliers. Moreover, the
Company intends to review its operating and training programs at the local
and regional levels to identify those "best practices" that can be
successfully implemented throughout its operations. As primary metals
producers and end-users continue to follow the industry trend of
outsourcing processing and distribution services to value-added metals
processors/services centers, the Company expects to increase asset
utilization, particularly of its metals processing machinery, and realize
increased efficiencies and economies of scale.
CENTRALIZE APPROPRIATE ADMINISTRATIVE FUNCTIONS. The Company believes
that there are significant opportunities to improve operating margins by
consolidating administrative functions such as financing, marketing,
insurance, employee benefits, accounting and risk management.
ACQUISITION PROGRAM
The Company believes it will be regarded by acquisition candidates as an
attractive acquiror because of: (i) the Company's strategy for creating a
national, comprehensive and professionally managed value-added metals
processor/service center company; (ii) the Company's decentralized operating
strategy which emphasizes an ongoing role for owners, management and key
personnel of acquired businesses, as well as meaningful equity positions for
these individuals which will enable them to participate in the Company's growth;
(iii) the Company's increased visibility and access to financial resources as a
public company; and (iv) the potential for increased profitability of the
acquired company due to purchasing economies, centralization of administrative
functions, enhanced systems capabilities and access to increased marketing
resources.
The Company believes management of the Acquired Companies will be
instrumental in identifying and completing future acquisitions. Some of the
Acquired Companies have recently completed acquisitions, which have given them
valuable acquisition experience. Moreover, several of the principals of the
Acquired Companies currently have leadership roles in industry trade
associations, which has enabled these individuals to become personally
acquainted with the owners of numerous acquisition targets across the country.
The Company expects that the visibility of these individuals and the Company
within the industry will increase the awareness of, and interest of acquisition
candidates in, the Company and its acquisition program. Within the past several
months, the Company has contacted the owners of a number of acquisition
candidates, several of whom have expressed interest in having their businesses
acquired by the Company.
As consideration for future acquisitions, the Company intends to use
various combinations of its Common Stock, cash and notes. The consideration for
each future acquisition will vary on a case-by-case basis, with the major
factors in establishing the purchase price being historical operating results,
future prospects of the target and the ability of the target to complement the
services offered by the Company. The Company believes that it can structure
acquisitions as tax-free reorganizations by using its Common Stock
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as consideration, which will be attractive to those targeted business owners
with a low tax basis in the stock of their businesses.
PROCESSING SERVICES AND PRODUCTS
The Company engages in preproduction processing of steel, aluminum and
specialty metals and acts as an intermediary between primary metals producers
and end-users. The Company purchases metals from primary producers, maintains an
inventory of various metals to allow rapid fulfillment of customer orders and
performs customized processing services to the specifications provided by
end-users and other customers. By providing these services, as well as offering
inventory management and just-in-time delivery services, the Company enables its
customers to reduce overall production costs and decrease capital required for
raw materials inventory and metals processing equipment.
The Company buys steel and aluminum from integrated mills and mini-mills
and specialty metals from foundries. The Company purchases its raw materials in
anticipation of projected customer requirements based on interaction and
feedback from customers, market conditions, historical usage and industry
research. Primary producers typically find it more cost effective to focus on
large volume production and sale of steel, aluminum and specialty metals in
standard sizes and configurations to large volume purchasers. For example,
flat-rolled steel is normally sold by mills in coils typically weighing between
40,000 and 50,000 pounds. The Company processes the metals to the precise
thickness, length, width, shape, temper and surface quality specified by its
customers. Value-added processes provided by the Company include:
o SHEARING AND CUTTING TO LENGTH -- the cutting of metals into pieces
and along the width of a coil to create sheets or plates.
o METALLURGY -- the analysis and testing of the physical and chemical
composition of metals.
o BLANKING -- the process in which flat-rolled metal is cut into precise
two dimensional shapes by passing it through a press employing a
blanking die.
o FLAME AND PLASMA CUTTING -- the cutting of metals to produce various
shapes according to customer-supplied drawings.
o LEVELING -- the flattening of metals to uniform tolerances for proper
machining.
o SLITTING -- the cutting of coiled metals to specified widths along the
length of the coil.
o PICKLING -- a chemical treatment to improve surface quality by
removing the surface oxidation and scale which develops on the metal
shortly after it is hot-rolled.
o TEE-SPLITTING -- the splitting of metal beams.
o EDGE TRIMMING -- a process which removes a specified portion of the
outside edges of coiled metal to produce uniform width and round or
smooth edges.
o CAMBERING -- the bending of structural steel to improve load-bearing
capabilities.
Additional capabilities of the Company include precision roll forming (the
process by which metals are bent and stretched into various shapes), machining
and applications engineering. Using these capabilities, the Company uses
processed metals to manufacture higher-value components, such as finished
building products, and machines specialty metals into such items as bushings,
pump parts and hydraulic cylinder parts.
Once an order is received, the appropriate inventory is selected and
scheduled for processing in accordance with the customer's requirements and
specified delivery date. Orders are monitored by the Company's computer systems,
including in certain locations, the use of bar coding to aid in, and reduce the
cost of, tracking material. The Company's computer systems record the source of
all metal shipped to customers. This enables the Company to identify the source
of any metal which later is shown not to meet industry standards or that fails
during or after manufacture. This capability is important to the Company's
customers as it allows them to assign responsibility for non-conforming or
defective metal to the mill or foundry that produced that metal. Many of the
products and services provided by the Company can be
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ordered and tracked through EDI, a sophisticated electronic network that
directly connects the Company's computer system to those of its customers.
A majority of the Company's orders are filled within 24 hours. This is
accomplished through the Company's special inventory management programs which
permit the Company to deliver processed metals in accordance with the
just-in-time inventory programs of its customers. The Company is required to
carry sufficient inventory of raw materials to meet the short lead time and
just-in-time delivery requirements of its customers.
While the Company ships products throughout the United States, most of its
customers are located within a 200-mile radius of the Company's facilities, thus
enabling an efficient delivery system capable of handling a large number of
short lead-time orders. The Company transports most of its products directly to
its customers either through common or contract trucking companies or through
its own trucks for short-distance and/or multi-stop deliveries.
The following two case studies are examples of the types of value-added
processes and services provided by two of the Founding Companies for their
customers:
Uni-Steel's largest customer is one of the world's largest elevator
and escalator manufacturers. Uni-Steel sells a variety of steel products to
this customer in customized lengths and performs the majority of its
preproduction processing and just-in-time inventory management. Uni-Steel
saws, shears, flame cuts, forms, punches and drills holes in the metal
parts and delivers the product within 24 hours of ordering.
Affiliated achieved substantial total production cost savings for a
major manufacturer of electrical components. Until the fall of 1995, the
customer bought all its steel directly from an integrated mill which
required this customer to carry substantial amounts of inventory as well as
its own processing equipment. Affiliated explained the benefits of its
inventory management, processing, just-in-time delivery and other services.
As an Affiliated customer, its steel inventory dropped from approximately
two months' supply to an approximately three days' supply, and the customer
realized a significant cash flow savings.
The Acquired Companies have quality control systems to ensure product
quality and traceability throughout processing. Quality controls include
periodic supplier audits, customer approved quality standards, inspection
criteria and metals source traceability. Two of the Acquired Companies'
facilities are currently seeking ISO (International Standards Organization) 9002
certification. Williams received its ISO 9002 certification in October 1997.
Management believes that the Company's emphasis on quality assurance is a
distinct competitive advantage and is increasingly important to customers
seeking to establish "partnering" relationships with their key suppliers.
SOURCES OF SUPPLY
In recent years, steel and aluminum production in the United States has
varied from period to period as mills attempt to match production to projected
demand. Periodically, this has resulted in shortages of, or increased ordering
lead times for, some steel or aluminum products as well as fluctuations in
price. Typically, metals producers announce price changes only once or twice per
year, often sufficiently in advance to allow the Company to order additional
products prior to the effective date of a price increase or to defer purchases
until effectiveness of a price decrease. The Company's purchasing decisions are
based on its forecast of the availability of metal products, ordering lead times
and pricing as well as its prediction of customer demand for specific products.
The Company purchases steel and aluminum from domestic and foreign
integrated mills and mini-mills and specialty metals from foundries. The
Company's principal domestic steel suppliers are Nucor Corp., LTV Steel Co.,
Bethlehem Steel Corp. and National Steel Corp. Although most forms of steel and
aluminum produced by mills can be obtained from a number of integrated mills or
mini-mills, both domestically and internationally, there are a few products that
are available from only a limited number of producers. Since most metals are
shipped F.O.B. the mill, and the transportation of metals is a significant cost
factor, the Company seeks to purchase metals to the extent possible from the
nearest mill unless a more
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distant mill has a significantly lower price. The Company believes that it can
purchase raw materials in sufficient quantities to permit it to realize
purchasing economies and discounts from its suppliers. The Company believes it
is not materially dependent on any one of its suppliers for raw materials and
that its relationships with its suppliers are good.
SALES AND MARKETING; CUSTOMERS
The Company believes that its commitment to consistent quality, service and
just-in-time delivery has enabled it to develop and maintain long-term
relationships with existing customers, while expanding its market penetration
through the use of its sales and marketing program. The Company's sales and
marketing program focuses on the identification of OEMs and other metals
end-users that could achieve significant cost savings through the use of the
Company's inventory management, processing, just-in-time delivery and other
services. The typical target customer carries a significant inventory of
unprocessed metal and performs most of its own processing. The Company uses a
variety of methods to identify these target customers, including the utilization
of databases, telemarketing, direct mail and participation in manufacturers'
trade shows. Customer referrals and the knowledge of the Company's sales force
about regional end-users also result in the identification of target customers.
Once a target customer is identified, the Company's "outside" salespeople
assume responsibility for visiting the appropriate person at the target,
typically the purchasing manager or manager of operations. The Company's
salesperson seeks to explain the potential cost savings achievable through the
Company's services and the Company's commitment to service and quality.
The Company employs a sales force consisting of "inside" and "outside"
salespeople. "Inside" salespeople are primarily responsible for maintaining
customer relationships, receiving and soliciting individual orders and
responding to service and other inquiries by customers. Increasingly, these
"inside" salespeople have been given responsibility for telemarketing to
target customers. The Company's "outside" sales force is primarily responsible
for identifying target customers and calling on them to explain the Company's
services. The sales force is trained and knowledgeable about the characteristics
and applications of various metals and applications as well as the manufacturing
methods employed by the Company's customers. The Company believes that its high
level of interaction with its customers provides it with meaningful feedback and
information about sales opportunities. For example, Southern Alloy has shown
customers that a component of a machine (such as hydraulic cylinder parts) would
be less expensive and more effective if manufactured from Dura-Bar , a
continuous cast iron product which is a registered trademark of Wells
Manufacturing Company, Dura-Bar Division, because Dura-Bar has greater
machinability and improved application performance characteristics.
Nearly all sales by the Company are on a negotiated price basis. In some
cases, sales are the result of a competitive bid process where a customer sends
the Company and several competitors a list of products required, and the Company
submits a bid on each product.
The Company has a diverse customer base of more than 20,000 customers, with
no single customer accounting for more than 10% of the Company's pro forma
revenues in 1996. The Company believes that its long-term relationships with
many of its customers contribute significantly to its success.
COMPETITION
The Company is engaged in a highly-fragmented and competitive industry.
Competition is based primarily on price, quality, service, timeliness and
geographic proximity. The Company competes with a large number of other metals
processors/service centers on a regional and local basis, some of which may have
greater financial resources than the Company, and several of which are public
companies. The Company also competes to a lesser extent with primary metals
producers, who typically sell directly only to very large customers requiring
regular shipments of large volumes of metals. The Company may also face
competition for acquisition candidates from these public companies, most of whom
have acquired a number of metals service center businesses during the past
decade. Other smaller metals processors/service centers may also seek
acquisitions from time to time.
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The Company believes that it will be able to compete effectively because of
its significant number of locations, geographic dispersion, knowledgeable and
trained sales force, integrated computer systems, modern equipment, broad-based
inventory, combined purchasing volume and operational economies of scale. The
Company intends to seek to differentiate itself from its competition in terms of
service and quality by investing in systems and equipment and by offering a
broad range of products and services as well as through its entrepreneurial
culture and decentralized operating structure.
GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS
The Company's operations are subject to a number of federal, state and
local regulations relating to the protection of the environment and to workplace
health and safety. In particular, the Company's operations are subject to
extensive federal, state and local laws and regulations governing waste
disposal, air and water emissions, the handling of hazardous substances,
environmental protection, remediation, workplace exposure and other matters.
Hazardous materials the Company uses in its operations include lubricants,
cleaning solvents and hydrochloric acid used in its pickling operations at three
facilities.
The Company's management believes that the Company is in substantial
compliance with all such laws and does not currently anticipate that the Company
will be required to expend any substantial amounts in the foreseeable future in
order to meet current environmental or workplace health and safety requirements.
However, some of the properties owned or leased by the Company are located in
areas with histories of heavy industrial use, three of which are on or near
sites listed on the CERCLA National Priority List. The Company believes that as
many as three of the properties leased by the Founding Companies have been
contaminated by pollutants which have migrated from neighboring facilities or
have been deposited by prior occupants.
Prior to entering into the agreements relating to the Mergers and the
Subsequent Acquisitions, the Company evaluated the properties owned or leased by
the Acquired Companies and engaged an independent environmental consulting firm
to conduct or review assessments of environmental conditions at these
properties. Although no environmental claims have been made against the Company
and it has not been named as a potentially responsible party by the
Environmental Protection Agency or any other party, it is possible that the
Company could be identified by the Environmental Protection Agency, a state
agency or one or more third parties as a potentially responsible party under
CERCLA or under analogous state laws. If so, the Company could incur substantial
litigation costs to prove that it is not responsible for the environmental
damage. The Company has obtained limited indemnities from the stockholders of
the Acquired Companies (ranging from approximately $50,000 to $7.6 million per
Acquired Company) whose facilities are located at the contaminated sites. The
Company believes that these indemnities will be adequate to protect it from a
material adverse effect on its financial condition should the Company be found
to be responsible for a share of the clean-up costs. The limited indemnities are
subject to certain deductible amounts, however, and there can be no assurance
that these limited indemnities will fully protect the Company.
MANAGEMENT INFORMATION SYSTEMS
Each of the Acquired Companies operates a management information system
that is used to purchase, monitor and allocate inventory throughout its
production facilities. The Company believes that these systems enable it to
manage inventory costs effectively and to achieve appropriate inventory turnover
rates. Many of these systems also include computerized order entry, sales
analysis, inventory status, work-in-process status, bar-code tracking, invoicing
and payment. These systems are designed to improve productivity for both the
Company and its customers. Six of the Acquired Companies use EDI, through which
they offer their customers a paperless process for order entry, shipment
tracking, customer billing, remittance processing and other routine matters. In
addition, several of the Acquired Companies have computer-aided drafting systems
that control equipment used to perform some metals processing functions.
EMPLOYEES
As of September 30, 1997, the Acquired Companies employed a total of
approximately 2,000 persons. Approximately 275 employees at seven sites were
members of one of six unions: the United Steelworkers
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of America; the International Association of Bridge, Structural, and Ornamental
Ironworkers of America; the International Brotherhood of Teamsters; Local 40 of
the Glass, Molders, Pottery, Plastic & Allied Workers International Union;
United Auto Workers Local 771; or the International Brotherhood of Boilermakers,
Iron Ship Builders, Blacksmiths, Forgers and Helpers. The Company's relationship
with these unions generally has been satisfactory, but occasional work stoppages
have occurred. Within the last five years, one work stoppage occurred at one
facility, which involved 28 employees and lasted 10 days. The Company currently
is a party to four collective bargaining agreements which expire at various
times. Collective bargaining agreements expiring in 1997, 1998 and 1999 cover
38, 126 and nine employees, respectively. Historically, the Acquired Companies
have succeeded in negotiating new collective bargaining agreements without a
strike.
From time to time, there are shortages of qualified operators of metals
processing equipment. In addition, turnover among less skilled workers is
relatively high. Following the Mergers, the Company intends to adopt "best
practices" for its employee benefits programs and human relations functions.
FACILITIES AND VEHICLES
The Company operates 31 metal processing facilities that are used to
receive, warehouse, process and ship metals, only one of which is owned. These
facilities utilize various metals processing and materials handling machinery.
Texas Aluminum/Cornerstone operates four facilities where it processes metals
into building products and operates 39 sales and distribution centers throughout
the western, southwestern and southeastern United States. Southern Alloy has one
facility located in Salisbury, North Carolina which has the capability of
machining various specialty metals, such as continuous cast iron and bronze
alloys, into components for manufacturing machinery and equipment. Many of the
Company's facilities are capable of being utilized at higher capacities, if
necessary. The Company is planning to expand three of its existing facilities
over the next 12 months, with one expansion already under construction. The
Company believes that its facilities after the planned expansions will be
adequate for its expected needs over the next several years. See "Certain
Transactions."
The Company operates a fleet of owned or leased trucks and trailers as well
as fork lifts and support vehicles. It believes these vehicles generally are
well-maintained and adequate for the Company's current operations. The Company
expects it will be able to purchase or lease vehicles at lower prices due to its
combined purchasing and leasing volume.
RISK MANAGEMENT, INSURANCE AND LITIGATION
The primary risks in the Company's operations are bodily injury, property
damage and injured workers' compensation. Upon completion of this Offering, the
Company intends to obtain and maintain liability insurance for bodily injury and
third-party property damage and workers' compensation coverage which it
considers sufficient to insure against these risks, subject to self-insured
amounts.
The Company is, from time to time, a party to litigation arising in the
ordinary course of its business, most of which involves claims for personal
injury or property damage incurred in connection with its operations. The
Company is not currently involved in any litigation that the Company believes
will have a material adverse effect on its financial condition or results of
operations.
SAFETY
The Company is committed to continuing the Acquired Companies' focus and
emphasis on safety in the workplace. The Acquired Companies currently have a
variety of safety programs in place, which may include regular weekly or monthly
field safety meetings, bonuses based on an employee's or a team's safety record
and training sessions to teach proper safety work procedures. The Company plans
to establish "best practices" throughout its operations to ensure that all
employees comply with safety standards established by the Company, its insurance
carriers and federal, state and local laws and regulations. In addition, the
Company intends to continue to promote the Acquired Companies' emphasis on an
accident-free workplace.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information concerning the Company's
directors and executive officers upon completion of this Offering.
NAME AGE POSITION
- - ----------------------- ---- -------------------------------------
Arthur L. French....... 57 Chairman of the Board, Chief
Executive Officer and President
Arnold W. Bradburd..... 72 Vice-Chairman of the Board, Chairman
and Chief Executive Officer of
Interstate
J. Michael Kirksey..... 42 Senior Vice President, Chief
Financial Officer and Director
Stephen R. Baur........ 32 Senior Vice President and Chief
Development Officer
John A. Hageman........ 43 Senior Vice President, General
Counsel and Secretary
Terry L. Freeman....... 47 Vice President and Corporate
Controller
Keith E. St. Clair..... 40 Vice President and Treasurer
Mark Alper............. 52 Vice President -- Development,
President of Queensboro, Director
Michael E. Christopher. 37 Senior Vice President, President of
Texas Aluminum/Cornerstone, Director
Craig R. Doveala....... 45 President of Service Systems,
Director
William B. Edge........ 38 President of Southern Alloy, Director
Patrick A. Notestine... 50 President of Affiliated, Director
Lester G. Peterson..... 56 President of Williams, Director
Richard A. Singer...... 51 Senior Vice President, Chief
Executive Officer of
Uni-Steel, Director
A. Leon Jeffreys....... 68 Director
Steven S. Harter....... 35 Director
Tommy E. Knight........ 58 Director
Richard H. Kristinik... 58 Director
T. William Porter...... 56 Director
Arthur L. French has served as Chairman of the Board, Chief Executive
Officer and President of the Company since December 1996 and has been involved
in the organization of the Company, the acquisition of the Founding Companies
and this Offering. From 1989 through 1996, Mr. French served as Executive Vice
President and a director of Keystone International, Inc. ("Keystone"), a
publicly-traded manufacturer of industrial valves and controls, with
responsibility for domestic and international operations. From 1966 to 1989, Mr.
French held various positions with Fisher Controls International, Inc., a
control valve and instrumentation manufacturer, and served as its President and
Chief Operating Officer and a director prior to joining Keystone. Mr. French is
also a director of Innovative Valve Technologies, Inc., whose shares are listed
on the NASDAQ.
Arnold W. Bradburd is Vice-Chairman of the Board of the Company. He has
been employed by Interstate since 1974, serving as Chairman of the Board and
Chief Executive Officer since 1979. Mr. Bradburd has served as National
Secretary of the Association of Steel Distributors and as Chairman of SSCI.
J. Michael Kirksey has served as Senior Vice President, Chief Financial
Officer and a director of the Company since March 1997. From 1995 through
February 1997, Mr. Kirksey was Director -- Business Development and Acquisitions
of Keystone. From 1993 to 1995, Mr. Kirksey was Vice President of Finance of
Keystone for European operations based in Brussels, Belgium, and from 1989 to
1993, he was Vice President and Controller of Keystone. From 1976 to 1989, Mr.
Kirksey was a certified public accountant with Arthur Andersen LLP.
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Stephen R. Baur is a Senior Vice President and Chief Development Officer of
the Company. From July 1996 until joining the Company, Mr. Baur was a Senior
Vice President of Notre. From November 1995 to June 1996, he was a consultant to
a venture capital firm. From July 1988 through September 1995, he was a
certified public accountant with Arthur Andersen LLP.
John A. Hageman has served as Vice President, General Counsel and Secretary
of the Company since April 1997. From 1987 through March 1997, Mr. Hageman was
Senior Vice President of Legal Affairs, General Counsel and Secretary of
Physician Corporation of America, a publicly-traded health maintenance
organization. From 1981 to 1987, Mr. Hageman was a partner with Klenda,
Mitchell, Austerman & Zuercher, a law firm in Wichita, Kansas.
Terry L. Freeman has served as Vice President and Corporate Controller of
the Company since April 1997. From February 1997 through March 1997, Mr. Freeman
served as Controller of Maxxam Inc. ("Maxxam"), a publicly-traded aluminum,
forest products operations and real estate investment and development company.
From May 1994 to February 1997, he was Assistant Controller of Maxxam, and from
June 1990 to May 1994, he was Director -- Financial Reporting of Maxxam. From
December 1984 to June 1990, he was a certified public accountant with Deloitte &
Touche LLP. From August 1980 to December 1984, Mr. Freeman was a certified
public accountant with Arthur Andersen LLP.
Keith E. St. Clair has served as Vice President and Treasurer of the
Company since April 1997. From 1987 through March 1997, he served as Corporate
Controller of Gundle/SLT Environmental, Inc.
("Gundle/SLT"), a publicly-traded manufacturer and installer of synthetic
lining systems. From 1980 through 1986, Mr. St. Clair was a certified public
accountant with Arthur Andersen LLP.
Mark Alper is the Vice President -- Development and a director of the
Company and President of Queensboro. He has been an employee of Queensboro since
1971 and President since 1995.
Michael E. Christopher is a Senior Vice President and a director of the
Company. He became Executive Vice President of Texas Aluminum in 1987, and
President of Cornerstone in 1995, and became President of Texas
Aluminum/Cornerstone in July 1997. Mr. Christopher currently serves as Vice
President of the Board of Directors of the National Patio Enclosure Association.
Craig R. Doveala is a director of the Company and the President of Service
Systems. He has been President of Service Systems since 1990.
William B. Edge is a director of the Company. He has been President of
Southern Alloy since 1990.
Patrick A. Notestine is a director of the Company and the President of
Affiliated. He has been President of Affiliated since 1988.
Lester G. Peterson is a director of the Company and the President of
Williams. He has been President of Williams since 1981. Mr. Peterson is a member
of the Wisconsin Board of the SSCI.
Richard A. Singer is a Senior Vice President and a director of the Company
and Chief Executive Officer of Uni-Steel. He has been President and Chief
Executive Officer of Uni-Steel since 1972.
A. Leon Jeffreys is the founder and has served as the Chairman of the Board
of Directors of Jeffreys since inception. Mr. Jeffreys was elected to the
Company's Board on October 21, 1997.
Steven S. Harter has been a director of the Company since July 1996. Mr.
Harter is the President of Notre. Prior to becoming the President of Notre, Mr.
Harter was Senior Vice President of Notre Capital Ventures, Ltd. From April 1989
to June 1993, Mr. Harter was Director of Mergers and Acquisitions for Allwaste,
Inc., a publicly-traded environmental services company. From May 1984 to April
1989, Mr. Harter was a certified public accountant with Arthur Andersen LLP. Mr.
Harter also serves as a director of Coach USA, Inc. and Comfort Systems USA,
Inc.
Tommy E. Knight is a director of the Company. Mr. Knight was President and
Chief Executive Officer of Brown and Root, Inc., a subsidiary of Halliburton
Company, and one of the largest international construction firms in the world,
from June 1992 until his retirement in December 1996. Prior to that time, he
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served in a variety of other capacities with Brown and Root, Inc. since joining
Brown and Root, Inc. in 1964.
Richard H. Kristinik is a director of the Company. Mr. Kristinik is the
Chairman of the Board of Directors and Chief Executive Officer of Coach USA,
Inc. and has served in that capacity since March 1996. Prior to that time, Mr.
Kristinik was a partner with Arthur Andersen LLP from 1973 to March 1996,
serving in its Houston office for all those years, except for the period from
1979 to 1984, when he served as Managing Partner of the Tulsa office, and the
period from 1985 to 1989, when he served as Managing Partner of the Denver
office.
T. William Porter is a director of the Company. Mr. Porter has been a
partner with Porter & Hedges, L.L.P., a law firm, since 1981 and currently
serves as a director of Gundle/SLT and ITEQ, Inc., a manufacturer of specialized
process equipment.
The Board of Directors has been divided into three classes of five, five
and four directors, respectively, with directors serving staggered three-year
terms, expiring at the annual meeting of stockholders in 1998, 1999 and 2000,
respectively. At each annual meeting of stockholders, one class of directors
will be elected for a full term of three years to succeed that class of
directors whose terms are expiring. The Company's Certificate of Incorporation
permits the holders of the Restricted Common Stock to elect one director. Mr.
Harter is the director elected by the holders of the Restricted Common Stock.
All officers serve at the discretion of the Board of Directors.
The Board of Directors has established an Acquisition Committee, Audit
Committee, Compensation Committee, Nominating Committee and Executive Committee.
The members of the Audit Committee are Messrs. Harter, Kristinik and Knight and
the members of the Compensation Committee are Messrs. Knight, Harter and Porter.
DIRECTORS COMPENSATION
Directors who are also employees of the Company or one of its subsidiaries
will not receive additional compensation for serving as directors. Each director
who is not an employee of the Company or one of its subsidiaries will receive a
fee of $2,000 for attendance at each Board of Directors' meeting and $1,000 for
each committee meeting (unless held on the same day as a Board of Directors'
meeting). In addition, under the Company's 1997 Non-Employee Directors' Stock
Plan, each non-employee director will automatically be granted an option to
acquire 10,000 shares of Common Stock upon such person's initial election as a
director, and an annual option to acquire 5,000 shares at each annual meeting of
the Company's stockholders thereafter at which such director is re-elected or
remains a director, unless such annual meeting is held within three months of
such person's initial election as a director. Each non-employee director also
may elect to receive shares of Common Stock or credits representing "deferred
shares" in lieu of cash directors' fees. See " -- 1997 Non-Employee Directors'
Stock Plan." Directors are also reimbursed for out-of-pocket expenses incurred
in attending meetings of the Board of Directors or committees thereof.
EXECUTIVE COMPENSATION; EMPLOYMENT AGREEMENTS; COVENANTS-NOT-TO-COMPETE
The Company was incorporated in July 1996, and prior to the IPO conducted
no operations and generated no net sales. The Company anticipates that during
1997 its most highly compensated executive officers (other than those employed
by an Acquired Company) will be Messrs. French, Kirksey, Baur and Hageman.
Each of Messrs. French and Kirksey have entered into an employment
agreement with the Company providing for an annual base salary of $150,000.
Messrs. Hageman and Baur have entered into employment agreements with the
Company providing for an annual base salary of $130,000 and $100,000,
respectively. Each employment agreement is for a term of three years, and unless
terminated or not renewed by the Company or not renewed by the employee, the
term will continue thereafter on a year-to-year basis on the same terms and
conditions existing at the time of renewal. Each of these agreements provide
that, in the event of a termination of employment by the Company without cause,
the employee will be entitled to receive from the Company an amount equal to one
year's salary, payable in one lump sum on the effective
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date of termination. In the event of a change in control of the Company (as
defined in the agreement) during the initial three-year term, if the employee is
not given at least five days' notice of such change in control, the employee may
elect to terminate his employment and receive in one lump sum three times the
amount he would receive pursuant to a termination without cause during such
initial term. The non-competition provisions of the employment agreement do not
apply to a termination without such notice. In the event the employee is given
at least five days' notice of such change in control, the employee may elect to
terminate his employment and receive in one lump sum two times the amount he
would receive pursuant to a termination without cause during such initial term.
In such event, the non-competition provisions of the employment agreement would
apply for two years from the effective date of termination. Each employment
agreement contains a covenant not to compete with the Company for a period of
two years immediately following termination of employment or, in the case of a
termination by the Company without cause in the absence of a change in control,
for a period of one year following termination of employment.
Each of Messrs. Bradburd, Christopher, Alper, Doveala, Edge, Jeffreys,
Notestine, Peterson and Singer have entered into an employment agreement with
his respective company providing for an annual base salary of $150,000. Each
employment agreement is for a term of five years, and unless terminated or not
renewed by the respective company or not renewed by the employee, the term will
continue thereafter on a year-to-year basis on the same terms and conditions
existing at the time of renewal. Each of these agreements provides that, in the
event of a termination of employment by the respective company without cause
during the first three years of the employment term (the "Initial Term"), the
employee will be entitled to receive from the respective company an amount equal
to his then current salary for the remainder of the Initial Term or for one
year, whichever is greater. In the event of a termination of employment with
cause during the final two years of the initial five-year term of the employment
agreement, the employee will be entitled to receive an amount equal to his then
current salary for one year. In either case, payment is due in one lump sum on
the effective date of termination. In the event of a change in control of the
Company (as defined in the agreement) during the Initial Term, if the employee
is not given at least five days' notice of such change in control, the employee
may elect to terminate his employment and receive in one lump sum three times
the amount he would receive pursuant to a termination without cause during the
Initial Term. The non-competition provisions of the employment agreement do not
apply to a termination without such notice. In the event the employee is given
at least five days' notice of such change in control, the employee may elect to
terminate his employment agreement and receive in one lump sum two times the
amount he would receive pursuant to a termination without cause during the
Initial Term. In such event, the non-competition provisions of the employment
agreement would apply for two years from the effective date of termination. Each
employment agreement contains a covenant not to compete with the Company for a
period of two years immediately following termination of employment or, in the
case of a termination by the Company without cause in the absence of a change in
control, for a period of one year following termination of employment.
1997 LONG-TERM INCENTIVE PLAN
No stock options were granted to, or exercised by or held by any executive
officer in 1996. In April 1997, the Board of Directors and the Company's
stockholders approved the Company's 1997 Long-Term Incentive Plan (the
"Plan"). The purpose of the Plan is to provide directors, officers, key
employees, consultants and other service providers with additional incentives by
increasing their ownership interests in the Company. Individual awards under the
Plan may take the form of one or more of: (i) either incentive stock options or
non-qualified stock options ("NQSOs"), (ii) stock appreciation rights; (iii)
restricted or deferred stock, (iv) dividend equivalents and (v) other awards not
otherwise provided for, the value of which is based in whole or in part upon the
value of the Common Stock.
The Compensation Committee will administer the Plan and select the
individuals who will receive awards and establish the terms and conditions of
those awards. The maximum number of shares of Common Stock that may be subject
to outstanding awards, determined immediately after the grant of any award, may
not exceed the greater of 2,500,000 shares or 13% of the aggregate number of
shares of Common Stock
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outstanding. Shares of Common Stock which are attributable to awards which have
expired, terminated or been canceled or forfeited are available for issuance or
use in connection with future awards.
The Plan will remain in effect until terminated by the Board of Directors.
The Plan may be amended by the Board of Directors without the consent of the
stockholders of the Company, except that any amendment, although effective when
made, will be subject to stockholder approval if required by any federal or
state law or regulation or by the rules of any stock exchange or automated
quotation system on which the Common Stock may then be listed or quoted.
At the closing of the IPO, NQSOs to purchase a total of 705,000 shares of
Common Stock were granted as follows: 200,000 shares to Mr. French, 100,000
shares to Mr. Kirksey, 100,000 shares to Mr. Baur, 75,000 shares to Mr. Hageman,
50,000 shares to Mr. Freeman, 50,000 shares to Mr. St. Clair and 130,000 shares
to other key employees of the Company. In addition, options to purchase
1,426,024 shares were granted to the employees of the Founding Companies at an
exercise price equal to the initial public offering price per share. Further,
options to purchase 1,056,500 shares of Common Stock, either have been or will
be issued to certain employees of the Subsequent Acquisitions. Except for
certain options previously issued by an Acquired Company, each of the foregoing
options has an exercise price ranging from $10.00 to $14.875 per share. With
respect to the foregoing, the Company expects to issue 130,000 options for
Common Stock with an exercise price of $6.81 per share to certain employees of
Wayne, in exchange for options that were issued and outstanding prior to the
proposed acquisition of Wayne. The number and exercise price for such options
were based upon the agreed exchange ratio for the capital stock of Wayne. These
options will vest at the rate of 20% per year, commencing on the first
anniversary of the date of issuance and will expire at the earlier of ten years
from the date of grant or three months following termination of employment.
1997 NON-EMPLOYEE DIRECTORS' STOCK PLAN
The Company's 1997 Non-Employee Directors' Stock Plan (the "Directors'
Plan"), which was adopted by the Board of Directors and approved by the
Company's stockholders in April 1997, provides for (i) the automatic grant to
each non-employee director serving at the consummation of the IPO of an option
to purchase 10,000 shares, (ii) the automatic grant to each non-employee
director of an option to purchase 10,000 shares upon such person's initial
election as a director, and (iii) an automatic annual grant to each non-employee
director of an option to purchase 5,000 shares at each annual meeting of
stockholders thereafter at which such director is re-elected or remains a
director, unless such annual meeting is held within three months of such
person's initial election as a director. All options have an exercise price per
share equal to the fair market value of the Common Stock on the date of grant
and are immediately vested and expire on the earlier of ten years from the date
of grant or one year after termination of service as a director. The Directors'
Plan also permits non-employee directors to elect to receive, in lieu of cash
directors' fees, shares or credits representing "deferred shares" at future
settlement dates, as selected by the director. The number of shares or deferred
shares received will equal the number of shares of Common Stock which, at the
date the fees would otherwise be payable, will have an aggregate fair market
value equal to the amount of such fees.
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CERTAIN TRANSACTIONS
ORGANIZATION OF THE COMPANY
In connection with the formation of the Company, Metals USA issued to Notre
a total of 3,367,914 shares of Common Stock for an aggregate cash consideration
of $35,375. Mr. Harter is the President of Notre and a director of the Company.
In April 1997, Notre exchanged 3,122,914 shares of Common Stock for 3,122,914
shares of Restricted Common Stock. See "Description of Capital Stock." Prior
to the consummation of the IPO, Notre advanced to the Company funds necessary to
effect the Mergers and the IPO. All of Notre's advances were repaid from the net
proceeds of the IPO.
From December 1996 through April 1997, the Company issued a total of
695,000 shares of Common Stock (as adjusted for a 135.81-to-one stock split) at
$.01 per share to various members of management, as follows: Mr.
French -- 260,000 shares, Mr. Kirksey -- 120,000 shares, Mr. Baur -- 120,000
shares, Mr. Freeman -- 60,000 shares, Mr. St. Clair -- 60,000 shares and Mr.
Hageman -- 75,000 shares. The Company also issued 690,500 shares of Common Stock
at $0.01 per share to other employees of and consultants to the Company,
including a total of 405,000 shares of Common Stock to persons who will become
directors of the Company upon consummation of this Offering. The Company also
granted options to purchase 10,000 shares of Common Stock under the Directors'
Plan, effective upon the consummation of this Offering, to Mr. Harter, a
director of the Company, and to Messrs. Knight, Kristinik and Porter.
The aggregate consideration paid and to be paid by Metals USA for the
Acquired Companies consists of approximately $69.2 million in cash, 19,650,983
shares of Common Stock, plus the assumption of $133.1 million of indebtedness.
The consideration paid by Metals USA for each of the Acquired Companies was
determined by negotiation between representatives of each Acquired Company and
was based primarily upon the pro forma adjusted net income of each Acquired
Company.
Pursuant to the agreements that were entered into in connection with the
Acquisitions, the principal stockholders of the Acquired Companies have agreed
not to compete with the Company for five years, effective on the respective
dates of acquisition.
LEASES OF REAL PROPERTY BY ACQUIRED COMPANIES
Interstate leases the facilities located in Philadelphia, Pennsylvania and
Baltimore, Maryland from Warehouse Real Estate Associates ("WREA"), a
partnership controlled by Mr. Bradburd, the Vice-Chairman of the Company, and
his wife. The leases are for an initial term of ten years and provide for a
total annual rental of $234,000 during the initial five years, to be adjusted to
an applicable current market rate during the second five years. At the
conclusion of the initial lease term, Interstate has agreed to purchase the real
estate from WREA at a price to be determined by averaging two or more
independent appraisals. Additionally, Interstate pays all utility, taxes and
insurance costs on the leased premises. The Company believes that the rent to be
paid under the lease does not exceed fair market value.
Queensboro leases two adjacent tracts of real property located in
Wilmington, North Carolina from The Alper Company, a partnership of which Mr.
Alper, a director of the Company, is a controlling person. The lease on one
tract of real property is for a term of 20 years, expires in 2017 and provides
for an annual rental of $40,000. The rent will be adjusted every five years in
accordance with the Consumer Price Index ("CPI"). At the conclusion of the
tenth year of the lease, Queensboro has the option to purchase the real property
from The Alper Company for an amount equal to the average of three independent
appraisals. If Queensboro does not exercise its option, the annual rental will
be adjusted to reflect a ten year amortization of the fair market value of the
property. The lease on the other tract of real property is for a term of 20
years, expires in 2017 and provides for an annual rental of $137,200. The rent
will be adjusted every five years in accordance with the CPI. Queensboro will
pay for all utilities, taxes and insurance on the leased properties. The Company
believes that the rent for the properties does not exceed fair market value.
Service Systems leases certain real property located in Horicon, Wisconsin
from an entity owned in part by Mr. Doveala, a director of the Company. The
lease for the real property expires in 2011 and provides for an annual rental of
$420,000. The rental rate will be adjusted every three years in accordance
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with the CPI and will increase or decrease with changes in the prime rate.
Additionally, Service Systems pays for all utilities, taxes and insurance on the
leased premises. The Company believes that the rent for the property does not
exceed fair market value. The purchase of the real property, the construction of
improvements and the purchase of equipment was financed by the issuance of $5.0
million of industrial revenue bonds. Service Systems remains obligated to pay
these industrial revenue bonds.
Texas Aluminum leases certain real property located in Jackson, Mississippi
from an entity controlled by Mr. Christopher, a Senior Vice President and
director of the Company. The lease for the real property expires in 2012 and
provides for rental of $3,500 per month. The rent will be adjusted every three
years in accordance with the CPI. Additionally, Texas Aluminum pays for all
utilities, taxes and insurance on the leased premises. Texas Aluminum also
continues to lease from a number of entities owned by Mr. Christopher and/or
related affiliates the following facilities, which are used for manufacturing
and distribution services: (i) a warehouse in Lafayette, Louisiana for a term of
15 years at an annual rental of $24,000, (ii) three warehouses in Houston,
Texas, each for terms of 15 years and an aggregate monthly rental of $27,280,
(iii) a facility in Las Vegas, Nevada for $16,500 per month for a term of 15
years, (iv) a facility in Atlanta, Georgia for $6,000 per month for a term of 15
years, (v) a facility in Beaumont, Texas for $2,500 per month for a term of 15
years, (vi) a building in Weslaco, Texas for $2,500 per month for a term of 15
years, and (vii) a building in Oklahoma City, Oklahoma for $7,000 per month for
a term of 15 years. The Company believes that the rent for each of these
properties does not exceed fair market value.
Uni-Steel leases certain real property located in Enid, Oklahoma from
Garfield Development, LLC, an entity owned in part by Mr. Singer, a director of
the Company. The lease for the real property has a ten-year term and provides
for an annual rental of $115,000. The rent rate will be adjusted every five
years in accordance with the CPI. The Company believes that the rent for the
properties does not exceed fair market value.
Williams leases certain real property located in Milwaukee, Wisconsin from
PP&W, L.L.C., an entity owned in part by Mr. Peterson, a director of the
Company. The lease for the rental property expires on December 31, 2011, and
provides for an annual rental of $278,050, which rental shall increase to
$458,950 upon completion of improvements currently underway. The rent will be
adjusted every five years in accordance with the CPI. Additionally, Williams
pays for all utilities, taxes and insurance on the leased premises. The Company
believes that the rent for the properties does not exceed fair market value.
OTHER TRANSACTIONS
On or about July 11, 1997, Interstate purchased certain equipment from WREA
for $530,000. WREA is controlled by Mr. Bradburd, the Vice-Chairman of the
Company. The Company believes that the purchase price for the equipment does not
exceed the fair market value thereof. Interstate has guaranteed bank loans to
WREA. The balance of the loans guaranteed was $769,000 and $694,000 at December
31, 1995 and 1996, respectively. These guarantees were released prior to July
11, 1997.
Queensboro provides administrative services to Southern Metals Recycling,
Inc. ("Southern"), an entity owned in part by Mr. Alper, a director of the
Company. In its last fiscal year, Queensboro provided services and billed
Southern $344,000 for these services. The Company believes that the fees charged
for such services represent the fair market value of such services.
An entity owned in part by Mr. Christopher leases equipment to Texas
Aluminum/Cornerstone under several leases totaling $96,000 per year. The leases
expire December 31, 2011. Mr. Christopher is a director and officer of the
Company.
Texas Aluminum/Cornerstone holds two promissory notes from EmC Industries,
LLC ("EmC") having balances as of June 30, 1997, in the amounts of $116,433
and $324,401, which are payable monthly and are due on May 1, 2001, and March 1,
2007, respectively. In November 1996, Texas Aluminum/Cornerstone sold certain
machinery and equipment to EmC resulting in a gain of $242,000. Texas
Aluminum/Cornerstone is leasing this machinery from EmC for $72,000 per year
through December 2001. EmC is owned in part by Mr. Christopher, a director and
officer of the Company. The indebtedness was in each case incurred in connection
with the sale of equipment to EmC. The largest aggregate amount of
41
<PAGE>
indebtedness in each case at any time in the past three fiscal years on the
notes is $142,795 and $330,000, respectively. The rates of interest charged on
the loans are 8% and 7.5%, respectively. Texas Aluminum/Cornerstone holds a
promissory note in the original principal amount of $120,279 from EmC issued
June 1, 1996. The note was issued in connection with the sale of equipment to
EmC and earns interest at a rate of 8%. The note is payable monthly and matures
on May 1, 2001. The largest aggregate amount of indebtedness outstanding on the
note at any time in the past three fiscal years is $120,279 and the amount
outstanding as of December 31, 1996 was $108,866. Additionally, Texas
Aluminum/Cornerstone leases certain roll-former machines from EmC for a monthly
rental of $14,000.
The Company has agreed to indemnify Notre for liabilities arising in
connection with action taken by it in connection with its role as the organizer
of Metals USA prior to July 11, 1997.
COMPANY POLICY
Any future transactions with directors, officers, employees or affiliates
of the Company are anticipated to be minimal, and must be approved in advance by
a majority of disinterested members of the Board of Directors.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of the Common Stock, as of November 13, 1997, by (i) each person known
to own beneficially more than 5% of the outstanding shares of Common Stock; (ii)
each Company director; (iii) each named executive officer; and (iv) all
executive officers and directors as a group. All persons listed have an address
c/o the Company's principal executive offices and have sole voting and
investment power with respect to their shares unless otherwise indicated.
SHARES BENEFICIALLY
OWNED
----------------------
NUMBER PERCENT
------------ -------
Toby L. Jeffreys(1).................. 3,016,800 11.2%
Arnold W. Bradburd................... 1,967,814 7.3%
A. Leon Jeffreys(1).................. 1,576,391 5.8%
Steven S. Harter(2).................. 1,021,048 3.8%
Michael E. Christopher............... 648,837 2.4%
Richard A. Singer.................... 487,706 1.8%
Lester G. Peterson................... 477,544 1.8%
Mark Alper........................... 416,137 1.5%
Patrick A. Notestine................. 398,703 1.5%
Craig R. Doveala..................... 334,497 1.2%
Arthur L. French..................... 223,846 *
J. Michael Kirksey(3)................ 120,000 *
Stephen R. Baur(4)................... 120,000 *
William B. Edge...................... 116,997 *
John A. Hageman(5)................... 75,000 *
Keith E. St. Clair(6)................ 60,000 *
Terry L. Freeman..................... 60,000 *
Richard H. Kristinik(7).............. 30,000 *
T. William Porter(7)................. 23,846 *
Tommy E. Knight(7)................... 20,000 *
------------ -------
All executive officers, directors and
named directors as a group
(20 persons)(8).................... 9,937,387 36.8%
============ =======
- - ------------
* Less than 1%
(1) Includes 1,247,779 shares of Common Stock held by Jeffreys Family
Partnership, of which Mr. Toby Jeffreys and Mr. Leon Jeffreys are both
general partners.
(2) Includes 10,000 shares of Common Stock issuable upon the exercise of options
granted under the Directors' Plan.
(3) Includes 12,000 shares of Common Stock held by Mr. Kirksey's minor children
and of which he is custodian.
(4) Includes 10,000 shares of Common Stock held by Mr. Baur's minor children and
of which he is custodian.
(5) Includes 15,000 shares of Common Stock held by Mr. Hageman's minor children
and of which he is custodian.
(6) Includes 4,000 shares of Common Stock held by Mr. St. Clair's minor children
and of which he is custodian.
(7) Includes 10,000 shares of Common Stock issuable upon the exercise of options
granted under the Directors' Plan.
(8) This amount has been adjusted to eliminate any duplication of beneficial
ownership attributable to the 1,247,779 shares owned by the Jeffreys Family
Partnership and the 10,000 shares described in note (2).
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DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of 58,122,914 shares
of capital stock, consisting of 50,000,000 shares of Common Stock, 3,122,914
shares of Restricted Common Stock and 5,000,000 shares of Preferred Stock
("Preferred Stock"). At September 30, 1997, the Company had outstanding
26,982,969 shares of Common Stock, including 3,122,914 shares of Restricted
Common Stock and no shares of Preferred Stock. The following discussion is
qualified in its entirety by reference to the Restated Certificate of
Incorporation of Metals USA, which is included as an exhibit to the Registration
Statement of which this Prospectus is a part.
COMMON STOCK AND RESTRICTED COMMON STOCK
The holders of Common Stock are each entitled to one vote for each share
held on all matters to which they are entitled to vote, including the election
of directors. The holders of Restricted Common Stock, voting together as a
single class, are entitled to elect one member of the Company's Board of
Directors and to 0.55 of one vote for each share held on all other matters on
which they are entitled to vote. Holders of Restricted Common Stock are not
entitled to vote on the election of any other directors. Upon consummation of
this Offering, the Board of Directors will be classified into three classes as
nearly equal in number as possible, with the term of each class expiring on a
staggered basis. The classification of the Board of Directors may make it more
difficult to change the composition of the Board of Directors and thereby may
discourage or make more difficult an attempt by a person or group to obtain
control of the Company. Cumulative voting for the election of directors is not
permitted. Any director, or the entire Board of Directors, may be removed at any
time, with cause, by a majority of the aggregate number of votes which may be
cast by the holders of outstanding shares of Common Stock and Restricted Common
Stock entitled to vote for the election of directors, provided, however, that
only the holders of the Restricted Common Stock may remove the director such
holders are entitled to elect.
Subject to the rights of any then outstanding shares of Preferred Stock,
holders of Common Stock and Restricted Common Stock are entitled to participate
pro rata in such dividends as may be declared in the discretion of the Board of
Directors out of funds legally available therefor. Holders of Common Stock and
Restricted Common Stock are entitled to share ratably in the net assets of the
Company upon liquidation after payment or provision for all liabilities and any
preferential liquidation rights of any Preferred Stock then outstanding. Holders
of Common Stock and holders of Restricted Common Stock have no preemptive rights
to purchase shares of stock of the Company. Shares of Common Stock are not
subject to any redemption provisions and are not convertible into any other
securities of the Company. Shares of Restricted Common Stock are not subject to
any redemption provisions but are convertible into Common Stock, on the
occurrence of certain events. All outstanding shares of Common Stock and
Restricted Common Stock are fully paid and non-assessable.
Each share of Restricted Common Stock will automatically convert to Common
Stock on a share-for-share basis (i) in the event of a disposition of such share
of Restricted Common Stock by the holder thereof (other than a distribution
which is a distribution by a holder to its partners or beneficial owners, or a
transfer to a related party of such holder (as defined in Sections 267, 707, 318
and/or 4946 of the Internal Revenue Code of 1986, as amended)), (ii) in the
event any person acquires beneficial ownership of 15% or more of the outstanding
shares of Common Stock, or (iii) in the event any person offers to acquire 15%
or more of the total number of outstanding shares of Common Stock. After July 1,
1998, the Board of Directors may elect to convert any outstanding shares of
Restricted Common Stock into shares of Common Stock in the event 80% or more of
the originally outstanding shares of Restricted Common Stock have been
previously converted into shares of Common Stock.
The Common Stock is listed on The New York Stock Exchange under the symbol
"MUI." The Restricted Common Stock is not listed on any exchange.
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PREFERRED STOCK
The Preferred Stock may be issued from time to time by the Board of
Directors in one or more series. Subject to the provisions of the Company's
Certificate of Incorporation and limitations prescribed by law, the Board of
Directors is expressly authorized to adopt resolutions to issue the shares, to
fix the number of shares and to change the number of shares constituting any
series and to provide for or change the voting powers, designations, preferences
and relative, participating, optional or other special rights, qualifications,
limitations or restrictions thereof, including dividend rights (including
whether dividends are cumulative), dividend rates, terms of redemption
(including sinking fund provisions), redemption prices, conversion rights and
liquidation preferences of the shares constituting any series of the Preferred
Stock, in each case without any further action or vote by the stockholders. The
Company has no current plans to issue any shares of Preferred Stock.
One of the effects of undesignated Preferred Stock may be to enable the
Board of Directors to render more difficult or to discourage an attempt to
obtain control of the Company by means of a tender offer, proxy contest, merger
or otherwise, and thereby to protect the continuity of the Company's management.
The issuance of shares of the Preferred Stock pursuant to the Board of
Directors' authority described above may adversely affect the rights of the
holders of Common Stock. For example, Preferred Stock issued by the Company may
rank prior to the Common Stock and Restricted Common Stock as to dividend
rights, liquidation preference or both, may have full or limited voting rights
and may be convertible into shares of Common Stock. Accordingly, the issuance of
shares of Preferred Stock may discourage bids for the Common Stock or may
otherwise adversely affect the market price of the Common Stock.
STATUTORY BUSINESS COMBINATION PROVISION
The Company is subject to Section 203 of the DGCL which, with certain
exceptions, prohibits a Delaware corporation from engaging in any of a broad
range of business combinations with any "interested stockholder" for a period
of three years following the date that such stockholder became an interested
stockholder, unless: (i) prior to such date, the Board of Directors of the
corporation approved either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder, (ii) upon
consummation of the transaction which resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding for purposes of determining the number of shares
outstanding those shares owned (a) by persons who are directors and officers and
(b) by employee stock plans in which employee participants do not have the right
to determine confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer, or (iii) on or after such date, the
business combination is approved by the Board of Directors and authorized at an
annual or special meeting of stockholders by the affirmative vote of at least
66 2/3% of the outstanding voting stock which is not owned by the interested
stockholder. An "interested stockholder" is defined as any person that is (a)
the owner of 15% or more of the outstanding voting stock of the corporation or
(b) an affiliate or associate of the corporation and was the owner of 15% or
more of the outstanding voting stock of the corporation at any time within the
three-year period immediately prior to the date on which it is sought to be
determined whether such person is an interested stockholder.
CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BYLAWS
Pursuant to the Company's Certificate of Incorporation and as permitted by
Delaware law, directors of the Company are not liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty, except for
liability in connection with a breach of duty of loyalty, for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, for dividend payments or stock repurchases illegal under Delaware law or
any transaction in which a director has derived an improper personal benefit.
Additionally, the Certificate of Incorporation of the Company provides that
directors and officers of the Company shall be, and at the discretion of the
Board of Directors non-officer employees and agents may be, indemnified by the
Company to the fullest extent authorized by Delaware law, as it now exists or
may in
45
<PAGE>
the future be amended, against all expenses and liabilities actually and
reasonably incurred in connection with service for or on behalf of the Company,
and further permits the advancing of expenses incurred in defense of claims.
The Certificate of Incorporation also provides that any action required or
permitted to be taken by the stockholders of the Company at an annual or special
meeting of stockholders must be effected at a duly called meeting and may not be
taken or effected by a written consent of stockholders in lieu thereof. The
Company's Bylaws provide that a special meeting of stockholders may be called
only by the Chief Executive Officer, by a majority of the Board of Directors or
by a majority of the Executive Committee of the Board of Directors. The Bylaws
provide that only those matters set forth in the notice of the special meeting
may be considered or acted upon at that special meeting. To amend or repeal the
Company's Bylaws, an amendment or repeal thereof must first be approved by the
Board of Directors or by affirmative vote of the holders of at least 66 2/3% of
the total votes eligible to be cast by holders of voting stock with respect to
such amendment or repeal.
The Company's Bylaws establish an advance notice procedure with regard to
the nomination, other than by or at the direction of the Board of Directors or a
committee thereof, of candidates for election as directors (the "Nomination
Procedure") and with regard to other matters to be brought by stockholders
before an annual meeting of stockholders of the Company (the "Business
Procedure"). The Nomination Procedure requires that a stockholder give prior
written notice, in proper form, of a planned nomination for the Board of
Directors to the Secretary of the Company. The requirements as to the form and
timing of that notice are specified in the Company's Bylaws. If the Chairman of
the Board of Directors determines that a person was not nominated in accordance
with the Nomination Procedure, such person will not be eligible for election as
a director. Under the Business Procedure, a stockholder seeking to have any
business conducted at an annual meeting must give prior written notice, in
proper form, to the Secretary of the Company. The requirements as to the form
and timing of that notice are specified in the Company's Bylaws. If the Chairman
of the Board of Directors determines that the other business was not properly
brought before such meeting in accordance with the Business Procedure, such
business will not be conducted at such meeting.
Although the Company's Bylaws do not give the Board of Directors any power
to approve or disapprove stockholder nominations for the election of directors
or of any other business desired by stockholders to be conducted at an annual or
any other meeting, the Company's Bylaws (i) may have the effect of precluding a
nomination for the election of directors or precluding the conduct of business
at a particular meeting if the proper procedures are not followed or (ii) may
discourage or deter a third party from conducting a solicitation of proxies to
elect its own slate of directors or otherwise attempting to obtain control of
the Company, even if the conduct of such solicitation or such attempt might be
beneficial to the Company and its stockholders.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is First Chicago
Trust Company of New York, 525 Washington Blvd., Jersey City, New Jersey 07303.
46
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
The Company has outstanding 26,982,969 shares of Common Stock, of which
8,077,363 shares are freely tradable without restriction unless acquired by
affiliates of the Company. None of the remaining outstanding shares of Common
Stock or Restricted Common Stock has been registered under the Securities Act,
which means that they may be resold publicly only upon registration under the
Securities Act or in compliance with an exemption from the registration
requirements of the Securities Act, including the exemption provided by Rule 144
thereunder.
In general, under Rule 144, if a period of at least one year has elapsed
between the later of the date on which restricted securities were acquired from
the Company or the date on which they were acquired from an affiliate, the
holder of such restricted securities (including an affiliate) is entitled to
sell a number of shares within any three-month period that does not exceed the
greater of (i) one percent of the then outstanding shares of the Common Stock
(approximately 270,000 shares, which does not reflect the issuance of the shares
contemplated by this registration statement) or (ii) the average weekly reported
volume of trading of the Common Stock during the four calendar weeks preceding
such sale. Sales under Rule 144 are also subject to certain requirements
pertaining to the manner of such sales, notices of such sales and the
availability of current public information concerning the Company. Affiliates
may sell shares not constituting restricted securities in accordance with the
foregoing volume limitations and other requirements but without regard to the
one year holding period. Under Rule 144(k), if a period of at least two years
has elapsed between the later of the date on which restricted securities were
acquired from the Company and the date on which they were acquired from an
affiliate, a holder of such restricted securities who is not an affiliate at the
time of the sale and has not been an affiliate for a least three months prior to
the sale is entitled to sell the shares immediately without regard to the volume
limitations and other conditions described above.
The Company and its officers, directors and certain stockholders who
beneficially own 14,882,023 shares in the aggregate have agreed not to sell or
otherwise dispose of any shares of Common Stock for a period of 180 days after
July 11, 1997 without the prior written consent of Alex. Brown & Sons
Incorporated, except that the Company may issue Common Stock in connection with
acquisitions or in connection with the Plan and the Directors' Plan (the
"Plans") or upon conversion of shares of the Restricted Common Stock. See
"Underwriting." In addition, all of the stockholders of the Founding Companies
and the Company's officers, certain directors and certain stockholders, which
beneficially own 14,882,023 shares of Common Stock, have agreed with the Company
that they will not sell any of their shares for a period of one year after July
11, 1997. These stockholders, however, have the right, in the event the Company
proposes to register under the Securities Act any Common Stock for its own
account or for the account of others, subject to certain exceptions, to require
the Company to include their shares in the registration, subject to the right of
the Company to exclude some or all of the shares in the offering upon the advice
of the managing underwriter. In addition, certain of such stockholders have
certain limited demand registration rights to require the Company to register
shares held by them following July 11, 1999.
The Company is registering 10,000,000 shares of its Common Stock under the
Securities Act for use by the Company in connection with future acquisitions. Of
these shares, 1,292,363 were issued in connection with the Subsequent
Acquisitions. After the effective date of such registration, these shares will
generally be freely tradable when issued, unless acquired by persons who become
affiliates of the Company or were affiliates of the acquired entity prior to the
acquisition. In some instances, however, the Company may contractually restrict
the sale of shares issued in connection with future acquisitions. The piggyback
registration rights described above do not apply to the registration statement
relating to these 10,000,000 shares.
No prediction can be made as to the effect, if any, that the sale of shares
or the availability of shares for sale will have on the market price for the
Common Stock prevailing from time to time. Nevertheless, sales, or the
availability for sale of, substantial amounts of the Common Stock in the public
market could adversely affect prevailing market prices and the future ability of
the Company to raise equity capital and complete any additional acquisitions for
Common Stock.
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<PAGE>
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed on for the
Company by Bracewell & Patterson, L.L.P., Houston, Texas.
EXPERTS
The financial statements of Metals USA, Jeffreys, Texas
Aluminum/Cornerstone, Uni-Steel, and Southern Alloy included elsewhere in this
Prospectus, and Registration Statement, to the extent and for the periods
indicated in their reports, have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports. The financial statements of Affiliated at August
31, 1996, and for the fifty-two weeks then ended, appearing in this Prospectus
and Registration Statement have been audited by Ernst & Young LLP, independent
auditors, and at September 2, 1995, and for each of the two fifty-two week
periods then ended, by Rubin, Brown, Gornstein & Co. LLP, independent auditors,
as set forth in their respective reports thereon appearing elsewhere herein, and
are included in reliance upon such reports given upon the authority of such
firms as experts in accounting and auditing. The combined financial statements
of Interstate as of December 31, 1996 and 1995 and for each of the three years
in the period ended December 31, 1996 included in this Prospectus have been
audited by Deloitte & Touche LLP, independent public accountants, as stated in
their report which is included herein, and have been so included in reliance
upon the report of such firm given upon their authority as experts in accounting
and auditing. The financial statements of Queensboro included elsewhere in this
Prospectus have been audited by McGladrey & Pullen, LLP, independent public
accountants, as indicated in their report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in giving said
report. The financial statements of Harvey included elsewhere in this Prospectus
have been audited by Klein, Bogakos, and Robertson, CPA's, Inc., independent
auditors, as indicated in their report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in giving said
report. The financial statements of Wayne included elsewhere in this Prospectus
have been audited by Meaden & Moore, Ltd., independent auditors, as indicated in
their report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said report.
ADDITIONAL INFORMATION
The Company has filed with the SEC a Registration Statement (which term
shall encompass any and all amendments thereto) on Form S-1 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to the Common Stock offered hereby. This Prospectus, which
is part of the Registration Statement, does not contain all the information set
forth in the Registration Statement and the exhibits and schedules thereto,
certain items of which are omitted in accordance with the rules and regulations
of the SEC. Statements made in this Prospectus as to the contents of any
contract, agreement or other document referred to are not necessarily complete.
With respect to each such contract, agreement or other document filed as an
exhibit to the Registration Statement, reference is hereby made to the exhibit
for a more complete description of the matter involved, and each such statement
shall be deemed qualified in its entirety by such reference. For further
information with respect to the Company, reference is hereby made to the
Registration Statement and such exhibits and schedules filed as a part thereof,
which may be inspected, without charge, at the Public Reference Section of the
SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the regional offices of the SEC located at Seven World Trade
Center, 13th Floor, New York, New York 10048 and at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. The SEC maintains a web
site that contains reports, proxy and information statements regarding
registrants that file electronically with the SEC. The address of this web site
is (http://www.sec.gov). Copies of all or any portion of the Registration
Statement may be obtained from the Public Reference Section of the SEC, upon
payment of the prescribed fees.
The Common Stock is listed on The New York Stock Exchange. Proxy Statments,
reports and other information concerning the Company that are filed under the
Exchange Act can be inspected at the offices of The New York Stock Exchange,
Inc., 20 Broad Street, New York, New York 10005.
48
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
METALS USA, INC. UNAUDITED PRO FORMA -----
Introduction to Unaudited Pro
Forma Financial Statements..... F-2
Unaudited Pro Forma Balance
Sheet.......................... F-3
Unaudited Pro Forma Statement of
Operations..................... F-4
Notes to Unaudited Pro Forma
Financial Statements........... F-6
METALS USA, INC. AND SUBSIDIARIES
Report of Independent Public
Accountants.................... F-11
Consolidated Balance Sheets..... F-12
Consolidated Statements of
Operations..................... F-13
Consolidated Statements of
Stockholders' Equity........... F-14
Consolidated Statements of Cash
Flows.......................... F-15
Notes to Consolidated Financial
Statements..................... F-16
FOUNDING COMPANIES
TEXAS ALUMINUM INDUSTRIES, INC. AND
AFFILIATES
Report of Independent Public
Accountants.................... F-25
Combined Balance Sheets......... F-26
Combined Statements of Income... F-27
Combined Statements of
Stockholders' Equity and
Members' Equity................ F-28
Combined Statements of Cash
Flows.......................... F-29
Notes to Combined Financial
Statements..................... F-30
INTERSTATE STEEL SUPPLY CO. AND
AFFILIATES
Independent Auditors' Report.... F-41
Combined Balance Sheets......... F-42
Combined Statements of Income... F-43
Combined Statements of
Stockholders' Equity and
Partners' Capital.............. F-44
Combined Statements of Cash
Flows.......................... F-45
Notes to Combined Financial
Statements..................... F-46
QUEENSBORO STEEL CORPORATION
Independent Auditors' Report.... F-50
Balance Sheets.................. F-51
Statements of Income............ F-52
Statements of Stockholders'
Equity......................... F-53
Statements of Cash Flows........ F-54
Notes to Financial Statements... F-55
AFFILIATED METALS COMPANY
Report of Independent
Auditors....................... F-61
Report of Independent
Auditors....................... F-62
Balance Sheets.................. F-63
Statements of Operations........ F-64
Statements of Stockholders'
Equity......................... F-65
Statements of Cash Flows........ F-66
Notes to Financial Statements... F-67
F-1
<PAGE>
PAGE
-----
SOUTHERN ALLOY OF AMERICA, INC.
Report of Independent Public
Accountants.................... F-73
Balance Sheets.................. F-74
Statements of Operations........ F-75
Statements of Stockholders'
Equity......................... F-76
Statements of Cash Flows........ F-77
Notes to Financial Statements... F-78
UNI-STEEL, INC.
Report of Independent Public
Accountants.................... F-83
Balance Sheets.................. F-84
Statements of Income............ F-85
Statements of Stockholders'
Equity......................... F-86
Statements of Cash Flows........ F-87
Notes to Financial Statements... F-88
JEFFREYS STEEL COMPANY, INC.
Report of Independent Public
Accountants.................... F-94
Balance Sheets.................. F-95
Statements of Income............ F-96
Statements of Stockholders'
Equity......................... F-97
Statements of Cash Flows........ F-98
Notes to Financial Statements... F-99
HARVEY TITANIUM, LTD.
Report of Independent
Auditors....................... F-107
Consolidated Balance Sheets..... F-108
Consolidated Statements of
Income......................... F-109
Consolidated Statements of
Stockholders' Equity........... F-110
Consolidated Statements of Cash
Flows.......................... F-111
Notes to Consolidated Financial
Statements..................... F-112
WAYNE STEEL, INC.
Independent Auditors Report..... F-118
Balance Sheets.................. F-119
Statements of Income............ F-120
Statements of Stockholders'
Equity......................... F-121
Statements of Cash Flows........ F-122
Notes to Financial Statements... F-123
F-1(a)
<PAGE>
METALS USA, INC. AND ACQUIRED COMPANIES
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The following unaudited pro forma financial statements give effect to the
acquisitions by Metals USA, Inc. ("Metals USA") of the outstanding capital
stock of Affiliated, Interstate, Texas Aluminum/Cornerstone, Queensboro,
Southern Alloy, Uni-Steel, Service Systems and Williams (together, the
"Founding Companies") and the outstanding stock of Federal Bronze, Harvey,
Jeffreys, Meier Metal and Wayne (together, the "Subsequent Acquisitions" and
together with the Founding Companies, "the Acquired Companies"). The Founding
Companies acquisitions (the "Mergers") occurred concurrently with the
consummation of Metals USA's initial public offering of 5,900,000 shares of its
Common Stock on July 11, 1997, and are accounted for using the "purchase"
method of accounting. On August 12, 1997, the Company sold 885,000 of its common
stock pursuant to an over allotment option with the underwriters. The sale by
the Company of the 6,785,000 shares of its Common Stock is hereinafter referred
to as the "IPO". The Subsequent Acquisitions were completed in two phases. On
September 26, 1997, acquisitions were completed which included Federal Bronze,
Harvey, Jeffreys and Meier Metal, with all except Jeffreys accounted for using
the "purchase" method of accounting. On October 29, 1997, Metals USA entered
into an agreement which, upon completion of certain regulatory approvals, would
call for the acquisition of Wayne using the "poolings-of-interest" method of
accounting.
The unaudited pro forma balance sheet gives effect to the acquisition of
Wayne as if it had occurred on September 30, 1997. The unaudited pro forma
statements of operations give effect to the Mergers, the IPO and the Subsequent
Acquisitions as if they had occurred on January 1, 1996.
Metals USA has preliminarily analyzed the savings that it expects to be
realized from reductions in salaries and certain benefits to the owners and
reductions in lease cost resulting from renegotiations of certain leases. To the
extent the owners of the Acquired Companies have agreed prospectively to
reductions in salary, bonuses and benefits and the reduction in lease cost has
been confirmed by lease agreements, these reductions have been reflected in the
pro forma statement of operations. In addition, the Company has a five-year
revolving credit facility of $150.0 million. Based on terms of the Credit
Facility, the Company believes that its interest expense will be reduced. This
reduction in interest expense has been reflected in the pro forma statements of
operations partially offset by increased interest expense with respect to
borrowings made to complete the Subsequent Acquisitions. It is anticipated that
other potential cost savings will be realized which will be offset by costs
related to Metals USA's new corporate management and by the costs associated
with being a public company. However, because these factors cannot be accurately
quantified at this time, they have not been included in the pro forma financial
information of Metals USA.
The pro forma adjustments are based on estimates, available information and
certain assumptions and may be revised as additional information becomes
available. The pro forma financial data do not purport to represent what Metals
USA's financial position or results of operations would actually have been if
such transactions had in fact occurred on those dates and are not necessarily
representative of Metals USA's financial position or results of operations of
Metals USA for any future period. Since the Acquired Companies were not under
common control or management, historical combined results may not be comparable
to, or indicative of, future performance. The unaudited pro forma financial
statements should be read in conjunction with the other financial statements and
notes thereto included elsewhere in this Prospectus. See "Risk Factors"
included elsewhere herein.
F-2
<PAGE>
METALS USA, INC.
UNAUDITED PRO FORMA BALANCE SHEET
SEPTEMBER 30, 1997
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
CONSOLIDATED WAYNE ADJUSTMENTS PRO FORMA
------------- ------- ------------ ----------
<S> <C> <C> <C> <C>
ASSETS
Cash................................. $ 10,949 $2,224 $ -- $ 13,173
Accounts receivable.................. 88,852 11,009 -- 99,861
Inventory............................ 124,486 22,718 -- 147,204
Prepaid expenses..................... 2,468 278 -- 2,746
Deferred income taxes................ 1,129 -- -- 1,129
Other................................ 2,408 18 -- 2,426
------------- ------- ------------ ----------
Total current assets.............. 230,292 36,247 -- 266,539
Property & equipment, net............ 51,420 18,811 -- 70,231
Goodwill............................. 122,563 -- -- 122,563
Other................................ 5,651 298 -- 5,949
------------- ------- ------------ ----------
Total assets...................... $ 409,926 $55,356 $ -- $465,282
============= ======= ============ ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable..................... $ 55,952 $9,925 $ -- $ 65,877
Accrued liabilities.................. 9,056 2,128 -- 11,184
Income taxes payable................. 1,933 15 -- 1,948
Notes payable........................ 1,000 2,157 -- 3,157
Current portion of long-term debt.... 2,812 1,057 -- 3,869
Payable to stockholders.............. 344 -- -- 344
Other................................ 619 -- -- 619
------------- ------- ------------ ----------
Total current liabilities......... 71,716 15,282 -- 86,998
Long-term debt....................... 137,842 15,513 -- 153,355
Deferred income taxes................ 6,117 -- -- 6,117
Other................................ 3,317 -- -- 3,317
------------- ------- ------------ ----------
Total liabilities................. 218,992 30,795 -- 249,787
Stockholders' equity:
Common stock........................ 270 37 5 312
Additional paid-in capital.......... 169,360 1,124 (5) 170,479
Unearned compensation............... (1,535) -- -- (1,535)
Retained earnings (deficit)......... 22,839 23,400 -- 46,239
------------- ------- ------------ ----------
Total stockholders' equity........ 190,934 24,561 -- 215,495
------------- ------- ------------ ----------
Total liabilities and stockholders'
equity.............................. $ 409,926 $55,356 $ -- $465,282
============= ======= ============ ==========
</TABLE>
F-3
<PAGE>
METALS USA, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
TWELVE MONTHS ENDED DECEMBER 31, 1996
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
TEXAS
ALUMINUM/ SOUTHERN
AFFILIATED INTERSTATE CORNERSTONE QUEENSBORO ALLOY UNI-STEEL HARVEY
---------- ---------- ------------ ---------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............................ $ 84,587 $ 66,806 $ 40,651 $ 54,996 $10,815 $56,726 $45,510
Costs and expenses:
Cost of sales..................... 72,952 47,902 27,146 38,912 7,084 45,069 35,007
Operating and delivery............ 5,604 8,243 6,386 8,355 709 5,696 1,910
Selling, general & administrative
expenses........................ 3,296 5,391 3,539 3,870 2,850 3,018 4,476
Depreciation and amortization..... 417 550 568 405 126 535 158
---------- ---------- ------------ ---------- -------- --------- -------
Operating income..................... 2,318 4,720 3,012 3,454 46 2,408 3,959
Interest expense..................... 1,164 936 682 587 168 561 483
Other................................ 78 10 (8) (77) (108 ) (193) 76
---------- ---------- ------------ ---------- -------- --------- -------
Income before tax.................... 1,076 3,774 2,338 2,944 (14 ) 2,040 3,400
Taxes................................ 402 -- 456 -- -- 770 1,463
---------- ---------- ------------ ---------- -------- --------- -------
Net income........................... $ 674 $ 3,774 $ 1,882 $ 2,944 $ (14 ) $ 1,270 $ 1,937
========== ========== ============ ========== ======== ========= =======
Earnings per share...................
Shares used in computing pro forma
earnings per share(1)...............
OTHER
ACQUIRED METALS PRO FORMA PRO FORMA
WAYNE COMPANIES USA ADJUSTMENTS 1996
-------- --------- --------- ------------ ----------
Net sales............................ $105,754 $135,091 $ 134,391 $ 11,256 $ 746,583
Costs and expenses:
Cost of sales..................... 82,770 103,529 100,868 7,391 568,630
Operating and delivery............ 9,915 12,457 14,130 31 73,436
Selling, general & administrative
expenses........................ 5,680 12,524 14,047 (10,302) 48,389
Depreciation and amortization..... 1,141 967 2,339 3,570 10,776
-------- --------- --------- ------------ ----------
Operating income..................... 6,248 5,614 3,007 10,566 45,352
Interest expense..................... 459 1,117 1,277 415 7,849
Other................................ (318) (241 ) (66) (28) (875 )
-------- --------- --------- ------------ ----------
Income before tax.................... 6,107 4,738 1,796 10,179 38,378
Taxes................................ 263 10 2,035 11,135 16,534
-------- --------- --------- ------------ ----------
Net income........................... $ 5,844 $ 4,728 $ (239) $ (956) $ 21,844
======== ========= ========= ============ ==========
Earnings per share................... $0.70
==========
Shares used in computing pro forma
earnings per share(1)............... 31,189,397
==========
</TABLE>
(1) Includes (i) 3,367,914 shares issued to Notre, (ii) 1,385,500 shares
issued to management of and consultants to Metals USA, (iii)
19,650,983 shares issued to owners of the Acquired Companies and (iv)
6,785,000 shares sold in the IPO. Excludes options to purchase
3,187,524 shares granted or to be granted upon consummation of the IPO
and Subsequent Acquisitions.
F-4
<PAGE>
METALS USA, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
TEXAS
ALUMINUM/ SOUTHERN
AFFILIATED INTERSTATE CORNERSTONE QUEENSBORO ALLOY UNI-STEEL HARVEY
---------- ---------- ------------ ---------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............................ $ 87,159 $ 55,348 $ 36,667 $ 46,881 $ 8,613 $48,186 $44,283
Costs and expenses:
Cost of sales..................... 74,592 40,634 24,208 34,296 5,589 38,600 35,025
Operating and delivery............ 7,665 7,036 4,687 6,720 604 4,875 1,790
Selling, general & administrative
expenses........................ 2,195 4,154 4,889 3,072 1,745 2,325 3,516
Depreciation and amortization..... 457 269 556 342 113 368 148
---------- ---------- ------------ ---------- -------- --------- -------
Operating income..................... 2,250 3,255 2,327 2,451 562 2,018 3,804
Interest expense..................... 913 467 640 449 74 406 672
Intercompany interest................ 461 307 322 255 49 184 --
Other (income) expense............... 859 100 (149) 51 (16 ) (91) --
---------- ---------- ------------ ---------- -------- --------- -------
Income (loss) before taxes........... 17 2,381 1,514 1,696 455 1,519 3,132
Taxes................................ 5 198 415 187 142 614 1,317
---------- ---------- ------------ ---------- -------- --------- -------
Net income (loss).................... $ 12 $ 2,183 $ 1,099 $ 1,509 $ 313 $ 905 $ 1,815
========== ========== ============ ========== ======== ========= =======
Earnings per share...................
Shares used in computing pro forma
earnings per share(1)...............
OTHER
ACQUIRED METALS PRO FORMA
WAYNE COMPANIES USA ADJUSTMENTS PRO FORMA
------- --------- --------- ------------ ----------
Net sales............................ $99,977 $105,684 $ 93,281 $ 395 $ 626,474
Costs and expenses:
Cost of sales..................... 79,811 81,082 68,350 113 482,300
Operating and delivery............ 8,912 10,097 10,147 (299) 62,234
Selling, general & administrative
expenses........................ 3,720 9,802 14,534 (11,819) 38,133
Depreciation and amortization..... 877 843 2,438 1,961 8,372
------- --------- --------- ------------ ----------
Operating income..................... 6,657 3,860 (2,188) 10,439 35,435
Interest expense..................... 571 727 1,861 (28) 6,752
Intercompany interest................ -- 263 (1,841) -- --
Other (income) expense............... (61) (161 ) (1,238) 71 (635 )
------- --------- --------- ------------ ----------
Income (loss) before taxes........... 6,147 3,031 (970) 10,396 29,318
Taxes................................ 225 91 2,165 7,038 12,397
------- --------- --------- ------------ ----------
Net income (loss).................... $ 5,922 $ 2,940 $ (3,135) $ 3,360 $ 16,921
======= ========= ========= ============ ==========
Earnings per share................... $ 0.54
==========
Shares used in computing pro forma
earnings per share(1)............... 31,189,397
==========
</TABLE>
(1) Includes (i) 3,367,914 shares issued to Notre, (ii) 1,385,500 shares
issued to management of and consultants to Metals USA, (iii)
19,650,983 shares issued to owners of the Acquired Companies and (iv)
the 6,785,000 shares sold in the IPO. Excludes options to purchase
3,187,524 shares granted or to be granted upon consummation of the IPO
and Subsequent Acquisitions.
F-5
<PAGE>
METALS USA, INC. AND ACQUIRED COMPANIES
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
1. GENERAL:
Metals USA, Inc. ("Metals USA") was founded to become a leading national
value-added metals processor/service center, to manufacture higher-value
components from processed metals and to pursue aggressively the consolidation of
the highly-fragmented metals processing industry. Prior to the IPO, Metals USA
had conducted no operations. Metals USA acquired the Founding Companies
concurrently with the consummation of the IPO, with the Subsequent Acquisitions
occurring on September 26, 1997 and October 29, 1997.
The historical financial statements reflect the financial position and
results of operations of the Acquired Companies and were derived from the
respective Acquired Companies' financial statements where indicated. The periods
included in these financial statements for the individual Founding Companies are
as of and for the nine months ended September 30, 1997 and for the twelve months
ended December 31, 1996.
2. ACQUISITION OF ACQUIRED COMPANIES:
Concurrently with and as a condition to the consummation of the IPO, Metals
USA acquired all of the outstanding capital stock of the Founding Companies.
These acquisitions were accounted for using the purchase method of accounting.
The Subsequent acquisitions were completed in two phases. On September 26, 1997
acquisitions were completed which included Federal Bronze, Harvey, Jeffreys and
Meier Metal, with all except Jeffreys accounted for using the purchase method of
accounting. On October 29, 1997, Metals USA entered into an agreement which,
upon completion of certain regulatory approvals, would call for the acquisition
of Wayne using the pooling-of-interests method of accounting.
The aggregate consideration paid and to be paid by Metals USA for the
Acquired Companies consists of approximately $69.2 million in cash, 19,650,983
shares of Common Stock, plus the assumption of $133.1 million of indebtedness.
The consideration paid by Metals USA for each of the Acquired Companies was
determined by negotiation between representatives of each Acquired Company and
was based primarily upon the pro forma adjusted net income of each Acquired
Company.
3. UNAUDITED PRO FORMA BALANCE SHEET ADJUSTMENT AS OF SEPTEMBER 30, 1997:
The pro forma adjustment in the unaudited pro forma balance sheet gives
effect to the issuance of Common Stock in exchange for the common stock of
Wayne.
F-6
<PAGE>
METALS USA, INC. AND ACQUIRED COMPANIES
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
4. UNAUDITED PRO FORMA STATEMENT OF OPERATIONS ADJUSTMENTS:
TWELVE MONTHS ENDED DECEMBER 31, 1996
(a) Reflects the reduction in certain related party rental and lease
expenses which has been agreed prospectively.
(b) Reflects the $8,302 reduction in salaries, bonuses and benefits to
the owners of the Acquired Companies to which they have agreed
prospectively and the reversal of the $3,636 non-cash compensation
charge related to the issuance of 400,000 shares of common stock
to management of and consultants to the Company offset by a $400
charge for recurring salary expenses of management.
(c) Reflects the amortization of goodwill to be recorded as a result
of the Mergers and Subsequent Acquisitions over a 40-year
estimated life plus additional depreciation expense due to the
allocation of a portion of the excess purchase price to property
and equipment.
(d) Reflects the assumed reductions in interest expense of $774 due to
refinancing of the outstanding indebtedness in conjunction with
the Mergers and $601 due to a reduction of $9,246 in outstanding
indebtedness assumed to be paid with a portion of the IPO
proceeds, offset by an assumed increase in interest expense of
$1,583 due to financing the Subsequent Acquisitions.
(e) Reflects the pre-acquisition results of operations for Cornerstone
Patio (acquired August 1996), Cornerstone Aluminum (acquired
February 1997) and Williams (acquired March 1996) as if the
acquisitions were completed as of January 1, 1996.
(f) Reflects certain other nonrecurring expenses with respect to the
Subsequent Acquisitions, such as expenses associated with
compensation plans which were terminated in conjunction with the
acquisitions of their respective companies.
(g) Reflects the incremental provision for federal and state income
taxes for all entities being combined and other statements of
operations adjustments.
The following table summarizes unaudited pro forma statements of operations
adjustments:
<TABLE>
<CAPTION>
PRO FORMA
(A) (B) (C) (D) (E) (F) (G) ADJUSTMENTS
--------- --------- --------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............................ $ -- $ -- $ -- $ -- $ 11,256 $ -- $ -- $11,256
Costs and expenses:
Cost of sales........................ -- -- -- -- 7,391 -- -- 7,391
Operating and delivery............... (514) -- -- -- 578 (33) -- 31
Selling, general and
administrative..................... -- (11,538) -- -- 1,822 (585) -- (10,302)
Depreciation and amortization........ -- -- 3,352 -- 218 -- -- 3,570
--------- --------- --------- --------- --------- --------- --------- -----------
Income from operations............... 514 11,538 (3,352) -- 1,247 618 -- 10,566
Other (income) expense:
Interest (income) expense........ -- -- -- 209 206 -- -- 415
Other (income) expense........... 97 -- -- -- (125) -- -- (28)
--------- --------- --------- --------- --------- --------- --------- -----------
Income before income taxes........... 417 11,538 (3,352) (209) 1,166 618 -- 10,179
Provision for income taxes........... -- -- -- -- 459 -- 10,676 11,135
--------- --------- --------- --------- --------- --------- --------- -----------
Net income........................... $ 417 $ 11,538 $ (3,352) $ (209) $ 707 $ 618 $ (10,676) $ (956)
========= ========= ========= ========= ========= ========= ========= ===========
</TABLE>
F-7
<PAGE>
METALS USA, INC. AND ACQUIRED COMPANIES
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
4. UNAUDITED PRO FORMA STATEMENT OF OPERATIONS ADJUSTMENTS (CONTINUED):
NINE MONTHS ENDED SEPTEMBER 30, 1997
(a) Reflects the reduction in certain related party rental and lease
expenses which has been agreed prospectively.
(b) Reflects the $5,623 reduction in salaries, bonuses and benefits to
the owners of the Founding Companies to which they have agreed
prospectively and the reversal of the $6,048 non-cash compensation
charge related to the issuance of 985,500 shares of common stock
to management of and consultants to the Company offset by a $350
charge for recurring salary expenses of management.
(c) Reflects the amortization of goodwill to be recorded as a result
of these Mergers over a 40-year estimated life plus additional
depreciation expense due to the allocation of a portion of the
excess purchase price to property and equipment.
(d) Reflects the assumed reductions in interest expense of $847 due to
refinancing of the outstanding indebtedness in conjunction with
the Mergers and $378 due to a reduction of $9,246 in outstanding
indebtedness assumed to be paid with a portion of the IPO
proceeds, offset by an assumed increased in interest expense of
$1,166 due to financing the Subsequent Acquisitions.
(e) Reflects the pre-acquisition results of Cornerstone Aluminum
(acquired February 1997) as if the acquisition was completed as of
January 1, 1997.
(f) Reflects certain other nonrecurring expenses with respect to the
Subsequent Acquisitions, such as expenses associated with
compensation plans which were terminated in conjunction with the
acquisitions of their respective companies.
(g) Reflects the incremental provision for federal and state income
taxes for all entities being combined and other statements of
operations adjustments.
The following table summarizes unaudited pro forma statements of operations
adjustments:
<TABLE>
<CAPTION>
PRO FORMA
(A) (B) (C) (D) (E) (F) (G) ADJUSTMENTS
--------- --------- --------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............................ $ -- $ -- $ -- $ -- $ 395 $ -- $ -- $ 395
Costs and expenses:
Cost of sales........................ -- -- -- -- 272 (159) -- 113
Operating and delivery............... (282) -- 16 (33) -- (299)
Selling, general and
administrative..................... -- (11,321) -- -- 68 (566) -- (11,819)
Depreciation and amortization........ -- -- 1,930 -- 31 -- -- 1,961
--------- --------- --------- --------- --------- --------- --------- -----------
Income from operations............... 282 11,321 (1,930) -- 8 758 -- 10,439
Other (income) expense:
Interest (income) expense........ -- -- -- (59) 30 -- -- (28)
Other (income) expense........... 73 -- -- -- -- (2) -- 71
--------- --------- --------- --------- --------- --------- --------- -----------
Income before income taxes........... 209 11,321 (1,930) 59 (22) 760 -- 10,396
Provision for income taxes........... -- -- -- -- -- -- 7,038 7,038
--------- --------- --------- --------- --------- --------- --------- -----------
Net income........................... $ 209 $ 11,321 $ (1,930) $ 59 $ (22) $ 760 $ (7,038) $ 3,358
========= ========= ========= ========= ========= ========= ========= ===========
</TABLE>
F-8
<PAGE>
METALS USA, INC. AND ACQUIRED COMPANIES
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
5. SUBSEQUENT EVENTS:
NEW ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued Statement
of Accounting Standards No. 128, Earnings Per Share ("SFAS No. 128") which
simplifies the standards required under current accounting rules for computing
earnings per share and replaces the presentation of primary earnings per share
and fully diluted earnings per share with a presentation of basic earnings per
share ("basic EPS") and diluted earnings per share ("diluted EPS"). Basic
EPS excludes dilution and is determined by dividing income available to common
stockholders by the weighted average number of common shares outstanding during
the period. Diluted EPS reflects the potential dilution that could occur if
securities and other contracts to issue common stock were exercised or converted
into common stock. Diluted EPS is computed similarly to fully diluted earnings
per share under current accounting rules. The implementation of SFAS No. 128 in
1997 is not expected to have a material effect on the Company's earnings per
share as determined under current accounting rules.
F-9
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Metals USA, Inc.
We have audited the accompanying consolidated balance sheets of Metals USA,
Inc. and subsidiaries as of December 31, 1995 and 1996, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether these financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Metals USA, Inc. and subsidiaries as of December 31, 1996, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
November 3, 1997
F-10
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- SEPTEMBER 30,
1995 1996 1997
------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash............................... $ 685 $ 1,208 $ 10,949
Accounts receivable, net of
allowance of $382, $259 and
$1,946........................... 14,160 13,361 88,852
Inventories........................ 21,770 21,512 124,486
Prepaid expenses................... 539 355 2,468
Deferred income taxes.............. 242 397 1,129
Other.............................. 222 579 2,408
------------ ------------ -------------
Total current assets.......... 37,618 37,412 230,292
Property and equipment, net............. 13,594 15,282 51,420
Goodwill, net........................... -- -- 122,563
Other assets............................ 2,133 1,879 5,651
------------ ------------ -------------
Total assets.................. $ 53,345 $ 54,573 $ 409,926
============ ============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term
debt............................. $ 686 $ 1,131 $ 2,812
Accounts payable................... 5,088 6,998 55,952
Income taxes payable............... 37 482 1,933
Accrued liabilities................ 2,071 1,302 9,056
Other current liabilities.......... -- -- 1,963
------------ ------------ -------------
Total current liabilities..... 7,882 9,913 71,716
Long-term debt, less current portion.... 23,267 17,037 137,842
Deferred income taxes................... 266 326 6,117
Other long-term liabilities............. 388 461 3,317
------------ ------------ -------------
Total liabilities............. 31,803 27,737 218,992
------------ ------------ -------------
Commitments and contingencies...........
Stockholders' equity:
Preferred stock, $.01 par,
5,000,000 shares authorized, none
issued and outstanding........... -- -- --
Common stock, $.01 par value,
53,122,914 shares authorized,
4,023,583, 7,791,497 and
26,982,969 shares outstanding,
respectively..................... 40 78 270
Additional paid-in capital......... 111 3,999 169,360
Unearned compensation.............. (2,437) (1,794) (1,535)
Retained earnings.................. 23,828 24,553 22,839
------------ ------------ -------------
Total stockholders' equity.... 21,542 26,836 190,934
------------ ------------ -------------
Total liabilities and
stockholders' equity....... $ 54,345 $ 54,573 $ 409,926
============ ============ =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-11
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------- -------------------------
1994 1995 1996 1996 1997
----------- ----------- ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............................... $ 107,897 $ 121,537 $ 134,391 $ 103,363 $ 195,328
Operating cost and expenses:
Cost of sales...................... 81,904 93,421 100,868 77,834 147,632
Operating and delivery............. 10,155 11,426 14,130 10,575 21,321
Selling, general and
administrative..................... 9,020 9,565 14,047 7,966 20,199
Depreciation and amortization...... 1,175 1,703 2,339 1,710 3,075
----------- ----------- ------------ ----------- ------------
Operating income........................ 5,643 5,422 3,007 5,278 3,101
Other (income) expense:
Interest expense................... 1,141 1,591 1,277 933 2,026
Other income....................... (205) (222) (66) (39) (315)
----------- ----------- ------------ ----------- ------------
Income before income taxes.............. 4,707 4,053 1,796 4,384 1,390
Provision for income taxes.............. 1,782 1,661 2,035 1,678 3,104
----------- ----------- ------------ ----------- ------------
Net income (loss)....................... $ 2,925 $ 2,392 $ (239) 2,706 $ (1,714)
=========== =========== ============ =========== ============
Earnings (loss) per share............... $ .73 $ .59 $ (0.04) $ .48 $ (.12)
=========== =========== ============ =========== ============
Shares used in computing earnings per
share................................. 4,023,583 4,023,583 6,393,780 5,590,644 14,259,702
=========== =========== ============ =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-12
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON PAID-IN RETAINED UNEARNED
STOCK CAPITAL EARNINGS COMPENSATION TOTAL
------ -------- --------- ------------ --------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993.............. $ 40 $ 3 $ 18,545 $ (3,510) $ 15,078
Shares released under leveraged
ESOP Plan........................ -- -- -- 650 650
Other adjustments.................. -- -- (34) -- (34)
Net income......................... -- -- 2,925 -- 2,925
------ -------- --------- ------------ --------
BALANCE, December 31, 1994.............. 40 3 21,436 (2,860) 18,619
Shares released under leveraged
ESOP Plan........................ -- 108 -- 423 531
Net income......................... -- -- 2,392 -- 2,392
------ -------- --------- ------------ --------
BALANCE, December 31, 1995.............. 40 111 23,828 (2,437) 21,542
Adjustment to conform fiscal
year-ends........................ -- 75 939 187 1,201
Shares released under leveraged
ESOP Plan........................ -- 176 -- 456 632
Other adjustments.................. -- -- 25 -- 25
Initial capitalization of Metals
USA.............................. 1 -- -- 1
Shares issued in exchange for
contributed services............. 33 1 -- 34
Shares issued to members of
management....................... 4 3,636 -- -- 3,640
Net income (loss).................. -- -- (239) -- (239)
------ -------- --------- ------------ --------
BALANCE, December 31, 1996.............. 78 3,999 24,553 (1,794) 26,836
Shares issued to members of
management (unaudited)........... 10 6,048 -- -- 6,058
Shares sold in connection with the
IPO (unaudited).................. 68 58,532 -- -- 58,600
Shares issued in connection with
the acquisition of the Founding
Companies (unaudited)............ 101 80,928 -- -- 81,029
Shares issued in connection with
the Subsequent Acquisitions
(unaudited)...................... 13 19,757 -- -- 19,770
Shares released under leveraged
ESOP Plan (unaudited)............ -- 96 -- 259 355
Net income (loss) (unaudited)...... -- -- (1,714) -- (1,714)
------ -------- --------- ------------ --------
BALANCE, September 30, 1997
(unaudited)........................... $ 270 $169,360 $ 22,839 $ (1,535) $190,934
====== ======== ========= ============ ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-13
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................... $ 2,925 $ 2,392 $ (239) $ 2,706 $ (1,714)
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities --
Provision for bad debts........ 281 281 177 143 103
Depreciation and
amortization................. 1,175 1,703 2,339 1,710 3,075
(Gain) loss on sale of property
and equipment................ (77) (41) 91 76 (35)
Deferred income taxes.......... (104) 154 (95) (95) (118)
Compensation charged against
notes receivable............. 400 -- -- -- --
Accrued retirement plan
contributions................ 723 629 860 661 (106)
Compensation
expense -- management
shares....................... -- -- 3,636 -- 6,048
Changes in operating assets and
liabilities, net of business
acquisitions --
Accounts and notes
receivable............... (4,116) 1,513 511 (537) (3,721)
Inventory.................. (3,745) (1,114) (4,791) (5,408) 1,815
Other assets............... (137) (52) (207) (159) 759
Accounts payable........... 2,397 321 754 4,289 (2,017)
Income taxes payable....... (246) (6) 166 (34) 989
Accrued liabilities........ 382 666 (637) 1 280
Other operating............ -- -- -- -- 542
--------- --------- --------- --------- ---------
Net cash provided by
(used in) operating
activities........... (142) 6,446 2,565 3,353 5,900
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets....... 98 100 109 10 675
Purchases of property.............. (2,617) (5,237) (3,701) (3,221) (3,766)
Proceeds applied to cash value life
insurance........................ (154) (137) (160) (102) (95)
Issuance of notes receivable to
affiliates....................... (184) (111) (315) (246) (204)
Collections on notes receivable
from affiliates.................. 23 30 283 283 414
Purchase of businesses, net of
acquired cash.................... -- (6,036) -- -- (64,495)
--------- --------- --------- --------- ---------
Net cash (used in)
investing
activities........... (2,834) (11,391) (3,784) (3,276) (67,471)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of stock.................. -- -- 5 1 58,610
Borrowings on notes payable........ 2,350 622 481 481 --
Principal payments on notes
payable.......................... (624) (1,174) (1,087) (520) (38,956)
Borrowings on revolving credit
facility......................... 44,351 45,278 44,631 30,993 106,228
Payments on revolving credit
facility......................... (42,939) (39,468) (41,755) (29,639) (54,570)
Borrowings on notes payable to
affiliates....................... 4 13 213 213 --
Principal payments on notes payable
to affiliates.................... (129) (21) (396) (396) --
--------- --------- --------- --------- ---------
Net cash provided by
financing
activities........... 3,013 5,250 2,092 1,133 71,312
--------- --------- --------- --------- ---------
NET INCREASE IN CASH................. 37 305 873 1,210 9,741
CASH, beginning of period............ 343 380 335 335 1,208
--------- --------- --------- --------- ---------
CASH, end of period.................. $ 380 $ 685 $ 1,208 $ 1,545 $ 10,949
========= ========= ========= ========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for --
Interest....................... $ 950 $ 1,470 $ 1,191 $ 708 $ 1,640
Income taxes................... 2,295 1,484 1,869 1,712 1,350
Noncash activities --
Operating expenses added to
note receivable from
affiliates................... 400 -- -- -- --
Interest expense added to notes
payable to affiliates........ 4 13 7 7 --
Interest income added to note
receivable from affiliates... 19 12 76 73 16
Retirement plan contribution
charged to unearned
compensation and addition
paid in capital.............. 650 531 632 474 355
Non-qualified plan contribution
accrued...................... 73 98 228 187 (461)
Purchase of businesses for
stock........................ -- -- -- -- 100,799
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-14
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Metals USA, Inc., a Delaware corporation, ("Metals USA") was founded in
July 1996 to become a leading national value-added metals processor service
center to manufacture higher-value components from processed metals and to
pursue aggressively the consolidation of the highly fragmented metals processing
industry. Prior to its initial public offering ("IPO"), Metals USA had
conducted no operations. Concurrently with the consummation of its IPO on July
11, 1997, Metals USA acquired, in separate merger transactions (the "Mergers")
eight companies (the "Founding Companies") engaged in the processing of steel,
aluminum and specialty metals, as well as the manufacture of metal components.
Subsequent to that date, Metals USA has acquired or agreed to acquire five
additional companies (the "Subsequent Acquisitions") in similar businesses.
(See Note 11) Included in the Subsequent Acquisitions was Jeffreys Steel
Company, Inc. ("Jeffreys") which was accounted for using the
"pooling-of-interests" method, resulting in a restatement of the Company's
financial statements for all periods presented herein. References herein to the
Company include Metals USA and its subsidiaries.
Jeffreys is an Alabama corporation engaged in the wholesale and retail sale
of steel. Jeffreys purchases steel products from manufacturers and processes
steel to meet customers' specifications. Jeffreys operates eight steel service
centers, three in Alabama, two in Florida, one in each of Mississippi, Louisiana
and Georgia. Jeffreys also maintains a sales office in Fort Lauderdale, Florida.
The customers of these service centers are concentrated in the southeastern
states.
Jeffreys has historically reported on a July 31 fiscal year-end. For
purposes of the merger with Metals USA, the accompanying financial statements
reflect Jeffreys on a calendar year-end basis effective January 1, 1996. The
historical financial information of Jeffreys for the years ended July 31, 1994
and 1995 have been included in the Company's consolidated financial statements
for the years ended December 31, 1994 and 1995. The net sales and net income of
Jeffreys for the period from August 1, 1995, through December 31, 1995, were
$50,989 and $939, respectively. The net income of Jeffreys for this transition
period is included in the accompanying consolidated statements of stockholders'
equity as an adjustment to retained earnings in order to conform their fiscal
year to that of the Company.
The following table summarizes the restated consolidated revenues, net
income and per share data of the Company after giving effect to the acquisition
of Jeffreys (in thousands of dollars except per share data):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------
1996
1994 1995 -------------------
------------------ ------------------ NET
NET NET NET NET NET INCOME/
SALES INCOME SALES INCOME SALES (LOSS)
---------- ------ -------- ------ -------- -------
<S> <C> <C> <C> <C> <C> <C>
Net sales and net income --
As previously reported........... $ -- $-- $ -- $-- $ -- $(3,636)
Acquisitions accounted for as
"pooling-of-interests"....... 107,897 2,925 121,537 2,392 134,391 3,397
-------- ------ -------- ------ -------- -------
As restated................. $107,897 $2,925 $121,537 $2,392 $134,391 $ (239)
======== ====== ======== ====== ======== =======
Net income (loss) per share --
As previously reported........... $-- $-- $ (1.53)
Acquisitions accounted for as
"pooling-of-interests"....... .73 .59 1.49
------ ------ -------
As restated................. $ .73 $ .59 $ (.04)
====== ====== =======
</TABLE>
USE OF ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of net sales and expenses during the
reporting period. Actual results could differ from those estimates.
F-15
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
INTERIM FINANCIAL INFORMATION
The interim financial statements included herein are unaudited; however,
they include all adjustments of a normal recurring nature, which, in the opinion
of management, are necessary to present fairly the financial position of the
Company at September 30, 1997, and the results of its operations and cash flows
for the nine months ended September 30, 1996 and 1997. Accounting measurements
at interim dates inherently involve greater reliance on estimates than at
year-end. The results of operations for the interim periods presented are not
necessarily indicative of the results to be expected for the entire year.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVENTORIES -- Inventories are stated at the lower of cost or market. Cost
is determined using the last-in, first-out (LIFO) method.
PROPERTY AND EQUIPMENT -- Property and equipment is stated at cost, net of
accumulated depreciation. Depreciation is computed utilizing the straight-line
method at rates based upon the estimated useful lives of the various classes of
assets.
INTANGIBLE ASSETS -- Intangible assets primarily represent goodwill which
is being amortized over a forty-year life and various other intangible assets
which are being amortized over their respective estimated useful lives.
Accumulated amortization for such assets totaled $173 and $428 as of December
31, 1995 and 1996, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS -- The fair value of the notes payable
is estimated based on interest rates for the same or similar debt offered to the
Company having the same or similar remaining maturities and collateral
requirements. The carrying amounts of notes payable approximate fair value at
the applicable balance sheet dates.
CONCENTRATION OF CREDIT RISK -- Financial instruments, which potentially
subject the Company to concentrations of credit risk, consist principally of
cash deposits, trade accounts and notes receivable. The Company places its cash
with several financial institutions, limiting the amount of credit exposure to
any one financial institution. Concentrations of credit risk with respect to
trade accounts are within the machinists and fabricators, industrial/commercial
contractors and transportation equipment manufacturers industries. Generally,
credit is extended once appropriate credit history and references have been
obtained. Adjustments to the allowance for doubtful accounts are made
periodically (as circumstances warrant) based upon the expected collectibility
of all such accounts. The Company periodically reviews the credit history of its
customers and generally does not require collateral for the extension of credit.
INCOME TAXES -- The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes." Under SFAS No. 109, deferred income taxes are recognized for the
future tax consequences of differences between the tax bases of assets and
liabilities and their financial reporting amounts based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
Income tax expense represents the amount of taxes payable and the applicable
changes in deferred tax assets and liabilities.
EARNINGS PER SHARE -- Earnings per share was computed using the aggregate
number of shares issued in connection with the acquisition of entities accounted
for using the "pooling-of-interests" method of accounting for periods prior to
July 3, 1996 (date of inception). Shares issued in connection with the
organization of Metals USA, including shares issued to management, were
considered to be issued and outstanding from the date of inception without
regard to the date such shares were actually issued. Shares issued in connection
with the IPO and entities acquired using the "purchase" method of accounting
have been included in the computation only from their respective dates of
issuance. Additionally, the effect of stock options were included in the
computation only to the extent they were dilutive.
RECENT ACCOUNTING PRONOUNCEMENTS -- The Financial Accounting Standards
Board issued Statement of Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and for
F-16
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
Long-Lived Assets to Be Disposed Of," in March 1995. SFAS No. 121 requires that
long-lived assets and certain intangibles to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The Company adopted
SFAS No. 121 on January 1, 1996. The impact of adopting this standard did not
have a material impact on the results of operations.
SFAS No. 123, "Accounting for Stock-Based Compensation," allows entities
to choose between a new fair value based method of accounting for employee stock
options or similar equity instruments and the current intrinsic, value-based
method of accounting prescribed by Accounting Principles Board Opinion No. 25
("APB No. 25"). Entities electing to remain with the accounting in APB Opinion
No. 25 must make pro forma disclosures of net income and earnings per share as
if the fair value method of accounting had been applied. The Company will
provide pro forma disclosure of net income and earnings per share, as
applicable, in the notes to future consolidated financial statements.
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, Earnings Per Share ("SFAS No. 128"). For the Company, SFAS No. 128 will
be effective for the year ended December 31, 1997. SFAS No. 128 simplifies the
standards required under current accounting rules for computing earnings per
share and replaces the presentation of primary earnings per share and fully
diluted earnings per share with a presentation of basic earnings per share
("basic EPS") and diluted earnings per share ("diluted EPS"). Basic EPS
excludes dilution and is determined by dividing income available to common
stockholders by the weighted average number of common shares outstanding during
the period. Diluted EPS reflects the potential dilution that could occur if
securities and other contracts to issue common stock were exercised or converted
into common stock. Diluted EPS is computed similarly to fully diluted earnings
per share under current accounting rules. The implementation of SFAS No. 128 is
not expected to have a material effect on the Company's earnings per share as
determined under current accounting rules.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
DECEMBER 31,
ESTIMATED --------------------
USEFUL LIVES 1995 1996
------------ --------- ---------
Land................................. $ 1,099 $ 1,288
Buildings and improvements........... 5-30 years 9,271 10,618
Machinery and equipment.............. 7-10 years 6,035 7,641
Automobiles and trucks............... 3-10 years 3,390 4,430
--------- ---------
19,795 23,977
Less -- Accumulated depreciation..... (6,201) (8,695)
--------- ---------
Total........................... $ 13,594 $ 15,282
========= =========
3. INVENTORIES
Inventories consist of the following:
DECEMBER 31,
--------------------
1995 1996
--------- ---------
Carbon plates and sheets............................ $ 11,298 $ 10,256
Beams............................................... 3,388 4,541
Carbon tubular products............................. 2,923 2,355
Rolled finished bars/shapes......................... 2,441 2,567
Other............................................... 3,382 3,544
Less -- LIFO reserve................................ (1,662) (1,751)
--------- ---------
Total.......................................... $ 21,770 $ 21,512
========= =========
The replacement cost of the Company's inventory exceeds the historical cost
of the inventory, computed using the LIFO method of valuation, as reported in
the accompanying financial statements. If the average cost method had been used
for all inventories, the carrying value would have been $23,433 and
F-17
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
$23,263 at December 31, 1995 and 1996, respectively. Additionally, net income
(loss) would have been $2,369, $2,025 and $(176) for the years ended December
31, 1994, 1995 and 1996, respectively.
4. LONG-TERM DEBT AND NOTES PAYABLE
DECEMBER 31,
--------------------
1995 1996
--------- ---------
Revolving credit facility with
interest at prime less 1.0%,
maturing on December 31, 1998,
secured by inventory and trade
accounts receivable................ $ 17,787 $ 13,250
Notes payable to former employee
stock ownership plan and trust
members payable in annual
installments including interest at
prime with an 8.5% cap, through
February 1998...................... 2,861 2,118
Term loan payable to a bank in
monthly installments of $46 which
includes monthly payments of
interest at 6.5%, due March 1,
1999, secured by production and
rolling equipment.................. 1,736 1,097
Term loan payable to a bank in
monthly installments of $17 plus
monthly payments of interest
computed at a floating rate. The
rate at December 31, 1996, was
7.7%, maturing on June 1, 1998,
secured by certain equipment....... 605 293
Other long-term debt................. 964 1,410
--------- ---------
23,953 18,168
Less -- Current portion.............. (686) (1,131)
--------- ---------
$ 23,267 $ 17,037
========= =========
The Company's long-term notes were subject to mandatory redemption as
follows:
Year ending December 31 --
1997............................ $ 1,131
1998............................ 16,955
1999............................ 82
---------
$ 18,168
=========
In connection with the Subsequent Acquisitions, the revolving credit
facility and certain other obligations outstanding as of December 31, 1996 were
repaid with the Company's new credit facility discussed in Note 11. In addition,
the Company assumed and incurred additional debt in connection with the
Subsequent Acquisitions resulting in long-term debt outstanding of $137.8
million as of September 30, 1997.
5. DETAIL OF ACCRUED LIABILITIES
Accrued liabilities consist of the following:
DECEMBER 31,
--------------------
1995 1996
--------- ---------
Accrued salaries and employee
benefits.............................. $ 1,434 $ 972
Accrued ad valorem and sales taxes...... 421 146
Accrued interest and other.............. 216 184
--------- ---------
$ 2,071 $ 1,302
========= =========
F-18
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
6. INCOME TAXES
The components of the provision for income taxes are as follows:
YEARS ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
Federal --
Current............................ $ 1,642 $ 1,315 $ 1,832
Deferred........................... (92) 133 (82)
--------- --------- ---------
1,550 1,448 1,750
--------- --------- ---------
State --
Current............................ 244 192 298
Deferred........................... (12) 21 (13)
--------- --------- ---------
232 213 285
--------- --------- ---------
Total provision............... $ 1,782 $ 1,661 $ 2,035
========= ========= =========
The provision for income taxes differs from an amount computed at the
statutory rates as follows:
YEARS ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
Federal income tax at statutory rates... $ 1,619 $ 1,390 $ 1,849
State income taxes, net of federal
income tax benefit.................... 78 67 89
Nondeductible expenses (mainly meals and
entertainment)........................ 85 204 97
--------- --------- ---------
$ 1,782 $ 1,661 $ 2,035
========= ========= =========
The significant items giving rise to the deferred tax assets (liabilities)
are as follows:
DECEMBER 31,
--------------------
1995 1996
--------- ---------
Deferred tax assets --
Allowance for doubtful accounts.... $ 143 $ 85
Uniform capitalization of
inventory......................... 72 58
Nonqualified plan contribution..... 27 175
Accrued expenses................... -- 72
Other.............................. -- 7
--------- ---------
Total deferred tax assets..... 242 397
--------- ---------
Deferred tax liabilities --
Property and equipment............. (266) (326)
--------- ---------
Total deferred income tax
liabilities............... (266) (326)
--------- ---------
Net deferred tax assets....... $ (24) $ 71
========= =========
7. STOCKHOLDERS' EQUITY
COMMON STOCK AND PREFERRED STOCK
Metals USA effected a 135.81-for-one stock split on April 21, 1997 for each
share of common stock ("Common Stock") then outstanding. In addition, Metals
USA increased the number of authorized shares of Common Stock to 50,000,000 and
the authorized shares of Restricted Common Stock to 3,122,914 and
F-19
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
authorized 5,000,000 shares of $.01 par value preferred stock, which may be
designated in the future. The effects of the Common Stock split and the increase
in the shares of authorized Common Stock have been retroactively reflected in
the consolidated balance sheet and in the accompanying notes.
In connection with its organization and initial capitalization, Metals USA
issued 135,810 shares of Common Stock at $.01 per share to Notre Capital
Ventures II ("Notre"). Notre incurred $34 of expenses on behalf of Metals USA
for which 3,232,104 additional shares were issued to Notre in December 1996.
In December 1996, 400,000 shares of Common Stock were sold to management at
$.01 per share. During the first and second quarters of 1997, Metals USA issued
a total of 985,500 shares of Common Stock to management of and consultants to
Metals USA at a price of $.01 per share. As a result, Metals USA has recorded a
non-recurring, non-cash compensation charge of $3,636 in 1996 and $2,813 and
$4,725 in the first and second quarters of 1997, respectively, representing the
difference between the amount paid for the shares and the estimated fair value
of the shares on the date of sale as if the companies were combined. The second
quarter of 1997 also includes a reduction in compensation expense of $1,490
representing a revision of the estimated fair value of the shares sold to
management and consultants in 1996 and the first quarter of 1997.
RESTRICTED COMMON STOCK
In April 1997, Notre exchanged 3,122,914 shares of Common Stock for an
equal number of shares of restricted voting common stock ("Restricted Common
Stock"). The holder of Restricted Common Stock is entitled to elect one member
of Metals USA's Board of Directors and to 0.55 of one vote for each share held
on all other matters on which they are entitled to vote.
Each share of Restricted Common Stock will automatically convert into
Common Stock on a share-for-share basis (a) in the event of a disposition of
such share of Restricted Common Stock by the holder thereof (other than a
disposition which is a distribution by a holder to its partners or beneficial
owners or a transfer to a related party of such holder (as defined)), (b) in the
event any person acquires beneficial ownership of 15% or more of the outstanding
shares of Common Stock of Metals USA, or (c) in the event any person offers to
acquire 15% or more of the total number of outstanding shares of Common Stock.
After July 1, 1998, Metals USA may elect to convert any outstanding shares
of Restricted Common Stock into shares of Common Stock in the event 80% or more
of the outstanding shares of Restricted Common Stock have been converted into
shares of Common Stock.
LONG-TERM INCENTIVE PLAN
In April 1997, Metals USA's stockholders approved the Company's 1997
Long-Term Incentive Plan (the "Plan"), which provides for the granting or
awarding of incentive or non-qualified stock options, stock appreciation rights,
restricted or deferred stock, dividend equivalents and other incentive awards to
directors, officers, key employees and consultants to Metals USA. The number of
shares authorized and reserved for issuance under the Plan is the greater of
2,500,000 shares or 13% of the aggregate number of shares of Common Stock
outstanding. The terms of the option awards will be established by the
Compensation Committee of Metals USA's Board of Directors. Metals USA granted
non-qualified stock options to purchase a total of 705,000 shares (unaudited) of
Common Stock to key employees of Metals USA at the initial public offering price
upon consummation of the IPO. In addition, Metals USA granted options to
purchase a total of 1,426,024 shares (unaudited) of Common Stock to certain
employees of the Founding Companies at the initial public offering price per
share. These options will vest at the rate of 20% per year, commencing on the
first anniversary of the IPO and will expire ten years from the date of grant or
three months following termination of employment.
F-20
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
NON-EMPLOYEE DIRECTORS STOCK PLAN
Metals USA's 1997 Non-Employee Directors' Stock Plan (the "Director's
Plan"), which was adopted by the Board of Directors and approved by Metals
USA's stockholders in April 1997, provides for (i) the automatic grant to each
non-employee director serving at the consummation of the IPO of an option to
purchase 10,000 shares, (ii) the automatic grant to each non-employee director
of an option to purchase 10,000 shares upon such person's initial election as a
director, and (iii) an automatic annual grant to each non-employee director of
an option to purchase 5,000 shares at each annual meeting of stockholders
thereafter at which such director is re-elected or remains a director, unless
such annual meeting is held within three months of such person's initial
election as a director. All options will have an exercise price per share equal
to the fair market value of the Common Stock on the date of grant and are
immediately vested and expire on the earlier of ten years from the date of grant
or one year after termination of service as a director. The Director's Plan also
permits non-employee directors to elect to receive, in lieu of cash directors'
fees, shares or credits representing "deferred shares" at future settlement
dates, as selected by the director. The number of shares or deferred shares
received will equal the number of shares of Common Stock which, at the date the
fees would otherwise be payable, will have an aggregate fair market value equal
to the amount of such fees.
8. EMPLOYEE BENEFIT PLAN
PROFIT-SHARING PLAN
Jeffreys has a profit-sharing plan that was adopted on July 29, 1988, and
amended June 1, 1995, to include Section 401(k) options. Contributions to the
plan are determined by the board of directors on an annual basis. All funds
contributed under this plan are subject to a vesting schedule of 20 percent
after two years of service, then 20 percent each additional year until 100
percent at six years. No contributions were made to this plan in the periods
reported.
EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST
Under the provisions of an employee stock ownership plan (ESOP) and its
related trust, Jeffreys made annual contributions to the plan which were
invested in stock of Jeffreys and other qualifying securities for the benefit of
Jeffreys' employees.
Under the provisions of the plan, employees had a put option which required
Jeffreys to purchase their shares at fair market value. Additionally, Jeffreys
had the right of first refusal for any shares sold by the employees. The plan
provided for Jeffreys' purchases of employee shares to be paid in cash and with
the issuance of a note payable. Effective September 26, 1997, the participation
was frozen. Concurrent with the merger, ESOP shares were exchanged for Metals
USA common stock and holders of such shares have the right to trade the stock,
beginning September 26, 1998.
LEVERAGED ESOP ARRANGEMENT
The following disclosure has been restated to reflect the equivalent shares
of Metals USA common stock that were issued in connection with the acquisition
of Jeffreys.
Jeffreys' ESOP purchased 735,384 shares of outstanding Jeffreys stock from
a majority stockholder for $5.31 per share. The ESOP borrowed the funds to
purchase such stock and Jeffreys guaranteed the repayment of this loan. Jeffreys
will repay this loan, plus interest, through deductible contributions to the
plan. As Jeffreys makes contributions to the plan, which reduces the principal
on the note, the plan will release the corresponding shares related to the
reduction in the note principal. At the point when these shares are no longer
specifically secured by the note payable, they will be allocated to the
individual participants of the plan and considered earned by those employees at
that time. Jeffreys accounts for its
F-21
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
ESOP in accordance with Statement of Position (SOP) 93-6. Accordingly, the debt
of the ESOP is recorded as debt and the shares pledged as collateral are
reported as unearned compensation. As shares are released from collateral,
Jeffreys reports compensation expense equal to the current estimated market
price of the shares. ESOP share compensation expense was $650, $531 and $632 for
the years ended July 31, 1994 and 1995, and December 31, 1996, respectively.
Since the obligation is secured by the shares purchased and the note is
guaranteed by Jeffreys, all amounts relating to this transaction are considered
unearned compensation of the employees until such time the note is deemed paid
and the corresponding shares are released to the individual participants of the
plan. The balance of $2,437 and $1,794 in unearned compensation at July 31,
1995, and December 31, 1996, results from the leveraged ESOP stock purchase less
the deemed release of shares at cost.
The ESOP shares were as follows:
TOTAL SHARES TOTAL
SHARES DEEMED UNRELEASED
YEAR ENDED ALLOCATED RELEASED SHARES
- - ---------------------------------------- --------- -------- ----------
December 31, 1995....................... 201,201 75,114 459,030
December 31, 1996....................... 276,354 84,669 374,361
In accordance with SOP 93-6, additional paid-in capital is adjusted
whenever the market value of the shares released is more or less than the cost
of the shares released. The addition to paid-in capital attributable to this
difference in market value and cost was $108 and $176 for the years ended
December 31, 1995 and 1996, respectively.
NONQUALIFIED DEFERRED COMPENSATION PLAN
Jeffreys has a deferred compensation plan, which is considered an unfunded,
nonqualified retirement plan, to provide supplemental retirement benefits to key
employees who are precluded from participating in the ESOP due to the leveraged
arrangement. The selective key employees will receive an annual contribution
under this plan equal to 10 percent of their compensation. All contributions are
deemed to have been used to purchase employee stock as of the most recent stock
valuation. Each year, gains or losses are recognized as the stock value
fluctuates.
Jeffreys will pay all amounts directly to the employees participating in
this plan, or their beneficiaries, in accordance with the payout provision of
the plan. These benefits will be paid directly from the general assets of
Jeffreys in either cash or Jeffreys stock. Concurrent with the merger, these
benefits were settled with the issuance of Metals USA common stock.
9. COMMITMENTS AND CONTINGENCIES
OPERATING LEASE AGREEMENTS
Jeffreys is obligated under certain long-term noncancelable lease
agreements for office space, warehouse space and equipment as summarized below:
Year ending December 31 --
1997............................... $ 196
1998............................... 42
1999............................... 29
2000............................... 29
2001............................... 29
Thereafter......................... 21
---------
$ 346
=========
F-22
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
Jeffreys paid approximately $362, $401 and $314 in rent expense during the
years ended July 31, 1994 and 1995, and December 31, 1996, respectively, under
operating leases. Certain of these leases are with affiliated individuals and
companies (see Note 9).
CONTINGENCIES
Jeffreys has been named as one of three defendants in a lawsuit filed by
Allen Management Associates, Inc., and Esalen Holdings, Inc., who owned the
property leased by Jeffreys in Ft. Lauderdale, Florida. The plaintiffs are
seeking damages of approximately $535 for breach of maintenance obligations
under the sublease and damages for alleged environmental contamination of the
property. Subsequent to the initial suit filed, the other defendants have filed
cross-claims against Jeffreys. Jeffreys has filed a counterclaim and
cross-claims against the other defendants and has filed an answer and
affirmative defense concerning the suit. The trial date is scheduled for
February 9, 1998. The Company has denied any liability and intends to vigorously
defend its position. In the opinion of the Company's management, the final
outcome of this matter should not materially affect the Company's financial
position and results of operations.
Jeffreys insures workers' compensation claims under a self-insurance
program. The plan is subject to a stop-loss provision which provides
conventional insurance policy coverage for losses above certain specified
levels. Estimated claims incurred but not yet reported in connection with the
self-insurance plans are accrued by Jeffreys.
10. RELATED-PARTY TRANSACTIONS
In 1995, Jeffreys entered into a lease agreement for an aircraft from the
President of Jeffreys with payments of $13 per month which expired January 1997.
Concurrent with the merger with the Company, Jeffreys rents the aircraft based
on the number of flight hours.
Notes receivable include $210 and $141 due from a related party at December
31, 1995 and 1996, respectively.
11. SUBSEQUENT EVENTS (UNAUDITED)
Metals USA acquired eight companies ("Founding Companies") effective with
the completion of its IPO on July 11, 1997. The companies acquired were Texas
Aluminum/Cornerstone group of companies, Interstate Steel Supply Co., Queensboro
Steel Corporation, Affiliated Metals Company, Uni-Steel Incorporated, Southern
Alloy of America, Inc., Williams Steel & Supply Co., Inc. and Steel Service
Systems, Inc. The aggregate consideration paid by Metals USA to acquire the
Founding Companies was approximately $27,826 in cash and 10,128,609 shares of
Common Stock, excluding assumed indebtedness of $92,600.
Metals USA has an unsecured $150,000 revolving credit facility which became
available upon the closing of the IPO. Metals USA entered into the Credit
Facility with the First National Bank of Chicago as agent, on July 15, 1997. The
Credit Facility matures on July 15, 2002, bears interest at the bank's prime
rate or LIBOR, at Metals USA's option, plus an applicable margin based on the
ratio of funded debt to cash flows (as defined). An annual commitment fee of up
to 1/4% is payable on any unused portion of the Credit Facility.
The Credit Facility will be used to fund acquisitions, capital expenditures
and working capital requirements. Under the terms of the Credit Facility Metals
USA is required to comply with various affirmative and negative covenants
including: (i) the maintenance of certain financial ratios, (ii) restrictions on
additional indebtedness, (iii) restrictions on liens, guarantees and dividends,
(iv) obtaining the lenders' consent with respect to certain individual
acquisitions, and (v) maintain a specified level of consolidated tangible net
worth. In July 1997 and September 1997, Metals USA used a portion of the Credit
Facility
F-23
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
together with the net proceeds from the IPO to retire substantially all of the
indebtedness of the Acquired Companies.
On August 12, 1997, Metals USA sold 885,000 shares of its common stock
pursuant to the overallotment option granted to the underwriters in connection
with the IPO. Metals USA realized net proceeds of approximately $8,231 from the
sale.
On September 26, 1997, Metals USA acquired four additional companies,
including Harvey Titanium, Jeffrey Steel Company, Inc. Meier Metal Servicenters,
Inc. and the business of Federal Bronze Products, Inc. On October 29, 1997,
Metals USA entered into an agreement which, upon completion of certain
regulatory approvals, would call for the acquisition of Wayne Steel, Inc. The
aggregate consideration paid and to be paid by Metals USA for the Subsequent
Acquisitions consists of approximately $41,406 in cash and 9,522,374 shares of
Common Stock, excluding assumed indebtedness of $40,477. The consideration paid
by Metals USA for each of the Acquired Companies was determined by negotiation
between representatives of each Acquired Company and was based primarily upon
the pro forma adjusted net income of each Acquired Company.
F-24
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Texas Aluminum Industries, Inc.:
We have audited the accompanying combined balance sheets of Texas Aluminum
Industries, Inc., and the affiliated Cornerstone Companies (collectively the
Companies), as of June 30, 1995 and December 31, 1996, and the related combined
statements of income, stockholders' equity and members' equity and cash flows
for the years ended June 30, 1994 and 1995, and December 31, 1996. These
combined financial statements are the responsibility of the Companies'
management. Our responsibility is to express an opinion on these combined
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Texas
Aluminum Industries, Inc. and the affiliated Cornerstone Companies as of June
30, 1995 and December 31, 1996, and the results of their combined operations and
their combined cash flows for the years ended June 30, 1994 and 1995, and
December 31, 1996 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
April 18, 1997
F-25
<PAGE>
TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
COMBINED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
JUNE 30, DECEMBER 31, JUNE 30,
1995 1996 1997
-------- ------------- -----------
(UNAUDITED)
ASSETS
Current assets:
Cash............................ $ 359 $ 156 $ 1,493
Accounts and notes receivable,
net of allowance of
$519, $677 and $704........... 3,432 4,221 5,548
Accounts and notes receivable
from affiliates............... 993 81 111
Inventory....................... 8,193 10,878 11,475
Prepaid expenses................ 47 38 32
Deferred income taxes........... 591 754 477
-------- ------------- -----------
Total current assets....... 13,615 16,128 19,136
Property and equipment, net.......... 3,712 4,058 4,425
Notes receivable from affiliates..... -- 465 454
Other assets......................... 715 576 1,190
Goodwill............................. 690 822 1,609
-------- ------------- -----------
Total assets.......... $ 18,732 $22,049 $26,814
======== ============= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of notes
payable....................... $ 593 $ 683 $ 1,159
Current portion of notes payable
and capital lease obligations
to affiliates................. 54 77 22
Accounts payable................ 3,882 5,540 4,570
Income taxes payable............ 269 396 --
Accrued liabilities............. 1,416 1,158 1,256
-------- ------------- -----------
Total current
liabilities............. 6,214 7,854 7,007
Notes payable, less current
portion............................ 7,879 6,004 12,220
Notes payable and capital lease
obligations payable to affiliates,
less current portion............... 368 1,419 3,822
Deferred income taxes................ 249 163 222
Other long-term liabilities.......... 41 274 253
-------- ------------- -----------
Total liabilities..... 14,751 15,714 23,524
-------- ------------- -----------
Commitments and contingencies
Stockholders' equity:
Preferred stock................. 379 369 369
Common stock.................... 1,517 1,501 1,506
Members' equity................. -- 1 1
Additional paid-in capital...... 198 188 188
Retained earnings............... 2,199 4,560 1,513
Less: treasury stock, at
cost.................... (312) (284) (287)
-------- ------------- -----------
Total stockholders'
equity.................. 3,981 6,335 3,290
-------- ------------- -----------
Total liabilities and
stockholders'
equity............. $ 18,732 $22,049 $26,814
======== ============= ===========
The accompanying notes are an integral part of these combined financial
statements.
F-26
<PAGE>
TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
COMBINED STATEMENTS OF INCOME
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, YEAR ENDED JUNE 30,
-------------------- DECEMBER 31, --------------------
1994 1995 1996 1996 1997
--------- --------- ------------ --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............................ $ 26,105 $ 34,706 $ 40,651 $ 18,966 $ 23,776
Costs and expenses:
Cost of sales................... 17,991 23,893 27,146 12,766 15,577
Operating and delivery.......... 5,621 5,863 6,386 3,094 3,011
Selling, general and
administrative................ 1,654 2,810 3,539 2,032 3,961
Depreciation and amortization... 346 517 568 284 386
--------- --------- ------------ --------- ---------
Operating income..................... 493 1,623 3,012 790 841
Other (income) expense:
Interest expense................ 444 837 682 357 573
Other income.................... (169) (143) (8) (1) (96)
--------- --------- ------------ --------- ---------
Income before income taxes........... 218 929 2,338 434 364
Provision (benefit) for income
taxes.............................. 93 277 456 (3) 11
--------- --------- ------------ --------- ---------
Net income........................... $ 125 $ 652 $ 1,882 $ 437 $ 353
========= ========= ============ ========= =========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-27
<PAGE>
TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY AND MEMBERS' EQUITY
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK
------------------- CORNERSTONE MEMBERS' PREFERRED PAID-IN RETAINED TREASURY
CLASS A CLASS B COMMON EQUITY STOCK CAPITAL EARNINGS STOCK
-------- -------- ----------- -------- ---------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1993............... $363 $1,239 $-- $-- $414 $254 $ 1,422 $(315)
Purchase of 6,757 shares of Class
B common stock at $16 per
share.......................... -- -- -- -- -- -- -- (108)
Purchase of 315 shares of
preferred stock at $100 per
share.......................... -- -- -- -- -- -- -- (31)
Cancellation of treasury stock... -- (74) -- -- (21) (44) -- 139
Net income....................... -- -- -- -- -- -- 125 --
-------- -------- ----------- -------- ---------- -------- --------- ---------
Balance, June 30, 1994............... 363 1,165 -- -- 393 210 1,547 (315)
Purchase of 2,142 shares of Class
B common stock at $16 per
share.......................... -- -- -- -- -- -- -- (34)
Purchase of 97 shares of
preferred stock at $100 per
share.......................... -- -- -- -- -- -- -- (10)
Cancellation of treasury stock... -- (21) -- -- (14) (12) -- 47
Issuance of Cornerstone Metals
Corporation common stock....... -- -- 5 -- -- -- -- --
Issuance of Cornerstone Building
Products, Inc. common stock.... -- -- 5 -- -- -- -- --
Net income....................... -- -- -- -- -- -- 652 --
-------- -------- ----------- -------- ---------- -------- --------- ---------
Balance, June 30, 1995............... 363 1,144 10 -- 379 198 2,199 (312)
Purchase of 249 shares of Class B
common stock at $16 per
share.......................... -- -- -- -- -- -- -- (4)
Purchase of 37 shares of
preferred stock at $100 per
share.......................... -- -- -- -- -- -- -- (4)
Issuance of Cornerstone Patio
Concepts L.L.C. members'
equity......................... -- -- -- 1 -- -- -- --
Cancellation of treasury stock... -- (16) -- -- (10) (10) -- 36
Adjustment to conform fiscal year
ends........................... -- -- -- -- -- -- 579 --
Distributions to stockholders.... -- -- -- -- -- -- (100) --
Net income....................... -- -- -- -- -- -- 1,882 --
-------- -------- ----------- -------- ---------- -------- --------- ---------
Balance, December 31, 1996........... 363 1,128 10 1 369 188 4,560 (284)
Issuance of Cornerstone Aluminum
Company, Inc. common stock
(unaudited).................... -- -- 5 -- -- -- -- --
Purchase of 30 shares of
preferred stock at $100 per
share (unaudited).............. -- -- -- -- -- -- -- (3)
Distributions to stockholders
(unaudited).................... -- -- -- -- -- -- (3,400) --
Net income (unaudited)........... -- -- -- -- -- -- 353 --
-------- -------- ----------- -------- ---------- -------- --------- ---------
Balance, June 30, 1997 (unaudited)... $363 $1,128 $ 15 $ 1 $369 $188 $ 1,513 $(287)
======== ======== =========== ======== ========== ======== ========= =========
</TABLE>
TOTAL
---------
Balance, June 30, 1993............... $ 3,377
Purchase of 6,757 shares of Class
B common stock at $16 per
share.......................... (108)
Purchase of 315 shares of
preferred stock at $100 per
share.......................... (31)
Cancellation of treasury stock... --
Net income....................... 125
---------
Balance, June 30, 1994............... 3,363
Purchase of 2,142 shares of Class
B common stock at $16 per
share.......................... (34)
Purchase of 97 shares of
preferred stock at $100 per
share.......................... (10)
Cancellation of treasury stock... --
Issuance of Cornerstone Metals
Corporation common stock....... 5
Issuance of Cornerstone Building
Products, Inc. common stock.... 5
Net income....................... 652
---------
Balance, June 30, 1995............... 3,981
Purchase of 249 shares of Class B
common stock at $16 per
share.......................... (4)
Purchase of 37 shares of
preferred stock at $100 per
share.......................... (4)
Issuance of Cornerstone Patio
Concepts L.L.C. members'
equity......................... 1
Cancellation of treasury stock... --
Adjustment to conform fiscal year
ends........................... 579
Distributions to stockholders.... (100)
Net income....................... 1,882
---------
Balance, December 31, 1996........... 6,335
Issuance of Cornerstone Aluminum
Company, Inc. common stock
(unaudited).................... 5
Purchase of 30 shares of
preferred stock at $100 per
share (unaudited).............. (3)
Distributions to stockholders
(unaudited).................... (3,400)
Net income (unaudited)........... 353
---------
Balance, June 30, 1997 (unaudited)... $ 3,290
=========
The accompanying notes are an integral part of these combined financial
statements.
F-28
<PAGE>
TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED SIX MONTHS ENDED
JUNE 30, DECEMBER 31, JUNE 30,
-------------------- ------------ --------------------
1994 1995 1996 1996 1997
--------- --------- ------------ --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................... $ 125 $ 652 $ 1,882 $ 437 $ 353
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Adjustment to conform fiscal year
ends........................... -- -- 579 -- --
Provision for bad debts.......... 456 501 718 174 206
Depreciation and amortization.... 346 517 763 284 386
(Gain) loss on sale of property
and equipment.................. (11) 11 (266) -- --
Deferred income taxes............ (95) (111) (249) (20) 336
Changes in operating assets and
liabilities, net of business
acquisitions --
Accounts and notes
receivable.................. (1,196) (100) (783) (1,182) (1,106)
Accounts and notes receivable
from affiliates............. 124 (654) (167) -- (19)
Inventory...................... (341) (1,166) (1,970) (15) 239
Other assets................... (17) (82) (29) (291) (27)
Accounts payable............... 39 393 1,476 1,166 (940)
Accounts payable to
affiliates.................. 11 161 -- -- --
Income taxes payable........... (18) 171 127 (157) (514)
Accrued liabilities............ 373 309 (269) 269 98
--------- --------- ------------ --------- ---------
Net cash provided by (used
in) operating activities.. (204) 602 1,812 665 (988)
--------- --------- ------------ --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets....... 104 71 611 330 --
Purchases of property.............. (438) (606) (739) (167) (270)
Collections on notes receivable.... 129 109 445 250 --
Purchase of businesses, net of
acquired cash.................... -- (2,500) (150) -- (1,300)
--------- --------- ------------ --------- ---------
Net cash provided by (used
in) investing activities.. (205) (2,926) 167 413 (1,570)
--------- --------- ------------ --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on notes payable........ 2,566 2,518 -- -- --
Principal payments on notes payable
and capital leases............... (1,745) (322) (746) (110) (81)
Borrowings on revolving credit
facility......................... 5,498 1,403 3,692 2,605 9,861
Payments on revolving credit
facility......................... (6,005) (1,299) (5,160) (4,108) (4,850)
Payments made to former ESOP
members.......................... (92) (63) (89) (17) (90)
Borrowings on notes payable to
affiliates....................... -- 650 1,020 850 2,450
Principal payments on notes payable
to affiliates.................... -- (452) (800) -- --
Issuance of common stock and
members' equity.................. -- 10 1 -- 5
Distribution to stockholders....... -- -- (100) (100) (3,400)
--------- --------- ------------ --------- ---------
Net cash provided by (used
in) financing activities.. 222 2,445 (2,182) (880) 3,895
--------- --------- ------------ --------- ---------
NET INCREASE (DECREASE) IN CASH...... (187) 121 (203) 198 1,337
CASH, BEGINNING OF PERIOD............ 425 238 359 147 156
--------- --------- ------------ --------- ---------
CASH, END OF PERIOD.................. $ 238 $ 359 $ 156 $ 345 $ 1,493
========= ========= ============ ========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for:
Interest........................... $ 441 $ 526 $ 699 $ 157 $ 280
Income taxes....................... 207 217 584 82 33
Non-cash investing and financing
activities:
Purchase of assets through
assumption of debt............... $ -- $ 19 $ 820 $ 820 $ 1,700
Purchase of treasury stock through
assumption of debt............... 102 35 32 4 --
Sale of assets by issuing note
receivable....................... -- -- 330 -- --
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-29
<PAGE>
TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying combined financial statements include the accounts of
Texas Aluminum Industries, Inc. ("Texas Aluminum"), a Texas corporation,
Cornerstone Metals Corporation ("CMC"), a Nevada Corporation, Cornerstone
Building Products, Inc. ("CBP"), a Nevada corporation, and Cornerstone Patio
Concepts, L.L.C. ("CPC"), a Nevada limited liability corporation. CMC, CBP and
CPC are collectively referred to herein as "Cornerstone". Texas Aluminum and
Cornerstone are under common control and ownership and are presented herein on a
combined basis. Texas Aluminum and Cornerstone are collectively referred to as
"Texas Aluminum/Cornerstone." Texas Aluminum/Cornerstone produces and
distributes aluminum and steel building products consisting of windows, doors,
insulated wall panels, canopies and awnings. These products are used by
commercial and residential contractors in the construction of sun rooms,
solariums, walkways, canopies and coverings, aluminum support structures, as
well as for facia coverings for retail buildings. Texas Aluminum/Cornerstone's
products are produced in five manufacturing plants. The products are marketed
and sold to contractors, architects and wholesale distributors through 36 sales
and distribution outlets across the United States, primarily concentrated in the
Sunbelt.
Texas Aluminum has historically reported on a June 30 fiscal year end,
whereas Cornerstone has historically reported on a December 31 year end. For
purposes of combined presentation, Texas Aluminum began reporting on a calendar
year end basis effective January 1, 1996. Cornerstone began operations on April
1, 1995 as further discussed below. Accordingly, the year ended June 30, 1994
includes the operations of Texas Aluminum, the year ended June 30, 1995 includes
the operations of Texas Aluminum for the twelve months ended June 30, 1995
combined with the operations of Cornerstone for the nine months ended December
31, 1995, and the year ended December 31, 1996 includes Texas Aluminum and
Cornerstone for the twelve months ended December 31, 1996. The net sales and net
income of Texas Aluminum for the period from July 1, 1995 through December 31,
1995 were $15,547 and $579, respectively. The net sales and net income of
Cornerstone for the period from July 1, 1995 through December 31, 1995 were
$3,671 and $165, respectively. The net income of Texas Aluminum for this
transition period is included in the accompanying statements of stockholders'
equity as an adjustment to retained earnings in order to conform the fiscal
years of these combined companies.
Intercompany transactions and ending balances among Texas Aluminum, CMC,
CBP and CPC have been eliminated except for certain transactions and balances
for the year ended June 30, 1995 which could not be eliminated due to the
combining of year ends (See Note 12).
Texas Aluminum/Cornerstone and its stockholders expect to enter into a
definitive merger agreement with Metals USA, Inc. ("Metals USA") pursuant to
which all of the Companies' outstanding shares of capital stock will be
exchanged for cash and shares of Metals USA common stock concurrently with the
consummation of the initial public offering (the "Offering") of Metals USA
common stock.
BUSINESS COMBINATIONS
CMC and CBP are both S Corporations, as defined by the Internal Revenue
Code, and were acquired April 1, 1995. Accordingly, the financial statements for
1995 include the nine-month period from the date of acquisition through December
31, 1995. CPC, a Limited Liability Corporation, was acquired in August, 1996.
The aggregate consideration paid for CMC and CBP was $2,500 in cash and $828 in
notes payable to the seller. The consideration paid for CPC was $150 in cash and
$415 in notes payable to the seller. The accompanying combined balance sheet as
of December 31, 1996, includes allocations of the respective purchase prices
which resulted in goodwill recognized of $887.
F-30
<PAGE>
TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
The following summarizes the assets acquired and liabilities assumed.
JUNE 30, DECEMBER 31,
1995 1996
--------- -------------
Fair value of assets acquired, net of
cash acquired...................... $ 2,615 $ 607
Goodwill and other intangibles....... 713 174
Liabilities assumed.................. -- (216)
Notes issued to sellers.............. (828) (415)
--------- -------------
Cash paid, net of cash acquired...... $ 2,500 $ 150
========= =============
The results of operations for CPC are included in the combined income
statement from the date of acquisition.
The following presents the unaudited results of operations for Texas
Aluminum/Cornerstone for the years ended June 30, 1995 and December 31, 1996, as
if CPC had been acquired as of April 1, 1995, the effective date Cornerstone
began operations.
JUNE 30, DECEMBER 31,
1995 1996
-------- ------------
Unaudited pro forma sales............ $ 36,503 $ 42,041
Unaudited pro forma income before
income taxes....................... 734 1,957
In February 1997, the owners of Cornerstone, through a newly formed
corporation, Cornerstone Aluminum Company, Inc. ("CAC"), acquired the business
and assets of Amalgamated Building Components, Inc. CAC paid $1,300 in cash and
issued $1,700 in notes payable to the former owner. CAC is headquartered in
Tucson, Arizona with three additional locations in the western and southwestern
United States.
USE OF ESTIMATES AND ASSUMPTIONS
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
INTERIM FINANCIAL INFORMATION
The interim financial statements included herein are unaudited; however,
they include all adjustments of a normal recurring nature, which, in the opinion
of management, are necessary to present fairly the financial position of Texas
Aluminum/Cornerstone at June 30, 1997, and the results of its operations and
cash flows for the six months ended June 30, 1996 and 1997. Accounting
measurements at interim dates inherently involve greater reliance on estimates
than at year end. The results of operations for the interim periods presented
are not necessarily indicative of the results to be expected for the entire
year.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH EQUIVALENTS
Cash equivalents consist of highly liquid money market instruments with
original maturities of three months or less.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
using the last-in, first-out ("LIFO") method for Texas Aluminum and the
first-in, first-out ("FIFO") method for Cornerstone.
F-31
<PAGE>
TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost, net of accumulated depreciation.
Depreciation is computed utilizing the straight-line method at rates based upon
the estimated useful lives of the various classes of assets.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash equivalents approximate their fair value. The
carrying amount of notes receivable approximates fair value at the applicable
balance sheet dates. The fair value of such notes receivable was based on
expected cash flows discounted using current rates at which similar loans would
be made to borrowers with similar credit ratings. The fair value of the notes
payable is estimated based on interest rates for the same or similar debt
offered to Texas Aluminum/Cornerstone having the same or similar remaining
maturities and collateral requirements. The carrying amounts of notes payable
approximate fair value at the applicable balance sheet dates.
CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject Texas Aluminum/Cornerstone
to concentrations of credit risk, consist principally of cash deposits and,
trade accounts and notes receivable. Texas Aluminum/Cornerstone places its cash
with several financial institutions limiting the amount of credit exposure to
any one financial institution. Concentrations of credit risk with respect to
trade accounts and notes receivable are within the home improvement and general
construction industry. Credit is extended once appropriate credit history and
references have been obtained. Adjustments to the allowance for doubtful
accounts are made periodically (as circumstances warrant) based upon the
expected collectibility of all such accounts. Texas Aluminum/Cornerstone
periodically reviews the credit history of its customers and generally does not
require collateral for the extension of credit.
INCOME TAXES
Texas Aluminum accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME TAXES ("SFAS
109"). Under SFAS 109, deferred income taxes are recognized for the tax
consequences in future years of differences between the tax bases of assets and
liabilities and their financial reporting amounts at each year-end based on
enacted tax laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. The principal items resulting
in the differences are different depreciation methods, use of the allowance
method for bad debts, and different inventory capitalization methods. Valuation
allowances are established when necessary to reduce deferred assets to the
amount to be realized. Income tax expense is the tax payable for the year and
the change during the year in deferred tax assets and liabilities.
Cornerstone, with the consent of its stockholders, elected to be taxed
under sections of the federal and state income tax laws which provide that, in
lieu of corporate income taxes, the stockholders separately account for
Cornerstone's items of income, deductions, losses and credits on their
individual income tax returns. The financial statements will not include a
provision for income taxes (credits) as long as the S Corporation election
remains in effect. As long as Cornerstone's S Corporation income tax election
remains in effect, Cornerstone may, from time to time, pay dividends to its
stockholders in amounts sufficient to enable the stockholders to pay the taxes
due on their share of Cornerstone's items of income, deductions, losses, and
credits which have been allocated to them for reporting on their individual
income tax returns.
F-32
<PAGE>
TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
GOODWILL AND OTHER INTANGIBLES
Goodwill represents the excess of the consideration paid over the fair
market value of assets acquired and is being amortized on the straight-line
method over 40 years. Other intangibles include covenants not to compete,
trademarks, patents and consulting agreements, which are being amortized over
their respective lives ranging from 5-15 years. Accumulated amortization totaled
$23 and $65 as of June 30, 1995 and December 31, 1996, respectively.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF ("SFAS 121") in March 1995. SFAS
121 requires that long-lived assets and certain intangibles to be held and used
by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Texas Aluminum/Cornerstone adopted SFAS No. 121 on January 1, 1996.
The impact of adopting this standard did not have a material impact on the
results of operations.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
ESTIMATED JUNE 30, DECEMBER 31,
USEFUL LIVES 1995 1996
-------------- -------- ------------
Land............................. $ 423 $ 410
Buildings and improvements....... 5 - 30 years 1,645 1,835
Machinery and equipment.......... 7 - 10 years 6,102 6,162
Automobiles and trucks........... 3 - 10 years 643 643
-------- ------------
8,813 9,050
Less: accumulated depreciation... (5,101) (4,992)
-------- ------------
Total....................... $ 3,712 $ 4,058
======== ============
F-33
<PAGE>
TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
3. SUMMARY OF LONG-TERM FINANCING ARRANGEMENTS
Notes payable to non-affiliates consist of the following:
JUNE 30, DECEMBER 31, JUNE 30,
1995 1996 1997
-------- ------------ -----------
(UNAUDITED)
Revolving credit facility with
interest at prime plus .25%
maturing on October 29, 1998,
secured by inventory, trade
accounts and notes receivable, and
equipment and personally guaranteed
by stockholders.................... $ 3,128 $ 2,753 $ 5,800
Revolving credit facility with
interest at prime plus .5%,
maturing on May 15, 1998, secured
by inventory, trade accounts and
notes receivable and equipment, and
personally guaranteed by
stockholders....................... 1,405 311 1,550
Revolving credit facility with
interest at prime plus .25%
maturing in May, 1998, secured by
inventory, trade accounts and notes
receivable and equipment and
personally guaranteed by
stockholders....................... -- -- 950
Term loan payable to a bank in
quarterly installments of $63 plus
monthly payments of interest at
7.86%, due October 29, 1998,
secured by inventory, trade
accounts and notes receivable, and
equipment and personally guaranteed
by stockholders.................... 2,175 1,800 1,675
Term loan payable to a bank in
monthly installments of $17 plus
monthly payments of interest at
prime plus .5%, due June 30, 2000,
secured by inventory, trade
accounts and notes receivable and
equipment, and personally
guaranteed by stockholders......... 900 700 600
Notes payable to individuals in
annual installments of $240 plus
accrued interest, beginning
February 10, 1997 and maturing on
February 10, 2002, secured by
certain property................... -- -- 1,734
Note payable to individuals in
monthly installments of $13
including interest, maturing on
July 1, 1998, at which time the
note can be extended 20 months at
prime plus 2%...................... 795 701 651
Note payable to individual in annual
installments of $100 plus accrued
interest at 8%, beginning August 5,
1997 and maturing on August 5,
2000, unsecured.................... -- 314 314
Note payable to individuals in annual
installments of $25 including
interest, beginning August 5, 1997
and maturing on August 5, 2000,
unsecured.......................... -- 100 100
Other long-term debt................. 69 8 5
-------- ------------ -----------
8,472 6,687 13,379
Less: current portion................ (593) (683) (1,159)
-------- ------------ -----------
$ 7,879 $ 6,004 $12,220
======== ============ ===========
The maximum credit available under the Texas Aluminum revolving credit
facility was increased from $4,000 to $7,000 in February 1997 and the due dates
of the revolver and the term loan were extended to October 29, 1998. The maximum
credit available under the Cornerstone revolving credit facility was increased
from $2,000 to $3,000 in February 1997 and the due dates of the revolver and the
term loan were
F-34
<PAGE>
TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
extended to May 15, 1998 and June 30, 2000, respectively. The terms of the loan
agreements, which provide the revolvers and the term loans to Texas
Aluminum/Cornerstone, include certain restrictive covenants of which Texas
Aluminum/Cornerstone was in compliance as of December 31, 1996. The prime rate
of interest at June 30, 1995 and December 31, 1996 was 9% and 8.25%,
respectively.
Notes payable and capital lease obligations to affiliates consists of the
following:
JUNE 30, DECEMBER 31, JUNE 30,
1995 1996 1997
-------- ------------ -----------
(UNAUDITED)
Notes payable to former employee
stock ownership plan and trust
members payable in annual
installments including interest at
7% and 9%, through October 1999,
secured by treasury stock (See Note
7)................................. $ 172 $ 90 $--
Capital lease obligation to an
affiliated company with monthly
installments payable through
December 2011 (See Note 12)........ -- 806 794
Note payable to an affiliated company
in monthly installments of interest
only at 8%, maturing on July 31,
2000, unsecured.................... 100 -- --
Notes payable to stockholders,
accruing interest at prime, due at
various dates from October 1998
through February 2002, unsecured... 150 250 2,650
Note payable to an affiliated
corporation in monthly installments
of interest only at 8.5%, paid in
the first quarter 1997,
unsecured.......................... -- 350 400
-------- ------------ -----------
422 1,496 3,844
Less: current portion................ (54) (77) (22)
-------- ------------ -----------
$ 368 $ 1,419 $ 3,822
======== ============ ===========
Texas Aluminum/Cornerstone's long-term notes payable and capital lease
obligations are subject to mandatory redemption as follows:
AFFILIATES
YEAR ENDING NON- ------------------------------
DECEMBER 31, AFFILIATES NOTES PAYABLE CAPITAL LEASE
- - ------------- ----------- ------------- -------------
1997.......................... $ 683 $ 49 $ 96
1998.......................... 5,541 191 96
1999.......................... 325 100 96
2000.......................... 138 -- 96
2001.......................... -- 350 96
Thereafter.................... -- -- 960
----------- ------------- -------------
$ 6,687 $ 690 $ 1,440
=========== =============
Less: amounts representing
interest........................ (634)
-------------
Present value of capital lease
obligations................... $ 806
=============
F-35
<PAGE>
TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
4. INVENTORIES
Inventories consist of the following:
JUNE 30, DECEMBER 31,
1995 1996
-------- ------------
Aluminum coil and roll-formed
aluminum............................. $ 2,325 $ 3,430
Aluminum extrusions.................. 2,246 3,163
Steel coil and roll-formed steel..... 242 358
Miscellaneous purchased and
manufactured goods................... 3,380 3,927
-------- ------------
$ 8,193 $ 10,878
======== ============
The replacement cost of Texas Aluminum's inventory exceeds the historical
cost of the inventory, computed using the LIFO method of valuation, as reported
in the accompanying financial statements. If the FIFO method had been used for
all inventories, their carrying value would have been $11,818 and $14,314 at
June 30, 1995 and December 31, 1996, respectively. Additionally, net income
would have been $286, $1,219 and $1,837 for the years ended June 30, 1994 and
1995 and December 31, 1996, respectively.
5. DETAIL OF ACCRUED LIABILITIES
Accrued liabilities consist of the following:
JUNE 30, DECEMBER 31,
1995 1996
-------- ------------
Accrued salaries and benefits........ $ 683 $ 425
Accrued ad valorem and sales taxes... 337 447
Other................................ 396 286
-------- ------------
$ 1,416 $ 1,158
======== ============
6. INCOME TAXES
The components of the provision for income taxes are as follows:
YEAR ENDED
---------------------------------------
JUNE 30,
---------------------- DECEMBER 31,
1994 1995 1996
---------- ---------- ------------
Federal:
Current......................... $ 165 $ 338 $ 578
Deferred........................ (84) (99) (196)
---------- ---------- ------------
81 239 382
---------- ---------- ------------
State:
Current......................... 23 50 107
Deferred........................ (11) (12) (33)
---------- ---------- ------------
12 38 74
---------- ---------- ------------
Total provision............ $ 93 $ 277 $ 456
========== ========== ============
F-36
<PAGE>
TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
The provision for income taxes differs from an amount computed at the
statutory rates as follows:
YEAR ENDED
--------------------------------------
JUNE 30,
---------------------- DECEMBER 31,
1994 1995 1996
---------- ---------- ------------
Federal income tax at statutory
rates.............................. $ 76 $ 325 $ 818
State income taxes................... 12 38 74
Effect of S Corporation income....... -- (89) (454)
Nondeductible expenses (mainly meals
and entertainment)................. 5 3 18
---------- ---------- ------------
$ 93 $ 277 $ 456
========== ========== ============
The significant items giving rise to the deferred tax assets and
(liabilities) as of June 30, 1995 and December 31, 1996 are as follows:
JUNE 30, DECEMBER 31,
1995 1996
-------- ------------
Deferred tax assets --
Allowance for doubtful
accounts...................... $ 199 $ 220
UNICAP inventory................ 380 402
Other accrued expenses.......... 82 197
-------- ------------
Total deferred tax
assets.................. 661 819
-------- ------------
Deferred tax liabilities --
Bases differences in property
and equipment................. (249) (163)
Other........................... (70) (65)
-------- ------------
Total deferred income tax
liabilities............. (319) (228)
-------- ------------
Net deferred tax assets.... $ 342 $ 591
======== ============
7. COMPANY STOCK
Texas Aluminum has three classes of stock which include Class A voting
common stock, Class B non-voting common stock and cumulative, participating
preferred stock. The cumulative, participating preferred stock includes a
conversion right which can be exercised by the holder in the event of the sale
or transfer of more than fifty percent of the common stock or assets of the
corporation or the consolidation, merger or other reorganization or similar
transfer of a majority of the corporation's assets or common stock. The
conversion option allows the holder to convert a preferred share into two shares
of Class A voting common stock.
F-37
<PAGE>
TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
Texas Aluminum and Cornerstone's capital structure consists of:
JUNE 30, DECEMBER 31,
1995 1996
-------- ------------
Texas Aluminum:
Preferred stock, cumulative and
participating, authorized
100,000 shares, $100 par
value; 3,790 and 3,693 shares
issued and outstanding........ $ 379 $ 369
Common stock Class A voting,
authorized 5,000,000 shares,
no par value; 159,570 shares
issued and outstanding........ 363 363
Common stock Class B non-voting,
authorized 5,000,000 shares,
$10 par value; 114,441 and
112,827 shares issued and
outstanding................... 1,144 1,128
Treasury stock, 15,326 and
13,961 shares of Class B
common stock, respectively,
and 667 and 608 shares of
preferred stock shares,
respectively.................. (312) (284)
Cornerstone:
CMC common stock, authorized
1,000 shares, no par value;
1,000 shares issued and
outstanding................... 5 5
CBP common stock, authorized
1,000 shares, no par value;
1,000 shares issued and
outstanding................... 5 5
CPC members' equity............. -- 1
Treasury stock transactions are a result of employees exercising their put
options on shares awarded through the employee stock ownership plan. Texas
Aluminum cancels treasury stock and the corresponding Class B common stock or
preferred stock when the related note payable is fully paid (See Note 8).
8. EMPLOYEE BENEFIT PLANS
401(K) DEFERRED PROFIT SHARING PLAN AND TRUST
Texas Aluminum adopted a 401(k) salary deferral/savings plan effective July
1, 1989, for the benefit of all its employees. Employees electing to participate
in the plan may contribute up to 15% of annual compensation, limited to the
maximum amount that can be deducted for income tax purposes each year.
Texas Aluminum, at its discretion, has the option to match the employee's
contribution each plan year. Texas Aluminum elected to make contributions of
$24, $23 and $22 for the years ended June 30, 1994 and 1995 and December 31,
1996, respectively.
EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST
Texas Aluminum had an employee stock ownership plan and trust. Under the
provisions of this plan, Texas Aluminum made annual contributions to the plan
which were invested in stock and other qualifying securities of Texas Aluminum
for the benefit of Texas Aluminum's employees. Effective July 1, 1989, the ESOP
was frozen. As a result, all participants' accounts became fully vested on that
date.
Under the provisions of the plan, employees received a put option which
required Texas Aluminum to purchase their shares at fair market value.
Additionally, Texas Aluminum had the right of first refusal for any shares sold
by the employee. The plan provided for Texas Aluminum purchases of employee
shares to be paid in cash and with the issuance of a note payable.
In January 1997, Texas Aluminum terminated the plan and gave its employees
the option to receive a cash distribution, roll their account balances into an
IRA account, or have the account distributed in Texas Aluminum stock.
F-38
<PAGE>
TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
Texas Aluminum's practice has generally been to purchase shares from
employees at $16 per share for the Class B non-voting common stock and $100 per
share for the cumulative, participating preferred stock. The distribution under
the termination is based on these prices. Management believes that these prices
approximate fair value and has obtained valuations from independent appraisers
to assist them in their determination. In March 1997, Gene C. Elkins, a
shareholder of Texas Aluminum, purchased the shares tendered by employees who
opted for a cash distribution. The remaining employees received shares of Texas
Aluminum stock. The put options were terminated upon the execution of these
transactions.
9. COMMITMENTS
OPERATING LEASE AGREEMENTS
Texas Aluminum/Cornerstone is obligated under certain long-term
non-cancelable lease agreements for office space, warehouse space and equipment
as summarized below:
YEAR ENDING
DECEMBER 31,
-------------
1997................................. $ 1,706
1998................................. 1,358
1999................................. 1,044
2000................................. 480
2001 and thereafter.................. 322
---------
$ 4,910
=========
Texas Aluminum/Cornerstone paid approximately $1,300, $1,700 and $1,700 in
rent expense during the years ended June 30, 1994 and 1995 and December 31,
1996, respectively, under operating leases. Certain of these leases are with
affiliated individuals and companies (see Note 12).
10. DIVESTITURE OF A RETAIL DIVISION
On June 30, 1993, Texas Aluminum divested its retail division under a
licensing agreement, whereby the Company transferred certain assets and existing
sales in exchange for $100 and the licensing agreement. The license grants the
licensee the right to sell certain proprietary products under the name of Air
Vent and/or Air Vent Awning Company. In accordance with the agreement, Texas
Aluminum is entitled to receive monthly license fees of $9 beginning on August
1, 1993, and continuing for a five-year period. These fees are included in other
income in the accompanying statements of income.
Under the terms of the agreement, the licensee has agreed to purchase the
merchandise used to market and install the products exclusively from Texas
Aluminum. During the term of the agreement, Texas Aluminum has agreed not to
compete with the licensee in the retail market in the state of Texas.
As part of the license agreement, Texas Aluminum granted an option for the
sale of the stock of Air Vent Awning Company for a purchase price of $100. This
option has a one year term and is extendable up to four successive one-year
terms. Consideration for these options is $5 per quarter which shall be applied
towards the purchase price.
11. LICENSING AGREEMENT
Texas Aluminum entered into a licensing agreement in July 1992, whereby it
is required to pay licensing fees to a third party on the sale of certain
products. Texas Aluminum has capitalized $94 in costs incurred in connection
with obtaining the licensing agreement which are being amortized over the life
of the agreement. The unamortized balance of capitalized licensing costs was $78
and $66 as of June 30, 1995 and December 31, 1996, respectively. Total licensing
fees paid for the years ended June 30, 1994 and 1995, and December 31, 1996 were
$36, $43 and $64, respectively.
F-39
<PAGE>
TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
12. RELATED-PARTY TRANSACTIONS
Texas Aluminum/Cornerstone has various transactions with affiliated
individuals and companies as follows:
FACILITY AND EQUIPMENT LEASES
Texas Aluminum/Cornerstone leases certain facilities and equipment from
affiliated individuals and companies. Lease payments made to these affiliated
individuals and companies during the years ended June 30, 1994 and 1995 and
December 31, 1996 were $306, $541 and $697, respectively.
In June 1996, Texas Aluminum sold certain equipment with a net book value
of $143 to an affiliated company. This equipment is being leased to Cornerstone
for $48 per year through December 2011. Also in June 1996, Cornerstone sold
certain equipment with a net book value of $120 to the same affiliated company.
This equipment is being leased to Texas Aluminum for $48 per year through
December 2011. These leases are being accounted for as capital leases. In
November 1996, Texas Aluminum sold certain machinery and equipment to this
affiliated company resulting in a gain of $242. Texas Aluminum is leasing this
machinery from the affiliated company for $72 per year through December 2001.
The resulting gain has been deferred and will be recognized over the term of the
lease.
NOTES RECEIVABLE
Texas Aluminum/Cornerstone has unsecured notes receivable from an
affiliated corporation of $546 as of December 31, 1996, which is included in
accounts and notes receivable from affiliates. This note accrues interest at 8%
and is due June 1, 2001.
Texas Aluminum/Cornerstone believes the related party transactions are on
terms no more or less favorable than what could have been obtained from third
parties.
INTERCOMPANY ELIMINATIONS
The balance sheet as of June 30, 1995 and the statement of income for the
year ended June 30, 1995, include certain intercompany balances and transactions
between Texas Aluminum and Cornerstone which have not been eliminated due to the
conforming of year ends, as follows:
Affiliated receivables............... $ 993
Affiliated management fee expense.... $ 60
13. SUBSEQUENT EVENTS (UNAUDITED)
Certain transactions occurred subsequent to year end as follows:
i) On July 11, 1997, Metals USA, Inc. purchased all of the issued and
outstanding equity securities of Texas Aluminum/Cornerstone, through the
issuance of common stock and cash pursuant to a definitive merger agreement
dated May 1997.
ii) Prior to the merger, Cornerstone made cash distributions of
approximately $2,000 which represents Cornerstone's estimated S Corporation
accumulated adjustment account. Cornerstone funded this $2,000 distribution
through short-term borrowings.
iii) Texas Aluminum/Cornerstone made a cash distribution of $1,400 to
its stockholders to cover their tax liabilities due to Cornerstone's S
Corporation status.
iv) Discretionary bonuses totalling $1,600 were made to stockholders.
v) A stockholder and an affiliated entity purchased the shares of
Texas Aluminum's common and preferred stock which were tendered by the
Company's employees upon termination of the ESOP plan (See Note 8).
vi) Two stockholders made loans to the Company totalling $2,500 to
help fund potential future acquisitions.
F-40
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Interstate Steel Supply Company and Affiliates
We have audited the accompanying combined balance sheets of Interstate
Steel Supply Company and Affiliates as of December 31, 1996 and 1995 and the
related statements of income, stockholders' equity and partners' capital and
cash flows for each of the three years in the period ended December 31, 1996.
The individual companies and partnership which comprise the Company are under
common ownership and common management (see Note 1). 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 present fairly, in all material
respects, the combined financial position of Interstate Steel Company and
Affiliates at December 31, 1996 and 1995, and the combined results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
April 11, 1997
Philadelphia, Pennsylvania
F-41
<PAGE>
INTERSTATE STEEL SUPPLY CO. AND AFFILIATES
COMBINED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
DECEMBER 31,
-------------------- JUNE 30,
1995 1996 1997
--------- --------- -----------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents....... $ 83 $ 168 $ 385
Accounts receivable -- trade,
less allowance of $225, $300
and $351...................... 7,864 6,821 8,905
Inventories..................... 8,755 11,403 10,726
Prepaid expenses and other
current assets................ 69 191 754
--------- --------- -----------
Total current assets....... 16,771 18,583 20,770
Property and equipment, net.......... 3,447 3,325 3,331
Other assets......................... 987 1,116 1,225
--------- --------- -----------
Total assets............... $ 21,205 $ 23,024 $25,326
========= ========= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................ $ 1,401 $ 1,866 $ 2,779
Accrued liabilities............. 941 1,051 782
Lines of credit................. 11,100 10,100 11,600
Current portion of long-term
debt.......................... 93 94 75
--------- --------- -----------
Total current
liabilities............. 13,535 13,111 15,236
Long-term debt....................... 817 723 581
--------- --------- -----------
Total liabilities.......... 14,352 13,834 15,817
--------- --------- -----------
Stockholders' equity:
Common stock; 200,000 shares,
$1.00 par value authorized,
35,500 issued and
outstanding................... 36 36 36
Common stock; 2,000 shares, no
par value authorized, 2,000
issued and outstanding........ 2 2 2
Additional paid-in capital...... 72 72 72
Retained earnings............... 6,739 9,072 9,237
Partners' capital............... 1,502 1,506 1,660
Treasury stock.................. (1,498) (1,498) (1,498)
--------- --------- -----------
Total stockholders'
equity.................. 6,853 9,190 9,509
--------- --------- -----------
Total liabilities and
stockholders' equity.... $ 21,205 $ 23,024 $25,326
========= ========= ===========
The accompanying notes are an integral part of these combined financial
statements.
F-42
<PAGE>
INTERSTATE STEEL SUPPLY CO. AND AFFILIATES
COMBINED STATEMENTS OF INCOME
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............................ $ 49,299 $ 61,375 $ 66,806 $ 34,110 $ 35,774
Costs and expenses:
Cost of sales................... 37,283 44,868 47,902 24,303 26,161
Operating and delivery.......... 6,197 7,916 8,243 4,185 4,554
Selling, general and
administrative expenses....... 4,187 5,279 5,391 2,777 2,663
Depreciation and amortization... 483 561 550 280 193
--------- --------- --------- --------- ---------
Operating income................ 1,149 2,751 4,720 2,565 2,203
Other (income) expense:
Interest expense, net........... 792 908 936 474 426
Other, net...................... (1) 1 10 10 (2)
--------- --------- --------- --------- ---------
Income before income taxes........... 358 1,842 3,774 2,081 1,779
Provision for income taxes........... -- -- -- -- --
--------- --------- --------- --------- ---------
Net income........................... $ 358 $ 1,842 $ 3,774 $ 2,081 $ 1,779
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-43
<PAGE>
INTERSTATE STEEL SUPPLY CO. AND AFFILIATES
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
COMMON STOCK
------------------ ADDITIONAL
$1 PAR NO PAR PAID-IN RETAINED TREASURY PARTNERS'
VALUE VALUE CAPITAL EARNINGS STOCK CAPITAL TOTAL
------- ------- ----------- --------- --------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
January 1, 1994......................... $ 36 $ 2 $ 72 $ 5,688 $(1,498) $1,116 $5,416
Dividends and distributions............. -- -- -- (228) -- (80) (308)
Net income.............................. -- -- -- 239 -- 119 358
------- ------- ----------- --------- --------- -------- ------
Balance, December 31, 1994.............. 36 2 72 5,699 (1,498) 1,155 5,466
Dividends and distributions............. -- -- -- (705) -- -- (705)
Contributions........................... -- -- -- -- -- 250 250
Net income.............................. -- -- -- 1,745 -- 97 1,842
------- ------- ----------- --------- --------- -------- ------
Balance, December 31, 1995.............. 36 2 72 6,739 (1,498) 1,502 6,853
Dividends and distributions............. -- -- -- (1,437) -- -- (1,437)
Net income.............................. -- -- -- 3,770 -- 4 3,774
------- ------- ----------- --------- --------- -------- ------
Balance, December 31, 1996.............. 36 2 72 9,072 (1,498) 1,506 9,190
Dividends and distributions
(unaudited)........................... -- -- -- (1,460) -- -- (1,460)
Net income (unaudited).................. -- -- -- 1,625 -- 154 1,779
------- ------- ----------- --------- --------- -------- ------
Balance, June 30, 1997 (unaudited)...... $ 36 $ 2 $ 72 $ 9,237 $(1,498) $1,660 $9,509
======= ======= =========== ========= ========= ======== ======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-44
<PAGE>
INTERSTATE STEEL SUPPLY CO. AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................... $ 358 $ 1,842 $ 3,774 $ 2,081 $ 1,779
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and
amortization................. 483 561 550 280 193
Loss (gain) on sale of
assets....................... 2 10 -- -- (6)
Changes in operating assets and
liabilities:
Accounts receivable, net... (695) (768) 1,041 611 (2,084)
Inventories................ (1,272) (1,315) (2,648) (5,352) 677
Prepaid expenses and other
assets................... 112 6 (121) (720) (672)
Accounts payable and
accrued liabilities...... (3) 158 575 1,495 644
Other assets............... (119) (178) (129) -- --
--------- --------- --------- --------- ---------
Net cash provided by (used
in) operating
activities............... (1,134) 316 3,042 (1,605) 531
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and
equipment......................... (571) (533) (428) (130) (193)
Proceeds from sales of property and
equipment......................... 10 6 -- -- --
Other, net.......................... 11 -- -- -- --
--------- --------- --------- --------- ---------
Net cash used in investing
activities............... (550) (527) (428) (130) (193)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) on
line-of-credit.................... 1,225 750 (1,000) 2,950 1,500
Principal payments on long-term
obligations....................... (239) (259) (93) (48) (161)
Proceeds from issuance of long-term
obligations....................... 900 -- -- -- --
Distributions to shareholders and
partners.......................... (308) (564) (1,436) (1,138) (1,460)
Capital contributions............... -- 250 -- -- --
--------- --------- --------- --------- ---------
Net cash provided by (used
in) financing
activities............... 1,578 177 (2,529) 1,764 (121)
--------- --------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS........................... (106) (34) 85 29 217
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD................................ 223 117 83 83 168
--------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF
PERIOD................................ $ 117 $ 83 $ 168 $ 112 $ 385
========= ========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest.............. $ 847 $ 964 $ 930 $ 449 $ 500
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-45
<PAGE>
INTERSTATE STEEL SUPPLY CO. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Interstate Steel Supply Company and Affiliates ("Interstate") is
comprised of the following companies under common control and ownership;
Interstate Steel Supply Company (a Pennsylvania Subchapter "S" corporation)
and its affiliates, Interstate Steel Supply Company of Pittsburgh (a
Pennsylvania Subchapter "S" corporation), Interstate Steel Processing Company
(a Pennsylvania Subchapter "S" corporation), Interstate Steel Supply Company
of Maryland (a Maryland Subchapter "S" corporation) and Warehouse Real Estate
Associates (a Pennsylvania partnership). All intercompany transactions and
balances have been eliminated in the accompanying combined financial statements.
Interstate is a carbon structural steel service center with operations in
Baltimore, MD, Philadelphia and Pittsburgh, PA. Interstate services customers
primarily in the Northeast and Midatlantic regions of United States, ranging
from Virginia to Maine and west through Eastern Ohio. Interstate supplies
structural steel for steel buildings, bridges, shopping malls, shipbuilding,
railroad switch and gear manufacturers and electric power generating plants.
Approximately one-half of net sales include value-added processing services such
as saw cutting, shearing, flame cutting, cambering and tee-splitting.
Interstate (exclusive of Warehouse Real Estate Associates, see Note 8) and
its shareholders expect to enter into a definitive merger agreement with Metals
USA, Inc. ("Metals USA") pursuant to which all of Interstate's outstanding
shares of capital stock will be exchanged for cash and shares of Metals USA
common stock concurrently with the consummation of the initial public offering
(the "Offering") of Metals USA common stock.
RECLASSIFICATIONS
Certain amounts in the 1994 and 1995 financial statements have been
reclassified to conform to the 1996 presentation. These reclassifications have
no effect on previously reported net income or stockholders' equity.
USE OF ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with generally
accepted accounting principles require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INTERIM FINANCIAL INFORMATION
The interim financial statements included herein are unaudited; however,
they include all adjustments of a normal recurring nature, which, in the opinion
of management, are necessary to present fairly the financial position of
Interstate at June 30, 1997, and the result of its operations and cash flows for
the six months ended June 30, 1996, and 1997. Accounting measurements at interim
dates inherently involve greater reliance on estimates than at year end. The
results of operations for the interim periods presented are not necessarily
indicative of the results to be expected for the entire year.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH EQUIVALENTS
Cash equivalents consist of highly liquid money market instruments with
original maturities of three months or less.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is primarily
determined using the last-in, first-out ("LIFO") method.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost, net of accumulated depreciation.
Depreciation for buildings and equipment are based upon the estimated useful
lives of the various classes of assets, using the straight-
F-46
<PAGE>
INTERSTATE STEEL SUPPLY CO. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
line and the declining balance method, respectively. Leasehold improvements are
amortized over the shorter of their useful lives or the term of the lease using
the straight-line method.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash equivalents approximate their fair value. The
fair value of the line-of-credit facilities and long-term debt are estimated
based on interest rates for the same or similar debt offered to Interstate
having the same or similar remaining maturities and collateral requirements. The
carrying amounts of the line-of-credit facility and long-term debt approximates
their fair value at the applicable balance sheet dates.
CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject Interstate to
concentrations of credit risk, consist principally of cash deposits and, trade
account and note receivables. Concentrations of credit risk with respect to
trade accounts receivable are within the Northeast and Midatlantic United
States. Credit is extended once appropriate credit history and references have
been obtained. Adjustments to the allowance for doubtful accounts are made
periodically (as circumstances warrant) based upon the expected collectibility
of all such accounts. Interstate periodically reviews the credit history of its
customers and generally does not require collateral for the extension of credit.
INCOME TAXES
Interstate elected to be taxed under sections of the federal and state
income tax laws which provide that, in lieu of corporation income taxes, the
stockholders separately account for Interstate's items of income, deductions,
losses and credits on their individual income tax returns. The financial
statements will not include a provision for income taxes (credits) as long as
the S Corporation election remains in effect. As long as Interstate's S
Corporation income tax election remains in effect, Interstate may, from
time-to-time, pay dividends to its stockholders in amounts sufficient to enable
the stockholders to pay the taxes due on their share of Interstate's items of
income, deductions, losses, and credits which has been allocated to them for
reporting on their individual income tax returns. Taxes on partnership income
accrue to the partners and, accordingly, are not reflected in the financial
statements.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF ("SFAS 121") in March 1995. SFAS
121 requires that long-lived assets and certain intangibles to be held and used
by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Interstate adopted SFAS No. 121 on January 1, 1996. The impact of
adopting this standard did not have a material impact on the results of
operations.
2. INVENTORIES
Interstate utilizes the LIFO method of inventory accounting. If the
first-in first-out, ("FIFO") method had been used for all inventories, their
carrying value would have been $11,466 and $13,487 at December 31, 1995 and
1996, respectively. Additionally, net income would have been $1,030, $2,475 and
$3,146 for the years ended December 31, 1994, 1995 and 1996, respectively.
During the years ended December 31, 1994 and 1996, Interstate recorded favorable
adjustments to cost of goods sold of approximately $90 and $627, respectively.
The adjustments were due to the lower costs associated with the reduced
quantities (for certain items) that prevailed in prior periods compared to the
cost prevailing in 1994 and 1996.
F-47
<PAGE>
INTERSTATE STEEL SUPPLY CO. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
DECEMBER 31,
ESTIMATED --------------------
USEFUL LIVES 1995 1996
------------ --------- ---------
Land................................. -- $ 488 $ 488
Buildings............................ 40 years 3,694 3,725
Machinery and equipment.............. 5-25 years 2,539 2,753
Automobiles and trucks............... 3-7 years 1,034 1,105
Office equipment and furniture....... 3-10 years 678 739
Leasehold improvements............... 3-10 years 333 333
--------- ---------
8,766 9,143
Less: accumulated amortization....... (5,319) (5,818)
--------- ---------
$ 3,447 $ 3,325
========= =========
4. LINE-OF-CREDIT
Interstate has unsecured $14,500 demand line-of-credit facilities with two
banks. The line-of-credit facilities bear interest at rates between 6.75% and
8.25% at December 31, 1996. The line-of-credit agreements require Interstate to
meet and maintain certain nonfinancial covenants, including the maintenance of
life insurance policies on the sole stockholder of Interstate Steel Supply
Company in the amount of $3,000, with Interstate Steel Supply Company as the
designated beneficiary.
5. LONG-TERM DEBT
DECEMBER 31,
--------------------
1995 1996
--------- ---------
Note payable to bank, interest at
prime plus 0.25% (8.50% at
December 31, 1996), payable in
monthly installments of $6
(plus interest); matures in 2006;
secured by certain buildings and
equipment.......................... $ 769 $ 694
Note payable to PIDC, interest at
7.0%, payable in installments of
$2; matures in 2006................ 141 123
--------- ---------
910 817
Less: current maturities............. (93) (94)
--------- ---------
$ 817 $ 723
========= =========
Long-term debt consists of notes payable issued by Warehouse Real Estate
Associates to purchase premises and equipment and to make improvements at the
facilities leased to the two operating companies; the buildings and equipment
are collateral. At December 31, 1996, future principal payments of long-term
debt are as follows:
1997................................. $ 94
1998................................. 95
1999................................. 97
2000................................. 98
2001................................. 100
Thereafter........................... 333
---------
$ 817
=========
6. EMPLOYEE BENEFIT PLANS
Interstate maintains profit-sharing plans which provide for voluntary
Company contributions at the discretion of the Board of Directors of up to 15%
of the salaries of eligible employees. Contributions of $260, $405 and $472 have
been charged to operations for the years ended December 31, 1994, 1995 and 1996,
respectively.
F-48
<PAGE>
INTERSTATE STEEL SUPPLY CO. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
7. MAJOR CUSTOMERS AND SUPPLIERS
During 1996, Interstate had two customers, each of which accounted for
approximately 10% of net sales. Interstate did not have any major customers that
accounted for more than 10% of net sales in 1995 or 1994.
Interstate primarily acquires structural and plate steel, its most
significant inventory, from three suppliers. Those suppliers made up 19%, 17%,
and 10%, respectively, in purchases for the fiscal year ending December 31,
1996. The same suppliers accounted for 10%, 13.5%, and 20%, respectively, in
total steel purchased for the year ended December 31, 1995.
8. SUBSEQUENT EVENT (UNAUDITED)
On July 11, 1997, Metals USA, Inc. purchased all of the issued and
outstanding equity securities of Interstate, through the issuance of common
stock and cash pursuant to a definitive merger agreement dated May 1997.
Prior to the merger, Interstate made a cash distribution of approximately
$5,250 which represented Interstate's estimated S Corporation accumulated
adjustment account. Had these distributions been made at December 31, 1996 or
June 30, 1997, the effect on Interstate's balance sheet would have been to
increase liabilities by $5,250, and decrease stockholder's equity by $5,250.
Interstate funded this distribution by using its existing credit facilities.
As described in Note 1, Warehouse Real Estate Associates will not be a
party to the merger. Following the sale of equipment described below,
approximately $1,800 of property and equipment, debt of $817 and other
obligations of approximately $133 which are included in the combined balance
sheet at December 31, 1996 will remain with Warehouse Real Estate Associates.
Concurrent with the merger, Interstate entered into agreements with Warehouse
Real Estate Associates to purchase certain equipment from Interstate Steel
Supply Company in exchange for an existing note receivable, having a carrying
value of $530 at December 31, 1996. The value of the equipment approximates the
value of the note. Additionally, an affiliate of Interstate entered into a 10
year lease with Warehouse Real Estate Associates with respect to certain real
property where Interstate conducts its operations for an annual lease payment of
$233. This annual lease amount will remain in effect for five years. At the end
of year five the annual rental will be redetermined. An affiliate of Interstate
has agreed to purchase the real estate at the end of year ten for the then
appraised fair market value of such property.
Prior to the merger, Interstate Steel Supply Company dividended a life
insurance policy to its sole stockholder, which had a book value at June 30,
1997 of approximately $1,183.
F-49
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Queensboro Steel Corporation
Wilmington, North Carolina
We have audited the accompanying balance sheets of Queensboro Steel
Corporation as of
December 31, 1996 and 1995, and the related statements of income, stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Queensboro Steel Corporation
as of December 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
McGladrey & Pullen, LLP
Wilmington, North Carolina
February 25, 1997, except for Note 11 as to
which the date is April 18, 1997
F-50
<PAGE>
QUEENSBORO STEEL CORPORATION
BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
DECEMBER 31,
-------------------- JUNE 30,
1995 1996 1997
--------- --------- -----------
(UNAUDITED)
ASSETS
Current assets:
Cash............................ $ 5 $ 5 $ 7
Accounts receivable:
Trade, less allowance of
$20, $20 and $20........ 10,249 8,390 8,533
Other...................... 108 173 81
Inventories..................... 6,217 8,574 9,504
Costs and estimated earnings in
excess of billings on
uncompleted contracts......... 406 971 1,310
Prepaid expenses and other
current assets................ 184 165 197
--------- --------- -----------
Total current assets....... 17,169 18,278 19,632
Property and equipment, net.......... 3,085 4,638 4,748
Other assets......................... 281 307 306
--------- --------- -----------
Total assets............... $ 20,535 $ 23,223 $24,686
========= ========= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................ $ 2,857 $ 3,007 $ 2,383
Accrued liabilities............. 517 625 1,661
Billings in excess of costs and
estimated earnings on
uncompleted contracts......... 228 842 522
Current portion of long-term
debt.......................... 10 -- --
--------- --------- -----------
Total current
liabilities............. 3,612 4,474 4,566
Long-term debt....................... 8,884 8,551 15,170
Deferred compensation................ 359 410 438
--------- --------- -----------
Total liabilities.......... 12,855 13,435 20,174
--------- --------- -----------
Stockholders' equity:
Capital stock, 200,000 shares
authorized:
Class A voting, $10 par value,
18,666 shares issued and
outstanding................ 187 187 187
Class B non-voting, $10 par
value, 78,666 shares issued
and outstanding............ 787 787 787
Additional paid-in capital...... 870 870 870
Retained earnings............... 5,758 7,944 2,668
Unrealized gain on securities... 78 -- --
--------- --------- -----------
Total stockholders'
equity.................. 7,680 9,788 4,512
--------- --------- -----------
Total liabilities and
stockholders' equity.... $ 20,535 $ 23,223 $24,686
========= ========= ===========
The accompanying notes are an integral part of these financial statements.
F-51
<PAGE>
QUEENSBORO STEEL CORPORATION
STATEMENTS OF INCOME
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............................ $ 50,795 $ 60,322 $ 54,996 $ 29,135 $ 31,222
Costs and expenses:
Cost of sales................... 37,996 45,945 38,912 21,196 22,810
Operating and delivery.......... 7,408 8,080 8,355 4,110 4,623
Selling, general and
administrative expenses....... 3,656 3,839 3,870 1,954 2,163
Depreciation and amortization... 369 362 405 186 236
--------- --------- --------- --------- ---------
Operating income................ 1,366 2,096 3,454 1,689 1,390
Other (income) expense:
Interest expense................ 465 612 587 294 366
Other income.................... (63) (67) (77) 18 --
--------- --------- --------- --------- ---------
Net income........................... $ 964 $ 1,551 $ 2,944 $ 1,377 $ 1,024
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-52
<PAGE>
QUEENSBORO STEEL CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
UNREALIZED
COMMON STOCK ADDITIONAL GAIN ON TOTAL
-------------------- PAID-IN RETAINED INVESTMENT STOCKHOLDERS'
CLASS A CLASS B CAPITAL EARNINGS SECURITIES EQUITY
-------- -------- ----------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993........... $ 187 $ 787 $ 870 $ 4,290 $-- $ 6,134
Net income...................... -- -- -- 964 -- 964
Dividends....................... -- -- -- (138) -- (138)
-------- -------- ----------- --------- ----------- -------------
Balance, December 31, 1994........... 187 787 870 5,116 -- 6,960
Net income...................... -- -- -- 1,551 -- 1,551
Dividends....................... -- -- -- (909) -- (909)
Investment securities received
from insurance cooperative.... -- -- -- -- 78 78
-------- -------- ----------- --------- ----------- -------------
Balance, December 31, 1995........... 187 787 870 5,758 78 7,680
Net income...................... -- -- -- 2,944 -- 2,944
Dividends....................... -- -- -- (758) -- (758)
Donation of investment
securities received from
insurance cooperative......... -- -- -- -- (78) (78)
-------- -------- ----------- --------- ----------- -------------
Balance, December 31, 1996........... 187 787 870 7,944 -- 9,788
Net income (unaudited).......... -- -- -- 1,024 -- 1,024
Dividends (unaudited)........... -- -- -- (6,300) -- (6,300)
-------- -------- ----------- --------- ----------- -------------
Balance, June 30, 1997 (unaudited)... $ 187 $ 787 $ 870 $ 2,668 $-- $ 4,512
======== ======== =========== ========= =========== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-53
<PAGE>
QUEENSBORO STEEL CORPORATION
STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................... $ 964 $ 1,551 $ 2,944 $ 1,377 $ 1,024
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization.... 369 362 405 186 236
Loss (gain) on sale of assets.... (1) 2 4 -- --
Increase in deferred
compensation................... 54 40 51 25 28
Changes in operating assets and
liabilities:
Accounts receivable, net....... (1,225) (2,930) 1,702 1,325 (51)
Inventories.................... (2,241) 1,552 (2,358) (1,615) (930)
Prepaid expenses and other
assets...................... (69) (63) 99 (75) (31)
Accounts payable and accrued
liabilities................. 925 (173) 258 (881) 412
Billings related to cost and
estimated earnings on
uncompleted contracts....... 721 212 49 534 (659)
--------- --------- --------- --------- ---------
Net cash provided by (used
in) operating activities.. (503) 553 3,154 876 29
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and
equipment...................... (896) (1,519) (1,962) (1,215) (346)
Proceeds from sales of property
and equipment.................. 2 16 7 -- --
Other, net....................... (7) (1) 2 -- --
--------- --------- --------- --------- ---------
Net cash used in investing
activities................ (901) (1,504) (1,953) (1,215) (346)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on revolving
line-of-credit................. (61,087) (40,844) (43,543) (30,648) (29,346)
Borrowings on revolving
line-of-credit................. 62,755 42,829 40,210 32,609 35,965
Borrowings on long-term debt..... -- -- 3,000 -- --
Financing costs.................. -- -- (100) -- --
Principal payments on long-term
debt........................... (125) (125) (10) -- --
Dividends paid................... (138) (909) (758) (570) (6,300)
--------- --------- --------- --------- ---------
Net cash provided by (used
in) financing activities.. 1,405 951 (1,201) 1,391 319
--------- --------- --------- --------- ---------
NET INCREASE IN CASH................. 1 -- -- 1,052 2
CASH BEGINNING OF PERIOD............. 4 5 5 5 5
--------- --------- --------- --------- ---------
CASH END OF PERIOD................... $ 5 $ 5 $ 5 $ 1,057 $ 7
========= ========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest........... $ 466 $ 601 $ 559 $ 300 $ 364
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Investment securities received
(donated)...................... $ -- $ (78) $ 78 $ -- $ --
Note received in settlement of an
account receivable............. -- -- 156 -- --
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-54
<PAGE>
QUEENSBORO STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Queensboro Steel Corporation ("Queensboro") is a heavy carbon steel
service center and structural fabricator with operations in Wilmington and
Greensboro, North Carolina and Norfolk, Virginia. Queensboro markets its
products primarily in the Southeast region of the United States. Sales consist
principally of beams, angles, channels, sheet, plate, bar, tubing and fabricated
steel for buildings. Value-added processing includes shearing, bending,
drilling, tee-splitting, rolling, cambering, burning and coil processing.
Queensboro's diversified customer base includes shipbuilding, transportation,
building construction, pulp and paper mills, chemical, public utility, farm
equipment, crane manufacturing, plant maintenance and other industries.
Queensboro and its shareholders expect to enter into a definitive merger
agreement with Metals USA, Inc. ("Metals USA") pursuant to which all of
Queensboro's outstanding shares of capital stock will be exchanged for cash and
shares of Metals USA common stock concurrently with the consummation of the
initial public offering (the "Offering") of Metals USA common stock.
RECLASSIFICATIONS
Certain amounts in the 1994 and 1995 financial statements have been
reclassified to conform to the 1996 presentation. These reclassifications have
no effect on previously reported net income or stockholders' equity.
USE OF ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with generally
accepted accounting principles require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INTERIM FINANCIAL INFORMATION
The interim financial statements included herein are unaudited; however,
they include all adjustments of a normal recurring nature, which, in the opinion
of managment, are necessary to present fairly the financial position of
Queensboro at June 30, 1997, and the results of its operations and cash flows
for the six months ended June 30, 1996 and 1997. Accounting measurements at
interim dates inherently involve greater reliance on estimates than at year end.
The results of operations for the interim periods presented are not necessarily
indicative of the results to be expected for the entire year.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is primarily
determined using the last-in, first-out ("LIFO") method.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost, net of accumulated depreciation.
Depreciation is computed utilizing the straight-line method at rates based upon
the estimated useful lives of the various classes of assets.
F-55
<PAGE>
QUEENSBORO STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
LONG-TERM CONTRACTS
Sales are recorded at the time products and materials are shipped or as
services are provided. Income from fabrication contracts are recognized by
applying estimated percentages-of-completion to the total estimated profit for
the respective contracts, commencing at the time the contracts are at least
one-tenth complete. The percentage-of-completion is determined by relating the
actual cost of work performed through year end to the total estimated cost of
the respective contracts. Provisions for estimated losses on uncompleted
contracts are made in the period in which such losses are determined. Changes in
job performance, job conditions, and estimated profitability, including those
arising from contract penalty provisions, and final contract settlements may
result in revisions to costs and income, and are recognized in the period in
which the revisions are determined. Contract costs include direct materials,
direct labor and related overhead.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the long-term debt is estimated based on interest rates
for the same or similar debt offered to Queensboro having the same or similar
remaining maturities and collateral requirements. The carrying amounts of
long-term debt approximates fair value at the applicable balance sheet dates.
CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject Queensboro to
concentrations of credit risk, consist principally of trade account receivables.
Concentrations of credit risk with respect to trade accounts receivable are
within the Southeast region of the United States. Credit is extended once
appropriate credit history and references have been obtained. Adjustments to the
allowance for doubtful accounts are made periodically (as circumstances warrant)
based upon the expected collectibility of all such accounts. Queensboro
periodically reviews the credit history of its customers and generally does not
require collateral for the extension of credit.
INCOME TAXES
Queensboro, with the consent of its stockholders, elected to be taxed under
sections of the federal and state income tax laws which provide that, in lieu of
corporation income taxes, the stockholders separately account for Queensboro's
items of income, deductions, losses and credits on their individual income tax
returns. The financial statements will not include a provision for income taxes
(credits) as long as the S Corporation election remains in effect. As long as
Queensboro's S Corporation income tax election remains in effect, Queensboro
may, from time-to-time, pay dividends to its stockholders in amounts sufficient
to enable the stockholders to pay the taxes due on their share of Queensboro's
items of income, deductions, losses, and credits which has been allocated to
them for reporting on their individual income tax returns.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF ("SFAS 121") in March 1995. SFAS
121 requires that long-lived assets and certain intangibles to be held and used
by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Queensboro adopted SFAS No. 121 on January 1, 1996. The impact of
adopting this standard did not have a material impact on the results of
operations.
F-56
<PAGE>
QUEENSBORO STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
2. TRADE RECEIVABLES
Trade receivables consist of the following:
DECEMBER 31,
--------------------
1995 1996
--------- ---------
Steel service center:
Trade receivables............... $ 4,686 $ 4,016
Fabrication division:
Contract receivables:
Contracts in progress...... 4,325 2,656
Completed contracts........ 324 732
Retained................... 914 986
--------- ---------
$ 10,249 $ 8,390
========= =========
3. INVENTORIES
Inventories of the steel service center consist primarily of unprocessed
steel and are carried at the lower of cost or market using the last-in,
first-out (LIFO) method. Inventories of the fabrication division ($340 and $366
at December 31, 1995 and 1996, respectively) approximate the lower of cost or
market using the first-in, first-out (FIFO) method. If the FIFO cost method of
inventory valuation had been used for all inventories at December 31, 1995 and
1996, inventories would have been $8,086 and $9,776 and net income for the years
ended December 31, 1994, 1995 and 1996, would have been $1,324, $1,882 and
$2,279, respectively.
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
DECEMBER 31,
ESTIMATED --------------------
USEFUL LIVES 1995 1996
------------ --------- ---------
Land................................. -- $ 120 $ 120
Buildings............................ 40 years 2,315 3,608
Machinery and equipment.............. 5-12 years 3,639 5,266
Automobiles, trucks and trailers..... 3- 5 years 800 872
Construction in progress............. -- 1,227 --
--------- ---------
8,101 9,866
Less: accumulated depreciation....... (5,016) (5,228)
--------- ---------
$ 3,085 $ 4,638
========= =========
F-57
<PAGE>
QUEENSBORO STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
5. CONTRACTS IN PROCESS
Information with respect to contracts in process is as follows:
DECEMBER 31,
--------------------
1995 1996
--------- ---------
Costs incurred on uncompleted
contracts.......................... $ 21,397 $ 17,550
Estimated earnings................... 1,962 2,934
--------- ---------
23,359 20,484
Less: billings to date............... 23,181 20,355
--------- ---------
$ 178 $ 129
========= =========
Included in accompanying balance
sheets under the following
captions:
Costs and estimated earnings in
excess of billings on
uncompleted contracts......... $ 406 $ 971
Billings in excess of costs and
estimated earnings on
uncompleted contracts......... (228) (842)
--------- ---------
$ 178 $ 129
========= =========
6. LONG-TERM DEBT
Long-term obligations consist of the following:
DECEMBER 31,
--------------------
1995 1996
--------- ---------
Revolving line-of-credit, interest at
prime plus 0.125%, interest payable
monthly, principal and unpaid
interest due June 30, 1998; secured
by accounts receivable and
inventory.......................... $ 8,884 $ 5,551
Industrial revenue bonds............. -- 3,000
Industrial revenue bond, interest at
65% of commercial prime borrowing
rates ranging from 6.5% to 11%,
payable in monthly installments of
$10 (plus interest); matured in
January 1996....................... 10 --
--------- ---------
8,894 8,551
Less: current maturities............. (10) --
--------- ---------
$ 8,884 $ 8,551
========= =========
REVOLVING LINE-OF-CREDIT
Queensboro has a $10,000 committed revolving line-of-credit facility with a
bank whereby Queensboro may borrow the lesser of (i) $10,000 or (ii) 80% of
eligible accounts receivable plus 60% of inventories. The agreement provides,
among other things, for restrictions on additional borrowings, capital
expenditures, investing, and the payment of dividends. The agreement also
requires the maintenance of certain working capital and debt-to-equity ratios,
minimum net worth, and furnishing periodic financial statements.
Additionally, Queensboro's cash accounts are tied directly to the revolving
line-of-credit such that the line is increased automatically when checks
presented to the bank for payment exceed the funds available in Queensboro's
bank accounts. At December 31, 1995 and 1996, outstanding checks approximating
$1,507 and $604, respectively, have been classified as long-term debt on the
balance sheet.
F-58
<PAGE>
QUEENSBORO STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
INDUSTRIAL REVENUE BONDS
Queensboro secured financing for the construction and equipping of its
current steel processing facility located in Greensboro, North Carolina with
industrial revenue bonds. These industrial revenue bonds were issued by Guilford
County Industrial Facilities and Pollution Control Financing Authority and the
proceeds loaned to Queensboro on identical terms. As required by the terms of
the bond agreement, Queensboro has provided an irrevocable bank letter-of-credit
for up to $3,043 as security for the industrial revenue bonds, which expires May
15, 1997. The future maturities of the industrial revenue bonds have been
classified in accordance with established sinking fund requirements in
anticipation that the letter-of-credit will be renewed at the expiration date.
Queensboro has the option to have interest determined on a weekly, flexible
or fixed rate basis. The bonds were issued and have remained on a weekly rate
basis. The rate at December 31, 1996 was 4.45%. Interest is payable in arrears
on May 1, and November 1. Beginning May 1, 1998, the bond sinking fund
requirements will be payable in annual installments of $300 through May 1, 2008,
except for 1998, 2002 and 2006, for which years the installments will be $200.
Additional conditional mandatory redemption features exist for such items as
taxability of the bonds and expiration of the letter-of-credit agreement.
Optional prepayment features also exist.
This letter of credit agreement, as amended, contains various covenant
requirements similar to those of the revolving line-of-credit described above
and is collateralized by accounts receivable, inventory and equipment.
The prime rate at December 31, 1996, was 8.25%.
At December 31, 1996, future principal payments of long-term debt are as
follows:
1997................................. $ --
1998................................. 5,751
1999................................. 300
2000................................. 300
2001................................. 300
Thereafter........................... 1,900
---------
$ 8,551
=========
7. EMPLOYEE BENEFIT PLANS
Queensboro participates in a multi-employer 401(k) profit-sharing plan with
a related corporation, which covers all employees at least twenty-one years of
age who have completed at least 1,000 hours of service in a twelve-month period
subsequent to employment. The Plan allows for employee contributions through
salary reduction of up to 15% of total compensation. The employer will match
these contributions at rate of 25%, up to 4% of the employees' total
compensation. Employer matching contributions were $37, $39 and $40 for 1994,
1995 and 1996, respectively. The discretionary profit-sharing contributions were
$50, $65 and $25 in 1994, 1995 and 1996, respectively.
8. DEFERRED COMPENSATION AND LIFE INSURANCE
In connection with a deferred compensation plan between Queensboro and
certain key employees, provision has been made for the future compensation which
is payable upon their death or retirement. At December 31, 1995 and 1996, $242
and $239, respectively, has been accrued under these contracts.
The deferred compensation is to be paid to the individuals or their
beneficiaries over a period of ten years commencing with the first business day
of the calendar month following the month of retirement or death.
F-59
<PAGE>
QUEENSBORO STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
The employment agreements with the employees mentioned in the preceding
paragraphs also provide that death benefits totaling $335 at December 31, 1996,
will be paid to their beneficiaries in the event these employees should die
while they are employees of Queensboro. Queensboro is the owner and beneficiary
of life insurance policies with a total face value of $853 on these employees.
In the event that a death benefit related to the employees mentioned above
should become payable, such benefit shall be in lieu of all deferred
compensation.
Queensboro also entered into a salary continuation agreement during 1992
which provides 50% salary continuation payments for up to ten years to the wife
of an officer upon death of that officer. The liability accrued for these
payments is $117 and $171 at December 31, 1995 and 1996, respectively.
9. LEASE COMMITMENTS
Queensboro has leased facilities and equipment under non-cancelable
long-term agreements, which have initial or remaining non-cancelable terms in
excess of one year as of December 31, 1996. Total rent expense related to such
leases aggregated $499, $417, and $417 for the years ended December 31, 1994,
1995 and 1996, respectively.
The future minimum rental commitments at December 31, 1996, under the
leases described above are due in future years as follows: 1997--$280;
1998--$93.
10. RELATED PARTY TRANSACTIONS
At December 31, 1995 and 1996, Queensboro had a receivable from a
corporation related through common ownership of $32 and $34, respectively.
Queensboro provides certain administrative services to the affiliated
corporation, for which it billed $274 in 1994, $370 in 1995 and $344 in 1996.
Queensboro leases fabrication shop facilities from an affiliated
partnership under operating lease terms (see Note 9). Lease expense was $137 in
1994, 1995 and 1996.
11. SUBSEQUENT EVENT
On April 4, 1997, Queensboro further amended its bank line-of-credit
agreement (see Note 6) to extend the termination date to June 30, 1998. The debt
is classified as noncurrent as a result of this extension.
Queensboro made a cash distribution on April 11, 1997, of approximately
$5,040 which represents Queensboro's estimated S corporation accumulated
adjustment account. To affect this transaction, Queensboro also entered into a
ninety-day, $3,000 bank loan collateralized by the accounts receivable and
inventory and personal guarantees of certain shareholders. Had these
transactions been made at December 31, 1996, the effect on Queensboro's balance
sheet would have been to increase liabilities by $5,040 and decrease
stockholders' equity by $5,040. These transactions caused covenant violations
with respect to the debt disclosed in Note 6. On April 18, 1997, the bank waived
these covenants through July 11, 1997. Queensboro expects, on or before July 11,
1997, the above mentioned merger will have been consummated or the guarantors
will satisfy the $3,000 debt.
12. SUBSEQUENT EVENTS (UNAUDITED)
On July 11, 1997, Metals USA, Inc. purchased all of the issued and
outstanding equity securities of Queensboro, through the issuance of common
stock and cash pursuant to a definitive merger agreement dated May 1997.
Queensboro dividended its Wilmington facility to its stockholders
concurrently with the Merger. An affiliate of Queensboro entered into a
long-term lease for the facility which calls for annual lease payments of $40.
At December 31, 1996 the carrying value of the facility was approximately $601.
Additionally, immediately prior to the Merger, Queensboro transferred the salary
continuation agreement described in the last paragraph of Note 8 to an entity
that is not a party to the Merger.
F-60
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors of
Affiliated Metals Company
We have audited the accompanying balance sheet of Affiliated Metals Company
as of August 31, 1996 and the related statements of operations, stockholders'
equity and cash flows for the fifty-two weeks 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 financial statements referred to above present fairly,
in all material respects, the financial position of Affiliated Metals Company at
August 31, 1996 and the results of its operations and its cash flows for the
fifty-two weeks then ended in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
St. Louis, Missouri
October 4, 1996
F-61
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Affiliated Metals Company
Granite City, Illinois
We have audited the accompanying balance sheet of Affiliated Metals Company
as of September 2, 1995 and the related statements of operations, stockholder's
equity and cash flows for the fifty-two weeks ended September 3, 1994 and
September 2, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Affiliated Metals Company as
of September 2, 1995 and the results of its operations and its cash flows for
the fifty-two weeks ended September 3, 1994 and September 2, 1995 in conformity
with generally accepted accounting principles.
RUBIN, BROWN, GORNSTEIN
& CO. L.L.P.
St. Louis, Missouri
October 19, 1995
F-62
<PAGE>
AFFILIATED METALS COMPANY
BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 2, AUGUST 31, MAY 31,
1995 1996 1997
------------ ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash............................ $ 2 $ 10 $ --
Accounts receivable, less
allowances for doubtful
accounts
of $30 at September 2, 1995,
August 31, 1996 and
May 31, 1997.................. 7,013 7,074 11,955
Inventories..................... 6,810 10,658 14,582
Prepaid expenses and other
current assets................ 125 130 257
------------ ---------- ------------
Total current assets....... 13,950 17,872 26,794
Property and equipment, net.......... 2,699 7,940 8,195
Other assets......................... 705 649 686
------------ ---------- ------------
Total assets............... $ 17,354 $ 26,461 $ 35,675
============ ========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank overdraft.................. $ 23 $ 143 $ 1,386
Accounts payable................ 5,860 7,154 9,248
Accrued liabilities............. 494 529 467
Current portion of long-term
debt.......................... 407 10,358 771
------------ ---------- ------------
Total current
liabilities............. 6,784 18,184 11,872
Long-term debt....................... 8,018 4,337 19,949
Deferred income taxes................ 622 599 582
Redeemable preferred stock, $119.048
par value; 1,680 shares authorized;
840, 600 and 0 shares issued and
outstanding
at September 2, 1995, August 31,
1996 and May 31, 1997,
respectively....................... 100 71 --
Common stock purchase warrant........ -- -- --
Stockholders' equity:
Common stock, $0.01 par value;
100,000 authorized;
6,000 shares issued and
outstanding................... -- -- --
Additional paid-in capital...... 50 50 50
Retained earnings............... 1,780 3,220 3,222
------------ ---------- ------------
Total stockholders'
equity.................. 1,830 3,270 3,272
------------ ---------- ------------
Total liabilities and
stockholders'
equity............. $ 17,354 $ 26,461 $ 35,675
============ ========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-63
<PAGE>
AFFILIATED METALS COMPANY
STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS
FIFTY-TWO WEEKS ENDED ENDED
------------------------------------------ --------------------
SEPTEMBER 3, SEPTEMBER 2, AUGUST 31, JUNE 1, MAY 31,
1994 1995 1996 1996 1997
------------ ------------ ---------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............................ $ 63,046 $ 78,976 $ 81,002 $ 60,830 $ 75,369
Costs and expenses:
Cost of sales................... 54,600 68,481 67,924 49,882 64,371
Operating and delivery
expenses...................... 4,316 5,060 5,871 5,243 7,011
Selling, general and
administrative expenses....... 2,352 2,803 3,431 2,236 2,163
Depreciation and amortization... 304 313 300 264 516
------------ ------------ ---------- -------- --------
Operating income..................... 1,474 2,319 3,476 3,205 1,308
Other expense:
Interest expense................ 735 1,058 1,011 815 1,220
Other, net...................... 37 22 38 45 96
------------ ------------ ---------- -------- --------
Income (loss) before income taxes.... 702 1,239 2,427 2,345 (8)
Credit (provision) for income
taxes.............................. (297) (497) (979) (927) 13
------------ ------------ ---------- -------- --------
Net income........................... $ 405 $ 742 $ 1,448 $ 1,418 $ 5
============ ============ ========== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-64
<PAGE>
AFFILIATED METALS COMPANY
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
---------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ----------- --------- -------------
<S> <C> <C> <C> <C> <C>
Balance, August 31, 1993............. 6,000 $ -- $ 50 $ 665 $ 715
Dividends paid, redeemable
preferred..................... -- -- -- (21) (21)
Net income...................... -- -- -- 405 405
------ ------ --- --------- -------------
Balance, September 3, 1994........... 6,000 -- 50 1,049 1,099
Dividends paid, redeemable
preferred..................... -- -- -- (11) (11)
Net income...................... -- -- -- 742 742
------ ------ --- --------- -------------
Balance, September 2, 1995........... 6,000 -- 50 1,780 1,830
Dividends paid, redeemable
preferred..................... -- -- -- (8) (8)
Net income...................... -- -- -- 1,448 1,448
------ ------ --- --------- -------------
Balance, August 31, 1996............. 6,000 -- 50 3,220 3,270
Dividends paid, redeemable
preferred (unaudited)......... -- -- -- (3) (3)
Net income (unaudited).......... -- -- -- 5 5
------ ------ --- --------- -------------
Balance, May 31, 1997 (unaudited).... 6,000 $ -- $ 50 $ 3,222 $ 3,272
====== ====== === ========= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-65
<PAGE>
AFFILIATED METALS COMPANY
STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS
FIFTY-TWO WEEKS ENDED ENDED
-------------------------------------------- --------------------
SEPTEMBER 3, SEPTEMBER 2, AUGUST 31, JUNE 1, MAY 31,
1994 1995 1996 1996 1997
------------- ------------- ---------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................... $ 405 $ 742 $ 1,448 $ 1,418 $ 5
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and
amortization................ 304 313 300 264 516
Loss on sale of assets......... 3 -- 10 -- 87
Deferred tax provision
(benefit)................... (20) (45) (1) (17) (17)
Changes in operating assets and
liabilities:
Accounts receivable,
net..................... (890) (2,020) (61) 127 (4,881)
Inventories............... (190) 61 (3,848) (2,712) (3,924)
Prepaid expenses and other
assets.................. (116) 54 (27) (61) (164)
Accounts payable.......... (525) 2,786 1,293 (1,597) 2,094
Accrued liabilities....... (70) 245 35 237 (62)
Other..................... (7) (22) -- -- --
------------- ------------- ---------- --------- ---------
Net cash provided by
(used in) operating
activities............ (1,106) 2,114 (851) (2,341) (6,346)
------------- ------------- ---------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and
equipment........................ (310) (615) (5,553) (4,311) (1,148)
Proceeds from sales of property and
equipment........................ 5 -- 58 -- 290
Other, net......................... (36) -- -- -- --
------------- ------------- ---------- --------- ---------
Net cash used in
investing
activities............ (341) (615) (5,495) (4,311) (858)
------------- ------------- ---------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) on bank
overdraft........................ 783 (1,259) 120 300 1,243
Principal payments on long-term
debt............................. (198) (523) (668) (456) (515)
Proceeds from issuance of long-term
debt............................. 1,412 325 6,939 6,834 6,540
Purchase of redeemable preferred
stock............................ (529) (29) (29) (21) (71)
Dividends paid on redeemable
preferred
stock............................ (21) (11) (8) (7) (3)
------------- ------------- ---------- --------- ---------
Net cash provided by
(used in) financing
activities............ 1,447 (1,497) 6,354 6,650 7,194
------------- ------------- ---------- --------- ---------
NET INCREASE (DECREASE) IN CASH...... -- 2 8 (2) (10)
CASH BEGINNING OF PERIOD............. -- -- 2 2 10
------------- ------------- ---------- --------- ---------
CASH END OF PERIOD................... $-- $ 2 $ 10 $ -- $ --
============= ============= ========== ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest (net of
amount capitalized of $153 in
1996)............................ $ 784 $ 1,054 $ 991 $ 800 $ 1,163
Cash paid for income taxes......... 389 370 1,083 802 --
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-66
<PAGE>
AFFILIATED METALS COMPANY
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Affiliated Metals Company ("Affiliated") is a high-volume flat rolled
steel processor, with operations in Granite City, Illinois and a newly
constructed facility in Butler, Indiana. The operating plants are strategically
located near primary steel producers. Affiliated purchases wide, coiled hot
rolled, cold rolled and galvanized flat rolled steel from primary producers and
pickles (hot rolled) and slits coils to narrower widths. Principal customers
include; consumer durable goods manufacturers, commercial transportation,
appliance, furniture, pallet rack, and automotive industries as well as
independent stamping operations. Service areas include Missouri, Kansas, Texas,
Oklahoma, Tennessee, Kentucky, Indiana, Mississippi, Alabama, Georgia, Iowa,
Illinois and Nebraska.
USE OF ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with generally
accepted accounting principles require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
ACCOUNTING PERIOD
Affiliated's fiscal year is the fifty-two or fifty-three week period ending
the Saturday nearest to August 31. The results of operations and cash flows
include fifty-two weeks of activity for the periods ended August 31, 1996,
September 2, 1995, and September 3, 1994.
INTERIM FINANCIAL INFORMATION
The interim financial statements included herein are unaudited; however,
they include all adjustments of a normal recurring nature which, in the opinion
of management, are necessary to present fairly the financial position of the
Affiliated at May 31, 1997, the results of its operations and cash flows for the
thirty-nine weeks ended June 1, 1996 and May 31, 1997. Accounting measurements
at interim dates inherently involve greater reliance on estimates than at year
end. The results of operations for the interim periods presented are not
necessarily indicative of the results to be expected for the entire year.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is primarily
determined using the specific identification method. Raw materials generally
represent 80% to 90% of Affiliated's inventories.
PROPERTY AND EQUIPMENT
Property and equipment, including capitalized interest, is stated at cost,
net of accumulated depreciation. Depreciation is computed utilizing the
straight-line and accelerated methods at rates based upon the estimated useful
lives of the various classes of assets.
OTHER ASSETS
Other assets consists primarily of goodwill, net of accumulated
amortization. Goodwill is being amortized over a thirty year period using the
straight line method. Affiliated periodically evaluates the propriety of the
carrying amount of goodwill using expected undiscounted cash flows. At September
2, 1995 and August 31, 1996 goodwill, net of accumulated amortization was $622
and $599, respectively.
F-67
<PAGE>
AFFILIATED METALS COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the long-term debt is estimated based on interest rates
for the same or similar debt offered to Affiliated having the same or similar
remaining maturities and collateral requirements. The carrying amounts of
long-term debt approximate fair value at the applicable balance sheet dates.
CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject Affiliated to
concentrations of credit risk, consist principally of cash deposits and, trade
account receivables. Affiliated places its cash with several financial
institutions limiting the amount of credit exposure to any one financial
institution. Concentrations of credit risk with respect to trade accounts
receivable are within the midwest and Great Lakes regions of the United States.
Affiliated had a credit risk concentration since two customers accounted for
approximately 27% of accounts receivable at August 31, 1996. For the fifty-two
weeks ended September 3, 1994, three customers accounted for 16.3%, 17.2%, and
11.1% of sales, respectively. For the fifty-two weeks ended September 2, 1995
and August 31, 1996 two of the same three customers accounted for 16.9% and
20.2%, and 14.5% and 14.0% of sales, respectively. Management performs ongoing
credit evaluations of its customers and provides allowances as deemed necessary.
Credit is extended once appropriate credit history and references have been
obtained. Adjustments to the allowance for doubtful accounts are made
periodically (as circumstances warrant) based upon the expected collectibility
of all such accounts. Affiliated periodically reviews the credit history of its
customers and generally does not require collateral for the extension of credit.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF ("SFAS 121") in March 1995. SFAS
121 requires that long-lived assets and certain intangibles to be held and used
by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Affiliated adopted SFAS No. 121 on September 1, 1997. The impact of
adopting this standard did not have a material impact on the results of
operations.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
ESTIMATED SEPTEMBER 2, AUGUST 31,
USEFUL LIVES 1995 1996
------------- ------------ ----------
<S> <C> <C>
Land................................. -- $ 46 $ 561
Buildings............................ 39 years -- 2,350
Machinery and equipment.............. 10-30 years 2,897 5,407
Automobiles and trucks............... 7 years 151 148
Office equipment and furniture....... 5-7 years 299 373
Leasehold improvements............... 7-39 years 105 109
------------ ----------
3,498 8,948
Less: accumulated depreciation and
amortization....................... (799) (1,008)
------------ ----------
Total........................... $ 2,699 $ 7,940
============ ==========
</TABLE>
F-68
<PAGE>
AFFILIATED METALS COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
3. LONG-TERM DEBT
Long-term debt consists of the following:
SEPTEMBER 2, AUGUST 31,
1995 1996
------------ ----------
Note payable, interest at 8.75%,
payable in monthly installments of
$30 (plus interest) commencing
September 1996; matures August
2001; secured by certain machinery
and equipment and personal
guarantees of common
stockholders....................... $ -- $ 1,770
Note payable, interest at prime plus
1.0%, payable in 59 monthly
installments of $25 (plus
interest), matures November, 1999;
secured by accounts receivable,
inventories, machinery and
equipment, assignment of life
insurance proceeds on officers'
policies, and personal guarantees
of common stockholders............. 1,250 905
Construction note payable, interest
at prime plus 1.0%, interest
payable monthly, principal payment
due March, 1997; secured by certain
machinery and equipment, certain
land, building, and personal
guarantees of common
stockholders....................... -- 2,432
Note payable, interest at 9.75%,
payable in monthly installments of
$5 (plus interest); secured by
certain machinery and equipment;
refinanced in February, 1996....... 244 --
Revolving line-of-credit, interest at
prime plus 0.5%, interest payable
monthly, expires August, 1997
secured by substantially all assets
of Affiliated, assignment of life
insurance proceeds on officers'
policies, and personal guarantees
of common stockholders............. 6,747 9,421
Notes payable to estate of former
stockholder, interest at prime plus
1.0%, payable in monthly
installments of $2 (plus interest),
principal payment due March 1999;
secured by personal guarantees of
common stockholders................ 102 74
Notes payable, interest at rates
ranging from 7.5% to 10.25%,
payable in monthly installments
ranging from $0.3 to $0.8, through
July, 1999......................... 82 93
------------ ----------
8,425 14,695
Less: current maturities............. (407) (10,358)
------------ ----------
$ 8,018 $ 4,337
============ ==========
Affiliated has obtained financing agreements from its lender that will
convert the construction note to a term loan note payable and a Small Business
Administration ("SBA") note payable in amounts up to $1,600 and $1,000,
respectively. The new notes will be secured by certain machinery and equipment,
certain land and building, and personal guarantees of common stockholders. The
term loan note payable will bear interest at a fixed rate based on prime plus
0.5% at closing during the first five years and will adjust after year five and
will be payable in monthly installments of principal and interest over a
ten-year period from the date of conversion. The SBA note payable will bear
interest at a rate yet to be determined and will be payable in monthly
installments of principal and interest over a 20-year period from the date of
conversion. Because Affiliated had the intent and ability to convert the
construction note payable on a long-term basis, the August 31, 1996
classification and future maturities have been presented under the terms of the
new agreements.
F-69
<PAGE>
AFFILIATED METALS COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
Affiliated's revolving line of credit provides for borrowings up to $12,000
(limited to a borrowing base defined in the agreement as a percentage of
eligible accounts receivable and inventories). The revolving line of credit
agreement requires that all cash receipts of Affiliated be deposited directly
into a lockbox account and applied against the line of credit. Funds are then
drawn from the line of credit as checks are disbursed. Additionally, the
agreement requires, among other things, that Affiliated maintain certain minimum
ratios, including net income, tangible net worth, leverage, cash flow coverage,
and limits on capital expenditures. At August 31, 1996, future principal
payments of long-term debt, as adjusted to reflect the financing agreements, are
as follows:
1997................................. $ 10,358
1998................................. 928
1999................................. 905
2000................................. 573
2001................................. 538
Thereafter........................... 1,393
----------
$ 14,695
==========
4. REDEEMABLE PREFERRED STOCK
Redeemable preferred stock consists of 1,680 shares of authorized at a par
value of $119.048 per share. Shares issued and outstanding at August 31, 1996
and September 2, 1995, were 600 and 840 respectively. The stock is subject to
mandatory redemption of 20 shares per month beginning in March 1992 and
continuing for 84 months. In both fiscal 1996 and fiscal 1995, 240 shares were
redeemed at a price of $119.048 per share. Dividends are calculated cumulatively
(but not compounded) on a daily basis at the rate of 1% over prime. Dividends
are paid on each redemption date.
5. COMMON STOCK PURCHASE WARRANT
In March 1992, in connection with a Securities Purchase Agreement related
to the purchase of Affiliated, Affiliated issued one warrant to an investor in
consideration for $100. The warrant is exercisable at an exercise price of $.01
per share into 34.4% or 3,146 shares of Affiliated's common stock on a fully
diluted basis. The holder of the warrant also may put the warrant or a portion
thereof to Affiliated through November 1999, unless it would cause Affiliated to
be in default of its debt covenants. The put price is determined by the
ownership percentage of the warrants multiplied by the greater of either fair
value of Affiliated, a multiple of earnings before income taxes, interest, and
depreciation and amortization, and book value, all as defined in the agreement.
In addition, the agreement provides the holder of the warrant with certain
registration rights under the Securities Act of 1933 (the "Securities Act") to
cause Affiliated to register the shares of common stock to be received from the
exercise of the warrant. The agreement also provides the holder of the warrant
with certain "piggyback" registration rights which allow the holder of the
warrant to register his common stock in the event Affiliated files a
registration statement under the Securities Act.
F-70
<PAGE>
AFFILIATED METALS COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
6. INCOME TAXES
Affiliated has implemented Statement of Financial Accounting Standards No.
109, ACCOUNTING FOR INCOME TAXES ("SFAS 109"), which provides for a liability
approach to accounting for income taxes.
The provisions for federal and state income taxes are as follows:
<TABLE>
<CAPTION>
FIFTY-TWO WEEKS ENDED
------------------------------------------
SEPTEMBER 3, SEPTEMBER 2, AUGUST 31,
1994 1995 1996
------------ ------------ ----------
<S> <C> <C> <C>
Federal:
Current......................... $ 260 $ 442 $ 796
Deferred........................ (16) (37) (1)
------------ ------------ ----------
244 405 795
State:...............................
Current......................... 57 100 184
Deferred........................ (4) (8) --
------------ ------------ ----------
53 92 184
------------ ------------ ----------
Total provision...................... $ 297 $ 497 $ 979
============ ============ ==========
</TABLE>
The components of deferred income tax liabilities and assets are as
follows:
SEPTEMBER 3, AUGUST 31,
1995 1996
------------ ----------
Deferred income tax liabilities:
Property and equipment.......... $ 634 $ 666
------------ ----------
Total deferred income tax
liabilities............. 634 666
------------ ----------
Deferred income tax assets:
Allowance for doubtful
accounts...................... 12 12
Other, net...................... 44 77
------------ ----------
Total deferred income tax
assets.................. 56 89
------------ ----------
Net deferred tax liabilities......... $ 578 $ 577
============ ==========
A reconciliation of the difference between the federal statutory tax rates
and the effective tax rates as a percentage of net income is as follows:
<TABLE>
<CAPTION>
FIFTY-TWO WEEKS ENDED
------------------------------------------
SEPTEMBER 2, SEPTEMBER 3, AUGUST 31,
1994 1995 1996
------------ ------------ ----------
<S> <C> <C> <C>
U.S. federal statutory rate.......... 34.0% 34.0% 34.0%
State income taxes, net of Federal
tax benefit........................ 4.8 4.8 5.0
Other................................ 3.5 1.3 1.3
------------ ------------ ----------
42.3% 40.1% 40.3%
============ ============ ==========
</TABLE>
F-71
<PAGE>
AFFILIATED METALS COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
7. EMPLOYEE BENEFIT PLANS
Affiliated sponsors a qualified contributory profit sharing plan and 401(k)
plan. The plan covers substantially all full-time employees who have met certain
eligibility requirements. The plan may be amended or terminated at any time by
the Board of Directors. Affiliated, although not required to, has provided
contributions to the plan during each of the fifty-two weeks ended September 3,
1994,
September 2, 1995 and August 31, 1996, of $89, $100 and $141, respectively.
8. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
Affiliated leases its corporate office and one of its production
facilities. The lease expires on May 31, 1998 and calls for a monthly rental
payment of $9. The lease also provides for an additional five-year renewal
option.
Rent expense for all operating leases for the fifty-two weeks ended
September 3, 1994, September 2, 1995 and August 31, 1996 was $126, $125 and
$128, respectively.
9. SUBSEQUENT EVENT (UNAUDITED)
On July 11, 1997, Metals USA, Inc. purchased all of the issued and
outstanding equity securities of Affiliated, through the issuance of common
stock and cash pursuant to a definitive merger agreement dated May 1997.
In February 1997, Affiliated amended its revolving credit facility, which
reduced the interest to prime, increased the available borrowing up to $16,000
and extended the maturity to August 31, 1998. Additionally, Affiliated also
entered into an agreement to extend until September 1997 the financing
agreements discussed in Note 3 related to the construction loan payable.
F-72
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Southern Alloy of America, Inc.
We have audited the accompanying balance sheets of Southern Alloy of
America, Inc. as of December 31, 1996 and 1995, and the related statements of
operations, stockholders' equity and cash flows for the years 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Southern Alloy of America,
Inc. as of December 31, 1996 and 1995, and the results of its operations and its
cash flows for the years then ended, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Charlotte, North Carolina
April 30, 1997.
F-73
<PAGE>
SOUTHERN ALLOY OF AMERICA, INC.
BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
DECEMBER 31,
-------------------- JUNE 30,
1995 1996 1997
--------- --------- -----------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents....... $ 57 $ -- $--
Accounts receivable:
Trade, less allowances of
$18, $13 and $11........ 1,483 1,262 1,405
Affiliates................. 1,020 945 --
Inventories..................... 1,050 1,063 1,440
Prepaid expenses and other
current assets.................. 22 63 136
--------- --------- -----------
Total current assets....... 3,632 3,333 2,981
Property and equipment, net.......... 456 353 303
Other assets......................... 84 68 21
--------- --------- -----------
Total assets............... $ 4,172 $ 3,754 $ 3,305
========= ========= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Accounts payable................ $ 1,602 $ 1,450 $ 1,790
Accrued liabilities............. 97 68 118
Revolving line-of-credit........ 1,424 1,424 1,604
Notes payable................... -- -- --
Current portion of obligations
under capital lease............. 68 25 26
Current portion of long-term
debt............................ 38 24 9
--------- --------- -----------
Total current
liabilities................ 3,229 2,991 3,547
Obligations under capital lease, less
current portion.................... 69 44 30
Long-term debt, less current
portion.............................. 24 -- --
--------- --------- -----------
Total liabilities.......... 3,322 3,035 3,577
--------- --------- -----------
Stockholders' equity (deficit):
Common stock 100,000 shares
authorized; 19,500, 17,200 and
19,500 shares issued and
outstanding at December 31,
1995 and 1996 and June 30,
1997, respectively............ 20 17 20
Additional paid-in capital...... 410 608 608
Retained earnings (deficit)..... 420 94 (900)
--------- --------- -----------
Total stockholders' equity
(deficit).................. 850 719 (272)
--------- --------- -----------
Total liabilities and
stockholders'
equity............. $ 4,172 $ 3,754 $ 3,305
========= ========= ===========
The accompanying notes are an integral part of these financial statements.
F-74
<PAGE>
SOUTHERN ALLOY OF AMERICA, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER SIX MONTHS ENDED
31, JUNE 30,
-------------------- --------------------
1995 1996 1996 1997
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales............................ $ 12,018 $ 10,815 $ 5,877 $ 5,568
Costs and expenses:
Cost of sales................... 7,669 7,084 3,811 3,596
Operating and delivery.......... 902 709 373 392
Selling, general and
administrative expenses....... 2,806 2,850 1,504 1,343
Depreciation and amortization... 108 126 62 78
--------- --------- --------- ---------
Operating income .................... 533 46 127 159
Other (income) expense:
Interest expense................ 252 168 85 71
Interest income................. (146) (108) (69) (17)
--------- --------- --------- ---------
Income (loss) before income taxes.... 427 (14) 111 105
Provision (benefit) for income
taxes................................ -- -- -- --
--------- --------- --------- ---------
Net income (loss).................... $ 427 $ (14) $ 111 $ 105
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-75
<PAGE>
SOUTHERN ALLOY OF AMERICA, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK ADDITIONAL RETAINED STOCKHOLDERS'
------------------ PAID-IN EARNINGS EQUITY
SHARES AMOUNT CAPITAL (DEFICIT) (DEFICIT)
------- ------ ----------- --------- -------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1995............. 19,500 $ 20 $ 410 $ 183 $ 613
Distributions to owners......... -- -- -- (190) (190)
Net income...................... -- -- -- 427 427
------- ------ ----------- --------- -------------
Balance, December 31, 1995........... 19,500 20 410 420 850
Purchase of common stock........ (2,300) (3) (48) (197) (248)
Distributions to owners......... -- -- -- (115) (115)
Stock options................... -- -- 246 -- 246
Net loss........................ -- -- -- (14) (14)
------- ------ ----------- --------- -------------
Balance, December 31, 1996........... 17,200 17 608 94 719
Sale of common stock
(unaudited)................... 2,300 3 -- -- 3
Distributions to owners
(unaudited)................... -- -- -- (1,099) (1,099)
Net income (unaudited).......... -- -- -- 105 105
------- ------ ----------- --------- -------------
Balance, June 30, 1997 (unaudited)... 19,500 $ 20 $ 608 $ (900) $ (272)
======= ====== =========== ========= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-76
<PAGE>
SOUTHERN ALLOY OF AMERICA, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
-------------------- --------------------
1995 1996 1996 1997
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................. $ 427 $ (14) $ 111 $ 105
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation.................... 108 125 62 78
Grant of stock option........... -- 246 246 --
Gain on sale of assets.......... (9) (71) (71) --
Changes in operating assets and
liabilities:
Accounts receivable, net...... (113) 221 2 (143)
Inventories................... (90) (13) (222) (377)
Prepaid expenses and other
assets..................... (10) (41) (159) (73)
Other long-term assets........ 25 17 28 47
Accounts payable.............. 529 (152) 182 340
Accrued liabilities........... (57) (29) (36) 50
--------- --------- --------- ---------
Net cash provided by
operating activities.... 810 289 143 27
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and
equipment..................... (99) (23) (16) (28)
Proceeds from sales of property
and equipment................. 8 71 71 --
--------- --------- --------- ---------
Net cash provided by (used
in) investing
activities.............. (91) 48 55 (28)
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase on revolving
line-of-credit................ 156 -- 243 180
Net increase (decrease) in notes
payable....................... -- -- 202 --
Net advances (to) from officers
and affiliates................ (535) 75 (178) 945
Payments on capital lease
obligations................... (63) (68) (35) (13)
Principal payments on long-term
obligations................... (30) (38) (19) (15)
Redemption of common stock...... -- (248) (248) --
Sale of common stock............ -- -- -- 3
Dividends paid.................. (190) (115) (220) (1,099)
--------- --------- --------- ---------
Net cash provided by
(used in) financing
activities.............. (662) (394) (255) 1
--------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................... 57 (57) (57) --
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD.......................... -- 57 57 --
--------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF
PERIOD............................... $ 57 $ -- $ -- $ --
========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest.......... $ 26 $ 159 $ 84 $ 81
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-77
<PAGE>
SOUTHERN ALLOY OF AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Southern Alloy of America, Inc. ("Southern Alloy"), a North Carolina
corporation, is a specialty metal service center located in Salisbury, North
Carolina specializing in ferrous and non-ferrous continuous, centrifugal and
static cast bar stock. Southern Alloy performs a number of metal processing
services, including precision saw cutting, precision and semi-finished
machining, drilling and milling operations. Southern Alloy's customers are
comprised of original equipment manufacturers and machine shops servicing the
fluid power, power transmission, material handling and textile machinery
industries. Market areas are principally located in the Southeastern United
States.
Southern Alloy and its shareholders expect to enter into a definitive
merger agreement with Metals USA, Inc. ("Metals USA") pursuant to which all of
Southern Alloy's outstanding shares of capital stock will be exchanged for cash
and shares of Metals USA common stock concurrently with the consummation of the
initial public offering (the "Offering") of Metals USA common stock.
RECLASSIFICATIONS
Certain amounts in the 1995 financial statements have been reclassified to
conform to the 1996 presentation. These reclassifications have no effect on
previously reported net income or stockholders' equity.
USE OF ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with generally
accepted accounting principles require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INTERIM FINANCIAL INFORMATION
The interim financial statements included herein are unaudited; however,
they include all adjustments of a normal recurring nature, which, in the opinion
of management, are necessary to present fairly the financial position of
Southern Alloy at June 30, 1997, and the results of its operations and cash
flows for the six months ended June 30, 1996 and 1997. Accounting measurements
at interim dates inherently involve greater reliance on estimates than at year
end. The results of operations for the interim periods presented are not
necessarily indicative of the results to be expected for the entire year.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is primarily
determined using the specific identification method.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost, net of accumulated depreciation.
Depreciation is computed utilizing the straight-line method at rates based upon
the estimated useful lives of the various classes of assets.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash surrender value of life insurance policies
approximate their fair value. The fair value of the long-term debt is estimated
based on interest rates for the same or similar debt offered
F-78
<PAGE>
SOUTHERN ALLOY OF AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
to Southern Alloy having the same or similar remaining maturities and collateral
requirements. The carrying amounts of long-term debt approximate fair value at
the applicable balance sheet dates.
CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject Southern Alloy to
concentrations of credit risk, consist principally of cash deposits and, trade
account and note receivables. Concentrations of credit risk with respect to
trade accounts receivable are within the Southeastern United States.
Additionally, Southern Alloy has one customer that accounts for approximately
10% of net sales. Credit is extended once appropriate credit history and
references have been obtained. Adjustments to the allowance for doubtful
accounts are made periodically (as circumstances warrant) based upon the
expected collectibility of all such accounts. Southern Alloy periodically
reviews the credit history of its customers and generally does not require
collateral for the extension of credit.
INCOME TAXES
Southern Alloy, with the consent of its stockholders, elected to be taxed
under sections of the federal and state income tax laws which provide that, in
lieu of corporation income taxes, the stockholders separately account for
Southern Alloy's items of income, deductions, losses and credits on their
individual income tax returns. The financial statements will not include a
provision for income taxes (credits) as long as the S Corporation election
remains in effect. As long as Southern Alloy's S Corporation income tax election
remains in effect, Southern Alloy may, from time-to-time, pay dividends to its
stockholders in amounts sufficient to enable the stockholders to pay the taxes
due on their share of Southern Alloy's items of income, deductions, losses, and
credits which has been allocated to them for reporting on their individual
income tax returns.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF ("SFAS 121") in March 1995. SFAS
121 requires that long-lived assets and certain intangibles to be held and used
by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Southern Alloy adopted SFAS No. 121 on January 1, 1996. The impact
of adopting this standard did not have a material impact on the results of
operations.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
DECEMBER 31,
ESTIMATED --------------------
USEFUL LIVES 1995 1996
------------- --------- ---------
Machinery and equipment.............. 3-7 years $ 1,112 $ 962
Furniture and fixtures............... 3-7 years 173 176
Leasehold improvements............... 5 years 85 85
--------- ---------
1,370 1,223
Less: accumulated depreciation....... (914) (870)
--------- ---------
$ 456 $ 353
========= =========
F-79
<PAGE>
SOUTHERN ALLOY OF AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
3. LINE OF CREDIT
At December 31, 1995, Southern Alloy had a line of credit with Freemont
Financial Corporation. On January 3, 1996, Southern Alloy entered into an
agreement with NationsBank of Georgia, N.A. which was to expire on January 1,
1997. The original agreement was terminated and Southern Alloy entered into a
new line-of-credit agreement with NationsBank N.A. ("NationsBank"), which
expires on July 31, 1997. This agreement provides a maximum borrowing limit of
$2,000 with interest payable monthly at the bank's prime rate (8.25% at December
31, 1996). The borrowing base under the new NationsBank line of credit is
limited to 80% of eligible receivables as defined by the agreement plus 50% of
the eligible inventory. Southern Alloy had $75 of unused availability under the
line-of-credit at December 31, 1996. The line is secured by accounts receivable,
inventory, equipment and guarantees of Southern Investments, The Development
Group, Inc. (both of which are affiliates of Southern Alloy) and stockholders of
Southern Alloy.
The new NationsBank agreement contains restrictive covenants which, among
other things, require Southern Alloy to maintain certain financial ratios, limit
capital expenditures and bonuses and restrict future indebtedness. At December
31, 1996, Southern Alloy was in compliance with, or had obtained all necessary
waivers regarding instances of non-compliance with the terms of the loan
agreement.
4. LONG-TERM DEBT
Long-term obligations consist of three notes payable to Amada Cutting
Technologies, Inc. The notes bear interest at rates ranging from 9.0% to 9.4%
and are payable in monthly installments totaling $4 through April 1997, and $1
from May 1997 to December 1997. The notes are secured by related equipment.
5. OBLIGATIONS UNDER CAPITAL LEASE
Southern Alloy leases certain shop equipment under capital leases through
1999, which bear interest at rates ranging from 9.0% to 11.27%.
Future minimum payments under capital leases as of December 31, 1996, are
as follows:
1997................................. $ 30
1998................................. 30
1999 and thereafter.................. 18
---------
78
Less: interest portion............... 9
---------
Capital lease obligation............. 69
Less: current portion................ 25
---------
$ 44
=========
The cost of equipment under capital leases amounted to approximately $256
and $135 at December 31, 1995 and 1996, respectively. Accumulated amortization
amounted to $107 and $65 at December 31, 1995 and 1996, respectively.
6. EMPLOYEE BENEFIT PLANS
Southern Alloy sponsors a defined contribution 401(k) profit-sharing plan
for employees who have attained at least 21 years of age and one year of
service. Company contributions to the plan, which are determined annually at the
discretion of the Board of Directors, amounted to $12 and $16 in 1995 and 1996,
respectively.
F-80
<PAGE>
SOUTHERN ALLOY OF AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
7. COMMITMENTS AND CONTINGENCIES
GUARANTEE
Southern Alloy had guaranteed a line-of-credit agreement for SOMAR, Inc.
(an affiliate of Southern Alloy). The outstanding balance under this agreement
amounted to approximately $1,200 at December 31, 1995. As of August 12, 1996,
Southern Alloy was no longer a guarantor on this line of credit.
8. STOCK OPTIONS
In February 1996, Southern Alloy purchased 2,300 shares from a primary
stockholder of Southern Alloy for $248.
In September 1996, 2,300 stock options were issued to two directors of
Southern Alloy (one of which also serves as an officer) at an option price of
$1.00 per share. The options were exercisable at any time through September
2001. The deemed value for accounting purposes at the date of grant was $108.00
per share. Accordingly, $246 of compensation expense was recorded at the date of
grant.
In January 1997, the directors exercised their options and purchased 2,300
shares of Southern Alloy for $2.
9. RELATED-PARTY TRANSACTIONS
Southern Investments (a partnership), The Development Group, Inc. and
Engineered Machine Technologies, Inc. are affiliated with Southern Alloy through
common ownership. SOMAR, Inc. was affiliated with Southern Alloy through common
ownership through August 12, 1996. On that date, SOMAR, Inc. was sold to an
unaffiliated company.
Southern Alloy leases commercial real estate from Southern Investments
under a non-cancelable operating lease. Rent expense related to this lease
amounted to $130 and $103 in 1995 and 1996, respectively.
Southern Alloy leases certain automobiles and operating equipment from
Southern Investments on a month-to-month basis. Rent expense related to these
leases amounted to $136 and $198 for 1995 and 1996, respectively.
During the years ended December 31, 1995 and 1996, Southern Alloy made
loans to or borrowed from SOMAR, Inc., Southern Investments, The Development
Group, Inc., Engineered Machine Technologies, Inc. and officers. Following is a
schedule of net receivable balances due from or payable to affiliated companies
at December 31, 1995 and 1996:
DUE FROM
(PAYABLE TO)
--------------------
1995 1996
--------- ---------
SOMAR, Inc........................... $ 563 $ --
Engineered Machine Technologies,
Inc................................ 334 640
Southern Investments................. 125 130
The Development Group, Inc........... (16) 7
Officers and affiliates.............. 14 168
--------- ---------
$ 1,020 $ 945
========= =========
F-81
<PAGE>
SOUTHERN ALLOY OF AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
Following is a summary of interest income from affiliated companies for the
years ending December 31:
1995 1996
--------- ---------
SOMAR, Inc........................... $ 109 $ 57
Engineered Machine Technologies,
Inc................................ 37 51
--------- ---------
$ 146 $ 108
========= =========
Southern Alloy leases certain office space and equipment under
non-cancelable operating leases with initial or remaining lease terms in excess
of one year. Certain office and equipment leases contain renewal options and
purchase options at fair market value at the end of the lease term. Following is
a schedule of future minimum lease payments under non-cancelable leases as of
December 31, 1996:
RELATED
PARTIES OTHERS TOTAL
-------- ------- ------
1997................................. $ 193 $ 7 $ 200
1998................................. 128 7 135
1999................................. 77 4 81
2000................................. 77 4 81
2001................................. 77 1 78
Thereafter........................... 77 -- 77
-------- ------- ------
$ 629 $ 23 $ 652
======== ======= ======
10. SUBSEQUENT EVENTS (UNAUDITED)
On July 11, 1997, Metals USA, Inc. purchased all of the issued and
outstanding equity securities of Southern Alloy, through the issuance of common
stock and cash pursuant to a definitive merger agreement dated May 1997.
Prior to the merger, Southern Alloy made a distribution of receivables from
affiliates with a carrying value of approximately $842. This distribution
exceeded Southern Alloy's estimated S Corporation accumulated adjustment
account.
Concurrent with the Merger, Southern Alloy entered into an agreement with a
related party to lease certain real property for an annual lease payment of $48.
This lease runs through 2012, and provides for periodic increases in the annual
lease payment every five years equal to the cumulative change in the Consumer
Price Index. Additionally, Southern Alloy entered into a lease for certain
equipment from a related party on a month to month basis for $4 per month.
Southern Alloy believes these lease arrangements are no less favorable than
could be obtained from unaffiliated third parties.
F-82
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Uni-Steel, Inc.:
We have audited the accompanying balance sheet of Uni-Steel, Inc., an
Oklahoma Corporation, as of September 30, 1996, and the related statement of
income, 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 financial statements referred to above present fairly,
in all material respects, the financial position of Uni-Steel, Inc. as of
September 30, 1996, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
March 28, 1997
F-83
<PAGE>
UNI-STEEL, INC.
BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
SEPTEMBER 30, JUNE 30,
1996 1997
------------- -----------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents....... $ 203 $ 346
Accounts receivable, less
allowance of $122 and $250..... 6,586 7,459
Accounts
receivable -- affiliates....... 261 --
Inventories..................... 9,947 11,242
Current portion of note
receivable..................... 25 17
Deferred income taxes........... 127 123
Prepaid expenses and other
current assets................. 22 25
------------- -----------
Total current assets....... 17,171 19,212
Property and equipment, net.......... 3,176 3,153
Notes receivable, net of current
portion............................ 1,212 1,174
Other assets......................... 355 533
Goodwill............................. 344 336
------------- -----------
Total assets............... $22,258 $24,408
============= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................ $ 3,165 $ 1,838
Accounts
payable -- affiliates........... 121 --
Accrued liabilities............. 419 395
Note payable to shareholders.... 36 --
Line of credit.................. 7,100 9,100
Current portion of long-term
debt........................... 174 358
Income taxes payable............ 92 42
------------- -----------
Total current
liabilities............. 11,107 11,733
Long-term debt, net of current
portion............................ 413 1,034
Deferred income taxes................ 788 753
------------- -----------
Total liabilities.......... 12,308 13,520
------------- -----------
Commitments and contingencies
Redemption value of 36,533 shares of
common stock $1.00 par value
subject to mandatory redemption.... 4,201 4,597
Stockholders' equity:
Common stock $1.00 par value,
500,000 shares authorized,
63,467 shares issued (net of
36,533 shares subject to
redemption).................... 63 63
Additional paid-in capital...... 1,104 708
Retained earnings............... 5,743 6,681
Less: treasury stock, at cost... (1,161) (1,161)
------------- -----------
Total stockholders' equity...... 5,749 6,291
------------- -----------
Total liabilities and
stockholders' equity.... $22,258 $24,408
============= ===========
The accompanying notes are an integral part of these financial statements.
F-84
<PAGE>
UNI-STEEL, INC.
STATEMENTS OF INCOME
(IN THOUSANDS OF DOLLARS)
NINE MONTHS ENDED
YEAR ENDED JUNE 30,
SEPTEMBER 30, --------------------
1996 1996 1997
------------- --------- ---------
(UNAUDITED)
Net sales............................ $54,620 $ 40,442 $ 46,070
Operating costs and expenses:
Cost of sales................... 43,445 32,135 36,732
Operating and delivery.......... 5,355 3,909 4,704
Selling, general and
administrative................ 2,917 2,211 2,335
Depreciation and amortization... 542 402 378
------------- --------- ---------
Operating income..................... 2,361 1,785 1,921
Other (income) expense:
Interest expense................ 575 443 505
Interest income................. (179) (99) (132)
Other, net...................... (4) (9) (16)
------------- --------- ---------
392 335 357
------------- --------- ---------
Income before income taxes........... 1,969 1,450 1,564
Provision for income taxes........... 741 563 626
------------- --------- ---------
Net income........................... $ 1,228 $ 887 $ 938
============= ========= =========
The accompanying notes are an integral part of these financial statements.
F-85
<PAGE>
UNI-STEEL, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------ TREASURY PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT STOCK CAPITAL EARNINGS EQUITY
------- ------- --------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1995.......... 63,467 $ 63 $ (969) $ 1,432 $ 4,515 $ 5,041
Purchase of 1,901 shares of
common stock.................. -- -- (192) -- -- (192)
Increase in redemption value of
common stock subject to
mandatory redemption.......... -- -- -- (328) -- (328)
Net income...................... -- -- -- -- 1,228 1,228
------- ------- --------- ----------- --------- -------------
Balance, September 30, 1996.......... 63,467 63 (1,161) 1,104 5,743 5,749
Increase in redemption value of
common stock (unaudited)...... -- -- -- (396) -- (396)
Net income (unaudited).......... -- -- -- -- 938 938
------- ------- --------- ----------- --------- -------------
Balance, June 30, 1997
(unaudited)........................ 63,467 $ 63 $ (1,161) $ 708 $ 6,681 $ 6,291
======= ======= ========= =========== ========= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-86
<PAGE>
UNI-STEEL, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
NINE MONTHS ENDED
YEAR ENDED JUNE 30,
SEPTEMBER 30, --------------------
1996 1996 1997
------------- --------- ---------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................... $ 1,228 $ 887 $ 938
Adjustments to reconcile net income
to net cash provided by (used
in) operating activities:
Depreciation and
amortization............... 542 402 378
Deferred tax provision
(benefit).................. (36) (32) (30)
Increases in cash surrender
values of life insurance... (56) (34) (57)
Changes in operating assets
and liabilities:
Accounts receivable, net... 181 668 (612)
Inventories................ (1,748) (1,073) (1,295)
Prepaid expenses and other
assets.................. (4) (42) (92)
Accounts payable and
accrued liabilities..... 233 1,609 (1,473)
Income tax payable......... (131) (181) (50)
------------- --------- ---------
Net cash provided by
(used in) operating
activities............ 209 2,204 (2,293)
------------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and
equipment....................... (362) (295) (345)
Principal collected on notes....... 13 12 12
------------- --------- ---------
Net cash used in
investing
activities............ (349) (283) (333)
------------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase on revolving
line-of-credit.................. 800 (1,400) 2,000
Principal payments on shareholder
debt............................ (95) (94) (36)
Principal payments on long-term
obligations..................... (445) (334) (195)
Principal borrowings on long-term
obligations..................... -- -- 1,000
Purchase of treasury stock......... (192) (192) --
------------- --------- ---------
Net cash provided by
(used in) financing
activities............ 68 (2,020) 2,769
------------- --------- ---------
NET DECREASE IN CASH AND CASH
EQUIVALENTS........................ (72) (99) 143
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD.......................... 275 275 203
------------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF
PERIOD............................. $ 203 $ 176 $ 346
============= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest.......... $ 568 $ 483 $ 498
Cash paid for income taxes...... 909 528 762
The accompanying notes are an integral part of these financial statements.
F-87
<PAGE>
UNI-STEEL, INC.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Uni-Steel, Inc. ("Uni-Steel") is a structural steel service center with
three locations in Oklahoma. Uni-Steel's products include carbon structural,
pressure vessel, high strength low alloy and alloy grades of steel sold to
customers in Oklahoma, Missouri, Arkansas, Texas, New Mexico, Colorado and
Kansas. Value added processing services include cut-to-length, leveling, flame
cutting, plasma cutting, shearing, and sawing and press brake forming. Uni-Steel
services customers in a wide variety of industries including oil and gas, truck
trailer, construction equipment, mining machinery, elevators, wholesale trade
and the construction industries.
Uni-Steel and its shareholders expect to enter into a definitive merger
agreement with Metals USA, Inc. ("Metals USA") pursuant to which all of
Uni-Steel's outstanding shares of capital stock will be exchanged for cash and
shares of Metals USA common stock concurrent with the consummation of the
initial public offering (the "Offering") of Metals USA common stock.
USE OF ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with generally
accepted accounting principles require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INTERIM FINANCIAL INFORMATION
The interim financial statements included herein are unaudited; however,
they include all adjustments of a normal recurring nature, which, in the opinion
of management, are necessary to present fairly the financial position of
Uni-Steel at June 30, 1997, and the results of its operations and cash flows for
the nine months ended June 30, 1996 and 1997. Accounting measurements at interim
dates inherently involve greater reliance on estimates than at year end. The
results of operations for the interim periods presented are not necessarily
indicative of the results to be expected for the entire year.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH EQUIVALENTS
Cash equivalents consist of highly liquid money market instruments with
original maturities of three months or less.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is primarily
determined using the last-in, first-out ("LIFO") method.
PROPERTY AND EQUIPMENT
Property and equipment, including capitalized interest, is stated at cost,
net of accumulated depreciation. Depreciation is computed utilizing the
straight-line method at rates based upon the estimated useful lives of the
various classes of assets.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash equivalents approximate their fair value. The
carrying amount of notes receivable approximate fair value at the applicable
balance sheet dates. The fair value of such notes receivable was based on
expected cash flows discounted using current rates at which similar loans would
be
F-88
<PAGE>
UNI-STEEL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
made to borrowers with similar credit ratings. The fair value of the long-term
debt is estimated based on interest rates for the same or similar debt offered
to Uni-Steel having the same or similar remaining maturities and collateral
requirements. The carrying amounts of long-term debt approximate fair value at
the applicable balance sheet dates.
CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject Uni-Steel to
concentrations of credit risk, consist principally of cash deposits, trade
accounts and note receivables. Concentrations of credit risk with respect to
trade accounts receivable are within the southwest region of the United States.
Credit is extended once appropriate credit history and references have been
obtained. Adjustments to the allowance for doubtful accounts are made
periodically (as circumstances warrant) based upon the expected collectibility
of all such accounts. Uni-Steel periodically reviews the credit history of its
customers and generally does not require collateral for the extension of credit.
INCOME TAXES
Uni-Steel accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME TAXES ("SFAS
109"). Under SFAS 109, deferred income taxes are recognized for the tax
consequences in future years of differences between the tax bases of assets and
liabilities and their financial reporting amounts at each year-end based on
enacted tax laws and statutory tax rates applicable to the period in which the
differences are expected to affect taxable income. The principal items resulting
in the differences are different depreciation methods, use of the allowance
method for bad debts, and different inventory capitalization methods. Valuation
allowances are established when necessary to reduce deferred assets to the
amount to be realized. Income tax expense is the tax payable for the year and
the change during the year in deferred tax assets and liabilities.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF ("SFAS 121") in March 1995. SFAS
121 requires that long-lived assets and certain intangibles to be held and used
by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Uni-Steel adopted SFAS No. 121 on January 1, 1996. The impact of
adopting this standard did not have a material impact on the results of
operations.
2. NOTE RECEIVABLE
Uni-Steel has a note receivable with a balance of $1,208 at September 30,
1996. The note bears interest at 8% and is due in monthly installments of
principal and interest totaling $9 with a balloon payment of the remaining
balance due in September 2002. This note is secured by a mortgage on real estate
in Fountain, Colorado.
F-89
<PAGE>
UNI-STEEL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
ESTIMATED SEPTEMBER 30,
USEFUL LIVES 1996
-------------- -------------
Land................................. $ 32
Buildings and improvements........... 5 - 33 years 2,452
Yard equipment....................... 3 - 10 years 544
Shop equipment....................... 3 - 10 years 2,408
Autos and trucks..................... 3 - 5 years 17
Office equipment..................... 4 - 8 years 476
Computer software.................... 3 - 6 years 291
-------------
6,220
Less: accumulated depreciation....... (3,044)
-------------
Total........................... $ 3,176
=============
4. INVENTORIES
Inventories consist of the following:
SEPTEMBER 30,
1996
-------------
Steel products....................... $ 9,482
Work in process...................... 372
Other................................ 93
-------------
Totals.......................... $ 9,947
=============
Net realizable value approximates cost on the first-in, first-out method.
In 1996, LIFO cost exceeded market value by $54. This 1996 amount was recorded
as a reduction of inventory and an increase in cost of sales. Management has
determined that lower of LIFO cost or market is the valuation method that most
accurately reflects the results of operations in accordance with generally
acceptable accounting principles. Had the statements of income been prepared on
the lower of FIFO cost or market basis, inventories would have been $9,947 and
net income for the year ended September 30, 1996 would have been $1,165.
5. LINE OF CREDIT
At September 30, 1996, Uni-Steel had drawn $7,100 against its $7,500 line
of credit at a bank. Interest is computed at prime (8.25% at September 30,
1996). Payments of interest are due monthly and the principal balance was due
February 28, 1997. This line of credit was amended in February 1997 to increase
the maximum borrowings under the facility to $10,000 and extend the maturity
date to April 30, 1999. Interest is computed at prime or Uni-Steel may elect for
interest to be computed at LIBOR plus 2.5%. This election must be made in
borrowing increments of $1,000 and no more than two such LIBOR advances may be
outstanding at one time.
Concurrently with the renewal of the line of credit, Uni-Steel also
obtained a $1,000 working capital term loan from its principal bank. Payments of
principal and interest are payable in equal monthly installments with final
maturity on February 28, 2002. Interest is also computed at Uni-Steel's option
at prime or LIBOR plus 2.5%. The line of credit and working capital term loan
include certain covenants which, among other things, restrict future borrowings
and set certain ratio, cash flow and net worth
F-90
<PAGE>
UNI-STEEL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
requirements. Uni-Steel was in compliance as of December 31, 1996. These loans
are secured by a primary security interest in the inventory and accounts
receivable of Uni-Steel.
6. LONG-TERM DEBT
Long-term debt consists of the following:
SEPTEMBER 30,
1996
-------------
Notes payable to bank, interest at
prime (8.25% at September 30, 1996,
payable in monthly installments of
$13 (plus interest) through April
2000; secured by equipment......... $ 567
Note payable to a supplier, interest
at 10.0%, payable in monthly
installments of $1 (including
interest) through May 1998; secured
by equipment....................... 13
Notes payable to bank, interest at
prime (8.25% at September 30,
1996), payable in monthly
installments of $12 (plus interest)
through July 1997; secured by
equipment.......................... 7
-------------
587
Less: current maturities............. (174)
-------------
$ 413
=============
The prime rate was 8.25% at September 30, 1996.
At September 30, 1996, future principal payments of long-term debt are as
follows:
1997................................. $ 174
1998................................. 164
1999................................. 158
2000................................. 91
2001................................. --
---------
$ 587
=========
Uni-Steel also has a note payable due to a shareholder which pays interest
at prime and is payable on demand. The outstanding balance at September 30, 1996
was $36.
7. INCOME TAXES
Income tax expense for the year ended September 30, 1996 is comprised of
the following:
Current tax expense:
Federal......................... $ 693
State........................... 84
Deferred tax expense:
Federal......................... (34)
State........................... (2)
---------
Total tax provision.................. $ 741
=========
F-91
<PAGE>
UNI-STEEL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
The significant items giving rise to the deferred tax (assets) and
liabilities as of September 30, 1996 are as follows:
Deferred tax liabilities:
Bases differences in property
and equipment................. $ 592
Installment sales accounting.... 246
---------
Total deferred tax
liabilities............. 838
Deferred tax assets:
Allowance for doubtful
accounts...................... (49)
Inventory bases differences..... (85)
Other........................... (43)
---------
Total deferred tax
assets.................. (177)
---------
Net deferred tax liabilities......... $ 661
=========
The provision for income taxes differs from an amount computed at the
statutory rates as follows:
Income tax expense at the statutory
rate............................... $ 670
State taxes.......................... 54
Meals and entertainment.............. 17
---------
$ 741
=========
8. EMPLOYEE BENEFIT PLANS
Uni-Steel has a qualified profit sharing plan covering substantially all
employees. Employer contributions to the plan are made at the Board of
Directors' discretion. On July 1, 1990, the plan was amended to include a
deferred compensation 401(k) provision which allows employees to defer up to 15%
of their salaries and provides for employer matching of the first 4%. The total
employer contribution and match made to the plan was $290 for the year ended
September 30, 1996.
9. COMMITMENTS AND CONTINGENCIES
STOCK PURCHASE AGREEMENTS
Uni-Steel has an agreement with certain common stockholders which
effectively restricts trading of their common stock. The agreement also requires
Uni-Steel to repurchase this stock from certain stockholders who are terminated
from employment, becomes totally disabled, or die. The price is determined
pursuant to agreements between the parties and is subject to revision annually.
In January 1996, Uni-Steel repurchased 1,901 shares from a retired stockholder
for $192. At September 30, 1996, there are 2,501 (2.9%) shares of common stock
remaining under this agreement. Uni-Steel also has an agreement with Richard A.
Singer, an officer and stockholder, which restricts trading of 34,031 shares
(39%) of its common stock. The agreement requires Uni-Steel to purchase Mr.
Singer's stock in the event of his death, permanent disability or retirement.
The purchase price is to be determined pursuant to the agreement and is subject
to revision annually. Uni-Steel has committed certain life insurance policies to
fund this agreement. Uni-Steel's obligations under this agreement have been
guaranteed by its other major shareholder, Yaffe Iron and Metal Company, Inc. As
these shares are subject to mandatory redemption, they have not been classified
as a component of permanent equity in the accompanying balance sheets.
OPERATING LEASES
Uni-Steel leases warehouse space under an operating lease expiring in
September 1998. Minimum future rental payments under this non-cancelable
operating lease as of September 30, 1996, are as follows:
1997................................. $ 24
1998................................. 24
1999................................. 2
---------
$ 50
=========
F-92
<PAGE>
UNI-STEEL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
Following is a summary of rental expense under non-cancelable operating
leases:
Minimum rentals...................... $ 24
Contingent rentals................... 191
---------
Total........................... $ 215
=========
The contingent rentals are based on inventory levels in excess of a
specified minimum.
PURCHASE COMMITMENTS
During the normal course of business, Uni-Steel enters into commitments to
purchase raw materials from steel mills. These commitments are made for
purchases of up to nine months into the future. In certain cases, prices paid
are calculated at the time the commitment is entered into. In other cases, they
are calculated at time of shipment. Uni-Steel estimates outstanding purchase
commitments at September 30, 1996 to be approximately $11,500.
10. RELATED PARTY TRANSACTIONS
A summary of transactions with Yaffe Iron and Metal Company, Inc., a
shareholder of Uni-Steel and other affiliated companies or individuals follows:
SEPTEMBER 30,
1996
-------------
Sales to related companies........... $ 2,807
=============
Shipping provided by a related
company (Included in operating and
delivery expenses in the
accompanying statements of
income)............................ $ 1,227
=============
Warehouse rent paid to related entity
under a one-year lease with seven
one-year options remaining.
(Included in operating and delivery
expenses in the accompanying
statements of income).............. $ 145
=============
11. SUBSEQUENT EVENTS (UNAUDITED)
On July 11, 1997, Metals USA, Inc. purchased all of the issued and
outstanding equity securites of Uni-Steel, through the issuance of common stock
and cash pursuant to a definitive merger agreement dated May 1997.
Concurrent with the merger, Uni-Steel sold certain real property to an
affiliated party for $630 and entered into an agreement with the affiliate to
lease the real property for an annual lease payment of $115. This lease runs
through 2027, and provides for periodic increases in the annual lease payment
every five years equal to the cumulative change in the Consumer Price Index.
The parties to the stock purchase agreements discussed in Note 9 agreed to
waive such agreements upon the consumation of the Merger.
F-93
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Jeffreys Steel Company, Inc.:
We have audited the accompanying balance sheets of Jeffreys Steel Company,
Inc. as of July 31, 1995, and December 31, 1996, and the related statements of
income, stockholders' equity and cash flows for the years ended July 31, 1994
and 1995, and December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Jeffreys Steel Company,
Inc., as of July 31, 1995, and December 31, 1996, and the results of its
operations and its cash flows for the years ended July 31, 1994 and 1995, and
December 31, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
November 3, 1997
F-94
<PAGE>
JEFFREYS STEEL COMPANY, INC.
BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
JULY 31, DECEMBER 31, SEPTEMBER 30,
1995 1996 1997
-------- ------------ -------------
(UNAUDITED)
ASSETS
Current Assets:
Cash............................ $ 672 $ 1,203 $ 1,866
Accounts receivable, net of
allowance of $382, $259 and
$204.......................... 13,878 12,887 12,532
Accounts receivable, other...... 283 474 57
Inventories..................... 21,770 21,512 18,817
Prepaid expenses................ 539 355 540
Deferred income taxes........... 242 397 489
Other........................... 222 496 103
-------- ------------ ------------
Total current
assets............. 37,606 37,324 34,404
Property and equipment, net.......... 12,492 13,514 14,298
Notes receivable..................... 407 210 134
Cash surrender value of life
insurance.......................... 890 1,126 1,221
Intangible assets and other.......... 834 540 411
-------- ------------ ------------
Total assets.......... $ 52,229 $ 52,714 $ 50,468
======== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of notes
payable....................... $ 686 $ 1,131 $ 2,128
Accounts payable................ 5,088 6,998 7,587
Income taxes payable............ 37 482 715
Accrued liabilities............. 2,071 1,253 1,821
-------- ------------ ------------
Total current
liabilities........ 7,882 9,864 12,251
Notes payable, net of current
portion............................ 22,358 15,647 --
Payable to Metals USA................ -- -- 8,814
Accrued nonqualified retirement plan
contribution....................... 244 461 --
Deferred income taxes................ 266 326 268
Other long-term liabilities,
affiliates......................... 144 -- --
-------- ------------ ------------
Total liabilities..... 30,894 26,298 21,333
-------- ------------ ------------
Commitments and contingencies
Stockholders' Equity:
Common stock, 100,000 shares at
$.415 par value, authorized,
issued and outstanding........ 42 42 42
Additional paid-in capital...... 108 359 455
Unearned compensation........... (2,437) (1,794) (1,535)
Retained earnings............... 23,622 27,809 30,173
-------- ------------ ------------
Total stockholders'
equity............. 21,335 26,416 29,135
-------- ------------ ------------
Total liabilities and
stockholders'
equity............. $ 52,229 $ 52,714 $ 50,468
======== ============ ============
The accompanying notes are an integral part of these financial statements.
F-95
<PAGE>
JEFFREYS STEEL COMPANY, INC.
STATEMENTS OF INCOME
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
JULY 31, YEAR ENDED SEPTEMBER 30,
---------------------- DECEMBER 31, ---------------------
1994 1995 1996 1996 1997
---------- ---------- ------------ ---------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............................ $ 107,897 $ 121,537 $134,391 $ 103,363 $ 93,281
Operating costs and expenses:
Cost of sales................... 81,904 93,421 100,868 77,834 68,405
Operating and delivery.......... 10,306 11,576 14,322 10,715 10,558
Selling, general and
administrative................ 9,018 9,563 10,482 7,999 7,861
Depreciation and amortization... 1,163 1,689 2,313 1,691 1,922
---------- ---------- ------------ ---------- ---------
Operating income..................... 5,506 5,288 6,406 5,124 4,535
Other (income) expense:
Interest expense................ 1,084 1,539 1,188 872 704
Other income, net............... (203) (221) (65) (39) (116)
---------- ---------- ------------ ---------- ---------
Income before income taxes........... 4,625 3,970 5,283 4,291 3,947
Provision for income taxes........... 1,782 1,661 2,035 1,678 1,583
---------- ---------- ------------ ---------- ---------
Net income........................... $ 2,843 $ 2,309 $ 3,248 $ 2,613 $ 2,364
========== ========== ============ ========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-96
<PAGE>
JEFFREYS STEEL COMPANY, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
COMMON PAID-IN RETAINED UNEARNED
STOCK CAPITAL EARNINGS COMPENSATION TOTAL
------ -------- -------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Balance, July 31, 1993............... $ 42 $-- $ 18,470 $ (3,510) $ 15,002
Shares released under leveraged
ESOP Plan..................... -- -- -- 650 650
Net income...................... -- -- 2,843 -- 2,843
------ -------- -------- ------------ ---------
Balance, July 31, 1994............... 42 -- 21,313 (2,860) 18,495
Shares released under leveraged
ESOP Plan..................... -- 108 -- 423 531
Net income...................... -- -- 2,309 -- 2,309
------ -------- -------- ------------ ---------
Balance, July 31, 1995............... 42 108 23,622 (2,437) 21,335
Adjustment to conform fiscal
year-ends..................... -- 75 939 187 1,201
Shares released under leveraged
ESOP Plan..................... -- 176 -- 456 632
Net income...................... -- -- 3,248 -- 3,248
------ -------- -------- ------------ ---------
Balance, December 31, 1996........... 42 359 27,809 (1,794) 26,416
Shares released under leveraged
ESOP Plan (unaudited)......... -- 96 -- 259 355
Net income (unaudited).......... -- -- 2,364 -- 2,364
------ -------- -------- ------------ ---------
Balance, September 30, 1997
(unaudited)........................ $ 42 $ 455 $ 30,173 $ (1,535) $ 29,135
====== ======== ======== ============ =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-97
<PAGE>
JEFFREYS STEEL COMPANY, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
JULY 31, YEAR ENDED SEPTEMBER 30,
-------------------- DECEMBER 31, --------------------
1994 1995 1996 1996 1997
--------- --------- ------------ --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................... $ 2,843 $ 2,309 $ 3,248 $ 2,613 $ 2,364
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities --
Provision for bad debts.......... 281 281 177 143 103
Depreciation and amortization.... 1,163 1,689 2,313 1,691 1,922
(Gain) loss on sale of property
and equipment.................. (77) (41) 91 76 (33)
Deferred income taxes............ (104) 154 (95) (95) (150)
Compensation charged against
notes receivable............... 400 -- -- -- --
Retirement plan contribution
charged to unearned
compensation and paid-in
capital........................ 650 531 632 474 355
Non-qualified plan
contributions.................. 73 98 228 187 (461)
Changes in operating assets and
liabilities, net of business
acquisitions --
Accounts and notes
receivable.................... (4,116) 1,513 511 (537) 540
Inventory...................... (3,745) (1,114) (4,791) (5,408) 2,695
Other assets................... (104) (50) (206) (182) 278
Accounts payable............... 2,397 321 754 4,289 585
Income taxes payable........... (246) (6) 166 (34) 233
Accrued liabilities............ 382 666 (637) 1 568
--------- --------- ------------ --------- ---------
Net cash provided by
(used in) operating
activities............ (203) 6,351 2,391 3,218 8,999
--------- --------- ------------ --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets....... 98 100 109 10 49
Purchases of property.............. (2,617) (4,899) (3,009) (2,529) (2,665)
Proceeds applied to cash value life
insurance........................ (154) (137) (160) (102) (95)
Issuance of notes receivable to
affiliates....................... (184) (111) (315) (246) (204)
Collections on notes receivable
from affiliates.................. 23 30 283 283 414
Purchase of businesses, net of
acquired cash.................... -- (6,036) -- -- --
--------- --------- ------------ --------- ---------
Net cash (used in)
investing
activities............ (2,834) (11,053) (3,092) (2,584) (2,501)
--------- --------- ------------ --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on notes payable........ 2,350 622 -- -- --
Principal payments on notes
payable.......................... (624) (1,174) (1,087) (520) (468)
Borrowings on revolving credit
facility......................... 44,351 45,035 44,607 30,993 26,170
Payments on revolving credit
facility......................... (42,867) (39,468) (41,755) (29,639) (40,351)
Borrowings on notes payable to
affiliates....................... 4 13 213 213 8,814
Principal payments on notes payable
to affiliates.................... (129) (21) (396) (396) --
--------- --------- ------------ --------- ---------
Net cash provided by
(used in) financing
activities............ 3,085 5,007 1,582 651 (5,835)
--------- --------- ------------ --------- ---------
NET INCREASE IN CASH................. 48 305 881 1,285 663
CASH, beginning of period............ 319 367 322 322 1,203
--------- --------- ------------ --------- ---------
CASH, end of period.................. $ 367 $ 672 $ 1,203 $ 1,607 $ 1,866
========= ========= ============ ========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for --
Interest......................... $ 950 $ 1,470 $ 1,191 $ 708 $ 602
Income taxes..................... 2,295 1,484 1,869 1,712 1,350
Noncash activities --
Operating expenses added to note
receivable from affiliates..... 400 -- -- -- --
Interest expense added to notes
payable to affiliates.......... 4 13 7 7 --
Interest income added to note
receivable from affiliates..... 19 12 76 73 16
Retirement plan contribution
charged to unearned
compensation and paid-in
capital........................ 650 531 632 474 355
Non-qualified plan contribution
accrued........................ 73 98 228 187 (461)
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-98
<PAGE>
JEFFREYS STEEL COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
Jeffreys Steel Company, Inc. (Jeffreys), an Alabama corporation, is engaged
in the wholesale and retail sale of steel. Jeffreys purchases steel products
from manufacturers and processes steel to meet customers' specifications.
Jeffreys operates eight steel service centers, three in Alabama, two in Florida,
one in each of Mississippi, Louisiana and Georgia. Jeffreys also maintains a
sales office in Fort Lauderdale, Florida. The customers of these service centers
are concentrated in the southeastern states. Jeffreys is 70 percent owned by
three related individual shareholders and 30 percent owned by an employee stock
ownership plan. Approximately 20 percent of Jeffreys' sales are to machinists
and fabricators, 15 percent each to industrial / commercial contractors and
transportation equipment manufacturers, 9 percent each to machinery and
equipment manufacturers and wholesale distributors and 32 percent in other
industries.
Jeffreys and its stockholders entered into a definitive merger agreement
with Metals USA, Inc. (Metals USA), effective September 26, 1997, pursuant to
which all of Jeffreys' outstanding shares of capital stock were exchanged for
shares of Metals USA common stock.
Jeffreys has historically reported on a July 31 fiscal year-end. For
purposes of the merger with Metals USA, the accompanying financial statements
reflect Jeffreys on a calendar year-end basis effective January 1, 1996. The net
sales and net income of Jeffreys for the period from August 1, 1995, through
December 31, 1995, were $50,989 and $939, respectively. The net income of
Jeffreys for this transition period is included in the accompanying statements
of stockholders' equity as an adjustment to retained earnings in order to
conform the fiscal years to that of Metals USA.
USE OF ESTIMATES AND ASSUMPTIONS
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
INTERIM FINANCIAL INFORMATION
The interim financial statements included herein are unaudited; however,
they include all adjustments of a normal recurring nature which, in the opinion
of management, are necessary to present fairly the financial position of
Jeffreys at September 30, 1997, and the results of its operations and cash flows
for the nine months ended September 30, 1996 and 1997. Accounting measurements
at interim dates inherently involve greater reliance on estimates than at
year-end. The results of operations for the interim periods presented are not
necessarily indicative of the results to be expected for the entire year.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVENTORIES -- Inventories are stated at the lower of cost or market. Cost
is determined using the last-in, first-out (LIFO) method.
PROPERTY AND EQUIPMENT -- Property and equipment is stated at cost, net of
accumulated depreciation. Depreciation is computed utilizing the straight-line
method at rates based upon the estimated useful lives of the various classes of
assets.
FAIR VALUE OF FINANCIAL INSTRUMENTS -- The fair value of the notes payable
is estimated based on interest rates for the same or similar debt offered to
Jeffreys having the same or similar remaining maturities
F-99
<PAGE>
JEFFREYS STEEL COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
and collateral requirements. The carrying amounts of notes payable approximate
fair value at the applicable balance sheet dates.
CONCENTRATION OF CREDIT RISK -- Financial instruments, which potentially
subject Jeffreys to concentrations of credit risk, consist principally of cash
deposits, trade accounts and notes receivable. Jeffreys places its cash with
several financial institutions, limiting the amount of credit exposure to any
one financial institution. Concentrations of credit risk with respect to trade
accounts are within the machinists and fabricators, industrial / commercial
contractors and transportation equipment manufacturers industries. Generally,
credit is extended once appropriate credit history and references have been
obtained. Adjustments to the allowance for doubtful accounts are made
periodically (as circumstances warrant) based upon the expected collectibility
of all such accounts. Jeffreys periodically reviews the credit history of its
customers and generally does not require collateral for the extension of credit.
INCOME TAXES -- Jeffreys accounts for income taxes in accordance with
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes." Under SFAS No. 109, deferred income taxes are recognized for the
tax consequences in future years of differences between the tax bases of assets
and liabilities and their financial reporting amounts at each year-end based on
enacted tax laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. The principal items resulting
in the differences are different depreciation methods, use of the allowance
method for bad debts, different inventory capitalization methods and
nonqualified plan contributions. Valuation allowances are established when
necessary to reduce deferred assets to the amount to be realized. Income tax
expense is the tax payable for the year and the change during the year in
deferred tax assets and liabilities.
INTANGIBLE ASSETS -- Intangible assets include covenants not to compete and
start-up costs which are being amortized over a five-year life. Accumulated
amortization totaled $173 and $428 as of July 31, 1995, and December 31, 1996,
respectively.
RECENT ACCOUNTING PRONOUNCEMENTS -- The Financial Accounting Standards
Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of," in March 1995. SFAS No. 121
requires that long-lived assets and certain intangibles to be held and used by
an entity be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. Jeffreys
adopted SFAS No. 121 on January 1, 1996. The impact of adopting this standard
did not have a material impact on the results of operations.
SELF-INSURANCE PLANS -- Jeffreys insures workers' compensation claims under
a self-insurance program. The plan is subject to a stop-loss provision which
provides conventional insurance policy coverage for losses above certain
specified levels. Estimated claims incurred but not yet reported in connection
with the self-insurance plans are accrued by Jeffreys.
F-100
<PAGE>
JEFFREYS STEEL COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
ESTIMATED JULY 31, DECEMBER 31,
USEFUL LIVES 1995 1996
------------- -------- ------------
Land............................... $ 604 $ 604
Buildings and improvements......... 5-30 years 8,576 9,420
Machinery and equipment............ 7-10 years 6,035 7,641
Automobiles and trucks............. 3-10 years 3,390 4,430
-------- ------------
18,605 22,095
Less -- Accumulated depreciation... (6,113) (8,581)
-------- ------------
Total.................... $ 12,492 $ 13,514
======== ============
3. INVENTORIES:
Inventories consist of the following:
JULY 31, DECEMBER 31,
1995 1996
-------- ------------
Carbon plates and sheets............. $ 11,298 $ 10,256
Beams................................ 3,388 4,541
Carbon tubular products.............. 2,923 2,355
Rolled finished bars/shapes.......... 2,441 2,567
Other................................ 3,382 3,544
Less -- LIFO reserve................. (1,662) (1,751)
-------- ------------
Total...................... $ 21,770 $ 21,512
======== ============
The replacement cost of Jeffreys' inventory exceeds the historical cost of
the inventory, computed using the LIFO method of valuation, as reported in the
accompanying financial statements. If the average cost method had been used for
all inventories, the carrying value would have been $23,433 and $23,263 at July
31, 1995, and December 31, 1996, respectively. Additionally, net income would
have been $2,369, $2,025 and $3,311 for the years ended July 31, 1994 and 1995,
and December 31, 1996, respectively.
F-101
<PAGE>
JEFFREYS STEEL COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. SUMMARY OF LONG-TERM FINANCING ARRANGEMENTS:
JULY 31, DECEMBER 31, SEPTEMBER 30,
1995 1996 1997
--------- ------------ -------------
(UNAUDITED)
Revolving credit facility with
interest at prime less 1.0%,
maturing on December 31, 1998,
secured by inventory and
trade accounts receivable.......... $ 17,787 $ 13,250 --
Notes payable to former employee
stock ownership plan and trust
members payable in annual
installments including interest at
prime with an 8.5% cap, through
February 1998...................... 2,861 2,118 2,118
Term loan payable to a bank in
monthly installments of $46 which
includes monthly payments of
interest at 6.5%, due March 1,
1999, secured by production and
rolling equipment.................. 1,736 1,097 --
Term loan payable to a bank in
monthly installments of $17
plus monthly payments of interest
computed at a floating
rate. The rate at December 31,
1996, was 7.7%, maturing on June 1,
1998, secured by certain
equipment.......................... 605 293 --
Other long-term debt................. 55 20 10
--------- ------------ -------------
23,044 16,778 2,128
Less -- Current portion.............. (686) (1,131) (2,128)
--------- ------------ -------------
$ 22,358 $ 15,647 $--
========= ============ =============
The maximum credit available under the Jeffreys revolving credit facility
was increased from $16,000 to $20,000 on July 28, 1994. Additionally, the due
dates of the revolver were extended to December 31, 1998. The terms of the loan
agreements, which provide the revolvers to Jeffreys, include certain loan
covenants, the most restrictive of which requires Jeffreys to maintain a certain
minimum level of inventory and accounts receivable, with which Jeffreys was in
compliance as of December 31, 1996. The prime rate of interest upon which the
indebtedness referred to above was indexed at July 31, 1995, and December 31,
1996, was 8.75 percent and 8.25 percent, respectively.
Jeffreys' long-term notes are subject to mandatory redemption as follows:
Year ending December 31 --
1997............................ $ 1,131
1998............................ 15,565
1999............................ 82
---------
$ 16,778
=========
5. DETAIL OF ACCRUED LIABILITIES:
Accrued liabilities consist of the following:
JULY 31, DECEMBER 31, SEPTEMBER 30,
1995 1996 1997
-------- ------------ --------------
(UNAUDITED)
Accrued salaries and employee
benefits.......................... $ 1,434 $ 923 $ 1,274
Accrued ad valorem and sales taxes.. 421 146 350
Accrued interest and other.......... 216 184 197
-------- ------------ --------------
$ 2,071 $1,253 $ 1,821
======== ============ ==============
F-102
<PAGE>
JEFFREYS STEEL COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES:
The components of the provision for income taxes are as follows:
YEAR ENDED
-----------------------------------
JULY 31,
-------------------- DECEMBER 31,
1994 1995 1996
--------- --------- ------------
Federal --
Current......................... $ 1,642 $ 1,315 $1,832
Deferred........................ (92) 133 (82)
--------- --------- ------------
1,550 1,448 1,750
--------- --------- ------------
State --
Current......................... 244 192 298
Deferred........................ (12) 21 (13)
--------- --------- ------------
232 213 285
--------- --------- ------------
Total provision....... $ 1,782 $ 1,661 $2,035
========= ========= ============
The provision for income taxes differs from an amount computed at the
statutory rates as follows:
YEAR ENDED
-----------------------------------
JULY 31,
-------------------- DECEMBER 31,
1994 1995 1996
--------- --------- ------------
Federal income tax at statutory
rates.............................. $ 1,619 $ 1,390 $1,849
State income taxes, net of federal
income tax benefit................. 78 67 89
Nondeductible expenses (mainly meals
and
entertainment)..................... 85 204 97
--------- --------- ------------
$ 1,782 $ 1,661 $2,035
========= ========= ============
The significant items giving rise to the deferred tax assets (liabilities)
as of July 31, 1995, and December 31, 1996, are as follows:
JULY 31, DECEMBER 31,
1995 1996
-------- ------------
Deferred tax assets --
Allowance for doubtful
accounts...................... $ 143 $ 85
Uniform capitalization of
inventory..................... 72 58
Nonqualified plan
contribution.................. 27 175
Accrued expenses................ -- 72
Other........................... -- 7
-------- ------------
Total deferred tax
assets.................. 242 397
-------- ------------
Deferred tax liabilities --
Property and equipment.......... (266) (326)
-------- ------------
Total deferred income tax
liabilities............. (266) (326)
-------- ------------
Net deferred tax assets.... $ (24) $ 71
======== ============
F-103
<PAGE>
JEFFREYS STEEL COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. EMPLOYEE BENEFIT PLANS:
PROFIT-SHARING PLAN
Jeffreys has a profit-sharing plan that was adopted on July 29, 1988, and
amended June 1, 1995, to include Section 401(k) options. Contributions to the
plan are determined by the board of directors on an annual basis. All funds
contributed under this plan are subject to a vesting schedule of 20 percent
after two years of service, then 20 percent each additional year until 100
percent at six years. No contributions were made to this plan in the periods
reported.
EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST
Under the provisions of an employee stock ownership plan (ESOP) and its
related trust, Jeffreys made annual contributions to the plan which were
invested in stock of Jeffreys and other qualifying securities for the benefit of
Jeffreys' employees.
Under the provisions of the plan, employees had a put option which required
Jeffreys to purchase their shares at fair market value. Additionally, Jeffreys
had the right of first refusal for any shares sold by the employees. The plan
provided for Jeffreys' purchases of employee shares to be paid in cash and with
the issuance of a note payable. Effective September 26, 1997, the participation
was frozen. Concurrent with the merger, ESOP shares were exchanged for Metals
USA common stock and holders of such shares have the right to trade the stock
beginning September 26, 1998.
LEVERAGED ESOP ARRANGEMENT
Jeffreys' ESOP purchased 18,856 shares of outstanding Jeffreys stock from a
majority stockholder for $207.06 per share. The ESOP borrowed the funds to
purchase such stock and Jeffreys guaranteed the repayment of this loan. Jeffreys
will repay this loan, plus interest, through deductible contributions to the
plan. As Jeffreys makes contributions to the plan, which reduces the principal
on the note, the plan will release the corresponding shares related to the
reduction in the note principal. At the point when these shares are no longer
specifically secured by the note payable, they will be allocated to the
individual participants of the plan and considered earned by those employees at
that time. Jeffreys accounts for its ESOP in accordance with Statement of
Position (SOP) 93-6. Accordingly, the debt of the ESOP is recorded as debt and
the shares pledged as collateral are reported as unearned compensation. As
shares are released from collateral, Jeffreys reports compensation expense equal
to the current estimated market price of the shares. ESOP share compensation
expense was $650, $531 and $632 for the years ended July 31, 1994 and 1995, and
December 31, 1996, respectively.
Since the obligation is secured by the shares purchased and the note is
guaranteed by Jeffreys, all amounts relating to this transaction are considered
unearned compensation of the employees until which time the note is deemed paid
and the corresponding shares are released to the individual participants of the
plan. The balance of $2,437 and $1,794 in unearned compensation at July 31,
1995, and December 31, 1996, results from the leveraged ESOP stock purchase less
the deemed release of shares at cost.
The ESOP shares were as follows:
TOTAL SHARES TOTAL
SHARES DEEMED UNRELEASED
YEAR ENDED ALLOCATED RELEASED SHARES
- - ------------------------------------- ---------- -------- -----------
July 31, 1995........................ 5,159 1,926 11,770
December 31, 1996.................... 7,086 2,171 9,599
In accordance with SOP 93-6, additional paid-in capital is adjusted
whenever the market value of the shares released is more or less than the cost
of the shares released. The addition to paid-in capital attributable to this
difference in market value and cost was $108 and $176 for the years ended July
31, 1995, and December 31, 1996, respectively.
F-104
<PAGE>
JEFFREYS STEEL COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The estimated average fair market value of the unearned ESOP shares was
$259 per share and $278 per share at July 31, 1995, and December 31, 1996.
NONQUALIFIED DEFERRED COMPENSATION PLAN
Jeffreys has a deferred compensation plan, which is considered an unfunded,
nonqualified retirement plan, to provide supplemental retirement benefits to key
employees who are precluded from participating in the ESOP due to the leveraged
arrangement. The selective key employees will receive an annual contribution
under this plan equal to 10 percent of their compensation. All contributions are
deemed to have been used to purchase employee stock as of the most recent stock
valuation. Each year, gains or losses are recognized as the stock value
fluctuates.
Jeffreys will pay all amounts directly to the employees participating in
this plan, or their beneficiaries, in accordance with the payout provision of
the plan. These benefits will be paid directly from the general assets of
Jeffreys in either cash or Jeffreys stock. Concurrent with the merger, these
benefits will be settled by the issuance of Metals common stock.
8. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASE AGREEMENTS
Jeffreys is obligated under certain long-term noncancelable lease
agreements for office space, warehouse space and equipment as summarized below:
Year ending December 31 --
1997............................ $ 196
1998............................ 42
1999............................ 29
2000............................ 29
2001............................ 29
Thereafter...................... 21
---------
$ 346
=========
Jeffreys paid approximately $362, $401 and $314 in rent expense during the
years ended July 31, 1994 and 1995, and December 31, 1996, respectively, under
operating leases. Certain of these leases are with affiliated individuals and
companies (see Note 9).
CONTINGENCIES
Jeffreys has been named as one of three defendants in a lawsuit filed by
Allen Management Associates, Inc., and Esalen Holdings, Inc., who owned the
property leased by Jeffreys in Ft. Lauderdale, Florida. The plaintiffs are
seeking damages of approximately $535 for breach of maintenance obligations
under the sublease and damages for alleged environmental contamination of the
property. Subsequent to the initial suit filed, the other defendants have filed
cross-claims against Jeffreys. Jeffreys has filed a counterclaim and
cross-claims against the other defendants and has filed an answer and
affirmative defense concerning the suit. The trial date is scheduled for
February 9, 1998. The Company has denied any liability and intends to vigorously
defend its position. In the opinion of the Company's management, the final
outcome of this matter should not materially affect the Company's financial
position and results of operations.
9. RELATED-PARTY TRANSACTIONS:
Certain real property at three service centers and corporate offices were
leased from a corporation owned by the president of Jeffreys. The property was
leased on a month-to-month basis. In 1995, Jeffreys entered into a lease
agreement for an aircraft from the same related party with payments of $13 per
month, which expired January 1997. Concurrent with the merger, the lease was
renegotiated and Jeffreys rents the aircraft based on the number of flight
hours.
F-105
<PAGE>
JEFFREYS STEEL COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Notes receivable include $210 and $141 due from a related party at July 31,
1995, and December 31, 1996.
10. SUBSEQUENT EVENTS (UNAUDITED):
Certain transactions occurred subsequent to year-end as follows:
a. On September 26, 1997, Metals USA acquired all of the issued and
outstanding equity securities of Jeffreys through the issuance of
common stock in a transaction to be accounted for as a pooling-of-
interests.
b. Metals USA also acquired, through issuance of stock, certain real
property owned by the president of Jeffreys and used in Jeffreys
operations (see Note 9). The real property had a book value of $1,753
at the date of acquisition.
c. Concurrent with the merger, Metals USA paid off the indebtedness of
Jeffreys, excluding the ESOP notes payable.
F-106
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors of
Harvey Titanium, Ltd.
We have audited the accompanying consolidated balance sheet of Harvey
Titanium, Ltd. and Subsidiary as of June 30, 1997 and the related consolidated
statements of operations, stockholders' equity and cash flows for the year then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated 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 referred to above
present fairly, in all material respects, the financial position of Harvey
Titanium, Ltd. and Subsidiary at June 30, 1997 and the results of its operations
and its cash flows for the year then ended in conformity with generally accepted
accounting principles.
KLEIN, BOGAKOS AND ROBERTSON, CPA'S INC.
Santa Monica, Ca
September 23, 1997
F-107
<PAGE>
HARVEY TITANIUM, LTD. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF DOLLARS, EXCEPT FOR SHARE AMOUNTS)
JUNE 30, SEPTEMBER 30,
1997 1997
--------- -------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents....... $ 428 $ 584
Accounts receivable:
Trade, less allowance of
$230 at June 30 and
September 30, 1997...... 9,149 12,632
Other...................... 91 75
Inventories..................... 15,203 16,789
Deferred income taxes........... 309 309
Prepaid expenses and other
current assets................. 22 114
--------- -------------
Total current
assets................ 25,202 30,503
Property and equipment, net.......... 1,211 1,230
Other assets......................... 56 56
--------- -------------
Total assets.......... $ 26,469 $31,789
========= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................ $ 10,510 $12,366
Accrued liabilities............. 756 809
Income taxes payable............ 1,275 244
Notes payable -- former
stockholder..................... 400 344
Current portion of long term
debt and capitalized lease
obligation..................... 129 75
--------- -------------
Total current
liabilities........... 13,070 13,838
Long term debt and capitalized lease
obligations........................ 7,286 278
Due to parent........................ -- 10,789
Deferred income taxes................ 855 855
--------- -------------
Total liabilities..... 21,211 25,760
Shareholders' equity:
Common stock, no par value,
7,500 shares authorized, 489
shares issued and outstanding
at June 30 and September 30,
1997 5 5
Retained earnings............... 5,253 6,024
--------- -------------
Total stockholders' equity...... 5,258 6,029
--------- -------------
Total liabilities and
stockholders' equity......... $ 26,469 $31,789
========= =============
The accompanying notes are an integral part of these financial statements.
F-108
<PAGE>
HARVEY TITANIUM, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS OF DOLLARS)
THREE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
JUNE 30, --------------------
1997 1996 1997
----------- --------- ---------
(UNAUDITED)
Net Sales............................ $52,630 $ 11,678 $ 15,561
Costs and expenses:
Cost of sales................... 41,121 8,861 12,273
Operating and delivery.......... 2,228 491 594
Selling, general, and
administrative expenses......... 4,226 706 1,004
Depreciation and amortization... 200 50 47
----------- --------- ---------
Operating income........... 4,855 1,570 1,643
Other expense:
Interest expense................ 669 142 283
Loss on abandonment of assets... 60 -- --
----------- --------- ---------
729 142 283
----------- --------- ---------
Income before taxes.................. 4,126 1,428 1,360
Provision for income taxes........... 1,691 586 589
----------- --------- ---------
Net income........................... $ 2,435 $ 842 $ 771
=========== ========= =========
The accompanying notes are an integral part of these financial statements.
F-109
<PAGE>
HARVEY TITANIUM, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS OF DOLLARS, EXCEPT FOR SHARE AMOUNTS)
COMMON STOCK TOTAL
----------------- RETAINED STOCKHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
------ ------ --------- -------------
Balance, July 1, 1996........ 489 $ 5 $ 2,818 $ 2,823
Net income.............. -- -- 2,435 2,435
------ ------ --------- -------------
Balance, June 30, 1997....... 489 5 5,253 5,258
Net income (unaudited).. -- -- 771 771
------ ------ --------- -------------
Balance, September 30, 1997
(unaudited)................ 489 $ 5 $ 6,024 $ 6,029
====== ====== ========= =============
The accompanying notes are an integral part of these financial statements.
F-110
<PAGE>
HARVEY TITANIUM, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
THREE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
JUNE 30, --------------------
1997 1996 1997
---------- --------- ---------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................. $ 2,435 $ 842 $ 771
Adjustments to reconcile net income to
net cash used by operating activities:
Depreciation and amortization...... 200 50 50
Loss on abandonment of assets...... 60 -- --
Deferred income taxes.............. 52 -- --
Changes in operating assets and
liabilities:
Accounts receivable, net...... (756) 1,838 (3,467)
Inventories................... (7,087) (439) (1,586)
Prepaid expenses and other
assets..................... 14 2 (92)
Other long term assets........ (9) -- --
Accounts payable.............. 3,067 (1,835) 1,856
Accrued liabilities........... 373 19 53
Deferred revenue.............. (25) (25) --
Income taxes payable.......... 715 20 (1,031)
---------- --------- ---------
Net cash provided (used)
in operating
activities............ (961) 472 (3,446)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and
equipment........................ (1,073) (69) (69)
---------- --------- ---------
Net cash used in investing
activities................. (1,073) (69) (69)
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (repayment) on
revolving line-of-credit......... 2,450 600 (6,950)
Advances from parent............... -- -- 10,789
Net payments to former
stockholder...................... (129) (99) (56)
Proceeds from capital lease
obligations...................... 301 -- 40
Principal payments on long term
debt............................. (63) (17) (136)
Principal payments on capital lease
obligations...................... (27) (8) (16)
---------- --------- ---------
Net cash provided by
financing
activities............ 2,532 476 3,671
NET INCREASE IN CASH AND CASH
EQUIVALENTS........................... 498 879 156
CASH AND CASH EQUIVALENTS BEGINNING OF
PERIOD................................ (70) (70) 428
---------- --------- ---------
CASH AND CASH EQUIVALENTS END OF
PERIOD................................ $ 428 $ 809 $ 584
========== ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest............. 636 142 283
Cash paid for income taxes......... $ 918 $ 564 $ 1,620
The accompanying notes are an integral part of these financial statements
F-111
<PAGE>
HARVEY TITANIUM, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT FOR SHARE AMOUNTS)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Harvey Titanium, Ltd., ("Harvey") a California Corporation, is a
specialty metal service center located in Santa Monica, California, specializing
primarily in the distribution of titanium products. Harvey performs services for
its customers including cutting, extruding, machining and treating of titanium
sheet, plate, ingot and billet. Harvey's customers are composed primarily of
manufacturers of aerospace products. Harvey markets its products principally in
the western part of the United States. Total sales to Europe aggregated
approximately $7,200.
As described in Note 10, on September 26, 1997, Harvey and its sole
stockholder entered into a definitive merger agreement with Metals USA, Inc.
("Metals USA") pursuant to which all of Harvey's outstanding shares of capital
stock were exchanged for cash and shares of Metals USA common stock.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Harvey and
its wholly-owned subsidiary, Harvey Overseas Sales Corporation, an
Interest-Charge Domestic International Sales Corporation (IC-DISC). Total export
sales amounted to $10,700 for the year ended June 30, 1997. All significant
intercompany balances and transactions have been eliminated.
USE OF ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect (i) the reported amounts of assets and liabilities, (ii)
disclosure of contingent assets and liabilities known to exist as of the date
the financial statements are published and, (iii) the reported amount of
revenues and expenses recognized during the periods presented. Harvey reviews
all significant estimates affecting its consolidated financial statements on a
recurring basis and records the effect of any necessary adjustments prior to
their publication. Adjustments made with respect to the use of estimates often
relate to improved information not previously available. Uncertainties with
respect to such estimates and assumptions are inherent in the preparation of
financial statements; accordingly, it is possible that an unfavorable resolution
of the contingency described in Note 8 could have a material adverse effect on
Harvey's consolidated financial position, results of operation or liquidity.
INTERIM FINANCIAL INFORMATION
The interim financial statements included herein are unaudited; however,
they include all adjustments of a normal recurring nature, which in the opinion
of management, are necessary to present fairly the financial position of Harvey
at September 30, 1997, and the results of its operations and cash flows for the
three months ended September 30, 1996 and 1997. Accounting measurements at
interim dates inherently involve greater reliance on estimates than at year end.
The results of operations for the interim periods presented are not necessarily
indicative of the results to be expected for the entire year.
INCOME TAXES
Harvey accounts for income taxes in accordance with Statement Financial
Accounting Standards No. 109, Accounting for Income Taxes ("SFAS 109"). Under
SFAS 109, deferred income taxes are recognized for the tax consequences in
future years of differences between the tax bases of assets and liabilities and
their financial reporting amounts at each year-end based on enacted tax laws and
statutory tax rates applicable to the period in which the differences are
expected to affect taxable income. The principal items resulting in the
differences are different depreciation methods, use of the allowance method for
bad debts, commission payments to an IC-DISC and different inventory
capitalization methods. Valuation allowances
F-112
<PAGE>
HARVEY TITANIUM, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
are established when necessary to reduce deferred assets to the amount to be
realized. Income tax expense is the tax payable for the year and the change
during the year in deferred tax assets and liabilities.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Revenue is generally recognized on the sale of goods when the goods are
shipped, all significant contractual obligations have been satisfied, and the
collection of the resulting receivable is reasonably assured.
INVENTORIES
Inventories are stated at the lower of cost of market with cost determined
primarily using the " last-in, first-out" ("LIFO") method, which is not in
excess of market. If the first-in, first-out (FIFO) method of inventory
valuation had been used, inventory would have been $1,328 higher, and income,
before income taxes, would have been $2,651 for the year ended June 30, 1997.
CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject Harvey to concentrations
of credit risk, consist principally of cash deposits and trade accounts
receivable. Harvey places its temporary cash investments with credit-worthy
financial institutions and periodically evaluates the credit ratings of such
institutions to mitigate risk. Concentrations of credit risk with respect to
trade accounts receivable result from Harvey having one customer, a large
aerospace company, that accounted for approximately 20% of the accounts
receivable at June 30, 1997. For the year ended June 30, 1997, the same customer
accounted for approximately 30% of sales. Credit is extended once appropriate
credit history and references have been obtained. Adjustments to the allowance
for doubtful accounts are made periodically (as circumstances warrant) based
upon the expected collectibility of all such accounts. Harvey periodically
reviews the credit history of its customers and generally does not require
collateral for the extension of credit.
DEPRECIATION AND AMORTIZATION
Property and equipment is stated at cost, net of accumulated depreciation.
Depreciation is computed on the declining balance method over the estimated
lives of the assets. Amortization of leasehold improvements over their estimated
useful life, regardless of the lease term, is determined on the straight line
method. Expenditures for maintenance and repairs are charged to expense as
incurred.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of ("SFAS 121") in March, 1995. SFAS
121 requires that long-lived assets and certain intangibles to be held and used
by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Harvey adopted SFAS No. 121 on July 1, 1996.
F-113
<PAGE>
HARVEY TITANIUM, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. PROPERTY AND EQUIPMENT
Property and equipment at June 30, 1997 consists of the following:
ESTIMATED
USEFUL LIVES
--------------
Machinery and equipment.............. 5-7 years $ 1,184
Auto and trucks...................... 5 years 19
Furniture............................ 5 years 691
Leasehold Improvements............... 7-15 years 357
---------
2,251
Less: accumulated depreciation....... (1,040)
---------
Total property and
equipment, net............. $ 1,211
=========
3. LONG TERM DEBT
Long-term debt at June 30, 1997 consists of the following:
Revolving line of credit.............................. $ 6,950
Loan payable to a lending institution, secured by
equipment and payable in monthly installments of $5,
plus interest at a fixed rate of 8.83%, with the
final payment due in July, 1999..................... 135
---------
7,085
Less: current portion................................. 63
---------
$ 7,022
=========
Harvey has a revolving line of credit agreement with the Bank of
California, effective March 21, 1995, modified on various occasions and restated
in its entirety on February 4, 1997, which provides for borrowings of up to
$7,500 with interest charged monthly at.875% in excess of the bank's prime
lending rate (8.50% at June 30, 1997) and matures January 29, 1998. This line is
secured by substantially all of the assets of Harvey and is personally
guaranteed by the Company's stockholder.
In addition, the credit agreement limits advances pursuant to a "borrowing
base" calculation based upon receivables and inventory and contains restrictive
covenants, which among other things, require Harvey to maintain certain levels
of working capital, net worth, profitability and financial leverage ratios.
Additional restrictions limit new indebtedness, purchase and sale of assets,
investments, mergers and acquisitions and dividend payments. Borrowings of
$6,950 were outstanding at June 30, 1997.
On August 28, 1997 Harvey modified its existing revolving line-of-credit
agreement with Bank of California to provide for increased available borrowings
of up to $13,000 and to extend the maturity date to August 30, 1998. This debt
is classified as noncurrent as a result of this extension.
F-114
<PAGE>
HARVEY TITANIUM, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. OBLIGATIONS UNDER CAPITAL LEASE
Harvey leases certain shop and office equipment under non-cancelable
capital leases through March, 2002, which bear interest at rates ranging from
9.0% to 14.84%.
Future minimum lease payments under capital leases as of June 30, 1997 are
as follows:
YEAR ENDED JUNE 30,
- - -------------------
1998............................... $ 97
1999............................... 97
2000............................... 90
2001............................... 74
2002............................... 53
---------
Total future minimum lease
payments.......................... 411
Less: deferred interest............ 81
---------
Capital lease obligation........... 330
Less: current portion, net of
deferred interest................. 66
---------
$ 264
=========
The cost of equipment under capital leases and accumulated amortization
amounted to approximately $362 and $72 , respectively, at June 30, 1997.
5. INCOME TAXES
Income tax expense for the year ended June 30, 1997 is comprised of the
following:
Federal:
Current............................ $ 1,232
Deferred........................... 67
---------
1,299
State:
Current............................ 407
Deferred........................... (15)
---------
392
---------
Total tax provision..................... $ 1,691
=========
F-115
<PAGE>
HARVEY TITANIUM, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The significant items giving rise to the deferred tax (assets) and
liabilities as of June 30, 1997 are as follows:
Deferred tax liabilities:
Bases differences in property and
equipment......................... $ 15
Investment in partnership.......... 97
IC-DISC commission................. 743
---------
Total deferred tax
liabilities................. 855
Deferred tax assets:
Allowance for doubtful accounts.... (100)
Inventory bases differences........ (78)
California franchise tax........... (131)
---------
Total deferred tax assets..... (309)
---------
Net deferred tax liabilities............ $ 546
=========
The provision for income taxes differs from an amount computed at the
statutory rates as follows:
U.S. Federal statutory rate............. 34.0%
State income taxes, net of Federal tax
benefit............................... 6.1%
Other................................... 0.9%
---------
41.0%
=========
6. EMPLOYEE BENEFIT PLANS
Effective June 1, 1997, Harvey adopted a profit sharing 401(k) plan with a
Section 125 component. The plan allows for employee contributions through salary
reductions of up to 15% of total compensation. Harvey contributes an amount
equal to 50% of participant 401(K) contributions, up to a maximum of 3% of their
salaries. Employer contributions vest at the rate of 20% per year starting with
the completion of the second year of employment Participants are entitled, upon
termination, death, or retirement, to their respective portion of retirement
fund assets. The Section 125 component allows employees to use pre-tax
compensation to pay for dependent care and certain medical costs. Harvey's
employer contribution for the year ended June 30, 1997 amounted to $2.
7. LEASE COMMITMENTS
Harvey has leased office and warehouse facilities and transportation
equipment under various non-cancelable long term agreements, which have initial
or remaining non-cancelable terms in excess of one year as of June 30, 1997.
Total rent expense related to such leases aggregated $591 for the year ended
June 30, 1997.
The current office/warehouse lease, effective December 1, 1996, expires in
November, 2001, and is renewable at the option of Harvey for an additional five
years. This lease is a net lease which requires that Harvey pay all executory
expenses such as real estate taxes, insurance, common area and other operating
costs. Harvey also leases office space in London, England for its international
sales office under a lease that expires in October, 1997.
Future minimum rental commitments for fiscal years ending after June 30,
1997, under the leases described above, net of sub-lease income, are as follows:
1998 -- $567; 1999 -- $551; 2000 -- $516; 2001 -- $485; 2002 -- $182.
F-116
<PAGE>
HARVEY TITANIUM, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. CONTINGENCY
Harvey has been notified that it is a party to a product liability claim
(for which it has no product liability insurance) relating to the sale of parts
that allegedly did not comply with certain contract specifications. Harvey and
other parties have entered into a tolling agreement, which effectively delays
the statute of limitations with respect to any potential legal action that may
arise from this matter. Discussions between the parties are in their early
stages with respect to the product liability claim. This matter is subject to
significant uncertainties and, accordingly, it is presently impossible to make a
reasonable estimate of the amount or range of amounts of any monetary liability
that could result from this uncertainty.
9. RELATED PARTY TRANSACTIONS
On June 28, 1996, the stockholder loaned Harvey $595 in the form of a
subordinated note payable. An additional loan of $452 was made by the
stockholder to Harvey on June 30, 1997. Both loans are unsecured, allow for
prepayment of principal and bear interest at a rate of 8% per annum, payable
semiannually. After reductions for principal repayments made at various times
during the year and reclassification of certain personal expenditures at year
end in connection with the annual financial audit, the remaining outstanding
balance was $400 at June 30, 1997. Interest paid to the stockholder during the
year amounted to $25.
Prior to December 1, 1996, Harvey leased its old office and warehouse
facilities from its sole stockholder under a total of two leases. In connection
with the lease of the current office/warehouse facility, the old leases were
terminated in November, 1996.
10. SUBSEQUENT EVENTS -- (UNAUDITED)
On September 26, 1997, Harvey and its sole stockholder entered into a
definitive agreement with a wholly-owned subsidiary of Metals USA, which among
other things, calls for the merger of Harvey with the Metals USA subsidiary.
Subsequent to the merger, (i) Harvey repaid the estimated remaining balance
on the stockholder note and, (ii) the outstanding balances on the revolving line
of credit facility and the long term debt owed to Bank of California totaling
$10,789 were paid by Metals USA.
F-117
INDEPENDENT AUDITORS' REPORT
Board of Directors
Wayne Steel, Inc.
Wooster, Ohio
We have audited the accompanying balance sheet of Wayne Steel, Inc. as of
December 31, 1996, and the related statements of income, 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 as a result of 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 statement. 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 financial position of Wayne Steel, Inc. as of
December 31, 1996 and the results of its operations and cash flows for the year
then ended in conformity with generally accepted accounting principles.
MEADEN & MOORE, LTD.
February 28, 1997 except as to Notes 10 and 12
for which the date is October 29, 1997
Wooster, Ohio
F-118
<PAGE>
WAYNE STEEL, INC.
BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents....... $ 451 $ 2,224
Accounts receivable, less
allowance of $30 and $75....... 7,859 11,009
Inventories..................... 19,680 22,718
Current portion of note
receivable from shareholder.... 17 17
Prepaid expenses and other
current assets................. 305 278
------------ -------------
Total current assets....... 28,312 36,246
Property and equipment, net.......... 11,397 18,810
Note receivable from shareholder, net
of current portion................. 17 --
Other assets......................... 187 299
------------ -------------
Total assets............... $ 39,913 $55,355
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................ $ 8,119 $ 9,924
Accrued liabilities............. 1,123 1,617
Line of credit.................. 293 2,157
Current portion of long-term
debt............................ 486 1,057
Income taxes payable............ 21 15
------------ -------------
Total current
liabilities.................. 10,042 14,770
Long-term debt, net of current
portion............................ 7,537 15,513
Deferred compensation................ 512 512
------------ -------------
Total liabilities.......... 18,091 30,795
Commitments and contingencies........ -- --
Stockholders' equity:
Common stock, no par value, $.33
stated value:
Class A, voting; authorized
20,000 shares, issued
and outstanding 18,075
shares at December 31,
1996 and September 30,
1997.................... 6 6
Class B, nonvoting;
authorized 180,000
shares, issued and
outstanding 90,975
shares at December 31,
1996 and 91,475 shares
at September 30, 1997... 30 30
Additional paid-in capital...... 1,008 1,124
Retained earnings............... 20,778 23,400
------------ -------------
Total stockholders' equity...... 21,822 24,560
------------ -------------
Total liabilities and
stockholders' equity......... $ 39,913 $55,355
============ =============
The accompanying notes are an integral part of these financial statements.
F-119
<PAGE>
WAYNE STEEL, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK
---------------------------------------
CLASS A CLASS B ADDITIONAL TOTAL
------------------ ------------------ PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS EQUITY
--------- ------ --------- ------ ---------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995.............. 18,075 $ 6 90,375 $ 30 $ 873 $18,809 $19,718
Sale of 600 shares of
Class B common stock............. -- -- 600 -- 135 -- 135
Distributions to stockholders...... -- -- -- -- -- (3,875) (3,875)
Net Income......................... -- -- -- -- -- 5,844 5,844
--------- ------ --------- ------ ---------- --------- -------------
Balance, December 31, 1996.............. 18,075 6 90,975 30 1,008 20,778 21,822
Sale of 500 shares of
Class B common stock
(unaudited)...................... -- -- 500 -- 116 -- 116
Distributions to stockholders
(unaudited)...................... -- -- -- -- -- (3,300) (3,300)
Net income (unaudited)............. -- -- -- -- -- 5,922 5,922
--------- ------ --------- ------ ---------- --------- -------------
Balance, September 30, 1997
(unaudited)........................... 18,075 $ 6 91,475 $ 30 $1,124 $23,400 $24,560
========= ====== ========= ====== ========== ========= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-120
<PAGE>
WAYNE STEEL, INC.
STATEMENTS OF INCOME
(IN THOUSANDS OF DOLLARS)
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30
DECEMBER 31, --------------------
1996 1996 1997
------------ --------- ---------
(UNAUDITED)
Net sales............................... $105,754 $ 78,337 $ 99,977
Operating costs and expenses:
Cost of sales...................... 82,770 60,814 79,811
Operating and delivery............. 9,915 7,227 8,912
Selling, general and
administrative................... 5,701 4,586 3,720
Depreciation and amortization...... 1,141 843 877
------------ --------- ---------
Operating income........................ 6,227 4,867 6,657
Other (income) expense:
Interest expense................... 459 386 571
Other, net......................... (339) (385) (61)
------------ --------- ---------
120 1 510
------------ --------- ---------
Income before income taxes.............. 6,107 4,866 6,147
Provision for income taxes.............. 263 225 225
------------ --------- ---------
Net income.............................. $ 5,844 $ 4,641 $ 5,922
============ ========= =========
The accompanying notes are an integral part of these financial statements.
F-121
<PAGE>
WAYNE STEEL, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, --------------------
1996 1996 1997
------------- --------- ---------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................... $ 5,844 $ 4,641 $ 5,922
Adjustments to reconcile net
income to net cash provided by
(used in) operating
activities:
Depreciation and
amortization............... 1,162 858 897
Deferred compensation...... 512 512 --
Gain on sale of assets..... (220) (222) (7)
Changes in operating assets
and liabilities:
Accounts receivable,
net................... (474) (2,216) (3,150)
Inventories........... (4,937) (3,127) (3,038)
Prepaid expenses and
other assets....... 46 44 27
Accounts payable and
accrued
liabilities........ 3,663 2,099 2,299
Income tax payable.... 21 13 (6)
------------- --------- ---------
Net cash
provided by
operating
activities.... 5,617 2,602 2,944
------------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and
equipment....................... (2,811) (2,146) (8,320)
Principal collected on
shareholder note................ 17 17 17
Proceeds from sale of assets.... 259 257 37
------------- --------- ---------
Net cash used in
investing
activities.... (2,535) (1,872) (8,266)
------------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in revolving
line-of-credit.................. 293 2,049 1,864
Principal payments on
shareholder debt.............. (230) (230) --
Principal payments on long-term
obligations................... (1,413) (1,390) (453)
Principal borrowings on
long-term obligations......... -- -- 9,000
Financing costs................. -- -- (132)
Sale of common stock............ 135 135 116
Distributions to shareholders... (3,875) (2,950) (3,300)
------------- --------- ---------
Net cash
provided by
(used in)
financing
activities.... (5,090) (2,386) 7,095
------------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................... (2,008) (1,656) 1,773
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD.......................... 2,459 2,459 451
------------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF
PERIOD............................. $ 451 $ 803 $ 2,224
============= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest.......... $ 456 $ 401 $ 358
Cash paid for income taxes...... 229 212 231
The accompanying notes are an integral part of these financial statements.
F-122
<PAGE>
WAYNE STEEL, INC.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION:
Wayne Steel, Inc. operates in one business segment and is a wholesaler and
processor of steel and aluminum flat-rolled products. The Company sells to
customers generally located in the Eastern United States. The Company operates
from facilities located in Wooster, Ohio and Randleman, North Carolina; however,
as of December 31, 1996, management was negotiating the plausibility of
constructing and operating a new facility in Jeffersonville, Indiana. (See Note
12).
Wayne Steel and its stockholders expect to enter into a definitive merger
agreement with Metals USA, Inc. pursuant to which all of Wayne Steel's
outstanding shares of capital stock will be exchanged for shares of Metals USA
common stock. The agreement contemplates that the transaction will be accounted
for using the pooling of interests method. (See Note 12).
USE OF ESTIMATES AND ASSUMPTIONS:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
INTERIM FINANCIAL INFORMATION:
The interim financial statements included herein are unaudited; however,
they include all adjustments of a normal and recurring nature, which, in the
opinion of management, are necessary to present fairly the financial position of
Wayne Steel at September 30, 1997, and the results of its operations and cash
flows for the nine months ended September 30, 1996 and 1997. Accounting
measurements at interim dates inherently involve greater reliance on estimates
than at year end. The results of operations for the interim periods presented
are not necessarily indicative of the results to be expected for the entire
year.
SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES:
CASH EQUIVALENTS
The company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
REVENUE RECOGNITION
Revenue is recognized as goods are shipped to customers.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is primarily
determined upon a specific identification method.
PROPERTY AND EQUIPMENT
Property and equipment, including any capitalized interest is stated at
cost, net of accumulated depreciation. Assets purchased with the proceeds of
Industrial Revenue Bonds are depreciated using the straight-line method. Other
assets are generally depreciated using the declining balance method.
Depreciation is computed at rates based upon the estimated useful lives of the
various classes of assets. Expenditures for maintenance and repairs are charged
to income as incurred. Additions and betterments are capitalized. The cost and
related accumulated depreciation of properties sold or otherwise disposed of are
removed from the accounts and any gain or loss is reflected in the current
year's earnings.
F-123
<PAGE>
WAYNE STEEL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amounts of cash equivalents approximate their fair value. The
carrying amounts of cash surrender value of life insurance policies approximate
their fair value. The carrying amount of the note receivable approximates fair
value at the applicable balance sheet dates. The fair value of the note was
based on expected cash flows discounted using current rates at which similar
loans would be made to borrowers with similar credit ratings. The fair value of
the line-of-credit facility and long-term debt are estimated based on interest
rates for the same or similar debt offered to Wayne Steel having the same or
similar remaining maturities and collateral requirements. The carrying amounts
of the line-of-credit facility and long-term debt approximates fair value at the
applicable balance sheet dates.
CONCENTRATION OF CREDIT RISK:
The Company's financial instruments that are exposed to concentrations of
credit risk consist primarily of cash, cash equivalents and trade accounts
receivable. The Company places its cash and temporary cash investments with high
quality institutions. At times such investments may be in excess of the FDIC
insurance limit. The company routinely assesses the financial strength of its
customers and, as a consequence, believes that its trade accounts receivable
credit risk exposure is limited. Adjustments to the allowance for doubtful
accounts are made periodically (as circumstances warrant) based upon the
expected collectability of all such accounts.
INCOME TAXES:
The stockholders have elected to be taxed under sections of the Federal and
State of Ohio income tax laws which provide that, in lieu of corporate income
taxes, the stockholders separately account for Wayne Steel's items of income,
deductions, losses and credits on their individual income tax returns. State of
North Carolina and all city income taxes are paid by the corporation. As long as
the company's S Corporation election remains in effect, Wayne Steel may, from
time to time, pay dividends to its stockholders in amounts sufficient to enable
the stockholders to pay the Federal and Ohio taxes due on their allocated share
of the company's taxable income.
OTHER ASSETS:
Other assets consist primarily of financing costs associated with the
company's various industrial revenue bonds and are being amortized over the
lives of the related bonds using the straight line method. The company charged
1996 operations for $21 in amortization expense.
RECENT ACCOUNTING PRONOUNCEMENTS:
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF ("SFAS 121") in March 1995. SFAS
121 requires that long-lived assets and certain intangibles to be held and used
by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Wayne Steel adopted SFAS No. 121 on January 1, 1996. The impact of
adopting this standard did not have a material impact on the results of
operations.
2. INVENTORIES
At December 31, 1996 inventories consisted of the following:
Raw materials........................... $ 14,132
Work-in-process and finished goods...... 5,548
---------
$ 19,680
=========
F-124
<PAGE>
WAYNE STEEL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
ESTIMATED DECEMBER 31,
USEFUL LIVES 1996
------------ ------------
Land.................................... $ 211
Buildings and improvements.............. 12-40 years 6,709
Machinery and equipment................. 5-12 years 10,481
Trucks and automobiles.................. 5-7 years 428
Office equipment........................ 5-12 years 1,050
------------
18,879
Less: accumulated depreciation.......... 7,482
------------
$ 11,397
============
4. DETAIL OF ACCRUED LIABILITIES
At December 31, 1996 accrued liabilities consist of the following:
Accrued salaries and benefits........... $ 568
Accrued taxes other than income......... 405
Accrued profit sharing.................. 150
---------
$ 1,123
=========
5. LINE OF CREDIT
The Company has an unsecured line-of-credit with Bank One for $15,000
through May 31, 1997. Interest is paid monthly at 1% below the prime rate. Also,
the Company may borrow against this line for periods up to 180 days at a fixed
rate of 1% below the prime rate. The weighted average interest rate paid during
1996 was 7.26%.
F-125
<PAGE>
WAYNE STEEL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. LONG-TERM DEBT
Long-term debt consists of the following:
BALANCE AT
CURRENT DECEMBER 31,
PORTION 1996
-------- ------------
Industrial Revenue Bonds:
1987 State of Ohio Industrial
Development Revenue Bonds,
payable in monthly installments
with variable interest averaging
4.28% per annum, secured by real
estate and equipment acquired
with proceeds from these bonds
with a book value of $1,115 at
December 31, 1996................ $ 86 $1,023
1990 Randolph County, North
Carolina Industrial Revenue
Bonds, payable in monthly
installments with variable
interest averaging 4.41% per
annum, secured by real estate and
equipment acquired with proceeds
from these bonds with a book
value of $2,617 at December 31,
1996............................. 300 2,600
1995 Randolph County, North
Carolina Industrial Revenue
Bonds, payable in monthly
installments with variable
interest averaging 4.40% per
annum, secured by real estate and
equipment acquired with proceeds
from these bonds with a book
value of $4,371 at December 31,
1996............................. 100 4,400
-------- ------------
$ 486 $8,023
======== ============
Annual maturities on the above long-term debt are as follows:
1997................................. $ 486
1998................................. 797
1999................................. 893
2000................................. 897
2001................................. 893
Later years.......................... 4,057
---------
$ 8,023
=========
In addition, these credit facilities place various restrictions on the
Company, including but not limited to, maintenance of required insurance
coverage, maintenance of certain financial ratios, limits on capital
expenditures, maintenance of tangible net worth, etc.
7. EMPLOYEE BENEFIT PLANS
Employees of the Company participate in a 401(k) profit sharing plan
covering substantially all full-time employees. Participants are vested at a
varied rate commencing after three years of service and are fully vested after
seven years of service. The deferral portion of the plan allows employees to
elect to contribute a portion of their pay into the plan. The Company matches a
portion of the amount deferred by participating employees. Contributions for the
profit sharing portion of the plan are at the discretion of the Company's Board
of Directors. For the year ended December 31, 1996, the Company contributed $150
to the profit sharing portion and $98 in employer matching contributions to the
401(k) portion of the plan.
F-126
<PAGE>
WAYNE STEEL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. RELATED PARTY TRANSACTIONS
Wayne Steel sells scrap steel to a scrap processing company owned by one of
its minority stockholders. Sales to the related company during 1996 totaled $755
and accounts receivable at December 31, 1996 amounted to $35.
The Company loaned $70 to one of its minority stockholder/employees during
1994. The installment note provides for annual payments of $17 plus interest at
7.05% per annum through August 15, 1998.
9. MAJOR CUSTOMERS
The Company has one customer representing in excess of 10% of annual sales.
Sales to this customer during 1996 approximated $10,850.
10. COMMITMENTS AND CONTINGENCIES
STOCK PURCHASE AGREEMENTS:
The Company reserved 4,500 shares of unissued Class B non-voting common
stock for sale to employees under stock purchase agreements. Each affected
employee has an option to purchase up to 500 shares of stock. To exercise the
option, each employee must agree to become a party to the Company's buy/sell
agreement discussed below. The number of shares to be made available for sale at
any time occur at the following intervals:
DATE SHARES
- - ---------------------------------------- ------
July 1, 1996............................ 1,800
January 1, 1997......................... 900
January 1, 1998......................... 900
January 1, 1999......................... 900
------
4,500
======
The purchase price at any given date is the estimated fair market value as
established by a formula in the buy/sell agreement. Since the intent of all
parties is to establish the price as fair market value at the date of exercise,
no compensation element has been recorded or charged to operations as a result
of any sales.
At July 1, 1996 employees purchased 600 shares at $224.27 per share. On
January 1, 1997 an additional 500 shares were sold at $233.07 per share. Shares
available to any employee but not purchased at any given exercise date may be
purchased at the next exercise date at the then current fair market value per
share.
BUY/SELL AGREEMENT:
The Company has entered into an agreement with all of its shareholders
under which the Company is obligated to purchase the common stock of the
employee (and any family members) upon death, disability and termination of
employment, including retirement. The purchase price is the estimated fair
market value at the date of the terminating event, as established by a formula
in the agreement. Redemptions in excess of $750 allow for installment payments
of varying duration depending upon the total purchase price. Any installment
obligations created under the agreement will bear interest at the prime rate.
Under ASR 268, issued by the Securities and Exchange Commission, the normal
accounting treatment and presentation would be to record the potential mandatory
redemption liability in the basic financial statements at the current fair
market value, with a corresponding reduction in the permanent capital reported
as Stockholders' Equity. Since the formula price established in the agreement
always exceeds reported Stockholders' Equity, the result would be to permanently
report a deficit in Stockholders' Equity.
F-127
<PAGE>
WAYNE STEEL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
However, the definitive merger agreement with Metals USA, Inc. (See Note
12) specifically requires the cancellation of the employee stock purchase
agreements and the buy/sell agreements prior to the merger closing date. Since
the management and shareholders of Wayne Steel expect to consummate the merger,
the financial statements have been presented as though the agreements did not
exist.
11. DEFERRED COMPENSATION LIABILITY
In March 1996, the Company entered into a non-qualified retirement plan
with one of its minority stockholder/officers. The agreement provides for
monthly payments of $3 plus payment of continuing medical insurance and other
fringe benefits after early or normal retirement. Payments continue for the life
of the officer with a minimum payment of 10 years. The liability has been
recorded at the present value of anticipated future payments with interest
imputed at 7% per annum.
12. SUBSEQUENT EVENTS
On October 29, 1997 the Company and its shareholders entered into a
definitive agreement with a wholly-owned subsidiary of Metals USA, Inc., which
among other things calls for the merger of Wayne Steel with the Metals USA
subsidiary.
Subsequent to October 29, but prior to the closing date, the Company
intends to make a dividend distribution to its shareholders (of an as yet
undetermined amount) to cover the personal income tax liabilities created by the
Company's taxable income as an S Corporation through the closing date.
During 1997 Wayne Steel entered into various contracts for the construction
and equipment of a new manufacturing facility in Jeffersonville, Indiana. The
new facility is anticipated to cost $9,000 financed primarily through a new
Industrial Revenue Bond.
F-128
<PAGE>
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER
TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
PAGE
-----
Prospectus Summary............................. 3
The Company.................................... 9
Risk Factors................................... 12
Price Range of Common Stock.................... 16
Dividend Policy................................ 16
Capitalization................................. 17
Selected Financial Data........................ 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 20
Business....................................... 26
Management..................................... 35
Certain Transactions........................... 40
Principal Stockholders......................... 43
Description of Capital Stock................... 44
Shares Eligible for Future Sale................ 47
Legal Matters.................................. 48
Experts........................................ 48
Additional Information......................... 48
Index to Financial Statements.................. F-1
------------------
10,000,000 SHARES
[LOGO]
METALS USA, INC.
COMMON STOCK
-----------------
PROSPECTUS
-----------------
, 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of the securities being registered. All amounts are estimates
except for the fees payable to the SEC which have been paid.
AMOUNT TO BE
PAID
-------------
SEC registration fee................. $ 42,046
Printing expenses.................... $ 25,000
Legal fees and expenses.............. $ 20,000
Accounting fees and expenses......... $ 20,000
Transfer Agent's and Registrar's
fees................................. $ 1,000
Miscellaneous........................ $ 41,954
-------------
Total........................... $ 150,000
=============
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
The Company's Certificate of Incorporation, as amended, and Bylaws
incorporate substantially the provisions of the Delaware General Corporation Law
("DGCL") providing for indemnification of directors and officers of the
Company against expenses, judgments, fines, settlements and other amounts
actually and reasonably incurred in connection with any proceeding arising by
reason of the fact that such person is or was an officer or director of the
Company or is or was serving at the request of the Company as a director,
officer or employee of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise.
As permitted by Section 102 of the DGCL, the Company's Certificate of
Incorporation, as amended, contains provisions eliminating a director's personal
liability for monetary damages to the Company and its stockholders arising from
a breach of a director's fiduciary duty except for liability (a) for any breach
of the director's duty of loyalty to the Company or its stockholders, (b) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (c) under Section 174 of the DGCL, or (d) for any
transaction from which the director derived an improper personal benefit.
Section 145 of the DGCL provides generally that a person sued as a
director, officer, employee or agent of a corporation may be indemnified by the
corporation for reasonable expenses, including attorneys' fees, if in the case
of other than derivative suits such person has acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation (and, in the case of a criminal proceeding, had no
reasonable cause to believe that such person's conduct was unlawful). In the
case of a derivative suit, an officer, employee or agent of the corporation
which is not protected by the Certificate of Incorporation may be indemnified by
the corporation for reasonable expenses, including attorneys' fees, if such
person has acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the corporation, except that no
indemnification shall be made in the case of a derivative suit in respect of any
claim as to which an officer, employee or agent has been adjudged to be liable
to the corporation unless that person is fairly and reasonably entitled to
indemnity for proper expenses. Indemnification is mandatory in the case of a
director, officer, employee, or agent who is successful on the merits in defense
of a suit against such person.
The Company has entered into Indemnity Agreements with its directors and
certain key officers pursuant to which the Company generally is obligated to
indemnify its directors and such officers to the full extent permitted by the
DGCL as described above.
The Company has purchase liability insurance policies covering directors
and officers in certain circumstances.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On July 3, 1996, Metals USA issued and sold 1,000 shares of Common Stock to
Notre for a consideration of $1,000. This sale was exempt from registration
under Section 4(2) of the Securities Act, no public offering being involved.
On December 14, 1996, Metals USA issued and sold shares of Common Stock to
the following parties in the amounts and for the consideration indicated. These
sales were exempt from registration under Section 4(2) of the Securities Act:
Arthur L. French -- 1,472.645 shares for a consideration of $2,000; J. Michael
Kirksey -- 736.322 shares for a consideration of $1,000; Stephen R.
Baur -- 736.322 shares for a consideration of $1,000; and Notre -- 23,798.718
shares for a consideration of $34,375.
On January 31, 1997, Metals USA issued and sold shares of Common Stock to
the following parties in the amounts and for the consideration indicated. These
sales were exempt from registration under Section 4(2) of the Securities Act:
Terry Freeman -- 368.161 shares for a consideration of $500; Frank W.
Montfort -- 73.632 shares for a consideration of $100; Cary Vollintine -- 73.632
shares for a consideration of $100; Shellie Gray LePori -- 184.080 shares for a
consideration of $250; Fred Ferreira -- 73.632 shares for a consideration of
$100; Emmett E. Moore -- 368.161 shares for a consideration of $500; William J.
Lynch -- 36.816 shares for a consideration of $50; James George Lynch -- 36.816
shares for a consideration of $50; Leonard A. Potter -- 73.632 shares for a
consideration of $100; Dr. Bernard A. Millstein -- 36.816 shares for a
consideration of $50; Infoscope Partners, Inc. -- 7.363 shares for a
consideration of $10; Jennifer Summerford -- 73.632 shares for a consideration
of $100; Melinda Malek -- 7.363 shares for a consideration of $10; L. E.
Peterson -- 55.224 shares for a consideration of $75; and Don Shirtcliff --
73.632 shares for a consideration of $100.
On February 19, 1997, Metals USA issued and sold 368.161 shares of Common
Stock to Keith E. St. Clair for a consideration of $500. This sale was exempt
from registration under Section 4(2) of the Securities Act, no public offering
being involved.
On March 4, 1997, Metals USA issued and sold shares of Common Stock to the
following parties in the amounts and for the consideration indicated. These
sales were exempt from registration under Section 4(2) of the Securities Act: T.
William Porter -- 73.632 shares for a consideration of $100; Donald D.
Temperton -- 257.712 shares for a consideration of $350; and Kaye M.
Wiggins -- 36.816 shares for a consideration of $50.
On April 15, 1997, Metals USA issued and sold shares of Common Stock to the
following parties in the amounts and for the consideration indicated. These
sales were exempt from registration under Section 4(2) of the Securities Act:
John A. Hageman -- 552.242 shares for a consideration of $750; Robert
DuBose -- 18.408 shares for a consideration of $25; Cindy Barrientes -- 18.408
shares for a consideration of $25; Martha Spradley -- 18.408 shares for a
consideration of $25; Claudia Cedillo -- 18.408 shares for a consideration of
$25; Mark Alper -- 368.161 shares for a consideration of $500; Jonathan
Alper -- 184.080 shares for a consideration of $250; Lester Peterson -- 368.161
shares for a consideration of $500; Richard A. Singer -- 368.161 shares for a
consideration of $500; Arnold Bradburd -- 368.161 shares for a consideration of
$500; William B. Edge -- 368.161 shares for a consideration of $500; Patrick A.
Notestine -- 368.161 shares for a consideration of $500; Craig R.
Doveala -- 184.080 shares for a consideration of $250; Robert J.
McCluskey -- 184.080 shares for a consideration of $250; Michael E.
Christopher -- 368.161 shares for a consideration of $500; Arthur L.
French -- 441.793 shares for a consideration of $600; J. Michael
Kirksey -- 147.264 shares for a consideration of $200; Steven R. Baur -- 147.264
shares for a consideration of $200; Tommy E. Knight -- 73.632 shares for a
consideration of $100; Richard H. Kristinik -- 73.632 shares for a consideration
of $100; Keith E. St. Clair -- 73.632 shares for a consideration of $100; Terry
Freeman -- 73.632 shares for a consideration of $100; Cheryl Ketchie -- 110.448
shares for a consideration of $150; Kaye Wiggins -- 7.363 shares for a
consideration of $10; and Richard T. Howell -- 73.632 shares for a consideration
of $100.
Effective April 21, 1997, Metals USA effected a 135.81-to-1 stock split on
outstanding shares of Common Stock as of April 20, 1997.
II-2
<PAGE>
Effective April 21, 1997, Metals USA issued and sold 3,122,914 shares of
Restricted Common Stock to Notre in exchange for 3,122,914 shares of Common
Stock. This sale was exempt from registration under Section 4(2) of the
Securities Act, no public offering being involved.
On July 11, in connection with the IPO, the Company issued 10,128,609
shares of its Common Stock in connection with the Mergers of the Founding
Companies. Each of these transactions was completed without registration under
the Securities Act in reliance upon the exemption provided by Section 4(2) of
the Securities Act.
On September 26, 1997, the Company issued 4,023,583 shares of its Common
Stock in connection with certain of the Subsequent Acquisitions. This
transaction was completed without registration under the Securities Act in
reliance upon the exemption provided by Section 4(2) of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
The exhibits listed below are filed as exhibits to this Registration
Statement and are filed herewith or are incorporated by reference as
indicated below:
<TABLE>
<CAPTION>
INCORPORATED BY
REFERENCE TO THE
EXHIBIT AND THE
FILING WITH THE
COMMISSION INDICATED
BELOW.
--------------------
EXHIBIT EXHIBIT
NO. DESCRIPTION OF EXHIBIT NO. FILE NO.
- - ---------------------------------------------------------------- ------- ---------
<S> <C> <C> <C>
3.1 -- Amended and Restated Certificate of 3.1 333-26601
Incorporation of Metals USA, Inc., as
amended
3.2 -- Bylaws of Metals USA, Inc., as amended 3.2 333-26601
4.1 -- Form of certificate evidencing ownership 4.1 333-26601
of Common Stock of Metals USA, Inc.
5.1 -- Opinion of Bracewell & Patterson, L.L.P. 5.1 333-35575
10.1 -- Metals USA, Inc. 1997 Long-Term 10.1 333-26601
Incentive Plan
10.2 -- Metals USA, Inc. 1997 Non-Employee 10.2 333-26601
Directors' Stock Plan
10.3 -- Agreement and Plan of Organization dated 10.3 333-26601
as of April 30, 1997, by and among
Metals USA, Inc., Affiliated Metals
Acquisition Corp., Affiliated Metals
Company and the Stockholders named
therein
10.4 -- Agreement and Plan of Organization dated 10.4 333-26601
as of April 30, 1997 by and among Metals
USA, Inc., Interstate Steel I
Acquisition Corp., Interstate Steel II
Acquisition Corp., Interstate Steel III
Acquisition Corp., Interstate Steel IV
Acquisition Corp., Interstate Steel
Supply Company, Interstate Steel Supply
Company of Pittsburgh, Interstate Steel
Supply Company of Maryland, Interstate
Steel Processing Company and the
Stockholders named therein
10.5 -- Agreement and Plan of Organization dated 10.5 333-26601
as of April 30, 1997 by and among Metals
USA, Inc., Queensboro Steel I
Acquisition Corp., Queensboro Steel
Corporation and the Stockholders named
therein
10.6 -- Agreement and Plan of Organization dated 10.6 333-26601
as of April 30, 1997 by and among Metals
USA, Inc., Southern Alloy Acquisition
Corp., Southern Alloy of America, Inc.
and the Stockholders named therein
10.7 -- Agreement and Plan of Organization dated 10.7 333-26601
as of April 30, 1997 by and among Metals
USA, Inc., Steel Service Systems
Acquisition Corp., Steel Service
Systems, Inc. and the Stockholders named
therein
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
INCORPORATED BY
REFERENCE TO THE
EXHIBIT AND THE
FILING WITH THE
COMMISSION INDICATED
BELOW.
--------------------
EXHIBIT EXHIBIT
NO. DESCRIPTION OF EXHIBIT NO. FILE NO.
- - ---------------------------------------------------------------- ------- ---------
<S> <C> <C> <C>
10.8 -- Agreement and Plan of Organization dated 10.8 333-26601
as of April 30, 1997 by and among Metals
USA, Inc., Texas Aluminum I Acquisition
Corp., Texas Aluminum II Acquisition
Corp., Texas Aluminum III Acquisition
Corp., Texas Aluminum IV Acquisition
Corp., Texas Aluminum V Acquisition
Corp., Texas Aluminum Industries, Inc.,
Cornerstone Metals Corporation,
Cornerstone Building Products, Inc.,
Cornerstone Aluminum Company, Inc.,
Cornerstone Patio Concepts, L.L.C. and
the Stockholders named therein
10.9 -- Agreement and Plan of Organization dated 10.9 333-26601
as of April 30, 1997 by and among Metals
USA, Inc., Uni-Steel Acquisition Corp.,
Uni-Steel, Inc. and the Stockholders
named therein
10.10 -- Agreement and Plan of Organization dated 10.10 333-26601
as of April 30, 1997 by and among Metals
USA, Inc., Williams Steel Acquisition
Corp., Williams Steel & Supply Co.,
Inc., and the Stockholders named therein
10.11 -- Form of Employment Agreement between 10.11 333-26601
Metals USA, Inc. and Arthur L. French
10.12 -- Form of Employment Agreement between 10.12 333-26601
Metals USA, Inc. and J. Michael Kirksey
10.13 -- Form of Employment Agreement between 10.13 333-26601
Metals USA, Inc. and Stephen R. Baur
10.14 -- Form of Employment Agreement between 10.14 333-26601
Metals USA, Inc. and John A. Hageman
10.15 -- Form of Employment Agreement between 10.15 333-26601
Metals USA, Inc. and Terry L. Freeman
10.16 -- Form of Employment Agreement between 10.16 333-26601
Metals USA, Inc. and Keith E. St. Clair
10.17 -- Form of Founders' Employment Agreement 10.17 333-26601
between Williams Steel & Supply Co.,
Inc. and Joseph F. Petkewicz
10.18 -- Form of Founders' Employment Agreement 10.18 333-26601
between Interstate Steel Supply Company
of Maryland and Interstate Steel
Processing Company and Arnold W.
Bradburd
10.19 -- Form of Founders' Employment Agreement 10.19 333-26601
between Williams Steel & Supply Co.,
Inc. and David A. Weber
10.20 -- Form of Founders' Employment Agreement 10.20 333-26601
between Steel Service Systems, Inc. and
Craig R. Doveala
10.21 -- Form of Founders' Employment Agreement 10.21 333-26601
between Southern Alloy of America, Inc.
and William Bartley Edge
10.22 -- Form of Founders' Employment Agreement 10.22 333-26601
between Steel Service Systems, Inc. and
Robert J. McCluskey
10.23 -- Form of Founders' Employment Agreement 10.23 333-26601
between Queensboro Steel Corporation and
Mark Alper
10.24 -- Form of Founders' Employment Agreement 10.24 333-26601
between Queensboro Steel and Jonathan
Alper
10.25 -- Form of Founders' Employment Agreement 10.25 333-26601
between Uni-Steel, Inc. and Richard A.
Singer
10.26 -- Form of Founders' Employment Agreement 10.26 333-26601
between Williams Steel & Supply Co.,
Inc. and Lester G. Peterson
II-4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INCORPORATED BY
REFERENCE TO THE
EXHIBIT AND THE
FILING WITH THE
COMMISSION INDICATED
BELOW.
--------------------
EXHIBIT EXHIBIT
NO. DESCRIPTION OF EXHIBIT NO. FILE NO.
- - ---------------------------------------------------------------- ------- ---------
<S> <C> <C> <C>
10.27 -- Form of Founders' Employment Agreement 10.27 333-26601
between Texas Aluminum Industries, Inc.,
Cornerstone Metals Corporation,
Cornerstone Building Products, Inc.,
Cornerstone Aluminum Company, Inc.,
Cornerstone Patio Concepts, L.L.C. and
Michael E. Christopher
10.28 -- Form of Founders' Employment Agreement 10.28 333-26601
between Affiliated Metals Company and
Patrick A. Notestine
10.29 -- Form of Agreement among certain 10.29 333-26601
stockholders.
10.30 -- Indemnity Agreement with Notre Capital 10.30 333-35575
Ventures II, L.L.C.
10.31 -- Agreement dated September 26, 1997, by
and among Metals USA, Inc., Harvey
Titanium, Ltd. and the Stockholders
named therein.
10.32 -- Agreement dated September 26, 1997, by
and among Metals USA, Inc., Meier Metal
Servicecenters, Inc. and the
Stockholders named therein.
10.33 -- Agreement dated September 26, 1997, by
and among Metals USA, Inc. Jeffreys
Steel Company, Inc. and the Stockholders
named therein.
10.34 -- Agreement dated September 26, 1997, by
and among Metals USA, Inc. Federal
Bronze Products, Inc. and the
Stockholders named therein.
10.35 -- Form of Employment Agreement between
Harvey Titanium, Ltd. and Barry Harvey
10.36 -- Form of Employment Agreement between
Meier Metal Servicenters, Inc. and
William Targett
10.37 -- Form of Employment Agreement between
Jeffreys Steel Company, Inc. and Toby
Jeffreys
10.38 -- Form of Employment Agreement between
Federal Bronze Alloys Inc. and John
Stefiuk
10.39 -- Agreement dated July 15, 1997, by and
among Metals USA, Inc., and The First
National Bank of Chicago as agent for
the Company's $150 million Credit
Facility
21 -- List of subsidiaries of Metals USA, Inc.
23.1 -- Consent of Arthur Andersen LLP
23.2 -- Consent of Ernst & Young LLP
23.3 -- Consent of Deloitte & Touche LLP
23.4 -- Consent of McGladrey & Pullen, LLP
23.5 -- Consent of Rubin, Brown Gornstein & Co.
23.6 -- Consent of Arthur Andersen LLP
23.7 -- Consent of Bracewell & Patterson, L.L.P.
(contained in Exhibit 5.1)
23.8 -- Consent of Klein, Bogakos and Robertson,
CPA's Inc.
23.9 -- Consent of Meaden & Moore, Ltd.
23.10 -- Consent of A. Leon Jeffreys to be named
as a Director
27 -- Financial Data Schedule
</TABLE>
- - ------------
Filed herewith
II-5
<PAGE>
(b) Financial Statement Schedules
All other schedules for which provision is made in the applicable
accounting regulation of the SEC are not required under the related
instructions, are inapplicable, or the information is included in the
consolidated financial statements, and therefore have been omitted.
ITEM 17. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Company pursuant to the provisions described in Item 14, or otherwise,
the Company has been advised that in the opinion of the SEC such indemnification
is against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than payment by the Company of expenses incurred or paid by a
director, officer or controlling person of the Company in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
(b) The undersigned registrant hereby undertakes that: (i) for purposes of
determining any liability under the Securities Act of 1933, the information
omitted from the form of prospectus filed as part of this registration statement
in reliance upon Rule 430A and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this registration statement as of the time it was
declared effective; (ii) for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(c) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represents a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b), if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table
in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at the time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Metals USA,
Inc. has duly caused this Registration Statement or amendment thereto to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Houston, State of Texas, on November 14, 1997.
METALS USA, INC.
By: ____/s/__ARTHUR L. FRENCH_________
ARTHUR L. FRENCH
CHIEF EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT OR AMENDMENT THERETO HAS BEEN SIGNED BELOW BY THE
FOLLOWING PERSONS IN THE INDICATED CAPACITIES ON NOVEMBER 14, 1997.
SIGNATURE TITLE
<TABLE>
<CAPTION>
<S> <C>
/s/ARTHUR L. FRENCH Chairman of the Board; Chief
ARTHUR L. FRENCH Executive Officer and President
/s/J. MICHAEL KIRKSEY* Senior Vice President; Chief
J. MICHAEL KIRKSEY Financial Officer and Director
(Chief Accounting Officer)
/s/STEVEN S. HARTER* Director
STEVEN S. HARTER
/s/ARNOLD W. BRADBURD* Vice Chairman of the Board and
ARNOLD W. BRADBURD Director
/s/MICHAEL E. CHRISTOPHER* Senior Vice President and Director
MICHAEL E. CHRISTOPHER
/s/MARK ALPER* Director
MARK ALPER
/s/A. LEON JEFFREYS* Director
A. LEON JEFFREYS
/s/PATRICK S. NOTESTINE* Director
PATRICK A. NOTESTINE
/s/RICHARD A. SINGER* Director
RICHARD A. SINGER
/s/LESTER G. PETERSEN* Director
LESTER G. PETERSEN
/s/CRAIG R. DOVEALA* Director
CRAIG R. DOVEALA
/s/WILLIAM B. EDGE* Director
WILLIAM B. EDGE
/s/T. WILLIAM PORTER* Director
T. WILLIAM PORTER
/s/RICHARD H. KRISTINIK* Director
RICHARD H. KRISTINIK
/s/TOMMY E. KNIGHT* Director
TOMMY E. KNIGHT
*By:/s/ARTHUR L. FRENCH
ARTHUR L. FRENCH
ATTORNEY-IN-FACT
</TABLE>
II-7
EXHIBIT 10.31
AGREEMENT AND PLAN OF MERGER
dated as of September 26, 1997
by and among
METALS USA, INC.
HTL ACQUISITION CORP.
HARVEY TITANIUM, LTD.
and
the Seller named herein
<PAGE>
TABLE OF CONTENTS
Page
1 THE MERGER.............................................................1
1.1 The Merger.......................................................1
1.2 Effective Time...................................................1
1.3 Certificate of Incorporation, By-laws and Board of Directors
of Surviving Corporation.........................................2
1.4 Effect of Merger.................................................2
1.5 Manner of Conversion.............................................3
1.6 Delivery of Certificates.........................................4
1.7 Closing..........................................................4
1.8 Name Change......................................................4
2. REPRESENTATIONS AND WARRANTIES OF THE SELLER...........................4
2.1 Due Organization.................................................4
2.2 Authorization....................................................5
2.3 Capital Stock of the Company.....................................5
2.4 Subsidiaries.....................................................5
2.5 Financial Statements.............................................5
2.6 Liabilities and Obligations......................................6
2.7 Accounts and Notes Receivable....................................6
2.8 Permits and Intangibles..........................................6
2.9 Environmental Matters............................................7
2.10 Personal Property................................................8
2.11 Significant Customers; Material Contracts and Commitments........8
2.12 Real Property....................................................9
2.13 Insurance........................................................9
2.14 Compensation; Employment Agreements; Organized Labor Matters.....9
2.15 Employee Benefit Plans..........................................10
2.16 Conformity with Law; Litigation.................................11
2.17 Taxes...........................................................12
2.18 No Violations; All Required Consents Obtained...................12
2.19 Government Contracts............................................13
2.20 Absence of Changes..............................................13
-i-
<PAGE>
2.21 Powers of Attorney..............................................14
2.22 Competing Lines of Business; Related-party Transactions.........14
2.23 Disclosure......................................................14
2.24 Prohibited Activities...........................................15
2.25 Certain Business Practices......................................15
3. REPRESENTATIONS OF METALS.............................................15
3.1 Due Organization................................................15
3.2 Authorization...................................................15
3.3 No Violations...................................................15
3.4 Validity of Obligations.........................................16
3.5 Capital Stock...................................................16
3.6 Financial Statements............................................16
3.7 No Material Adverse Change......................................16
4. COVENANTS PRIOR TO CLOSING............................................16
4.1 Access and Cooperation; Due Diligence...........................16
4.2 Conduct of Business Pending Closing.............................17
4.3 Prohibited Activities...........................................17
4.4 No Shop.........................................................18
4.5 Notice to Bargaining Agents.....................................18
4.6 Agreements......................................................19
4.7 Notification of Certain Matters.................................19
4.8 Amendment of Schedules..........................................19
4.9 Further Assurances..............................................19
4.10 Compliance with the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the "HSR Act")........................19
4.11 Notices and Consents............................................20
4.12 Seller's Commitment.............................................20
5. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER
AND THE COMPANY.......................................................20
5.1 Representations and Warranties; Performance of Obligations......20
5.2 Satisfaction....................................................20
5.3 Consents and Approvals..........................................20
5.4 Employment and Consulting Agreements............................21
5.5 Opinion of Counsel..............................................21
5.6 Registration....................................................21
-ii-
<PAGE>
5.7 No Material Adverse Effect......................................21
5.8 Tax Matters.....................................................21
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF METALS AND NEWCO...............21
6.1 Representations and Warranties; Performance of Obligations......21
6.2 No Material Adverse Effect......................................22
6.3 Satisfaction....................................................22
6.4 Opinion of Counsel..............................................22
6.5 Consents and Approvals..........................................22
6.6 Good Standing Certificates......................................22
6.7 Employment Agreement............................................22
6.8 Escrow Agreement................................................22
7. POST-CLOSING COVENANTS................................................22
7.1 Future Cooperation..............................................23
7.2 Expenses........................................................23
7.3 Preservation of Tax and Accounting Treatment....................23
7.4 Preparation and Filing of Tax Returns...........................23
7.5 Preservation of Employee Benefit Plans..........................23
8. INDEMNIFICATION.......................................................24
8.1 Survival of Seller's Representations and Warranties. ..........24
8.2 General Indemnification by the Seller...........................24
8.3 Indemnification by Metals.......................................25
8.4 Specific Indemnification........................................25
8.5 Third Person Claims.............................................25
8.6 Method of Payment...............................................26
8.7 Limitations on Indemnification..................................26
9. TERMINATION OF AGREEMENT..............................................27
9.1 Termination.....................................................27
9.2 Liabilities in Event of Termination.............................27
10. NONCOMPETITION........................................................28
10.1 Prohibited Activities...........................................28
10.2 Equitable Relief................................................28
10.3 Reasonable Restraint............................................28
-iii-
<PAGE>
10.4 Severability; Reformation.......................................29
10.5 Independent Covenant............................................29
11. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.............................29
11.1 General.........................................................29
11.2 Equitable Relief................................................30
11.3 Survival........................................................30
12. SECURITIES LAW MATTERS................................................30
12.1 Contractual Restrictions........................................30
13. GENERAL...............................................................31
13.1 Successors and Assigns..........................................31
13.2 Entire Agreement................................................31
13.3 Counterparts....................................................31
13.4 Brokers and Agents..............................................31
13.5 Notices.........................................................31
13.6 Governing Law...................................................32
13.7 Survival of Representations and Warranties......................32
13.8 Effect of Investigation; Knowledge..............................32
13.9 Exercise of Rights and Remedies.................................33
13.10 Time............................................................33
13.11 Reformation and Severability....................................33
13.12 Remedies Cumulative.............................................33
13.13 Captions........................................................33
13.14 Press Releases and Public Announcements.........................33
13.15 No Third-Party Beneficiaries....................................33
-iv-
<PAGE>
ANNEXES
Annex I - Form of Employment Agreement
Annex II - Form of Opinion of Counsel to Company and
Seller
Annex III - Form of Opinion of Counsel to Metals
Annex IV - Form of Escrow Agreement
-v-
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and entered
into as of September 26, 1997 by and among Metals USA, Inc., a Delaware
corporation ("Metals"), HTL Acquisition Corp., a Delaware corporation wholly
owned by Metals ("Newco"), Harvey Titanium, Ltd., a California corporation (the
"Company"), and Barry Harvey, the sole stockholder of the Company (the
"Seller").
WHEREAS, the respective Boards of Directors of Newco and the Company
(collectively called the "Constituent Corporations") deem it advisable and in
the best interests of the Constituent Corporations and their respective
stockholders that the Company merge with and into Newco pursuant to this
Agreement and the applicable provisions of the laws of the State of California
(the "State of Incorporation") and of the State of Delaware; and
WHEREAS, the Boards of Directors of the Constituent Corporations have
approved and adopted this Agreement as a plan of reorganization under Section
368 of the Internal Revenue Code of 1986, as amended (the "Code");
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements contained herein, the parties hereto, intending to be legally bound,
agree as follows:
1 THE MERGER
1.1 THE MERGER. On the terms and subject to the conditions of this
Agreement, at the Effective Time (as defined below), the Company shall be merged
with and into Newco (the "Merger") and the separate existence of the Company
shall cease, all in accordance with the provisions hereof and of the law of the
State of Incorporation and Delaware. Newco shall be the surviving corporation in
the Merger and, after the Effective Time, is sometimes hereinafter called the
"Company" or the "Surviving Corporation".
1.2 EFFECTIVE TIME. The Merger shall become effective at such time (the
"Effective Time") as a certificate of merger, in form appropriate for filing, is
filed with the Secretary of State of the State of Delaware (the "Merger
Filing"). The Merger Filing shall be made simultaneously with or as soon as
practicable after the closing of the transactions contemplated by this
Agreement. A certificate of merger also shall be filed with the appropriate
authorities of the State of Incorporation prior to the date six months after the
date on which the Effective Time occurs.
-1-
<PAGE>
1.3 CERTIFICATE OF INCORPORATION, BY-LAWS AND BOARD OF DIRECTORS OF
SURVIVING CORPORATION. At the Effective Time:
(i) the Certificate of Incorporation of Newco then in effect shall
be the Certificate of Incorporation of the Surviving Corporation until they
shall thereafter be duly amended;
(ii) the By-laws of Newco then in effect shall be the By-laws of the
Surviving Corporation until they shall thereafter be duly amended;
(iii) the members of the Board of Directors of the Company
immediately prior to the Effective Time shall become the members of the Board of
Directors of the Surviving Corporation, and Michael J. Kirksey shall also become
a director of the Surviving Corporation (and the Surviving Corporation shall
take such action as may be necessary to effect the appointment of Mr. Kirksey to
the such Board of Directors), and such persons shall serve as such until their
resignation or replacement in accordance with the provisions applicable law and
of the Certificate of Incorporation and By-laws of the Surviving Corporation;
and
(iv) the officers of the Company immediately prior to the Effective
Time shall become officers of the Surviving Corporation holding the positions
and titles with the Surviving Corporation they held with the Company immediately
prior to the Effective Time, and Michael J. Kirksey shall be appointed as a Vice
President of the Surviving Corporation, Keith St. Clair shall be appointed as an
Assistant Treasurer of the Surviving Corporation and John A. Hageman shall be
appointed as an Assistant Secretary of the Surviving Corporation, each of such
officers to serve, subject to the provisions of the Certificate of Incorporation
and By-laws of the Surviving Corporation, until his or her successor is duly
elected and qualified.
1.4 EFFECT OF MERGER. At the Effective Time, the effect of the Merger
shall be as provided in the law of the State of Incorporation and Delaware.
Except as herein specifically set forth, the identity, existence, purposes,
powers, objects, franchises, privileges, rights and immunities of Newco shall
continue unaffected and unimpaired by the Merger and the corporate franchises,
existence and rights of the Company shall be merged with and into Newco, and
Newco, as the Surviving Corporation, shall be fully vested therewith. At the
Effective Time, the separate existence of the Company shall cease and, in
accordance with the terms of this Agreement, the Surviving Corporation shall
possess all the rights, privileges, immunities and franchises, of a public, as
well as of a private, nature, and all property, real, personal and mixed, and
all debts due on whatever account, including subscriptions to shares, and all
taxes, including those due and owing and those accrued, and all other choses in
action, and all and every other interest of or belonging to or due to the
Company and Newco shall be taken and deemed to be transferred to, and vested in,
the Surviving Corporation without further act or deed; and all property, rights
and privileges, powers and franchises and all and every other interest shall be
thereafter as effectually the property of the Surviving Corporation as they were
of the Company and Newco; and the title to any real estate, or
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interest therein, whether by deed or otherwise, under the laws of the state of
incorporation or Delaware vested in the Company and Newco, shall not revert or
be in any way impaired by reason of the Merger. Except as otherwise provided
herein, the Surviving Corporation shall thenceforth be responsible and liable
for all the liabilities and obligations of the Company and Newco and any claim
existing, or action or proceeding pending, by or against the Company or Newco
may be prosecuted as if the Merger had not taken place, or the Surviving
Corporation may be substituted in their place. Neither the rights of creditors
nor any liens upon the property of the Company or Newco shall be impaired by the
Merger, and all debts, liabilities and duties of the Company and Newco shall
attach to the Surviving Corporation, and may be enforced against such Surviving
Corporation to the same extent as if said debts, liabilities and duties had been
incurred or contracted by such Surviving Corporation.
1.5 MANNER OF CONVERSION. The manner of converting the shares of (i)
outstanding capital stock of the Company ("Company Stock") and (ii) the capital
stock of Newco ("Newco Stock") issued and outstanding immediately prior to the
Effective Time, respectively, into shares of (x) Metals Stock (as defined below)
and (y) common stock of the Surviving Corporation, respectively, shall be as
follows:
As of the Effective Time:
(i) each share of Company Stock issued and outstanding immediately
prior to the Effective Time, by virtue of the Merger and without any
action on the part of the holder thereof, automatically shall be converted
into the right to receive its pro rata interest in the aggregate
consideration payable to all holders of Company Stock, which consideration
shall be $XX,XXX,XXX, consisting of (a) $XX,XXX,XXX in cash (payable by
wire transfer of immediately available funds), (b) delivery of X,XXX,XXX
shares of Metals Stock, and (c) such additional amount, if any, as may be
distributed to Seller in accordance with the terms of the Escrow Agreement
being entered into in connection herewith; and
(ii) all shares of Company Stock, if any, that are held by the
Company as treasury stock shall be canceled and retired and no shares of
Metals Stock or other consideration shall be delivered or paid in exchange
therefor; and
(iii) each share of Newco Stock issued and outstanding immediately
prior to the Effective Time, shall continue and remain unaffected by the
Merger, and such shares shall constitute all of the issued and outstanding
shares of common stock of the Surviving Corporation immediately after the
Effective Time, and all of such shares shall be owned by Metals.
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Pursuant to the right described in Section 1.5(i) above, X,XXX,XXX shares
of Metals Stock were issued to Seller at the Effective Time.
1.6 DELIVERY OF CERTIFICATES. At the Closing, in addition to the other
instruments and agreements contemplated hereby, (i) the Seller shall deliver to
Metals the certificates representing the Company Stock, duly endorsed by the
Seller, or accompanied by duly executed stock powers, and (ii) Metals shall
deliver to the Seller certificates representing the Metals Stock described in
Section 1.5(i) above. The Seller agrees promptly to cure any deficiencies with
respect to the endorsement of the stock certificates or other documents of
conveyance with respect to such Company Stock or with respect to the stock
powers accompanying any Company Stock.
1.7 CLOSING. The closing of the transactions contemplated by this
Agreement shall take place on the date hereof (the "Closing Date") by the
exchange of faxed documents and signature pages, which shall be followed by the
exchange of manually signed originals of all documents contemplated hereby
promptly after the Closing Date.
1.8 NAME CHANGE. After the Effective Time, the Surviving Corporation shall
have the right to change its name to "Harvey Titanium, Ltd."
2. REPRESENTATIONS AND WARRANTIES OF THE SELLER
For purposes of this Section 2, except as otherwise indicated, the term
"Company" shall mean Harvey Titanium, Ltd. and all of its Subsidiaries, if any.
The Seller represents and warrants to Metals, except as set forth on Seller's
disclosure schedule attached hereto (the "Disclosure Schedule"; it being agreed
that each reference herein to any numbered Schedule shall mean the appropriate
portion of the Disclosure Schedule) as follows:
2.1 DUE ORGANIZATION. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Incorporation, and
has all requisite power and authority to carry on its business as it is now
being conducted. The Company is duly qualified to do business and is in good
standing in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification necessary,
except where the failure to be so authorized or qualified would not have a
material adverse effect on the business, assets, operations or condition
(financial or otherwise), of the Company taken as a whole (as used herein with
respect to the Company, or with respect to any other person, a "Material Adverse
Effect"). Schedule 2.1 sets forth a list of all jurisdictions in which the
Company is authorized or qualified to do business. True, complete and correct
copies of the Articles of Incorporation and By-laws, each as amended, of the
Company (the "Charter Documents") have been provided to Metals. The stock
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records of the Company made available to Metals are correct and complete in all
material respects. There are no minutes in the possession of the Company or the
Seller which have not been made available to Metals.
2.2 AUTHORIZATION. (i) The representatives of the Company executing this
Agreement have the authority to enter into and bind the Company to the terms of
this Agreement and (ii) the Company has the full legal right, power and
authority to enter into this Agreement and the transactions contemplated hereby,
all of which have been unanimously approved by all of the shareholders and the
Board of Directors of the Company. This Agreement has been validly executed and
delivered by the Company and the Seller and constitutes the legal, valid and
binding obligation of each of them enforceable in accordance with its terms.
2.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the
Company consists solely of (i) 7,500 shares of common stock, no par value, of
which 489 shares are issued and outstanding and constitute all of the Shares,
all of which are owned of record and beneficially by the Seller free and clear
of all liens, security interests, pledges, charges, voting trusts, restrictions
(other than restrictions on transfer resulting solely from applicable state or
federal securities laws), encumbrances and claims of every kind, except as set
forth on Schedule 2.3. All of the Shares have been duly authorized and validly
issued, are fully paid and nonassessable, and were offered, issued, sold and
delivered by the Company in compliance with all applicable state and federal
laws concerning the issuance of securities. None of the Shares were issued in
violation of any preemptive rights or similar rights of any person. No option,
warrant, call, conversion right or commitment of any kind exists which obligates
the Company to issue any additional shares of its capital stock or obligates the
Seller to transfer any of the Shares to any person.
2.4 SUBSIDIARIES. Except as set forth on Schedule 2.4, the Company has no
subsidiaries or d/b/a names and has not conducted business under any other name
except its legal name as set forth in its Charter Documents. Except as set forth
in Schedule 2.4, the Company does not own, of record or beneficially, or
control, directly or indirectly, any capital stock, securities convertible into
capital stock or any other equity interest in any corporation, association or
other business entity, and the Company is not, directly or indirectly, a
participant in any joint venture, partnership or other non-corporate entity.
2.5 FINANCIAL STATEMENTS. Schedule 2.5 hereto includes complete and
correct copies of the balance sheets of the Company as of June 30, 1997 (the
"Balance Sheet Date") and June 30, 1996 and 1995 and the related statements of
operations, stockholder's equity and cash flows for the three-year period ended
June 30, 1997, together with the related notes and schedules (such balance
sheets, the related statements of operations, stockholder's equity and cash
flows and the related notes
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and schedules are referred to herein as the "Year-end Financial Statements").
The Financial Statements have been prepared from the books and records of the
Company in conformity with generally accepted accounting principles applied on a
basis consistent with preceding years and throughout the periods involved
("GAAP") and present fairly the financial position and results of operations of
the Company as of the dates of such statements and for the periods covered
thereby. The books of account of the Company have been kept accurately in all
material respects in the ordinary course of business, the transactions entered
therein represent bona fide transactions, and the revenues, expenses, assets and
liabilities of the Company have been properly recorded therein in all material
respects.
2.6 LIABILITIES AND OBLIGATIONS. Except as and to the extent disclosed and
adequately provided for in the Financial Statements or on the Disclosure
Schedule, the Company has no liabilities or obligations of any kind, whether
accrued, absolute, secured or unsecured, contingent or otherwise. Except and to
the extent disclosed on the Disclosure Schedule, there are no claims,
liabilities or obligations, nor any reasonable basis for assertion against the
Company, of any claim, liability or obligation, of any nature whatsoever.
Schedule 2.6 contains a reasonable good faith estimate of the maximum amount
which may be payable with respect to liabilities which are not fixed. For each
such liability for which the amount is not fixed, Schedule 2.6 includes a
summary description of the liability. Copies of all relevant documentation
relating thereto have been furnished to Metals.
2.7 ACCOUNTS AND NOTES RECEIVABLE. Schedule 2.7 sets forth an accurate
list of the accounts and notes receivable of the Company, as of the Balance
Sheet Date and generated subsequent to the Balance Sheet Date, including any
such amounts which are not reflected in the balance sheet as of the Balance
Sheet Date. Receivables from and advances to employees and the Seller and any
entities or persons related to or affiliated with the Seller are separately
identified on Schedule 2.7. Schedule 2.7 also sets forth an accurate aging
analysis of all accounts, notes and other receivables as of the Balance Sheet
Date, showing amounts due in 30-day aging categories. Except to the extent
reflected on Schedule 2.7, all such accounts, notes and other receivables were
incurred in the ordinary course of business, are stated in accordance with GAAP
and, to the best of the Stockholder's knowledge, are collectible in the amounts
shown on Schedule 2.7, net of reserves reflected in the balance sheet as of the
Balance Sheet Date.
2.8 PERMITS AND INTANGIBLES. The Company holds all licenses, franchises,
permits and other governmental authorizations ("Authorizations") required in
connection with the conduct of the Company's business except where the failure
to hold any such Authorization would not have a Material Adverse Effect.
Schedule 2.8 sets forth an accurate list and summary description of all such
Authorizations, including permits, titles (including licenses, franchises,
certificates, trademarks, trade
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names, patents, patent applications and copyrights owned or held by the Company
or any of its employees (including interests in software or other technology
systems, programs and intellectual property) (collectively, the "Intangible
Assets") (it being understood and agreed that a list of all environmental
permits and other environmental approvals is set forth on Schedule 2.9). To the
best of the Company's knowledge, the Intangible Assets and other Authorizations
listed on Schedules 2.8 and 2.9 are valid, and the Company has not received any
notice that any person intends to cancel, terminate or not renew any such
Intangible Assets or other Authorization. The Company has conducted and is
conducting its business in compliance with the requirements, standards, criteria
and conditions set forth in the Intangible Assets and other Authorizations
listed on Schedules 2.8 and 2.9 and is not in violation of any of the foregoing
except where any such violation would not have a Material Adverse Effect. Except
as specifically set forth on Schedule 2.8 or 2.9, (a) the transactions
contemplated by this Agreement will not result in a default under or a breach or
violation of, or adversely affect the rights and benefits afforded to the
Company by, any such Intangible Assets or Authorizations, and (b) all of such
rights and benefits will be rights and benefits of the Surviving Corporation
upon consummation of the Merger.
2.9 ENVIRONMENTAL MATTERS. The Company has complied with and is in
compliance with all federal, state, local and foreign statutes (civil and
criminal), laws, ordinances, regulations, rules, notices, permits, judgments,
orders and decrees applicable to any of them or any of their respective
properties, assets, operations and businesses relating to environmental
protection (collectively "Environmental Laws") including, without limitation,
Environmental Laws relating to air, water, land and the generation, storage,
use, handling, transportation, treatment or disposal of Hazardous Wastes,
Hazardous Materials and Hazardous Substances including petroleum and petroleum
products (as such terms are defined in any applicable Environmental Law) except
to the extent that noncompliance with any Environmental Laws, either singly or
in the aggregate, (i) has not had and will not have a Material Adverse Effect on
the Company or any of its businesses, and (ii) will not necessitate any material
expenditure by or on behalf of the Company. The Company has obtained and adhered
to all necessary permits and other approvals necessary to treat, transport,
store, dispose of and otherwise handle Hazardous Wastes, Hazardous Materials and
Hazardous Substances, a list of all of which permits and approvals is set forth
on Schedule 2.9, and have reported to the appropriate authorities, to the extent
required by all Environmental Laws, all past and present sites owned and
operated by the Company where Hazardous Wastes, Hazardous Materials or Hazardous
Substances have been treated, stored, disposed of or otherwise handled. During
the time the Company has been in possession, there have been no releases or
threats of releases (as defined in Environmental Laws) at, from, in or on any
property owned or operated by the Company, and, to the knowledge of the Company,
there were no such releases prior to the time the Company took possession of
such properties, except as permitted by Environmental Laws. There is no on-site
or off-site location to which the Company has transported or disposed of
Hazardous Wastes, Hazardous
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Materials or Hazardous Substances or arranged for the transportation of
Hazardous Wastes, Hazardous Materials or Hazardous Substances which is the
subject of any federal, state, local or foreign enforcement action or any other
investigation which is reasonably likely to lead to any claim against the
Company or Metals for any clean-up cost, remedial work, damage to natural
resources, property damage or personal injury, including, but not limited to,
any claim under (i) the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, (ii) the Resource Conservation and Recovery
Act, (iii) the Hazardous Materials Transportation Act or (iv) comparable state
or local statutes and regulations. The Company has no contingent liability in
connection with any release of any Hazardous Waste, Hazardous Material or
Hazardous Substance into the environment.
2.10 PERSONAL PROPERTY. Schedule 2.10 sets forth an accurate list of (a)
all material personal property included in "plant, property and equipment" on
the balance sheet of the Company, (b) all other personal property material to
the operations of the Company owned by the Company with an individual value in
excess of $10,000 as of the Balance Sheet Date or acquired since the Balance
Sheet Date, (c) all material leases and agreements in respect of personal
property (true, complete and correct copies of which have been provided to
Metals) and (d) an indication as to which assets are currently owned, or were
formerly owned, by Seller, relatives of Seller, or Affiliates of the Company or
the Seller. Except as set forth on Schedule 2.10, (i) all material personal
property used by the Company in its business is either owned by the Company or
leased by the Company pursuant to a lease included on Schedule 2.10, (ii) all of
the personal property listed on Schedule 2.10 is in good working order and
condition, ordinary wear and tear excepted and (iii) all leases and agreements
included on Schedule 2.10 are in full force and effect and constitute valid and
binding agreements of the parties (and their successors) thereto in accordance
with their respective terms.
Except as set forth on Schedule 2.10, the Company has good and marketable title
to the tangible and intangible personal property it purports to own, subject to
no mortgage, lien, charge, encumbrance, easement, or security interests, except
(a) liens for current taxes not due and payable, (b) purchase money security
interests incurred in the ordinary course of business, (c) matters disclosed in
the Financial Statements, (d) any such matters that do not in the aggregate
materially detract from the value of the property or materially detract from or
interfere with the use of property in the ordinary conduct of business as
currently conducted, (e) the matter set forth on Schedule 2.10, or (f)
materialmens', mechanics', carriers', workmens', repairmens' or other like liens
arising in the ordinary course of business (collectively, "Encumbrances").
2.11 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. Schedule
2.11 sets forth a list of (i) all customers representing 2% or more of the
Company's revenues in either fiscal 1996 or fiscal 1997, and (ii) all material
contracts, commitments and similar agreements to which the Company is a party or
by which it or any of its properties are bound (including, but not
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limited to, contracts with significant customers, joint venture or partnership
agreements, contracts with any labor organizations, strategic alliances and
options to purchase land). True, complete and correct copies of such agreements
have been provided to Metals. None of the Company's significant customers
(including those identified on Schedule 2.11) have canceled or substantially
reduced or, to the knowledge of the Company, are currently attempting or
threatening to cancel a contract or substantially reduce utilization of the
services provided by the Company. The Company has complied with all material
commitments and obligations pertaining to it, and is not in default under any
contracts or agreements listed on Schedule 2.11 and no notice of default under
any such contract or agreement has been received. The transactions contemplated
by this Agreement will not result in a default under or a breach or violation
of, or adversely affect the rights and benefits afforded to the Company by, any
such contracts or agreements, and all of the rights and benefits under all such
contracts and agreements will be rights and benefits of the Surviving
Corporation upon consummation of the Merger. The Company has no plans or
projects involving the opening of new operations, expansion of existing
operations, the acquisition of any property, business or assets requiring, in
any event, the payment of more than $50,000.
2.12 REAL PROPERTY. Schedule 2.12 includes a list of all real property
owned or leased by the Company at the date hereof, and all other real property,
if any, used by the Company in the conduct of its business. True, complete and
correct copies of all leases and agreements in respect of real property leased
by the Company have been provided to Metals, and an indication as to which such
properties, if any, are currently owned, or were formerly owned, by Seller or
affiliates of the Company or Seller is included in Schedule 2.12. Except as set
forth on Schedule 2.12, (a) all of such leases included on Schedule 2.12 are in
full force and effect and, to the best knowledge of the Company, constitute
valid and binding agreements of the parties (and their successors) thereto in
accordance with their respective terms, (b) the transactions contemplated by
this Agreement will not result in a default under or a breach or violation of,
or adversely affect the rights and benefits afforded to the Company by, any such
leases, and (c) all of the rights and benefits under all such leases will be
rights and benefits of the Surviving Corporation upon consummation of the
Merger.
2.13 INSURANCE. Schedule 2.13 sets forth an accurate list as of the
Balance Sheet Date of all insurance policies now carried by the Company and an
accurate list of all insurance loss runs and workers compensation claims
received for the past five policy years. True, complete and correct copies of
all insurance policies currently in effect have been provided to Metals. Such
insurance policies evidence all of the insurance that the Company is required to
carry pursuant to all of its contracts and other agreements and pursuant to all
applicable laws. None of such policies is a "claims made" policy.
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2.14 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS.
Schedule 2.14 sets forth an accurate list showing all officers, directors and
key employees of the Company, listing all employment agreements with such
officers, directors and key employees and the rate of compensation (and the
portions thereof attributable to salary, bonus and other compensation,
respectively) of each of such persons as of (i) the Balance Sheet Date and (ii)
the date hereof. Since the Balance Sheet Date, there have been no increases in
the compensation payable or any special bonuses to any officer, director, key
employee or other employee, except ordinary salary increases implemented on a
basis consistent with past practices.
Except as set forth on Schedule 2.14, (i) the Company is not bound by or
subject to (and none of its respective assets or properties is bound by or
subject to) any arrangement with any labor union, (ii) no employees of the
Company are represented by any labor union or covered by any collective
bargaining agreement, (iii) to the knowledge of the Company, no campaign to
establish such representation is in progress and (iv) there is no pending or, to
the best of the Company's knowledge, threatened, labor dispute involving the
Company and any group of its employees. The Company has not experienced any
labor interruptions over the past three years. The Company considers its
relationship with its employees to be good.
2.15 EMPLOYEE BENEFIT PLANS. Schedule 2.15 sets forth an accurate schedule
showing all employee benefit plans of Company, including all agreements or
arrangements (other than agreements or arrangements set forth on Schedule 2.14)
containing "golden parachute" or other similar provisions, and deferred
compensation agreements, together with true, complete and correct copies of such
plans, agreements and any trusts related thereto, and classifications of
employees covered thereby as of the Balance Sheet Date. Except for the employee
benefit plans, if any, described on Schedule 2.15, the Company does not sponsor,
maintain or contribute to any plan program, fund or arrangement that constitutes
an "employee pension benefit plan," nor does the Company have any obligation to
contribute to or accrue or pay any benefits under any deferred compensation or
retirement funding arrangement on behalf of any employee or employees (such as,
for example, and without limitation, any individual retirement account or
annuity, any "excess benefit plan" (within the meaning of Section 3(36) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")) or any
non-qualified deferred compensation arrangement). For the purposes of this
Agreement, the term "employee pension benefit plan" shall have the same meaning
as is given that term in Section 3(2) of ERISA. The Company has not sponsored,
maintained or contributed to any employee pension benefit plan other than the
plans set forth on Schedule 2.15, and is not required to contribute to any
retirement plan pursuant to the provisions of any collective bargaining
agreement establishing the terms and conditions or employment of any of the
Company's employees.
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Except as set forth on Schedule 2.15, the Company is not now, and will not
as a result of its past activities become, liable to the Pension Benefit
Guaranty Corporation or to any multi employer employee pension benefit plan
under the provisions of Title IV of ERISA. All employee benefit plans listed on
Schedule 2.15 and the administration thereof are in compliance in all material
respects with their terms and all applicable provisions of ERISA and the
regulations issued thereunder, as well as with all other applicable federal,
state and local statutes, ordinances and regulations. All accrued contribution
obligations of Company with respect to any plan listed on Schedule 2.15 have
either been fulfilled in their entirety or are fully reflected on the balance
sheet of the Company as of the Balance Sheet Date. All plans listed on Schedule
2.15 that are intended to qualify (the "Qualified Plans") under Section 401(a)
of the Internal Revenue Code of 1986, as amended (the "Code") are, and have
been, so qualified and have been determined by the Internal Revenue Service to
be so qualified. All reports and other documents required to be filed with any
governmental agency or distributed to plan participants or beneficiaries have
been timely filed or distributed, and copies thereof are included as part of
Schedule 2.15. Neither the Seller, any plan listed in Schedule 2.15 nor the
Company has engaged in any transaction prohibited under the provisions of
Section 4975 of the Code or Section 406 of ERISA. No plan listed in Schedule
2.15 has incurred an accumulated funding deficiency, as defined in Section
412(a) of the Code and Section 302(1) of ERISA; and the Company has not incurred
any liability for excise tax or penalty due to the Internal Revenue Service or
any liability to the Pension Benefit Guaranty Corporation. There have been no
terminations, partial terminations or discontinuance of contributions to any
such Qualified Plan intended to qualify under Section 401(a) of the Code without
notice to and approval by the Internal Revenue Service; no plan listed in
Schedule 2.15 subject to the provisions of Title IV of ERISA has been
terminated; there have been no "reportable events" (as that phrase is defined in
Section 4043 of ERISA) with respect to any such plan listed in Schedule 2.15;
the Company has not incurred liability under Section 4062 of ERISA; and no
circumstances exist pursuant to which the Company could have any direct or
indirect liability whatsoever (including, but not limited to, any liability to
any multi employer plan or the PBGC under Title IV of ERISA or to the Internal
Revenue Service for any excise tax or penalty, or being subject to any statutory
lien to secure payment of any such liability) with respect to any plan now or
heretofore maintained or contributed to by any entity other than the Company
that is, or at any time was, a member of a "controlled group" (as defined in
Section 412(n)(6)(B) of the Code) that includes the Company.
2.16 CONFORMITY WITH LAW; LITIGATION. Except as set forth on Schedule
2.16, there are no claims, actions, suits or proceedings, pending or threatened
against or affecting the Company, at law or in equity, or before or by any
federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality having jurisdiction over the Company that, if
adversely determined, would have a Material Adverse Effect. Except as set forth
on Schedule 2.16, no notice of any claim, action, suit or proceeding, whether
pending or threatened, has been
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received by the Company during the last five years and there is no basis
therefor. Except as set forth on Schedule 2.16, the Company has conducted for
the past five years and now conducts its business in substantial compliance with
the requirements, standards, criteria and conditions set forth in applicable
laws, regulations, writs, injunctions, decrees and orders applicable to the
Company or its assets, except where any failure to comply would not have a
Material Adverse Effect. The Company is not in violation of any law or
regulation or any order of any court or federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over any of them that could have a Material Adverse Effect.
2.17 TAXES. For purposes of this Agreement, the term "Taxes" shall mean
all taxes, charges, fees, levies or other assessments including, without
limitation, income, gross receipts, excise, property, sales, withholding, social
security, unemployment, occupation, use, service, license, payroll, franchise,
transfer and recording taxes, fees and charges, imposed by the United States or
any state, local or foreign government or subdivision or agency thereof, whether
computed on a separate, consolidated, unitary, combined or any other basis; and
such term shall include any interest, fines, penalties or additional amounts
attributable to or imposed with respect to any such taxes, charges, fees, levies
or other assessments. Notwithstanding anything else to the contrary in this
Agreement, including, but not limited to, any reference with respect to laws,
regulations, filings, GAAP, or other similar matters, all representations and
warranties in this Agreement with respect to Taxes are exclusively those set
forth under this Section 2.17, and no other representation or warranty shall be
deemed to be made with reference to Taxes.
The Company has timely filed all federal, state and other tax returns or
extension requests for all fiscal periods ended on or before the Balance Sheet
Date. There are no examinations in progress or claims pending against the
Company for federal, state or other taxes (including penalties and interest) for
any period or periods prior to or on the Balance Sheet Date and no notice of any
claim for taxes, whether pending or threatened, has been received. All Taxes,
including interest and penalties, shown on any tax return to be owed by the
Company or any member of an affiliated or consolidated group which includes or
included the Company, has been paid or an amount sufficient to make such payment
has been accrued in the Financial Statements. Copies of (i) any tax
examinations, (ii) extensions of time for filing and (iii) the federal and local
income tax returns and franchise tax returns of Company (including any
subsidiaries) for the last three fiscal years, or such shorter period of time as
any of them shall have existed have been delivered to Metals. The Company is not
an S corporation. The Company uses the accrual method of accounting for income
tax purposes, and the Company's methods of accounting have not changed in the
past five years. The Company is not an investment company as defined in Section
351(e)(1) of the Code.
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2.18 NO VIOLATIONS; ALL REQUIRED CONSENTS OBTAINED. The Company is not in
violation of any of its Charter Documents . Neither the Company nor, to the
knowledge of the Company, any other party thereto, is in default under any
lease, instrument, license, permit or material agreement to which the Company is
a party or by which its properties are bound (the "Material Documents") that
would have a Material Adverse Effect. The execution of this Agreement by the
Company and the performance by the Company of its obligations hereunder and the
consummation of the transactions contemplated hereby will not result in any
violation or breach or constitute a default under, any of the terms or
provisions of the Material Documents or the Charter Documents. At and after the
Closing and the Merger the Surviving Corporation will be entitled to the rights
and benefits the under the Material Documents to which the Company is entitled
immediately prior to the Merger. Except for consents already obtained, none of
the Material Documents requires notice to, or the consent or approval of, any
governmental agency or other third party with respect to any of the transactions
contemplated hereby in order to remain in full force and effect, and
consummation of the transactions contemplated hereby will not give rise to any
right to termination, cancellation or acceleration or loss of any material right
or benefit. None of the Material Documents prohibits the use or publication of
the name of any other party to such Material Document, and none of the Material
Documents prohibits or restricts the Company or will prevent or restrict the
Surviving Corporation or Metals from freely providing services to any person.
2.19 GOVERNMENT CONTRACTS. The Company is not a party to any governmental
contract subject to price redetermination or renegotiation.
2.20 ABSENCE OF CHANGES. Since the Balance Sheet Date, the Company has
conducted its operations in the ordinary course of business and, except as set
forth on Schedule 2.20, there has not been:
(i) any material adverse change in the business, assets, or
financial condition of the Company;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting any of the material assets or
the business of the Company;
(iii) any change in the authorized capital of the Company or its
outstanding securities or any change in its ownership interests or any
grant of any options, warrants, calls, conversion rights or commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption,
purchase or other acquisition of any of the capital stock of the Company;
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(v) any increase in the compensation, bonus, sales commissions or
fee arrangement payable or to become payable by the Company to any of its
officers, directors, stockholders, employees, consultants or agents;
(vi) any work interruptions, labor grievances or claims filed, or
any similar event or condition of any character, materially adversely
affecting the business of the Company;
(vii) any sale or transfer, or any agreement to sell or transfer,
any material assets, property or rights of Company to any person other
than in the ordinary course of business, including, without limitation,
the Seller or any of his affiliates;
(viii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the Company, other than in the ordinary course
of business, including without limitation any indebtedness or obligation
of any Seller or any affiliate thereof;
(ix) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property
or rights of the Company or requiring consent of any party to the transfer
and assignment of any such assets, property or rights;
(x) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets outside
of the ordinary course of the Company's business;
(xi) any waiver of any material rights or claims of the Company;
provided that this shall not be deemed to apply to ordinary adjustments of
bills with non-affiliated customers in a manner consistent with past
practice,
(xii) any amendment or termination of any material contract,
agreement, license, permit or other right to which the Company is a party;
(xiii) any transaction by the Company outside the ordinary course of
its business;
(xiv) any cancellation or termination of a material contract with a
customer or client prior to the scheduled termination date; or
(xv) any distribution of property or assets by the Company.
2.21 POWERS OF ATTORNEY. Schedule 2.21 sets forth a schedule as of the
date of this Agreement of the name of each person, corporation, firm or other
entity holding any general or special power of attorney from the Company and a
description of the terms of each such power.
2.22 COMPETING LINES OF BUSINESS; RELATED-PARTY TRANSACTIONS. Neither the
Seller nor any other affiliate of the Company owns, directly or indirectly, any
interest in, or is an officer, director, employee or consultant of or otherwise
receives remuneration from, any business which is a competitor, lessor, lessee,
customer or supplier of the Company, except for ownership of less than 1% of the
outstanding capital stock of any publicly traded company in which such person
has no management or other similar position. Neither the Stockholder nor any
officer or director of the
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Company has any interest in any property, real or personal, tangible or
intangible, used in or pertaining to the Company's business.
2.23 DISCLOSURE. The Seller has provided Metals with all the information
that Metals has requested in analyzing whether to consummate the transactions
contemplated hereby. There is no fact not disclosed on the Disclosure Schedule
that to Seller's actual knowledge has specific application to the Company or its
business or assets (other than general economic or industry conditions) which
materially adversely affects or, so far as the Seller can reasonably foresee,
materially threatens, the Company or its business or assets, or the condition
(financial or otherwise), results of operations or prospects of the Company.
2.24 PROHIBITED ACTIVITIES. Except as set forth on Schedule 2.24, the
Company has not, between the Balance Sheet Date and the date hereof, taken any
of the actions (Prohibited Activities) described in Section 4.3.
2.25 CERTAIN BUSINESS PRACTICES. Neither the Company nor, to the knowledge
of the Company or the Stockholder, any person acting on behalf of the Company
has given or offered anything of value to any governmental official, political
party or candidate for government office nor has it or any of them otherwise
taken any action which would cause the Company to be in violation of the Foreign
Corrupt Practices Act of 1977, as amended, or any law of similar effect.
3. REPRESENTATIONS OF METALS
Metals represents and warrants that all of the following representations
and warranties in this Section 3 are true at the date of this Agreement and
shall be true at the time of Closing.
3.1 DUE ORGANIZATION. Metals and Newco are each duly incorporated, validly
existing and in good standing under the laws of the state of their
incorporation, and each has the requisite power and authority to carry on its
business as it is now being conducted. Metals and Newco are each qualified to do
business and is in good standing in each jurisdiction in which the nature of
their business makes such qualification necessary, except where the failure to
be so authorized or qualified would not have a Material Adverse Effect.
3.2 AUTHORIZATION. (i) The representative of Metals and Newco executing
this Agreement have the authority to enter into and bind Metals and Newco to the
terms of this Agreement and (ii) Metals and Newco have the full legal right,
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby.
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3.3 NO VIOLATIONS. The execution of this Agreement and the performance of
the obligations hereunder and the consummation of the transactions contemplated
hereby will not result in any violation or breach or constitute a default under
any of the terms or provisions of the Certificate of Incorporation or Bylaws of
Metals and Newco.
3.4 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by Metals and Newco and the performance of the transactions contemplated hereby
have been duly and validly authorized by the Boards of Directors of Metals and
Newco and this Agreement has been duly and validly authorized by all necessary
corporate action and is a legal, valid and binding obligation of Metals and
Newco.
3.5 CAPITAL STOCK. The authorized capital stock of Metals is as described
in the Prospectus contained in Metals' Registration Statement on Form S-1 as
filed with the Securities and Exchange Commission on September 12, 1997 (the
"Prospectus"). At the date hereof, 18,544,109 shares of Metals Stock are issued
and outstanding, 3,122,914 shares of Metals Restricted Voting Common Stock are
issued and outstanding, and no shares of Metals Preferred Stock are issued or
outstanding. The shares of Metals Stock to be issued to Seller pursuant to this
Agreement will be validly issued, fully paid and nonassessable, and will be
freely tradeable, subject to applicable securities laws and the contractual
restrictions set forth herein.
3.6 FINANCIAL STATEMENTS. The financial statements of Metals contained in
the Prospectus have been prepared from the books and records of Metals in
conformity with GAAP and present fairly the financial position and results of
operations of Metals as of the dates of such statements and for the periods
covered thereby. The books of account of Metals have been kept accurately in all
material respects in the ordinary course of business, the transactions entered
therein represent bona fide transactions, and the revenues, expenses, assets and
liabilities of Metals have been properly recorded therein in all material
respects.
3.7 NO MATERIAL ADVERSE CHANGE. Since the date of the most recent
financial statements referred to in Section 3.6, there has not been any material
adverse change in the business, assets or financial condition of Metals.
4. COVENANTS PRIOR TO CLOSING
4.1 ACCESS AND COOPERATION; DUE DILIGENCE. Between the date of this
Agreement and the Closing Date, the Company will afford to the officers and
authorized representatives of Metals and Newco access (in a manner that will not
disrupt the Company's operations) to all of the Company's sites, properties,
books and records and will furnish Metals and Newco with such
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additional financial and operating data and other information as to the business
and properties of the Company as Metals and Newco may from time to time
reasonably request. The Company will cooperate with Metals and Newco, their
representatives, auditors and counsel in the preparation of any documents or
other material which may be required in connection with the transactions
contemplated by this Agreement. Metals, Newco, the Seller and the Company will
treat all information obtained in connection with the negotiation and
performance of this Agreement as confidential in accordance with the provisions
of Section 11 hereof.
4.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Closing Date, the Company will use commercially reasonable
efforts to:
(i) carry on its respective businesses in substantially the same
manner as it has heretofore and not introduce any material new method of
management, operation or accounting;
(ii) maintain its respective properties and facilities, including
those held under leases, in as good working order and condition as at
present, ordinary wear and tear excepted;
(iii) perform in all material respects all of its respective
obligations under agreements relating to or affecting its respective
assets, properties or rights;
(iv) use all reasonable efforts to keep in full force and effect
present insurance policies or other comparable insurance coverage;
(v) use its reasonable efforts to maintain and preserve its business
organization intact, retain its respective present key employees and
maintain its respective relationships with suppliers, customers and others
having business relations with the Company;
(vi) maintain compliance with all material permits, laws, rules and
regulations, consent orders, and all other orders of applicable courts,
regulatory agencies and similar governmental authorities; and
(vii) maintain present debt and lease instruments and not enter into
new or amended debt or lease instruments without the knowledge and consent
of Metals (which consent shall not be unreasonably withheld), provided
that debt and/or lease instruments may be replaced without the consent of
Metals if such replacement instruments are on terms at least as favorable
to the Company as the instruments being replaced.
4.3 PROHIBITED ACTIVITIES. Except as set forth on Schedule 4.3, between
the date hereof and the Closing Date, the Company will not, without prior
written consent of Metals (which will not be unreasonably withheld):
(i) make any change in its Articles of Incorporation or By-laws;
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(ii) issue any securities, options, warrants, calls, conversion
rights or commitments relating to its securities of any kind;
(iii) declare or pay any dividend, or make any distribution in
respect of its stock whether now or hereafter outstanding, or purchase,
redeem or otherwise acquire or retire for value any shares of its stock;
(iv) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditures, except in the normal
course of business consistent with past practice in an amount not in
excess of $10,000;
(v) create, assume or permit to exist any new Encumbrance upon any
assets or properties whether now owned or hereafter acquired;
(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business;
(vii) negotiate for the acquisition of any business or the start-up
of any new business;
(viii) merge or consolidate or agree to merge or consolidate with or
into any other corporation or other entity;
(ix) waive any material rights or claims of the Company, provided
that the Company may negotiate and adjust bills in the course of good
faith disputes with customers in a manner consistent with past practice;
(x) amend or terminate any material agreement, permit, license or
other right of the Company;
(xi) enter into any other transaction outside the ordinary course of
its business or prohibited hereunder; or
(xii) increase or commit to any increase in the salary, bonus,
commission or other compensation of any officer, director, employee or
agent of the Company.
4.4 NO SHOP. None of the Seller, the Company, nor any agent, officer,
director, trustee or any representative of any of the foregoing will, during the
period commencing on the date of this Agreement and ending with the earlier to
occur of the Closing Date or the termination of this Agreement in accordance
with its terms, directly or indirectly:
(i) solicit or initiate the submission of proposals or offers from
any person for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than Metals and
Newco or their authorized agents relating to, any acquisition or purchase
of all or a material amount of the assets (except for sales in the
ordinary course of business) of, or any equity interest in, the Company or
a merger, consolidation or business combination involving the Company.
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4.5 NOTICE TO BARGAINING AGENTS. Prior to the Closing Date, the Company
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under applicable collective bargaining agreements, and shall
provide Metals and Newco with proof that any required notice has been sent.
4.6 AGREEMENTS. Upon the request of Metals, at, or at any time after, the
Closing, the Seller and the Company shall terminate any existing agreements
between the Company and the Seller.
4.7 NOTIFICATION OF CERTAIN MATTERS. The Seller and the Company shall give
prompt notice to Metals of (i) the occurrence or non-occurrence of any event the
occurrence or non-occurrence of which would be likely to cause any
representation or warranty of the Company or the Seller contained herein to be
untrue or inaccurate in any material respect at or prior to the Closing and (ii)
any material failure of any Seller or the Company to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by such person
hereunder. Metals shall give prompt notice to the Company of (i) the occurrence
or non-occurrence of any event the occurrence or non-occurrence of which would
be likely to cause any representation or warranty of Metals contained herein to
be untrue or inaccurate in any material respect at or prior to the Closing and
(ii) any material failure of Metals to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder. The
delivery of any notice pursuant to this Section 4.7 shall not be deemed to (i)
modify the representations or warranties hereunder of the party delivering such
notice, (ii) modify the conditions to Closing set forth herein, or (iii) limit
or otherwise affect the remedies available hereunder to the party receiving such
notice.
4.8 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with respect to
the representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until the Closing occurs to
notify the other parties hereto with respect to any matter hereafter arising or
discovered which, if existing or known at the date of this Agreement, would have
been required to be set forth or described in the Schedules.
4.9 FURTHER ASSURANCES. The parties hereto agree to execute and deliver,
or cause to be executed and delivered, such further instruments or documents or
take such other action as may be reasonably necessary or convenient to carry out
the transactions contemplated hereby.
4.10 COMPLIANCE WITH THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF
1976 (THE "HSR ACT"). Each of the parties hereto agrees to cooperate and use its
best efforts to comply with the HSR Act. The expiration or termination of the
applicable waiting period under the HSR Act shall be deemed a condition
precedent in addition to the conditions precedent set forth elsewhere
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in this Agreement. The costs and expenses of HSR Act filings (including filing
fees) shall be borne by the parties required to make the filings.
4.11 NOTICES AND CONSENTS. The Company will give any notices to third
parties, and the Company will use commercially reasonable efforts to obtain any
third party consents, that may be necessary to consummate the transactions
contemplated hereby or that Metals may request.
4.12 SELLER'S COMMITMENT. The Seller hereby agrees to cause the Company to
comply with its obligations under this Agreement and to use its best efforts to
cause the conditions to the Closing to be satisfied.
5. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER AND THE COMPANY
The obligations of the Seller and the Company with respect to actions to
be taken on the Closing Date are subject to the satisfaction or waiver on or
prior to the Closing Date of all of the following conditions. If any such
conditions has not been satisfied, the Seller shall have the right to terminate
this Agreement, or in the alternative, waive any condition not so satisfied. Any
act or action of the Seller in consummating the Closing shall constitute a
waiver of any conditions not so satisfied. However, no such waiver shall be
deemed to affect the survival of the representations and warranties of Metals
contained in Section 3 or the indemnification obligations contained in Section
8.
5.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
representations and warranties of Metals contained in Section 3 shall be true
and correct in all material respects as of the Closing Date as though such
representations and warranties had been made as of that time; all of the terms,
covenants and conditions of this Agreement to be complied with and performed by
Metals on or before the Closing Date shall have been duly complied with and
performed in all material respects; and certificates to the foregoing effect
dated the Closing Date and signed by the President or any Vice President of
Metals shall have been delivered to the Seller.
5.2 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall be reasonably satisfactory to the Seller and his counsel.
5.3 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated hereby shall have been obtained and made, and no
governmental agency or body shall have taken
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any other action or made any requests of the Company or Seller as a result of
which the Seller reasonably deems it inadvisable to proceed with the
transactions hereunder.
5.4 EMPLOYMENT AND CONSULTING AGREEMENTS. Seller shall have been afforded
an opportunity to enter into an Employment Agreement with the Company in the
form of Annex I.
5.5 OPINION OF COUNSEL. Seller and the Company shall have received an
opinion from counsel for the Purchaser, date of the Closing Date, in
substantially the form annexed hereto as Annex III.
5.6 REGISTRATION. Any registration statement required on the part of
Metals to have been declared effective by the Securities and Exchange Commission
in order to register the shares of Metal that constitute a portion of the
Purchase Price shall have been declared effective.
5.7 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred with respect to Metals or the Purchaser that would constitute a
Material Adverse Effect.
5.8 TAX MATTERS. The Seller shall have received advice from his tax
advisers that the transaction contemplated hereby, to the extent of the receipt
of the Metals Stock, will not be taxable and that the Seller will not recognize
gain to the extent he exchanges stock of the Company for Metals Stock (but not
cash or other property) pursuant hereto.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF METALS AND NEWCO
The obligations of Metals and Newco with respect to actions to be taken on
the Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions. If any such conditions has not
been satisfied, Metals and Newco shall have the right to terminate this
Agreement, or in the alternative, waive any condition not so satisfied. Any act
or action of Metals and Newco in consummating the Closing shall constitute a
waiver of any conditions not so satisfied. However, no such waiver shall be
deemed to affect the survival of the representations and warranties of the
Seller contained in Section 2 or the indemnification obligations contained in
Section 8 as they relate to non-waived matters.
6.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All the
representations and warranties of the Seller contained in this Agreement shall
be true and correct in all material respects as of the Closing Date with the
same effect as though such representations and warranties had been made on and
as of such date; all of the terms, covenants and conditions of this Agreement to
be complied with or performed by the Seller and the Company on or before the
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Closing Date, as the case may be, shall have been duly performed or complied
with in all material respects; and the Seller shall have delivered to Metals and
Newco certificates dated the Closing Date and signed by Seller to such effect.
6.2 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred with respect to the Company which would constitute a Material Adverse
Effect, and the Company shall not have suffered any material loss or damages to
any of its material assets, whether or not covered by insurance, or any material
adverse change, loss or damage to the Company's business.
6.3 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out the transactions contemplated by this Agreement or
incidental hereto and all other related legal matters shall have been approved
by counsel to Metals and Newco.
6.4 OPINION OF COUNSEL. Metals shall have received an opinion, dated the
Closing Date, substantially in the form annexed hereto as Annex II.
6.5 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made; all consents
and approvals of third parties listed on Schedule 2.18 shall have been obtained;
and no action or proceeding shall have been instituted or threatened to restrain
or prohibit the transactions contemplated hereby and no governmental agency or
body shall have taken any other action or made any request of Metals or Newco as
a result of which Metals reasonably deems it inadvisable to proceed with the
transactions hereunder.
6.6 GOOD STANDING CERTIFICATES. The Seller shall have delivered to Metals
certificates, dated as of a date no later than the Closing Date, duly issued by
the appropriate governmental authority in the State of Incorporation and in each
state in which the Company is authorized to do business, showing the Company is
in good standing and authorized to do business.
6.7 EMPLOYMENT AGREEMENT. Seller shall have entered into the Employment
Agreement referred to therein.
6.8 ESCROW AGREEMENT. The parties identified in the form of Escrow
Agreement attached hereto as Annex IV shall have entered into an escrow
agreement in the form of Annex IV.
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7. POST-CLOSING COVENANTS
The parties to this Agreement further covenant and agree as follows:
7.1 FUTURE COOPERATION. The Seller, the Company, Metals and Newco shall
each deliver or cause to be delivered to the other following the date hereof
such additional instruments as the other may reasonably request for the purpose
of effecting the Merger and fully carrying out the intent of this Agreement.
7.2 EXPENSES. Metals will pay the fees, expenses and disbursements of
Metals and Newco and their agents, representatives, financial advisors,
accountants and counsel incurred in connection with the execution, delivery and
performance of this Agreement. The Seller will pay the fees, expenses and
disbursements of the Seller and Seller's agents, representatives, financial
advisors, accountants and counsel incurred in connection with the execution,
delivery and performance of this Agreement.
7.3 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. After the Closing Date,
Metals will not, and will not permit any of its subsidiaries to, undertake any
act that would jeopardize the tax-free status of the reorganization contemplated
hereby.
7.4 PREPARATION AND FILING OF TAX RETURNS. The Surviving Corporation,
under the direction of Barry Harvey, will prepare and file or cause to be filed
all federal and state income tax returns for all taxable periods that end on or
before the Closing Date; provided, however, that all such filings shall be
reviewed prior to filing by Metals' independent accountants (the "Independent
Accountants"), and such filings shall not take any positions the Independent
Accountants advise Metals are not supported by substantial authority. Except to
the extent of Taxes reserved or accrued on the Financial Statements, Seller will
pay or cause to be paid all Tax liabilities owing by the Company for periods
prior to the Closing Date, subject to the procedures set forth in Section 8.
Each party will provide the other party such cooperation and information as any
of them reasonably requests in filing any Tax return, amended return or claim
for refund, determining a liability for Taxes or a right to refund of Taxes or
in conducting any audit or other proceeding in respect of Taxes. Neither Metals
nor the Surviving Corporation will amend any tax return of the Company (or the
Surviving Corporation) for any period ending on or prior to the Closing Date
without the consent of Seller, which consent shall not be unreasonably withheld.
7.5 PRESERVATION OF EMPLOYEE BENEFIT PLANS. On the Closing Date, the
employees of the Company will become the employees of the Purchaser with date of
employment and service for all employee benefit purposes dating to the date of
their original employment by the Company. The
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foregoing will not (except as set forth in any Employment Agreement), have any
effect on the employment status of any employee and the foregoing will not in
any way limit the management rights of the Surviving Corporation to assess work
force needs and make appropriate adjustments as necessary or desirable within
their discretion subject to applicable laws.
8. INDEMNIFICATION
The Seller and Metals each make the following covenants that are
applicable to them, respectively:
8.1 SURVIVAL OF SELLER'S REPRESENTATIONS AND WARRANTIES.
(a) The representations and warranties of the Seller made in this
Agreement and in the documents and certificates delivered in connection herewith
shall survive the Closing for a period of two years from the Closing Date,
except that:
(i) such representations and warranties that relate to Taxes shall
survive until the expiration of the applicable statutes of limitations for
such Taxes (including any extensions thereof granted with Seller's
consent, which shall not be unreasonably withheld); and
(ii) the representations and warranties in Sections 2.8, 2.9, 2.16
and 2.25 hereof shall survive for a period of ten years; provided,
however, that representations and warranties with respect to which a good
faith claim is made, together with related indemnification obligations,
within the applicable survival period, shall survive until such claim is
finally determined and paid (if applicable).
(b) The representations and warranties of Metals made in this
Agreement and in the certificates delivered in connection herewith shall survive
the Closing for a period of two years following the Closing Date, provided,
however, that representations and warranties (and related indemnification
obligations) with respect to which a good faith claim is made within such two
year period shall survive until such claim is finally determined and paid.
(c) The date on which a representation or warranty expires as
provided herein is herein called the "Expiration Date." No claim for
indemnification may be made with respect to a representation or warranty after
the Expiration Date, other than claims based on fraud.
8.2 GENERAL INDEMNIFICATION BY THE SELLER. The Seller covenants and agrees
that Seller will indemnify, defend, protect, and hold harmless Metals and the
Surviving Corporation at all times from and after the date of this Agreement
until the Expiration Date from and against all claims,
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damages actions, suits, proceedings, demands, assessments, adjustments, costs
and expenses (including specifically, but not limited to, reasonable attorneys'
fees and expenses of investigation) (collectively, "Damages") incurred as a
result of (i) any breach of any representation or warranty of the Seller set
forth herein or in the certificates or other documents delivered at the Closing,
and (ii) any breach or nonfulfillment of any covenant or agreement by the
Company or the Seller under this Agreement. Metals and the Purchaser acknowledge
and agree that other than the representations and warranties of the Seller and
the Company specifically contained in this Agreement, there are no
representations or warranties of the Seller or the Company, either express or
implied, with respect to the transactions contemplated by this Agreement, the
Company, its assets, or business.
8.3 INDEMNIFICATION BY METALS. Metals covenants and agrees that it will
indemnify, defend, protect and hold harmless the Seller at all times from and
after the date of this Agreement until the Expiration Date from and against all
Damages incurred by the Seller as a result of (i) any breach of any
representation or warranty of Metals set forth herein or in the certificates
delivered at the Closing; (ii) any breach or nonfulfillment of any covenant or
agreement by Metals under this Agreement; (iii) any liability, contingent or
otherwise, of the Company that was either set forth on the Balance Sheet,
disclosed to the Purchaser in the Disclosure Schedule, incurred in the ordinary
course of the business of the Company in a manner not requiring disclosure under
this Agreement (other than such matters as to which Seller has specifically
provided indemnification herein); and (iv) any liability of Seller under his
Guaranty of the Lease dated June 1, 1996 between Parr Investment Co. of Santa
Monica and the Company relating to the property at 1330 Colorado Avenue, Santa
Monica, California.
8.4 SPECIFIC INDEMNIFICATION.
(a) In addition to the indemnification provided for in Section 8.1,
Seller shall indemnify, defend, protect and hold harmless Metals and the
Surviving Corporation from all Damages resulting from any breach of the
representation and warranty set forth in Section 2.9.
(b) In addition to the indemnification provided for in Section 8.1,
Seller shall indemnify, defend, protect and hold harmless Metals and the
Surviving Corporation from and against all tax liabilities of any nature
whatsoever payable by the Company for any period ending on or prior to the
Closing Date, to the extent they are in excess of the amounts reserved therefor
on the Company's Financial Statements.
8.5 THIRD PERSON CLAIMS. Promptly after any party hereto (the "Indemnified
Party") has received notice of or has knowledge of any claim by a person not a
party to this Agreement ("Third Person") that could give rise to Damages or the
commencement of any action or proceeding by a
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Third Person that may give rise to a right of indemnification hereunder, such
Indemnified Party shall give to the party obligated to provide indemnification
hereunder (an "Indemnifying Party") written notice of such claim or the
commencement of such action or proceeding; provided, however, that the failure
to give such notice will not relieve such Indemnifying Party from liability
under this Section with respect to such claim, action or proceeding, except to
the extent that the Indemnifying Party has been actually prejudiced as a result
of such failure. The Indemnifying Party (at its own expense) shall have the
right and shall be given the opportunity to associate with the Indemnified Party
in the defense of such claim, suit or proceedings, and the Indemnified Party and
the Indemnifying Party shall make a good faith effort to cooperate in such
defense, provided that, unless the Indemnified Party otherwise agrees, counsel
for the Indemnified Party shall act as lead counsel in all matters pertaining to
the defense or settlement of such claims, suit or proceedings. In the event that
the Indemnified Party and the Indemnified Party are unable to agree on the
selection of lead counsel, each party shall be entitled, at its own expense, to
retain counsel and to participate in the defense of such suit, claim or
proceeding. The Indemnified Party shall not, except at its own cost, make any
settlement with respect to any such claim, suit or proceeding without the prior
consent of the Indemnifying Party, which consent shall not be unreasonably
withheld or delayed. It is understood and agreed that in situations where
failure of the Indemnified Party to settle a claim expeditiously could have a
Material Adverse Effect on the Indemnified Party, the failure of the
Indemnifying Party to act upon the Indemnified Party's request for consent to
such settlement within ten business days of the Indemnifying Party's receipt of
notice thereof from the Indemnified Party shall be deemed to constitute consent
by the Indemnifying Party of such settlement for purposes of this Section.
8.6 METHOD OF PAYMENT. All claims for indemnification shall be paid in
cash. In no event will any Indemnified Party have the right, nor will it assert,
any right to withhold payments of amounts otherwise due from the Indemnifying
Party, including, but not limited to, any amounts owing at the time or in the
future under any Employment Agreement. Any indemnification payment under this
Section 8 will be treated as an adjustment to the exchange consideration for tax
purposes unless a final determination with respect to the Indemnified Party or
any of its affiliates causes such payment not to be treated as an adjustment to
the exchange consideration for United States federal income tax purposes.
8.7 LIMITATIONS ON INDEMNIFICATION. Metals and the Surviving Corporation
and the other persons or entities indemnified pursuant to this Section shall not
assert any claim for indemnification hereunder against the Seller until such
time as, and solely to the extent that, the aggregate of all claims which such
persons may have against such the Seller shall exceed $350,000 (the
"Indemnification Threshold"). The Seller shall not assert any claim for
indemnification hereunder against Metals until such time as, and solely to the
extent that the aggregate of all claims which
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Seller may have against Metals shall exceed the Indemnification Threshold. In no
event shall Seller or Metals be obligated to make indemnification payments
hereunder in excess of an aggregate of $8,000,000.
No person shall be entitled to indemnification under this Section 8 if and
to the extent that such person's claim for indemnification is directly or
indirectly caused by a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement.
The amount of any Damages payable hereunder shall be reduced by the amount
of any tax benefit actually realized and any insurance payment actually received
by the Indemnified Party as a result of the event giving rise to such Damages.
9. TERMINATION OF AGREEMENT
9.1 TERMINATION.This Agreement may be terminated at any time prior to the
Closing Date solely:
(i) by mutual consent of Metals and the Seller;
(ii) by the Metals or by the Seller, if the transactions
contemplated by this Agreement to take place at the Closing shall not have
occurred by October 31, 1997 (the "Termination Date"), unless the failure
of such transactions to be consummated is due to the willful failure of
the party seeking to terminate this Agreement to perform any of its
obligations under this Agreement to the extent required to be performed by
it prior to or on the Closing Date; or
(iii) by Metals or by the Seller if a material breach or default
shall be made by the other in the observance or in the due and timely
performance of any of the covenants or agreements contained herein, and
the curing of such default shall not have been made within ten business
days after written notice thereof is delivered to the breaching or
defaulting party by the other party.
9.2 LIABILITIES IN EVENT OF TERMINATION. The termination of this Agreement
will in no way limit any obligation or liability of any party based on or
arising from a breach or default by such party with respect to any of its
representations, warranties, covenants or agreements contained in this Agreement
including, but not limited to, legal and audit costs and out of pocket expenses.
In no event will any party be obligated to any other party for any Damage in the
nature of lost profits, consequential damages, or punitive damages. Any Damage
resulting from a breach of this Agreement will be limited to the direct
out-of-pocket expenses of the party and subject to the other limitations set
forth in this Agreement.
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10. NONCOMPETITION
10.1 PROHIBITED ACTIVITIES. The Seller will not, for a period of five (5)
years following the Closing Date, for any reason whatsoever, directly or
indirectly, for himself or on behalf of or in conjunction with any other person,
persons, company, partnership, corporation or business of whatever nature:
(i) engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant or advisor, or as a sales
representative, in any business offering services or products in direct
competition with the Company anywhere in the world or in competition with
Metals or any of its subsidiaries within 200 miles of where Metals or any
of its subsidiaries conducts business (the "Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of the Company, Metals or any of its other
subsidiaries for the purpose or with the intent of enticing such employee
away from or out of the employ of the Company, Metals or any of its other
subsidiaries;
(iii) call upon any person or entity which is, at that time, or
which has been, within one year prior to the Closing Date, a customer of
the Company, Metals or any of its other subsidiaries within the Territory
for the purpose of soliciting or selling products or services in direct
competition with the Company, Metals or any of its other subsidiaries
within the Territory.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit any Seller from acquiring as a passive investor with no involvement in
the operations or management of the business, not more than one percent (1%) of
the capital stock of a competing business whose stock is publicly traded on a
national securities exchange or over-the-counter market, unless otherwise
approved in writing by Metals, such approval not to be unreasonably withheld.
10.2 EQUITABLE RELIEF. Because of the difficulty of measuring economic
losses to the Company or Metals as a result of a breach of the foregoing
covenant, and because of the immediate and irreparable damage that could be
caused to the Company or Metals for which it would have no other adequate
remedy, each Seller agrees that the foregoing covenant may be enforced by the
Company or Metals in the event of breach by such Seller, by injunctions,
restraining orders and other equitable actions.
10.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this Section impose a reasonable restraint on the Seller
in light of the activities and business of
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the Company or Metals and its other subsidiaries on the date of the execution of
this Agreement and the current plans of the Company or Metals.
10.4 SEVERABILITY; REFORMATION. The covenants in this Section are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and the provisions of this Section 10 shall thereby be
reformed.
10.5 INDEPENDENT COVENANT. The Seller acknowledges that his covenants set
forth in this Section 10 are material conditions to Metals' willingness to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. All of the covenants in this Section 10 shall be construed
as an agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of any Seller against Metals or any
subsidiary thereof, whether predicated on this Agreement or otherwise, shall not
constitute a defense to the enforcement by the Company or Metals of such
covenants. It is specifically agreed that the period of five (5) years stated at
the beginning of this Section 10, during which the agreements and covenants of
each Seller made in this Section 10 shall be effective, shall be computed by
excluding from such computation any time during which such Seller shall have
been determined by a court of competent jurisdiction to have been in material
violation of any provision of this Section 10. The covenants contained in
Section 10 shall not be affected by any breach of any other provision hereof by
any party hereto and shall have no effect if the transactions contemplated by
this Agreement are not consummated.
11. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
11.1 GENERAL. The Seller recognizes and acknowledges that he has had
access to certain confidential information of the Company, such as operational
policies, pricing and cost policies, and other information, that are valuable,
special and unique assets of the Company. The Seller agrees that he will not
disclose such confidential information, or any confidential information of the
Company or Metals to which he may have access in the future, to any person,
firm, corporation, association or other entity for any purpose or reason
whatsoever, except (a) to authorized representatives of the Company or Metals,
(b) following the Closing, such information may be disclosed by Seller as may be
required in the course of performing his duties for the Company and (c) to
counsel and other advisers, provided that such advisers (other than counsel)
agree to the confidentiality provisions of this Section 11.1, unless (i) such
information becomes known to the public generally through no fault of the
Seller, or (ii) disclosure is required by law or the order of
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any governmental authority under color of law, provided, that prior to
disclosing any information pursuant to this clause (ii), the Seller shall give
prior written notice thereof to the Company or Metals and provide the Company or
Metals with the opportunity to contest such disclosure. In the event of a breach
or threatened breach by the Seller of the provisions of this Section, the
Company or Metals shall be entitled to injunctive or other equitable relief
restraining the Seller from disclosing, in whole or in part, such confidential
information. Nothing herein shall be construed as prohibiting the Company or
Metals from pursuing any other available remedy for such breach or threatened
breach, including the recovery of damages, subject to the limitations of Section
9.2.
11.2 EQUITABLE RELIEF. Because of the difficulty of measuring economic
losses as a result of the breach of the foregoing covenants, and because of the
immediate and irreparable damage that would be caused for which the Company or
Metals would have no other adequate remedy, the Seller agrees that the foregoing
covenants may be enforced against him by injunctions, restraining orders and
other appropriate equitable relief.
11.3 SURVIVAL. The obligations of the parties under this Article 11 shall
survive the termination of this Agreement for a period of five years.
12. SECURITIES LAW MATTERS
12.1 CONTRACTUAL RESTRICTIONS. The Seller agrees that he will not offer,
sell, assign, pledge, hypothecate, transfer or otherwise dispose of or reduce
his risk with respect to any of the shares of Metals Stock issued to the Seller
pursuant to this Agreement prior to the date one year after the Closing Date,
except with the approval of Metals, which will not be unreasonably withheld. The
foregoing shall not apply to any transfer by Seller to a trust, limited
liability company, family partnership, S corporation or other entity controlled
by Seller for the benefit of Seller, Seller's immediate relatives, or his or
their descendants, or any combination of them or (subject to Metals' consent,
which will not be unreasonably withheld), any transfer to any charitable,
educational, religious or nonprofit organization, provided that any such
transferee described in this sentence agrees to be bound by the foregoing
one-year holding period. Certificates representing the Metals Stock issued to
the Seller shall bear substantially the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTION ON
TRANSFER AND MAY NOT BE SOLD, ASSIGNED, PLEDGED OR OTHERWISE ENCUMBERED,
AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY SUCH
TRANSACTION, UNTIL SEPTEMBER 26, , 1998, WITHOUT THE WRITTEN CONSENT OF
THE ISSUER.
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13. GENERAL
13.1 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law) and shall be binding
upon and shall inure to the benefit of the parties hereto, the successors of
Metals, and the heirs and legal representatives of the Seller.
13.2 ENTIRE AGREEMENT. This Agreement (including the schedules, exhibits
and annexes attached hereto) and the documents delivered pursuant hereto
constitute the entire agreement and understanding among the Seller, the Company
and Metals, and supersede any prior agreement and understanding relating to the
subject matter of this Agreement except for the provisions of the
Confidentiality Agreement between the parties, which shall remain in effect
until the Closing. This Agreement, upon execution, constitutes a valid and
binding agreement of the parties hereto enforceable in accordance with its terms
and may be modified or amended only by a written instrument executed by the
Seller, the Company and Metals.
13.3 COUNTERPARTS. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
13.4 BROKERS AND AGENTS. Each party agrees to pay and hereby indemnifies
the other parties hereto against any fees due to any broker or finder engaged by
such party.
13.5 NOTICES. All notices, including communications required or permitted
hereunder shall be in writing. Any notice will be deemed to have been duly given
if personally delivered, sent by a recognized messenger or next day courier
service or sent by United States mail, telex or facsimile transmission, and will
be deemed received, unless earlier received (a) if sent by express, certified or
regular mail, return receipt requested, when actually received or delivery
refused; (b) if sent by messenger or courier, when actually received or delivery
refused; (c) if delivered by hand, on the date of delivery; and (d) if sent by
telex or facsimile transmission, on the date sent, so long as a confirming
notice is sent by one of the foregoing methods.
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If to Metals, addressed to it at:
Metals USA, Inc.
Three Riverway, Suite 600
Houston, Texas 77056
Attn: General Counsel
Facsimile: (713) 965-0067
If to the Company, addressed to it at:
1330 Colorado Avenue
Santa Monica, California 90404-3313
Facsimile (310) 664-1961
If to the Seller, addressed to him at:
1330 Colorado Avenue
Santa Monica, California 90404-3313
Facsimile (310) 664-1961
or to such other address as any party hereto shall specify pursuant to this
Section from time to time.
13.6 GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of California other than its principles governing
conflicts of laws, except to the extent that the law of the State of Delaware
applies to the Merger.
13.7 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties, covenants and agreements of the parties made herein and at the time
of the Closing or in writing delivered pursuant to the provisions of this
Agreement shall survive the consummation of the transactions contemplated hereby
and any examination on behalf of the parties until the applicable Expiration
Date.
13.8 EFFECT OF INVESTIGATION; KNOWLEDGE. No investigation by the parties
hereto in connection with this Agreement or otherwise shall affect the
representations and warranties of the parties contained herein or in any
certificate or other document delivered in connection herewith and each such
representation and warranty shall survive such investigation.
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13.9 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided herein,
no delay of or omission in the exercise of any right, power or remedy accruing
to any party as a result of any breach or default by any other party under this
Agreement shall impair any such right, power or remedy, nor shall it be
construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
13.10 TIME. Time is of the essence with respect to this Agreement.
13.11 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
reasonably possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties, and if
such modification is not possible, such provision shall be severed from this
Agreement, and in either case the validity, legality and enforceability of the
remaining provisions of this Agreement shall not in any way be affected or
impaired thereby.
13.12 REMEDIES CUMULATIVE. No right, remedy or election given by any term
of this Agreement shall be deemed exclusive but each shall be cumulative with
all other rights, remedies and elections available at law or in equity.
13.13 CAPTIONS. The headings of this Agreement are inserted for
convenience only, and shall not constitute a part of this Agreement or be used
to construe or interpret any provision hereof.
13.14 PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No party shall issue any
press release or make any public announcement relating to the subject matter of
this Agreement without the prior written approval of the other party; provided,
however, that any party may, after making a reasonable effort to obtain such
approval, make any public disclosure it believes in good faith is required by
applicable law or any listing or trading agreement concerning its
publicly-traded securities.
13.15 NO THIRD-PARTY BENEFICIARIES. This Agreement shall not confer any
rights or remedies upon any person other than the parties and their respective
successors and permitted assigns.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
METALS USA, INC.
By:/S/ A. L. FRENCH
Name: A. L. French
Title: CEO
HTL ACQUISITION CORP.
By:/S/ J. MICHAEL KIRKSEY
Name: J. Michael Kirksey
Title: Sr. VP & CFO
HARVEY TITANIUM, LTD.
By:/S/ BARRY HARVEY
Name: Barry Harvey
Title: President & CEO
<PAGE>
Seller:
/S/ BARRY HARVEY
Barry Harvey
Sole Stockholder
/S/ JERI HARVEY
Jeri Harvey
EXHIBIT 10.32
STOCK PURCHASE AGREEMENT
dated as of September 26, 1997
by and among
METALS USA, INC.
MEIER METAL SERVICENTERS, INC.
and
the Stockholders named herein
<PAGE>
TABLE OF CONTENTS
Page
1. AGREEMENT TO PURCHASE AND SELL.........................................1
1.1 Agreement to Purchase and Sell...................................1
1.2 Purchase Price...................................................1
1.3 The Closing......................................................1
1.4 Instruments of Transfer; Further Assurances......................2
2. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS.....................2
2.1 Due Organization.................................................2
2.2 Authorization....................................................2
2.3 Capital Stock of the Company.....................................2
2.4 Subsidiaries.....................................................3
2.5 Financial Statements.............................................3
2.6 Liabilities and Obligations......................................4
2.7 Accounts and Notes Receivable....................................4
2.8 Permits and Intangibles..........................................4
2.9 Environmental Matters............................................5
2.10 Personal Property................................................6
2.11 Significant Customers; Material Contracts and Commitments........6
2.12 Real Property....................................................7
2.13 Insurance........................................................7
2.14 Compensation; Employment Agreements; Organized Labor Matters.....7
2.15 Employee Benefit Plans...........................................8
2.16 Conformity with Law; Litigation..................................9
2.17 Taxes...........................................................10
2.18 No Violations; All Required Consents Obtained...................11
2.19 Government Contracts............................................11
2.20 Absence of Changes..............................................11
2.21 Powers of Attorney..............................................12
2.22 Competing Lines of Business; Related-party Transactions.........12
2.23 Disclosure......................................................13
2.24 Prohibited Activities...........................................13
2.25 Certain Business Practices......................................13
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3. REPRESENTATIONS OF PURCHASER..........................................13
3.1 Due Organization................................................13
3.2 Authorization...................................................14
3.3 No Violations...................................................14
3.4 Validity of Obligations.........................................14
4. COVENANTS PRIOR TO CLOSING............................................14
4.1 Access and Cooperation; Due Diligence...........................14
4.2 Conduct of Business Pending Closing.............................14
4.3 Prohibited Activities...........................................15
4.4 No Shop.........................................................16
4.5 Notice to Bargaining Agents.....................................16
4.6 Agreements; Certain Indebtedness................................16
4.7 Notification of Certain Matters.................................17
4.8 Amendment of Schedules..........................................17
4.9 Further Assurances..............................................17
4.10 Compliance with the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the "HSR Act")........................17
4.11 Notices and Consents............................................18
4.12 Stockholder's Commitment........................................18
5. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS...................18
5.1 Representations and Warranties; Performance of Obligations......18
5.2 Satisfaction....................................................18
5.3 Consents and Approvals..........................................18
5.4 Employment and Consulting Agreements............................19
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER......................19
6.1 Representations and Warranties; Performance of Obligations......19
6.2 No Material Adverse Effect......................................19
6.3 Satisfaction....................................................19
6.4 Opinion of Counsel..............................................19
6.5 Consents and Approvals..........................................19
6.6 Good Standing Certificates......................................20
6.7 Employment Agreement............................................20
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7. POST-CLOSING COVENANTS................................................20
7.1 Future Cooperation..............................................20
7.2 Expenses........................................................20
7.3 Section 338(h)(10) Election.....................................20
7.4 Certain Bonuses.................................................21
8. INDEMNIFICATION.......................................................21
8.1 Survival of Stockholder's Representations and Warranties. .....21
8.2 General Indemnification by the Stockholders.....................22
8.3 Indemnification by Purchaser....................................22
8.4 Specific Indemnification........................................22
8.5 Third Person Claims.............................................23
8.6 Method of Payment...............................................23
8.7 Limitations on Indemnification..................................23
9. TERMINATION OF AGREEMENT..............................................24
9.1 Termination.....................................................24
9.2 Liabilities in Event of Termination.............................24
10. NONCOMPETITION........................................................25
10.1 Prohibited Activities...........................................25
10.2 Equitable Relief................................................25
10.3 Reasonable Restraint............................................26
10.4 Severability; Reformation.......................................26
10.5 Independent Covenant............................................26
11. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.............................26
11.1 General.........................................................26
11.2 Equitable Relief................................................27
11.3 Survival........................................................27
12. GENERAL...............................................................27
12.1 Successors and Assigns..........................................27
12.2 Entire Agreement................................................27
12.3 Counterparts....................................................27
12.4 Brokers and Agents..............................................28
12.5 Notices.........................................................28
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12.6 Governing Law...................................................28
12.7 Survival of Representations and Warranties......................28
12.8 Effect of Investigation; Knowledge..............................29
12.9 Exercise of Rights and Remedies.................................29
12.10 Time............................................................29
12.11 Reformation and Severability....................................29
12.12 Remedies Cumulative.............................................29
12.13 Captions........................................................29
12.14 Press Releases and Public Announcements.........................29
12.15 No Third-Party Beneficiaries....................................30
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ANNEXES
Annex I - Form of Employment Agreement; Terms and Conditions
Annex II - Form of Opinion of Counsel to Company and
Stockholders
Annex III - Form of Escrow Agreement
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<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made and entered into
as of September 26, 1997 by and among Metals USA, Inc., a Delaware corporation
("Purchaser"), Meier Metal Servicenters, Inc., a Michigan corporation (the
"Company"), and the William J. Targett Revocable Trust, the William J. Devanney
Revocable Trust, Laurence C. Sauers and Robert F. Kirk, the stockholders of the
Company (the "Stockholders").
WHEREAS, the Stockholders desire to sell, and the Purchaser desires to
purchase, all of the issued and outstanding capital stock of the Company (the
"Shares") upon the terms and conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, contained herein, the parties hereto, intending to be legally bound,
agree as follows:
1. AGREEMENT TO PURCHASE AND SELL
1.1 AGREEMENT TO PURCHASE AND SELL. Upon the terms and subject to the
conditions of this Agreement, at the Closing (as defined below), the
Stockholders hereby agree to sell, convey, transfer, assign and deliver to
Purchaser, and Purchaser hereby agrees to purchase from the Stockholders, all of
the Shares.
1.2 PURCHASE PRICE. The aggregate purchase price (the "Purchase Price")
for the Shares shall consist of $XX,XXX,XXX in cash, less the aggregate amount,
if any, distributed by the Company pursuant to Section 4.3 (iii) hereof (such
amount to be paid by wire transfer of immediately available funds in accordance
with wiring instructions to be provided by the Stockholders at least two
business days prior to the Closing). Subject to any such adjustments, and
subject to the escrow provisions contained herein, the Purchase Price shall be
paid to the Stockholders in accordance with Schedule 1.2 hereto. The
Stockholders may instruct Purchaser to wire the amounts due to each of them at
Closing into a single bank account.
1.3 THE CLOSING. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at such location or locations as may
be agreed upon by the parties, commencing at 9:00 a.m. local time on the second
business day following the satisfaction or waiver of all conditions to the
obligations of the parties to consummate the transactions contemplated
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hereby (other than conditions with respect to actions the respective parties
will take at the Closing itself) or such other date as the parties may mutually
determine (the "Closing Date").
1.4 INSTRUMENTS OF TRANSFER; FURTHER ASSURANCES. At the Closing, the
Stockholders shall deliver to Purchaser certificates representing the Shares,
duly endorsed (or accompanied by duly executed stock powers) with signatures
guaranteed by a commercial bank or member firm of the New York Stock Exchange.
2. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
The Stockholders jointly and severally represent and warrant to Purchaser
as follows:
2.1 DUE ORGANIZATION. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Michigan (the
"State of Incorporation"), and has all requisite power and authority to carry on
its business as it is now being conducted. The Company is duly qualified to do
business and is in good standing in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualification
necessary, except where the failure to be so authorized or qualified would not
have a material adverse effect on the business, assets, operations or condition
(financial or otherwise), of the Company taken as a whole (as used herein with
respect to the Company, or with respect to any other person, a "Material Adverse
Effect"). Schedule 2.1 sets forth a list of all jurisdictions in which the
Company is authorized or qualified to do business. True, complete and correct
copies of the Certificate of Incorporation and By-laws, each as amended, of the
Company (the "Charter Documents") are all attached to Schedule 2.1. The stock
records of the Company, a copy of which is attached to Schedule 2.1, are correct
and complete in all material respects. There are no minutes in the possession of
the Company or the Stockholders which have not been made available to Purchaser,
and all of such minutes are correct and complete in all respects.
2.2 AUTHORIZATION. (i) The representatives of the Company executing this
Agreement have the authority to enter into and bind the Company to the terms of
this Agreement and (ii) the Company has the full legal right, power and
authority to enter into this Agreement and the transactions contemplated hereby,
all of which have been unanimously approved by all of the shareholders and the
Board of Directors of the Company. This Agreement has been validly executed and
delivered by the Company and the Stockholders and constitutes the legal, valid
and binding obligation of each of them enforceable in accordance with its terms.
2.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the
Company consists solely of (i) 400,000 shares of common stock, par value $.01
per share, all of which
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400,000 shares are issued and outstanding and constitute all of the Shares. All
of the Shares are owned of record and beneficially by the Stockholders in the
amounts set forth on Schedule 2.3 and are owned free and clear of all liens,
security interests, pledges, charges, voting trusts, restrictions, encumbrances
and claims of every kind except for a Stock Voting, Restriction and Purchase and
Sale Agreement that will be terminated concurrently with the Closing and will be
of no effect at and after the Closing. All of the Shares have been duly
authorized and validly issued, are fully paid and nonassessable, and were
offered, issued, sold and delivered by the Company in compliance with all
applicable state and federal laws concerning the issuance of securities. None of
the Shares were issued in violation of any preemptive rights or similar rights
of any person. No option, warrant, call, conversion right or commitment of any
kind exists which obligates the Company to issue any additional shares of its
capital stock or obligates any of the Stockholders to transfer any of the Shares
to any person except to Purchaser pursuant to this Agreement.
2.4 SUBSIDIARIES. Except as set forth on Schedule 2.4, the Company has no
subsidiaries or d/b/a names and has not conducted business under any other name
except its legal name as set forth in its Charter Documents. Except as set forth
in Schedule 2.4, the Company does not own, of record or beneficially, or
control, directly or indirectly, any capital stock, securities convertible into
capital stock or any other equity interest in any corporation, association or
other business entity, and the Company is not, directly or indirectly, a
participant in any joint venture, partnership or other non-corporate entity.
2.5 FINANCIAL STATEMENTS. Complete and correct copies of the following
financial statements are attached as Schedule 2.5:
(i) the balance sheets of the Company as of December 31, 1996, 1995
and 1994 and the related statements of operations, stockholder's equity
and cash flows for the three-year period ended December 31, 1996, together
with the related notes and schedules (such balance sheets, the related
statements of operations, stockholder's equity and cash flows and the
related notes and schedules are referred to herein as the "Year-end
Financial Statements"); and
(ii) the balance sheet (the "Interim Balance Sheet") of the Company
as of August 31, 1997 (the "Balance Sheet Date") and the related
statements of operations for the eight-month period ended August 31, 1997,
(such balance sheet and the related statements of operations are referred
to herein as the "Interim Financial Statements"). The Year-end Financial
Statements and the Interim Financial Statements are collectively called
the "Financial Statements".
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The Financial Statements have been prepared from the books and records of
the Company in conformity with generally accepted accounting principles applied
on a basis consistent with preceding years and throughout the periods involved
("GAAP") and present fairly the financial position and results of operations of
the Company as of the dates of such statements and for the periods covered
thereby. The books of account of the Company have been kept accurately in all
material respects in the ordinary course of business, the transactions entered
therein represent bona fide transactions, and the revenues, expenses, assets and
liabilities of the Company have been properly recorded therein in all material
respects.
2.6 LIABILITIES AND OBLIGATIONS. Except as and to the extent disclosed and
adequately provided for on the face of the Financial Statements (rather than in
any notes thereto) or on Schedule 2.6 hereto, the Company has no liabilities or
obligations of any kind, whether accrued, absolute, secured or unsecured,
contingent or otherwise. Except and to the extent disclosed on Schedule 2.6,
there are no claims, liabilities or obligations, nor any reasonable basis for
assertion against the Company, of any claim, liability or obligation, of any
nature whatsoever. Except as expressly set forth on Schedule 2.6, all of the
liabilities of the Company listed on Schedule 2.6 are covered by the Company's
insurance policies, and no such liability will exceed the policy limits of such
insurance policies. Schedule 2.6 contains a reasonable estimate of the maximum
amount which may be payable with respect to liabilities which are not fixed. For
each such liability for which the amount is not fixed, Schedule 2.6 includes a
summary description of the liability together with copies of all relevant
documentation relating thereto.
2.7 ACCOUNTS AND NOTES RECEIVABLE. Schedule 2.7 sets forth an accurate
list of the accounts and notes receivable of the Company, as of the Balance
Sheet Date and generated subsequent to the Balance Sheet Date. Receivables from
and advances to employees and the Stockholders and any entities or persons
related to or affiliated with any of the Stockholders are separately identified
on Schedule 2.7. Schedule 2.7 also sets forth an accurate aging analysis of all
accounts, notes and other receivables as of the Balance Sheet Date, showing
amounts due in 30-day aging categories. Except to the extent reflected on
Schedule 2.7, all such accounts, notes and other receivables were incurred in
the ordinary course of business, are stated in accordance with GAAP and, to the
best knowledge of the Stockholders, all such accounts, notes and other
receivables as of the Balance Sheet Date are collectible in the amounts shown on
Schedule 2.7, net of reserves reflected in the balance sheet as of the Balance
Sheet Date.
2.8 PERMITS AND INTANGIBLES. The Company holds all licenses, franchises,
permits and other governmental authorizations required in connection with the
conduct of the Company's business. Schedule 2.8 sets forth an accurate list and
summary description of all such licenses, franchises, permits and other
governmental authorizations, including permits, titles (including
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licenses, franchises, certificates, trademarks, trade names, patents, patent
applications and copyrights owned or held by the Company or any of its employees
(including interests in software or other technology systems, programs and
intellectual property) (collectively, the "Intangible Assets") (it being
understood and agreed that a list of all environmental permits and other
environmental approvals is set forth on Schedule 2.9). The Intangible Assets and
other governmental authorizations listed on Schedules 2.8 and 2.9 are valid, and
the Company has not received any notice that any person intends to cancel,
terminate or not renew any such Intangible Assets or other governmental
authorization. The Company has conducted and is conducting its business in
compliance with the requirements, standards, criteria and conditions set forth
in the Intangible Assets and other governmental authorizations listed on
Schedules 2.8 and 2.9 and is not in violation of any of the foregoing. Except as
specifically set forth on Schedule 2.8 or 2.9, the transactions contemplated by
this Agreement will not result in a default under or a breach or violation of,
or adversely affect the rights and benefits afforded to the Company by, any such
Intangible Assets or other governmental authorizations.
2.9 ENVIRONMENTAL MATTERS. The Company has reviewed the reports of
independent environmental consultants attached hereto as Schedule 2.9A. The
Company has complied with and is in compliance with all federal, state, local
and foreign statutes (civil and criminal), laws, ordinances, regulations, rules,
notices, permits, judgments, orders and decrees applicable to any of them or any
of their respective properties, assets, operations and businesses relating to
environmental protection (collectively "Environmental Laws") including, without
limitation, Environmental Laws relating to air, water, land and the generation,
storage, use, handling, transportation, treatment or disposal of Hazardous
Wastes, Hazardous Materials and Hazardous Substances including petroleum and
petroleum products (as such terms are defined in any applicable Environmental
Law) except to the extent that noncompliance with any Environmental Laws, either
singly or in the aggregate, (i) has not had and will not have a Material Adverse
Effect on the Company or any of its businesses, and (ii) will not necessitate
any material expenditure by or on behalf of the Company. The Company has
obtained and adhered to all necessary permits and other approvals necessary to
treat, transport, store, dispose of and otherwise handle Hazardous Wastes,
Hazardous Materials and Hazardous Substances, a list of all of which permits and
approvals is set forth on Schedule 2.9, and have reported to the appropriate
authorities, to the extent required by all Environmental Laws, all past and
present sites owned and operated by the Company where Hazardous Wastes,
Hazardous Materials or Hazardous Substances have been treated, stored, disposed
of or otherwise handled. There have been no releases or threats of releases (as
defined in Environmental Laws) at, from, in or on any property owned or operated
by the Company except as permitted by Environmental Laws. There is no on-site or
off-site location to which the Company has transported or disposed of Hazardous
Wastes, Hazardous Materials or Hazardous Substances or arranged for the
transportation of Hazardous Wastes, Hazardous Materials or Hazardous Substances
which is the subject of any
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federal, state, local or foreign enforcement action or any other investigation
which could lead to any claim against the Company or Purchaser for any clean-up
cost, remedial work, damage to natural resources, property damage or personal
injury, including, but not limited to, any claim under (i) the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, (ii)
the Resource Conservation and Recovery Act, (iii) the Hazardous Materials
Transportation Act or (iv) comparable state or local statutes and regulations.
The Company has no contingent liability in connection with any release of any
Hazardous Waste, Hazardous Material or Hazardous Substance into the environment.
2.10 PERSONAL PROPERTY. Schedule 2.10 sets forth an accurate list (except
that detail relating to any personal property acquired prior to 1985 is provided
on a best efforts basis only) of (a) all personal property included in "plant,
property and equipment" on the balance sheet of the Company, (b) all other
personal property owned by the Company with a book value in excess of $10,000
(i) as of the Balance Sheet Date and (ii) acquired since the Balance Sheet Date
and (c) all leases and agreements in respect of personal property, including, in
the case of each of (a), (b) and (c), (1) true, complete and correct copies of
all such leases and (2) an indication as to which assets are currently owned, or
were formerly owned, by Stockholders, relatives of Stockholders, or Affiliates
of the Company or the Stockholders. Except as set forth on Schedule 2.10, (i)
all material personal property used by the Company in its business is either
owned by the Company or leased by the Company pursuant to a lease included on
Schedule 2.10, (ii) all of the personal property listed on Schedule 2.10 is, in
the aggregate, in good working order and condition, ordinary wear and tear
excepted and (iii) all leases and agreements included on Schedule 2.10 are in
full force and effect and constitute valid and binding agreements of the parties
(and their successors) thereto in accordance with their respective terms. Except
as set forth on Schedule 2.10, the Company has good and marketable title to the
tangible and intangible personal property it purports to own, subject to no
security interest, pledge, lien, claim, conditional sales agreement,
encumbrance, charge or restriction on transfer.
2.11 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. Schedule
2.11 sets forth a list of (i) all customers representing 1% or more of the
Company's revenues in any of the periods covered by the Financial Statements
("Significant Customers"), and (ii) all material contracts, commitments and
similar agreements to which the Company is a party or by which it or any of its
properties are bound (including, but not limited to, contracts with Significant
Customers, joint venture or partnership agreements, contracts with any labor
organizations, strategic alliances and options to purchase land). True, complete
and correct copies of such agreements are attached to Schedule 2.11. Except as
described on Schedule 2.11, (i) none of the Company's Significant Customers have
canceled or substantially reduced or, to the knowledge of the Company, are
currently attempting or threatening to cancel a contract or substantially reduce
utilization of the
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services provided by the Company, and (ii) the Company has complied with all
material commitments and obligations pertaining to it, and is not in default
under any contracts or agreements listed on Schedule 2.11 and no notice of
default under any such contract or agreement has been received. Except as
specifically set forth on Schedule 2.11, the transactions contemplated by this
Agreement will not result in a default under or a breach or violation of, or
adversely affect the rights and benefits afforded to the Company by, any such
contracts or agreements. Schedule 2.11 also includes a summary description of
all plans or projects relating to the Company's business involving the opening
of new operations, expansion of existing operations, the acquisition of any
property, business or assets requiring, in any event, the payment of more than
$10,000.
2.12 REAL PROPERTY. Schedule 2.12 includes a list of all real property
owned or leased by the Company at the date hereof, and all other real property,
if any, used by the Company in the conduct of its business. True, complete and
correct copies of all leases and agreements in respect of real property leased
by the Company are attached to Schedule 2.12, and an indication as to which such
properties, if any, are currently owned, or were formerly owned, by Stockholders
or affiliates of the Company or Stockholders is included in Schedule 2.12.
Except as set forth on Schedule 2.12, all of such leases included on Schedule
2.12 are in full force and effect and constitute valid and binding agreements of
the parties (and their successors) thereto in accordance with their respective
terms.
2.13 INSURANCE. The Company has been covered during the past ten years by
insurance in scope and amount customary and reasonable for the businesses in
which the Company has engaged during such period. Schedule 2.13 sets forth an
accurate list as of the Balance Sheet Date of all insurance policies now carried
by the Company and an accurate list of all insurance loss runs and workers
compensation claims received for the past three policy years. True, complete and
correct copies of all insurance policies currently in effect are attached to
Schedule 2.13. Such insurance policies evidence all of the insurance that the
Company is required to carry pursuant to all of its contracts and other
agreements and pursuant to all applicable laws, and provide adequate coverage
against the risks involved in the Company's business. None of such policies is a
"claims made" policy except the Employer's liability policy (Forefront Policy).
All of such insurance policies are currently in full force and effect and shall
remain in full force and effect through the Closing Date.
2.14 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS.
Schedule 2.14 sets forth an accurate list showing all officers, directors and
key employees of the Company, listing all employment agreements with such
officers, directors and key employees and the rate of compensation (and the
portions thereof attributable to salary, bonus and other compensation,
respectively) of each of such persons as of (i) the Balance Sheet Date and (ii)
the date hereof.
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Except as set forth on Schedule 2.14, since the Balance Sheet Date, there have
been no increases in the compensation payable or any special bonuses to any
officer, director, key employee or other employee, except ordinary salary
increases implemented on a basis consistent with past practices.
Except as set forth on Schedule 2.14, (i) the Company is not bound by or
subject to (and none of its respective assets or properties is bound by or
subject to) any arrangement with any labor union, (ii) no employees of the
Company are represented by any labor union or covered by any collective
bargaining agreement, (iii) to the knowledge of the Company, no campaign to
establish such representation is in progress and (iv) there is no pending or, to
the best of the Company's knowledge, threatened, labor dispute involving the
Company and any group of its employees. The Company has not experienced any
labor interruptions over the past five years. The Company's relationship with
its employees is good.
2.15 EMPLOYEE BENEFIT PLANS. Schedule 2.15 sets forth an accurate schedule
showing all employee benefit plans of Company, including all agreements or
arrangements (other than agreements or arrangements set forth on Schedule 2.14)
containing "golden parachute" or other similar provisions, and deferred
compensation agreements, together with true, complete and correct copies of such
plans, agreements and any trusts related thereto, and classifications of
employees covered thereby as of the Balance Sheet Date. Except for the employee
benefit plans, if any, described on Schedule 2.15, the Company does not sponsor,
maintain or contribute to any plan program, fund or arrangement that constitutes
an "employee pension benefit plan," nor does the Company have any obligation to
contribute to or accrue or pay any benefits under any deferred compensation or
retirement funding arrangement on behalf of any employee or employees (such as,
for example, and without limitation, any individual retirement account or
annuity, any "excess benefit plan" (within the meaning of Section 3(36) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")) or any
non-qualified deferred compensation arrangement). For the purposes of this
Agreement, the term "employee pension benefit plan" shall have the same meaning
as is given that term in Section 3(2) of ERISA. The Company has not sponsored,
maintained or contributed to any employee pension benefit plan and is not
required to contribute to any retirement plan pursuant to the provisions of any
collective bargaining agreement establishing the terms and conditions or
employment of any of the Company's employees other than the plans set forth on
Schedule 2.15.
Except for and to the extent of any immaterial funding deficiency as and
to the extent described in the July 1, 1996 Wyatt report to the Company, a copy
of which is attached hereto as part of Schedule 2.15, the Company is not now,
and will not as a result of its past activities become, liable to the Pension
Benefit Guaranty Corporation or to any multi employer employee pension benefit
plan under the provisions of Title IV of ERISA; provided, however, that this
representation
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shall not be deemed to be incorrect solely as a result of either (i) decreases
in the value of plan assets after the Closing Date or (ii) any failure of the
Company to fund any such plan as required by law after the Closing Date. All
employee benefit plans listed on Schedule 2.15 and the administration thereof
are in substantial compliance with their terms and all applicable provisions of
ERISA and the regulations issued thereunder, as well as with all other
applicable federal, state and local statutes, ordinances and regulations. All
accrued contribution obligations of Company with respect to any plan listed on
Schedule 2.15 have either been fulfilled in their entirety or are fully
reflected on the balance sheet of the Company as of the Balance Sheet Date. All
plans listed on Schedule 2.15 that are intended to qualify (the "Qualified
Plans") under Section 401(a) of the Internal Revenue Code of 1986, as amended
(the "Code" are, and have been, so qualified and have been determined by the
Internal Revenue Service to be so qualified. Except as disclosed on Schedule
2.15, all reports and other documents required to be filed with any governmental
agency or distributed to plan participants or beneficiaries have been timely
filed or distributed, and copies thereof are included as part of Schedule 2.15.
Neither the Stockholders, any plan listed in Schedule 2.15 nor the Company has
engaged in any transaction prohibited under the provisions of Section 4975 of
the Code or Section 406 of ERISA. No plan listed in Schedule 2.15 has incurred
an accumulated funding deficiency, as defined in Section 412(a) of the Code and
Section 302(1) of ERISA; and the Company has not incurred any liability for
excise tax or penalty due to the Internal Revenue Service or any liability to
the Pension Benefit Guaranty Corporation. There have been no terminations,
partial terminations or discontinuance of contributions to any such Qualified
Plan intended to qualify under Section 401(a) of the Code without notice to and
approval by the Internal Revenue Service; no plan listed in Schedule 2.15
subject to the provisions of Title IV of ERISA has been terminated; there have
been no "reportable events" (as that phrase is defined in Section 4043 of ERISA)
with respect to any such plan listed in Schedule 2.15; the Company has not
incurred liability under Section 4062 of ERISA; and no circumstances exist
pursuant to which the Company could have any direct or indirect liability
whatsoever (including, but not limited to, any liability to any multi employer
plan or the PBGC under Title IV of ERISA or to the Internal Revenue Service for
any excise tax or penalty, or being subject to any statutory lien to secure
payment of any such liability) with respect to any plan now or heretofore
maintained or contributed to by any entity other than the Company that is, or at
any time was, a member of a "controlled group" (as defined in Section
412(n)(6)(B) of the Code) that includes the Company.
2.16 CONFORMITY WITH LAW; LITIGATION. Except as set forth on Schedule
2.16, there are no claims, actions, suits or proceedings, pending or, to the
best knowledge of the Stockholders, threatened, against or affecting the
Company, at law or in equity, or before or by any federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over the Company. Except as set forth on
Schedule 2.16, no notice of any claim, action, suit or proceeding, whether
pending or threatened, has been received by the Company during
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the last five years and, to the best knowledge of the Stockholders, there is no
basis therefor. Except as set forth on Schedule 2.16, to the best knowledge of
the Stockholders, the Company has conducted for the past five years and now
conducts its business in compliance with all laws, regulations, writs,
injunctions, decrees and orders applicable to the Company or its assets. To the
best knowledge of the Stockholders, the Company is not in violation of any law
or regulation or any order of any court or federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over any of them. To the best knowledge of the Stockholders,
the Company has conducted and is conducting its business in substantial
compliance with the requirements, standards, criteria and conditions set forth
in applicable federal, state and local statutes, ordinances, permits, licenses,
orders, approvals, variances, rules and regulations, including all such permits,
licenses, orders and other governmental approvals set forth on Schedules 2.8 and
2.9.
2.17 TAXES. For purposes of this Agreement, the term "Taxes" shall mean
all taxes, charges, fees, levies or other assessments including, without
limitation, income, gross receipts, excise, property, sales, withholding, social
security, unemployment, occupation, use, service, license, payroll, franchise,
transfer and recording taxes, fees and charges, imposed by the United States or
any state, local or foreign government or subdivision or agency thereof, whether
computed on a separate, consolidated, unitary, combined or any other basis; and
such term shall include any interest, fines, penalties or additional amounts
attributable to or imposed with respect to any such taxes, charges, fees, levies
or other assessments. The Company has timely filed all requisite federal, state
and other tax returns or extension requests for all fiscal periods ended on or
before the Balance Sheet Date. Except as set forth on Schedule 2.17, there are
no examinations in progress or claims against the Company for federal, state or
other taxes (including penalties and interest) for any period or periods prior
to or on the Balance Sheet Date and no notice of any claim for taxes, whether
pending or threatened, has been received. All Taxes, including interest and
penalties (whether or not shown on any tax return) owed by the Company or any
member of an affiliated or consolidated group which includes or included the
Company have been paid. The amounts shown as accruals for taxes on the Financial
Statements are sufficient for the payment of all taxes of the kinds indicated
(including penalties and interest) for all periods shown. Copies of (i) any tax
examinations, (ii) extensions of time for filing and (iii) the federal and local
income tax returns and franchise tax returns of Company (including any
subsidiaries) for the last three fiscal years, or such shorter period of time as
any of them shall have existed, are attached hereto as Schedule 2.17. The
Stockholders made a valid election under the provisions of Subchapter S of the
Code and the Company has not, within the past five years, been taxed under the
provisions of Subchapter C of the Code. The Stockholders shall pay, and they
hereby indemnify the Company and Purchaser against, all income taxes payable for
all periods through and including the Closing Date. The Company uses the accrual
method of accounting for income tax purposes, and the Company's methods of
accounting have not changed
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in the past five years. The Company is not an investment company as defined in
Section 351(e)(1) of the Code.
2.18 NO VIOLATIONS; ALL REQUIRED CONSENTS OBTAINED. The Company is not in
violation of any of its Charter Documents. To the best knowledge of the
Stockholders, neither the Company nor any other party thereto is in material
default under any lease, instrument, license, permit or material agreement to
which the Company is a party or by which its properties are bound (the "Material
Documents"). Except as set forth in Schedule 2.18, (a) the execution of this
Agreement by the Company and the performance by the Company of its obligations
hereunder and the consummation of the transactions contemplated hereby will not
result in any violation or breach or constitute a default under, any of the
terms or provisions of the Material Documents or the Charter Documents, and (b)
at and after the Closing the Company will be entitled to the rights and benefits
the under the Material Documents to which the Company is entitled immediately
prior to the Closing. Except as set forth on Schedule 2.18 (and except for
consents already obtained), none of the Material Documents requires notice to,
or the consent or approval of, any governmental agency or other third party with
respect to any of the transactions contemplated hereby in order to remain in
full force and effect and consummation of the transactions contemplated hereby
will not give rise to any right to termination, cancellation or acceleration or
loss of any right or benefit. Except as set forth on Schedule 2.18, none of the
Material Documents prohibits the use or publication of the name of any other
party to such Material Document, and none of the Material Documents prohibits or
restricts the Company or will prevent or restrict the Company or the Purchaser
from freely providing services to any person.
2.19 GOVERNMENT CONTRACTS. The Company is not a party to any governmental
contract subject to price redetermination or renegotiation.
2.20 ABSENCE OF CHANGES. Since the Balance Sheet Date, the Company has
conducted its operations in the ordinary course of business and, except as set
forth on Schedule 2.20, there has not been:
(i) any material adverse change in the business, assets, or
financial condition of the Company;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting any of the material assets or
the business of the Company;
(iii) any change in the authorized capital of the Company or its
outstanding securities or any change in its ownership interests or any
grant of any options, warrants, calls, conversion rights or commitments;
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(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption,
purchase or other acquisition of any of the capital stock of the Company;
(v) any increase in the compensation, bonus, sales commissions or
fee arrangement payable or to become payable by the Company to any of its
officers, directors, stockholders, employees, consultants or agents;
(vi) any work interruptions, labor grievances or claims filed, or
any event or condition of any character, materially adversely affecting
the business of the Company;
(vii) any sale or transfer, or any agreement to sell or transfer,
any material assets, property or rights of Company to any person,
including, without limitation, the Stockholders and their affiliates;
(viii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the Company, including without limitation any
indebtedness or obligation of any Stockholder or any affiliate thereof;
(ix) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property
or rights of the Company or requiring consent of any party to the transfer
and assignment of any such assets, property or rights;
(x) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets outside
of the ordinary course of the Company's business;
(xi) any waiver of any material rights or claims of the Company;
(xii) any amendment or termination of any material contract,
agreement, license, permit or other right to which the Company is a party;
(xiii) any transaction by the Company outside the ordinary course of
its business;
(xiv) any cancellation or termination of a material contract with a
customer or client prior to the scheduled termination date; or
(xv) any distribution of property or assets by the Company.
2.21 POWERS OF ATTORNEY. Schedule 2.21 sets forth a schedule as of the
date of this Agreement of the name of each person, corporation, firm or other
entity holding any general or special power of attorney from the Company and a
description of the terms of each such power.
2.22 COMPETING LINES OF BUSINESS; RELATED-PARTY TRANSACTIONS. Except as
set forth on Schedule 2.22, neither any of the Stockholders nor any other
affiliate of the Company owns, directly or indirectly, any interest in, or is an
officer, director, employee or consultant of or otherwise receives remuneration
from, any business which is a competitor, lessor, lessee, customer or supplier
of the Company. Except as set forth on Schedule 2.22, no officer, director or
stockholder of the
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Company has, nor during the period beginning January 1, 1990 through the date
hereof had, any interest in any property, real or personal, tangible or
intangible, used in or pertaining to the Company's business.
2.23 DISCLOSURE. The Stockholders have provided Purchaser with all the
information that Purchaser has requested in analyzing whether to consummate the
transactions contemplated hereby. None of the information so provided nor any
representation or warranty of the Stockholders contained in this Agreement
contains any untrue statement or omits to state a material fact necessary in
order to make the statements herein or therein, in light of the circumstances
under which they were made, not misleading. There is no fact known to the
Stockholders which has specific application to the Company or its business or
assets (other than general economic or industry conditions) which materially
adversely affects or, so far as the Stockholders can reasonably foresee,
materially threatens, the Company or its business or assets, or the condition
(financial or otherwise), results of operations or prospects of the Company,
which has not been described in this Agreement or the Schedules hereto.
2.24 PROHIBITED ACTIVITIES. Except as set forth on Schedule 2.24, the
Company has not, between the Balance Sheet Date and the date hereof, taken any
of the actions (Prohibited Activities) described in Section 4.3.
2.25 CERTAIN BUSINESS PRACTICES. Neither the Company nor any person acting
on behalf of the Company has given or offered anything of value to any
governmental official, political party or candidate for government office nor
has it or any of them otherwise taken any action which would cause the Company
to be in violation of the Foreign Corrupt Practices Act of 1977, as amended, or
any law of similar effect.
3. REPRESENTATIONS OF PURCHASER
Purchaser represents and warrants that all of the following
representations and warranties in this Section 3 are true at the date of this
Agreement and shall be true at the time of Closing.
3.1 DUE ORGANIZATION. Purchaser is duly incorporated, validly existing and
in good standing under the laws of the state of Delaware, and has the requisite
power and authority to carry on its business as it is now being conducted.
Purchaser is qualified to do business and is in good standing in each
jurisdiction in which the nature of its business makes such qualification
necessary, except where the failure to be so authorized or qualified would not
have a Material Adverse Effect.
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3.2 AUTHORIZATION. (i) The representative of Purchaser executing this
Agreement has the authority to enter into and bind Purchaser to the terms of
this Agreement and (ii) Purchaser has the full legal right, power and authority
to enter into this Agreement and to consummate the transactions contemplated
hereby.
3.3 NO VIOLATIONS. The execution of this Agreement and the performance of
the obligations hereunder and the consummation of the transactions contemplated
hereby will not result in any violation or breach or constitute a default under
any of the terms or provisions of the Restated Certificate of Incorporation, as
amended, or Bylaws, of Purchaser.
3.4 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by Purchaser and the performance of the transactions contemplated hereby have
been duly and validly authorized by the Board of Directors of Purchaser and this
Agreement has been duly and validly authorized by all necessary corporate action
and is a legal, valid and binding obligation of Purchaser.
4. COVENANTS PRIOR TO CLOSING
4.1 ACCESS AND COOPERATION; DUE DILIGENCE. Between the date of this
Agreement and the Closing Date, the Company will afford to the officers and
authorized representatives of Purchaser access to all of the Company's sites,
properties, books and records and will furnish Purchaser with such additional
financial and operating data and other information as to the business and
properties of the Company as Purchaser may from time to time reasonably request.
The Company will cooperate with Purchaser, its representatives, auditors and
counsel in the preparation of any documents or other material which may be
required in connection with the transactions contemplated by this Agreement.
Purchaser, the Stockholders and the Company will treat all information obtained
in connection with the negotiation and performance of this Agreement as
confidential in accordance with the provisions of Section 11 hereof.
4.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Closing Date, the Company will, except as set forth on
Schedule 4.2:
(i) carry on its respective businesses in substantially the same
manner as it has heretofore and not introduce any material new method of
management, operation or accounting;
(ii) maintain its respective properties and facilities, including
those held under leases, in as good working order and condition as at
present, ordinary wear and tear excepted;
(iii) perform in all material respects all of its respective
obligations under agreements relating to or affecting its respective
assets, properties or rights;
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(iv) use all reasonable efforts to keep in full force and effect
present insurance policies or other comparable insurance coverage;
(v) use its reasonable efforts to maintain and preserve its business
organization intact, retain its respective present key employees and
maintain its respective relationships with suppliers, customers and others
having business relations with the Company;
(vi) maintain compliance with all material permits, laws, rules and
regulations, consent orders, and all other orders of applicable courts,
regulatory agencies and similar governmental authorities; and
(vii) maintain present debt and lease instruments and not enter into
new or amended debt or lease instruments without the knowledge and consent
of Purchaser (which consent shall not be unreasonably withheld), provided
that debt and/or lease instruments may be replaced without the consent of
Purchaser if such replacement instruments are on terms at least as
favorable to the Company as the instruments being replaced.
4.3 PROHIBITED ACTIVITIES. Except as set forth on Schedule 4.3, between
the date hereof and the Closing Date, the Company will not, without prior
written consent of Purchaser:
(i) make any change in its Articles of Incorporation or By-laws;
(ii) issue any securities, options, warrants, calls, conversion
rights or commitments relating to its securities of any kind;
(iii) declare or pay any dividend, or make any distribution in
respect of its stock whether now or hereafter outstanding, or purchase,
redeem or otherwise acquire or retire for value any shares of its stock,
except that the Company may declare and pay dividends to the Stockholders
in an aggregate amount not exceeding the lesser of (a) the Stockholders'
Accumulated Adjustments Accounts or (b) $18,136,000; it being agreed that
any such dividends will reduce the Purchase Price by the amount of such
dividends;
(iv) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditures, except in the normal
course of business consistent with past practice in an amount not in
excess of $10,000;
(v) create, assume or permit to exist any mortgage, pledge or other
lien or encumbrance upon any assets or properties whether now owned or
hereafter acquired, except (1) with respect to purchase money liens
incurred in connection with the acquisition of equipment with an aggregate
cost not in excess of $10,000 necessary or desirable for the conduct of
the businesses of the Company, (2) (A) liens for taxes either not yet due
or being contested in good faith and by appropriate proceedings (and for
which contested taxes adequate reserves have been established and are
being maintained) or (B) materialmen's, mechanics', workers', repairmen's,
employees' or other like liens arising in the ordinary
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courseof business (the liens set forth in clause (2) being referred to
herein as "Statutory Liens");
(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business;
(vii) negotiate for the acquisition of any business or the start-up
of any new business;
(viii) merge or consolidate or agree to merge or consolidate with or
into any other corporation or other entity;
(ix) waive any material rights or claims of the Company, provided
that the Company may negotiate and adjust bills in the course of good
faith disputes with customers in a manner consistent with past practice;
(x) commit a material breach or amend or terminate any material
agreement, permit, license or other right of the Company;
(xi) enter into any other transaction outside the ordinary course of
its business or prohibited hereunder; or
(xii) increase or commit to any increase in the salary, bonus,
commission or other compensation of any officer, director, employee or
agent of the Company.
4.4 NO SHOP. None of the Stockholders, the Company, nor any agent,
officer, director, trustee or any representative of any of the foregoing will,
during the period commencing on the date of this Agreement and ending with the
earlier to occur of the Closing Date or the termination of this Agreement in
accordance with its terms, directly or indirectly:
(i) solicit or initiate the submission of proposals or offers from
any person for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than Purchaser or
its authorized agents relating to, any acquisition or purchase of all or a
material amount of the assets of, or any equity interest in, the Company
or a merger, consolidation or business combination involving the Company.
4.5 NOTICE TO BARGAINING AGENTS. Prior to the Closing Date, the Company
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under applicable collective bargaining agreements, and shall
provide Purchaser with proof that any required notice has been sent.
4.6 AGREEMENTS; CERTAIN INDEBTEDNESS. Upon the request of Purchaser, at,
or at any time after, the Closing, the Stockholders and the Company shall
terminate any existing agreements to which the Company and any of the
Stockholders is a party. In addition, at or prior to the Closing,
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the Stockholders shall repay to the Company all outstanding indebtedness of the
Stockholders to the Company.
4.7 NOTIFICATION OF CERTAIN MATTERS. The Stockholders and the Company
shall give prompt notice to Purchaser of (i) the occurrence or non-occurrence of
any event the occurrence or non-occurrence of which would be likely to cause any
representation or warranty of the Company or the Stockholders contained herein
to be untrue or inaccurate in any material respect at or prior to the Closing
and (ii) any material failure of any Stockholder or the Company to comply with
or satisfy any covenant, condition or agreement to be complied with or satisfied
by such person hereunder. Purchaser shall give prompt notice to the Company of
(i) the occurrence or non-occurrence of any event the occurrence or
non-occurrence of which would be likely to cause any representation or warranty
of Purchaser contained herein to be untrue or inaccurate in any material respect
at or prior to the Closing and (ii) any material failure of Purchaser to comply
with or satisfy any covenant, condition or agreement to be complied with or
satisfied by it hereunder. The delivery of any notice pursuant to this Section
4.7 shall not be deemed to (i) modify the representations or warranties
hereunder of the party delivering such notice, (ii) modify the conditions to
Closing set forth herein, or (iii) limit or otherwise affect the remedies
available hereunder to the party receiving such notice.
4.8 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with respect to
the representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until the Closing occurs to
notify the other parties hereto with respect to any matter hereafter arising or
discovered which, if existing or known at the date of this Agreement, would have
been required to be set forth or described in the Schedules.
4.9 FURTHER ASSURANCES. The parties hereto agree to execute and deliver,
or cause to be executed and delivered, such further instruments or documents or
take such other action as may be reasonably necessary or convenient to carry out
the transactions contemplated hereby.
4.10 COMPLIANCE WITH THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF
1976 (THE "HSR ACT"). All parties to this Agreement hereby recognize that one or
more filings under the HSR Act may be required in connection with the
transactions contemplated herein. If it is determined by the parties to this
Agreement that filings under the HSR Act are required, then: (i) each of the
parties hereto agrees to cooperate and use its best efforts to comply with the
HSR Act, (ii) such filings and expiration or termination of the applicable
waiting period thereunder shall be deemed a condition precedent in addition to
the conditions precedent set forth elsewhere in this Agreement, and (iii) the
parties agree to cooperate and use their best efforts to cause all filings
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required under the HSR Act to be made. If filings under the HSR Act are
required, the costs and expenses thereof (including filing fees) shall be borne
by Purchaser.
4.11 NOTICES AND CONSENTS. The Company will give any notices to third
parties, and the Company will use its best efforts to obtain any third party
consents, that may be necessary to consummate the transactions contemplated
hereby or that Purchaser may request.
4.12 STOCKHOLDER'S COMMITMENT. The Stockholders hereby agree to cause the
Company to comply with its obligations under this Agreement and to use its best
efforts to cause the conditions to the Closing to be satisfied.
5. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS
The obligations of the Stockholders with respect to actions to be taken on
the Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions. If any such conditions has not
been satisfied, the Stockholders shall have the right to terminate this
Agreement, or in the alternative, waive any condition not so satisfied. Any act
or action of the Stockholders in consummating the Closing shall constitute a
waiver of any conditions not so satisfied. However, no such waiver shall be
deemed to affect the survival of the representations and warranties of Purchaser
contained in Section 3 or the indemnification obligations contained in Section
8.
5.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
representations and warranties of Purchaser contained in Section 3 shall be true
and correct in all material respects as of the Closing Date as though such
representations and warranties had been made as of that time; all of the terms,
covenants and conditions of this Agreement to be complied with and performed by
Purchaser on or before the Closing Date shall have been duly complied with and
performed in all material respects; and certificates to the foregoing effect
dated the Closing Date and signed by the President or any Vice President of
Purchaser shall have been delivered to the Stockholders.
5.2 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall be reasonably satisfactory to the Stockholders and their
counsel.
5.3 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated
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hereby shall have been obtained and made and no action or proceeding shall have
been instituted or threatened to restrain or prohibit the transactions
contemplated hereby.
5.4 EMPLOYMENT AND CONSULTING AGREEMENTS. The person identified in Annex I
hereto shall have been afforded an opportunity to enter into an Employment
Agreement with the Company upon the terms and conditions and in the form
attached as Annex I.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER
The obligations of Purchaser with respect to actions to be taken on the
Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions.
6.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All the
representations and warranties of the Stockholders contained in this Agreement
shall be true and correct in all material respects as of the Closing Date with
the same effect as though such representations and warranties had been made on
and as of such date; all of the terms, covenants and conditions of this
Agreement to be complied with or performed by the Stockholders and the Company
on or before the Closing Date, as the case may be, shall have been duly
performed or complied with in all material respects; and the Stockholders shall
have delivered to Purchaser certificates dated the Closing Date and signed by
them to such effect.
6.2 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred with respect to the Company which would constitute a Material Adverse
Effect, and the Company shall not have suffered any material loss or damages to
any of its material assets, whether or not covered by insurance, or any material
adverse change, loss or damage to the Company's business.
6.3 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out the transactions contemplated by this Agreement or
incidental hereto and all other related legal matters shall have been approved
by counsel to Purchaser.
6.4 OPINION OF COUNSEL. Purchaser shall have received an opinion from
counsel to the Company and the Stockholders, dated the Closing Date, in the form
annexed hereto as Annex II.
6.5 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made; all consents
and approvals of third parties listed on Schedule 2.18 shall have been obtained;
and no action or proceeding shall have been instituted or threatened to restrain
or prohibit the transactions contemplated hereby and no governmental agency
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or body shall have taken any other action or made any request of Purchaser as a
result of which Purchaser deems it inadvisable to proceed with the transactions
hereunder.
6.6 GOOD STANDING CERTIFICATES. The Stockholders shall have delivered to
Purchaser certificates, dated as of a date no later than the Closing Date, duly
issued by the appropriate governmental authority in the State of Incorporation
and in each state in which the Company is authorized to do business, showing the
Company is in good standing and authorized to do business and that all state
franchise taxes for the Company for all periods prior to the Closing have been
filed and paid.
6.7 EMPLOYMENT AGREEMENT. The person identified in Section 5.4 shall have
entered into the Employment Agreement referred to therein.
7. POST-CLOSING COVENANTS
The parties to this Agreement further covenant and agree as follows:
7.1 FUTURE COOPERATION. The Stockholders, the Company and Purchaser shall
each deliver or cause to be delivered to the other following the date hereof
such additional instruments as the other may reasonably request for the purpose
of transferring, assigning and delivering to Purchaser and its assigns the
Shares and fully carrying out the intent of this Agreement. Purchaser shall
provide the Stockholders reasonable access to the books and records of the
Company after the Closing Date for purposes of tax compliance and any other
reasonable purpose.
7.2 EXPENSES. Purchaser will pay the fees, expenses and disbursements of
Purchaser and its agents, representatives, financial advisors, accountants and
counsel incurred in connection with the execution, delivery and performance of
this Agreement. The Stockholders will pay the fees, expenses and disbursements
of the Stockholders and their respective agents, representatives, financial
advisors, accountants and counsel incurred in connection with the execution,
delivery and performance of this Agreement, except that Purchaser agrees to pay
the reasonable expenses of Stockholders' accountants in connection with the due
diligence review of the Company.
7.3 SECTION 338(H)(10) ELECTION. Stockholders will join with Purchaser in
making an election under Section 338(h)(10) of the Code (and any corresponding
elections under state, local or foreign tax law) (collectively a "Section
338(h)(10) Election") with respect to the purchase and sale of the Shares.
Stockholders will pay any tax (including any state, local or foreign tax)
attributable to the making of the Section 338(h)(10) Election (or an election
under state, local or foreign law similar to the Section 338(h)(10) Election)
and will indemnify Purchaser and the
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Company against any tax liabilities resulting therefrom. The parties agree that
the Purchase Price and the liabilities of the Company (plus other relevant
items) will be allocated to the assets of the Company for all purposes
(including tax and financial accounting purposes) as shown on Schedule 7.3.
Purchaser and the Company and Stockholders will file all tax returns (including
amended returns and claims for refund) and information reports in a manner
consistent with such allocation.
7.4 CERTAIN BONUSES. Purchaser will cause the Company to pay bonuses to
the non-Stockholder employees of the Company in the first quarter of 1998 in
amounts to be determined by Mr. Bill Targett, such bonuses to be consistent with
the Company's prior practice. Purchaser acknowledges that the Company intends to
pay bonuses to the Stockholders at or immediately prior to the Closing in the
aggregate amount of approximately $250,000.
8. INDEMNIFICATION
The Stockholders and Purchaser each make the following covenants that are
applicable to them, respectively:
8.1 SURVIVAL OF STOCKHOLDER'S REPRESENTATIONS AND WARRANTIES.
(a) The representations and warranties of the Stockholders made in
this Agreement and in the documents and certificates delivered in connection
herewith shall survive the Closing for a period of two years from the Closing
Date, except that:
(i) such representations and warranties that relate to Taxes,
including without limitation the representations and warranties set forth
in Section 2.17, shall survive until the expiration of the applicable
statutes of limitations for such Taxes (including any extensions thereof);
and
(ii) such representations and warranties that relate to
environmental matters, including without limitation the representations
and warranties set forth in Section 2.9 hereof, such representations and
such warranties that relate to illegal acts and fraud and abuse ("Illegal
Acts"), including without limitation the representations and warranties
set forth in Sections 2.8, 2.16 and 2.25 hereof, and the indemnification
provided in Section 8.4, shall survive for a period of six years after the
Closing Date; provided, however, that representations and warranties and
indemnification provisions with respect to which a claim is made within
the applicable survival period shall survive until such claim is finally
determined and paid.
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(b) The representations and warranties of Purchaser made in this
Agreement and in the certificates delivered in connection herewith shall survive
the Closing for a period of two years following the Closing Date, provided,
however, that representations and warranties with respect to which a claim is
made within such two year period shall survive until such claim is finally
determined and paid.
(c) The date on which a representation or warranty expires as
provided herein is herein called the "Expiration Date." No claim for
indemnification may be made with respect to a representation or warranty after
the Expiration Date, other than claims based on fraud.
8.2 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. The Stockholders covenant
and agree that they will jointly and severally indemnify, defend, protect, and
hold harmless Purchaser and its subsidiaries and officers, directors, employees,
stockholders, agents, representatives and affiliates at all times from and after
the date of this Agreement until the Expiration Date from and against all
claims, damages actions, suits, proceedings, demands, assessments, adjustments,
costs and expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses of investigation) (collectively "Damages") incurred
by such indemnified person as a result of or incident to (i) any breach of any
representation or warranty of any Stockholder set forth herein or in the
certificates or other documents delivered in connection herewith, and (ii) any
breach or nonfulfillment of any covenant or agreement by the Company or the
Stockholders under this Agreement.
8.3 INDEMNIFICATION BY PURCHASER. Purchaser covenants and agrees that it
will indemnify, defend, protect and hold harmless the Stockholders at all times
from and after the date of this Agreement until the Expiration Date from and
against all Damages incurred by the Stockholders as a result of (i) any breach
of any representation or warranty of Purchaser set forth herein or in the
certificates delivered in connection herewith; and (ii) any breach or
nonfulfillment of any covenant or agreement by Purchaser under this Agreement.
8.4 SPECIFIC INDEMNIFICATION. In addition to the indemnification provided
for in Section 8.1, each Stockholder covenants and agrees that he will jointly
and severally indemnify, defend, protect and hold harmless Purchaser and each of
its subsidiaries, officers, directors, employees, stockholders, agents,
representatives and affiliates from and against all Damages incurred by any of
them in connection with the presence, emanation, migration, disposal, release or
threatened release of any oil or other petroleum products or hazardous materials
or substances on or within any of the properties presently or previously owned
or leased by the Company or any predecessor of the Company as a result of (i)
the presence of and closure or removal of any underground storage tank on such
property prior to the Closing, (ii) the operations of the Company or any
predecessor of the
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Company prior to the Closing, (iii) the condition of such properties prior to
the Closing, including any future manifestations of such conditions or (iv) the
activities of any Stockholder prior to the Closing, but only to the extent that
such remediation is either (i) required by applicable federal, state or local
authorities or (ii) in accordance with reasonable business practices in the
interest of employee health or safety.
8.5 THIRD PERSON CLAIMS. Promptly after any party hereto (the "Indemnified
Party") has received notice of or has knowledge of any claim by a person not a
party to this Agreement ("Third Person") or the commencement of any action or
proceeding by a Third Person that may give rise to a right of indemnification
hereunder, such Indemnified Party shall give to the party obligated to provide
indemnification hereunder (an "Indemnifying Party") written notice of such claim
or the commencement of such action or proceeding; provided, however, that the
failure to give such notice will not relieve such Indemnifying Party from
liability under this Section with respect to such claim, action or proceeding,
except to the extent that the Indemnifying Party has been actually prejudiced as
a result of such failure. The Indemnifying Party (at its own expense) shall have
the right and shall be given the opportunity to associate with the Indemnified
Party in the defense of such claim, suit or proceedings, and may select counsel
for the Indemnified Party, such counsel to be reasonably satisfactory to the
Indemnified Party. The Indemnified Party shall not, except at its own cost, make
any settlement with respect to any such claim, suit or proceeding without the
prior consent of the Indemnifying Party, which consent shall not be unreasonably
withheld or delayed. It is understood and agreed that in situations where
failure of the Indemnified Party to settle a claim expeditiously could have an
adverse effect on the Indemnified Party, the failure of the Indemnifying Party
to act upon the Indemnified Party's request for consent to such settlement
within five business days of the Indemnifying Party's receipt of notice thereof
from the Indemnified Party shall be deemed to constitute consent by the
Indemnifying Party of such settlement for purposes of this Section.
8.6 METHOD OF PAYMENT. All claims for indemnification shall be paid in
cash. If Purchaser reasonably believes that it or any other Indemnified Party
has suffered, or will suffer, Damages for which it or any other Indemnified
Party would be entitled to indemnification pursuant to this Agreement, Purchaser
may, at its sole option and by notice in writing to the Stockholders, elect to
withhold payment of an amount equal to the amount of such Damages from any
amounts owing by Purchaser to the Stockholders.
8.7 LIMITATIONS ON INDEMNIFICATION. Purchaser and the other persons or
entities indemnified pursuant to this Section shall not assert any claim for
indemnification hereunder against the Stockholders until such time as, and
solely to the extent that, the aggregate of all claims which such persons may
have against such the Stockholders shall exceed $100,000 (the "Indemnification
Threshold"). The Stockholders shall not assert any claim for indemnification
hereunder against
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Purchaser until such time as, and solely to the extent that the aggregate of all
claims which Stockholders may have against Purchaser shall exceed the
Indemnification Threshold.
No person shall be entitled to indemnification under this Section 8 if and
to the extent that such person's claim for indemnification is directly or
indirectly caused by a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement.
The maximum aggregate liability Stockholders shall have to Purchaser under
this Section 8 for any Damages or other losses relating to environmental matters
or claims ("Environmental Claims") shall be $1,000,000. The maximum aggregate
liability Stockholders shall have to Purchaser under this Section 8 for any
Damages or other losses relating to matters or claims other than Environmental
Claims shall be $1,300,000. The maximum aggregate liability Stockholders shall
have to Purchaser under this Section 8 (whether for Environmental Claims or for
other matters or claims) shall be $1,800,000 (the "Indemnification Limit"). A
portion of the Purchase Price equal to the Indemnification Limit shall be
deposited at the Closing with an escrow agent reasonably satisfactory to
Purchaser and Stockholders and held and released in accordance with the
provisions of an Escrow Agreement in the form of Annex III hereto.
9. TERMINATION OF AGREEMENT
9.1 TERMINATION.This Agreement may be terminated at any time prior to the
Closing Date solely:
(i) by mutual consent of Purchaser and the Stockholders;
(ii) by the Purchaser or by the Stockholders, if the transactions
contemplated by this Agreement to take place at the Closing shall not have
occurred by December 31, 1997 (the "Termination Date"), unless the failure
of such transactions to be consummated is due to the willful failure of
the party seeking to terminate this Agreement to perform any of its
obligations under this Agreement to the extent required to be performed by
it prior to or on the Closing Date; or
(iii) by the Purchaser or by the Stockholders if a material breach
or default shall be made by the other in the observance or in the due and
timely performance of any of the covenants or agreements contained herein,
and the curing of such default shall not have been made within ten days
after written notice thereof is delivered to the breaching or defaulting
party by the other party.
9.2 LIABILITIES IN EVENT OF TERMINATION. The termination of this Agreement
will in no way limit any obligation or liability of any party based on or
arising from a breach or default by such
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party with respect to any of its representations, warranties, covenants or
agreements contained in this Agreement including, but not limited to, legal and
audit costs and out of pocket expenses.
10. NONCOMPETITION
10.1 PROHIBITED ACTIVITIES. The Stockholders will not, for a period of
five years following the Closing Date, for any reason whatsoever, directly or
indirectly, for themselves or on behalf of or in conjunction with any other
person, persons, company, partnership, corporation or business of whatever
nature:
(i) engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant or advisor, or as a sales
representative, in any business offering services or products in direct
competition with Purchaser or any of its subsidiaries within 200 miles of
where Purchaser or any of its subsidiaries conducts business (the
"Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of Purchaser or any of its subsidiaries for the
purpose or with the intent of enticing such employee away from or out of
the employ of Purchaser or any of its subsidiaries;
(iii) call upon any person or entity which is, at that time, or
which has been, within one year prior to the Closing Date, a customer of
Purchaser or any of its subsidiaries within the Territory for the purpose
of soliciting or selling products or services in direct competition with
Purchaser or any of its subsidiaries within the Territory.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit any Stockholder from acquiring as a passive investor with no
involvement in the operations or management of the business, not more than one
percent (1%) of the capital stock of a competing business whose stock is
publicly traded on a national securities exchange or over-the-counter market.
The provisions of this Section 10 are independent of the noncompetition
provisions contained in any employment agreement to which any of the
Stockholders may be or may become a party in connection with the transactions
contemplated hereby. All such provisions are intended to be observed and
enforced in accordance with their terms.
10.2 EQUITABLE RELIEF. Because of the difficulty of measuring economic
losses to Purchaser as a result of a breach of the foregoing covenant, and
because of the immediate and irreparable damage that could be caused to
Purchaser for which it would have no other adequate remedy, each Stockholder
agrees that the foregoing covenant may be enforced by Purchaser in the event of
breach by such Stockholder, by injunctions, restraining orders and other
equitable actions.
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10.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this Section impose a reasonable restraint on the
Stockholders in light of the activities and business of Purchaser and its
subsidiaries on the date of the execution of this Agreement and the current
plans of Purchaser.
10.4 SEVERABILITY; REFORMATION. The covenants in this Section are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and the Agreement shall thereby be reformed.
10.5 INDEPENDENT COVENANT. The Stockholders acknowledge that their
covenants set forth in this Section 10 are material conditions to Purchaser's
willingness to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. All of the covenants in this Section 10 shall
be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any Stockholder
against Purchaser or any subsidiary thereof, whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by
Purchaser of such covenants. It is specifically agreed that the period of five
years stated at the beginning of this Section 10, during which the agreements
and covenants of each Stockholder made in this Section 10 shall be effective,
shall be computed by excluding from such computation any time during which such
Stockholder is in violation of any provision of this Section 10. The covenants
contained in Section 10 shall not be affected by any breach of any other
provision hereof by any party hereto and shall have no effect if the
transactions contemplated by this Agreement are not consummated.
11. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
11.1 GENERAL. The Stockholders recognize and acknowledge that they have
access to certain confidential information of the Company, such as operational
policies, pricing and cost policies, and other information, that are valuable,
special and unique assets of the Company and Purchaser. The Stockholders agree
that they will not disclose such confidential information, or any confidential
information of Purchaser to which they may have access in the future, to any
person, firm, corporation, association or other entity for any purpose or reason
whatsoever, except (a) to authorized representatives of Purchaser, (b) following
the Closing, such information may be disclosed by any Stockholder as may be
required in the course of performing his duties for the Company and (c) to
counsel and other advisers, provided that such advisers (other than counsel)
agree to the confidentiality provisions of this Section 11.1, unless (i) such
information becomes
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known to the public generally through no fault of the Stockholders, or (ii)
disclosure is required by law or the order of any governmental authority under
color of law, provided, that prior to disclosing any information pursuant to
this clause (ii), the Stockholders shall give prior written notice thereof to
Purchaser and provide Purchaser with the opportunity to contest such disclosure.
In the event of a breach or threatened breach by any of the Stockholders of the
provisions of this Section, Purchaser shall be entitled to injunctive or other
equitable relief restraining such Stockholders from disclosing, in whole or in
part, such confidential information. Nothing herein shall be construed as
prohibiting Purchaser from pursuing any other available remedy for such breach
or threatened breach, including the recovery of damages.
11.2 EQUITABLE RELIEF. Because of the difficulty of measuring economic
losses as a result of the breach of the foregoing covenants, and because of the
immediate and irreparable damage that would be caused for which Purchaser would
have no other adequate remedy, the Stockholders agree that the foregoing
covenants may be enforced against them by injunctions, restraining orders and
other appropriate equitable relief.
11.3 SURVIVAL. The obligations of the parties under this Article 11 shall
survive the termination of this Agreement for a period of five years.
12. GENERAL
12.1 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law) and shall be binding
upon and shall inure to the benefit of the parties hereto, the successors of
Purchaser, and the heirs and legal representatives of the Stockholders.
12.2 ENTIRE AGREEMENT. This Agreement (including the schedules, exhibits
and annexes attached hereto) and the documents delivered pursuant hereto
constitute the entire agreement and understanding among the Stockholders, the
Company and Purchaser, and supersede any prior agreement and understanding
relating to the subject matter of this Agreement. This Agreement, upon
execution, constitutes a valid and binding agreement of the parties hereto
enforceable in accordance with its terms and may be modified or amended only by
a written instrument executed by the Stockholders, the Company and Purchaser.
12.3 COUNTERPARTS. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
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12.4 BROKERS AND AGENTS. Each party represents and warrants that it
employed no broker or agent in connection with this transaction and agrees to
indemnify the other parties hereto against all loss, cost, damages or expense
arising out of claims for fees or commission of brokers employed or alleged to
have been employed by such indemnifying party.
12.5 NOTICES. All notices and communications required or permitted
hereunder shall be in writing and may be given by depositing the same in United
States mail, addressed to the party to be notified, postage prepaid and
registered or certified with return receipt requested, or by delivering the same
in person to an officer or agent of such party, or by facsimile, as follows:
If to Purchaser, addressed to it at:
Metals USA, Inc.
Three Riverway, Suite 600
Houston, Texas 77056
Attn: General Counsel
Facsimile No. (713) 965-0067
If to the Company, addressed to it at:
Meier Metal Servicenters, Inc.
1471 W. Nine Mile Road
Hazel Park, MI 48030
If to the Stockholders, addressed to them at their addresses as set
forth on Schedule 12.5,
or to such other address as any party hereto shall specify pursuant to this
Section 12.5 from time to time.
12.6 GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Michigan other than its principles governing conflicts
of laws.
12.7 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties, covenants and agreements of the parties made herein and at the time
of the Closing or in writing delivered pursuant to the provisions of this
Agreement shall survive the consummation of the transactions contemplated hereby
and any examination on behalf of the parties until the applicable Expiration
Date.
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<PAGE>
12.8 EFFECT OF INVESTIGATION; KNOWLEDGE.
(a) No investigation by the parties hereto in connection with this
Agreement or otherwise shall affect the representations and warranties of the
parties contained herein or in any certificate or other document delivered in
connection herewith and each such representation and warranty shall survive such
investigation.
(b) As used herein, the phrase "best knowledge" of any person shall
mean (i) such person's actual knowledge of the relevant facts, and (ii) the
knowledge a reasonable third person would assume such first person would have
had by reason of such first person's position as an officer, director or
stockholder of the Company, even if such first person did not have actual
knowledge of such fact.
12.9 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided herein,
no delay of or omission in the exercise of any right, power or remedy accruing
to any party as a result of any breach or default by any other party under this
Agreement shall impair any such right, power or remedy, nor shall it be
construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
12.10 TIME. Time is of the essence with respect to this Agreement.
12.11 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
12.12 REMEDIES CUMULATIVE. No right, remedy or election given by any term
of this Agreement shall be deemed exclusive but each shall be cumulative with
all other rights, remedies and elections available at law or in equity.
12.13 CAPTIONS. The headings of this Agreement are inserted for
convenience only, and shall not constitute a part of this Agreement or be used
to construe or interpret any provision hereof.
12.14 PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No party shall issue any
press release or make any public announcement relating to the subject matter of
this Agreement without the prior
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written approval of the other party; provided, however, that any party may make
any public disclosure it believes in good faith is required by applicable law or
any listing or trading agreement concerning its publicly-traded securities.
12.15 NO THIRD-PARTY BENEFICIARIES. This Agreement shall not confer any
rights or remedies upon any person other than the parties and their respective
successors and permitted assigns.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
METALS USA, INC.
By:/S/ A. L. FRENCH
Name: A. L. French
Title: CEO
MEIER METAL SERVICENTERS, INC.
By:/S/ WILLIAM J. TARGETT
Name: William J. Targett
Title: President
<PAGE>
Stockholders:
William J. Targett Revocable Trust
By:/S/ WILLIAM J. TARGETT
William J. Devanney Revocable Trust
By:/S/ WILLIAM J. DEVANNEY
/S/ LAURENCE C. SAUERS
Laurence C. Sauers
/S/ ROBERT F. KIRK
Robert F. Kirk
<PAGE>
Schedule 1.2
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
PURCHASE CASH AT
NAME STOCK PRICE ADJUSTMENTS ESCROW CLOSING
William J. Targett Revocable Trust
William J. Devanney Revocable Trust
Laurence C. Sauers
Robert F. Kirk
</TABLE>
EXHIBIT 10.33
AGREEMENT
dated as of the 26th day of September, 1997
by and among
METALS USA, INC.
JEFFREYS STEEL COMPANY, INC.
and
the STOCKHOLDERS named herein
<PAGE>
TABLE OF CONTENTS
Page
1. THE EXCHANGE...........................................................2
1.1 Effective Time of the Exchange...................................2
1.2 Articles of Incorporation, Bylaws and Board of Directors.........2
1.3 Certain Information With Respect to the Capital Stock
of the Company and Metals........................................2
2. EXCHANGE OF STOCK......................................................3
2.1 Manner of Exchange...............................................3
2.2 Rights of Exchanged Metals Stock.................................3
2.3 Voluntary Share Exchange.........................................3
3. DELIVERY OF EXCHANGE CONSIDERATION.....................................3
3.1 Delivery of Metals Stock; Escrow.................................3
3.2 Delivery of Company Stock........................................4
4. CLOSING................................................................4
5. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS.....................4
5.1 Due Organization.................................................4
5.2 Authorization....................................................5
5.3 Capital Stock of the Company.....................................5
5.4 Subsidiaries.....................................................5
5.5 Financial Statements.............................................6
5.6 Liabilities and Obligations......................................6
5.7 Accounts and Notes Receivable....................................6
5.8 Permits and Intangibles..........................................7
5.9 Environmental Matters............................................7
5.10 Personal Property................................................8
5.11 Significant Customers; Material Contracts and Commitments........9
5.12 Real Property....................................................9
5.13 Insurance........................................................9
5.14 Compensation; Employment Agreements; Organized Labor Matters....10
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5.15 Employee Benefit Plans..........................................10
5.16 Conformity with Law; Litigation.................................12
5.17 Taxes...........................................................12
5.18 No Violations; No Consents Required.............................13
5.19 Government Contracts............................................14
5.20 Absence of Changes..............................................14
5.21 Deposit Accounts; Powers of Attorney............................15
5.22 Competing Lines of Business; Related-party Transactions.........15
5.23 Disclosure......................................................16
5.24 Prohibited Activities...........................................16
5.25 Preemptive Rights...............................................16
5.26 Certain Business Practices......................................16
5.27 Pooling-of-Interests Accounting.................................16
6. REPRESENTATIONS OF METALS.............................................17
6.1 Due Organization................................................17
6.2 Authorization...................................................17
6.3 No Violations...................................................17
6.4 Validity of Obligations.........................................17
6.5 Metals Stock....................................................17
6.6 Metals' Financial Statements....................................18
6.7 Liabilities.....................................................18
6.8 No Material Adverse Change......................................18
6.9 No Litigation...................................................18
6.10. Taxes...........................................................18
7. COVENANTS PRIOR TO CLOSING............................................18
7.1 Access and Cooperation; Due Diligence...........................18
7.2 Notice to Bargaining Agents.....................................18
7.3 Agreements......................................................19
7.4 Notification of Certain Matters.................................19
7.5 Amendment of Schedules..........................................19
7.6 Further Assurances..............................................19
7.7 Compliance with the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the "Hart-Scott Act").................19
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8. CONDITIONS PRECEDENT TO OBLIGATIONS OF
STOCKHOLDERS AND COMPANY..............................................20
8.1 Representations and Warranties; Performance of Obligations......20
8.2 Satisfaction....................................................20
8.3 Opinion of Counsel..............................................20
8.4 Consents and Approvals..........................................20
8.5 Employment Agreement............................................21
8.6 ESOP Opinion....................................................21
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF METALS.........................21
9.1 Representations and Warranties; Performance of Obligations......21
9.2 No Material Adverse Effect......................................21
9.3 Stockholders' Release...........................................22
9.4 Satisfaction....................................................22
9.5 Opinion of Counsel..............................................22
9.6 Consents and Approvals..........................................22
9.7 Good Standing Certificates......................................22
9.8 FIRPTA Certificate..............................................22
9.9 Related Party Transactions......................................23
9.10 Employment Agreement............................................23
9.11 Pooling Treatment...............................................23
9.12 Escrow Agreement................................................23
10. COVENANTS AFTER CLOSING...............................................23
10.1 Release From Guarantees.........................................23
10.2 ESOP Loan.......................................................23
11. INDEMNIFICATION.......................................................23
11.1 Survival of Stockholders' Representations and Warranties........24
11.2 General Indemnification by the Stockholders.....................24
11.3 Indemnification by Metals.......................................24
11.4 Specific Indemnification........................................25
11.5 Third Person Claims.............................................25
11.6 Limitations on Indemnification..................................25
11.7 Indemnification by ESOP.........................................26
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12. NONCOMPETITION........................................................26
12.1 Prohibited Activities...........................................26
12.2 Equitable Relief................................................27
12.3 Reasonable Restraint............................................27
12.4 Severability; Reformation.......................................27
12.5 Independent Covenant............................................27
13. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.............................28
13.1 General.........................................................28
13.2 Equitable Relief................................................28
13.3 Survival........................................................28
14. INTENDED TAX TREATMENT AND POOLING-OF-INTERESTS
ACCOUNTING............................................................28
14.1 Tax-Free Reorganization.........................................28
14.2 Restrictions on Resale..........................................29
15. SECURITIES LAW MATTERS................................................29
15.1 Economic Risk; Sophistication...................................29
15.2 Private Placement...............................................30
16. REGISTRATION RIGHTS...................................................30
16.1 Piggyback Registration Rights...................................30
16.2 Demand Registration Rights......................................31
16.3 Registration Procedures.........................................32
16.4 Indemnification.................................................33
16.5 Underwriting Agreement..........................................34
16.6 Rule 144 Reporting..............................................35
16.7 Assignment of Registration Rights...............................35
16.8 Allocation of Registration Opportunities........................35
17. GENERAL...............................................................36
17.1 Cooperation.....................................................36
17.2 Successors and Assigns..........................................36
17.3 Entire Agreement................................................36
17.4 Counterparts....................................................36
17.5 Brokers and Agents..............................................36
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17.6 Expenses........................................................37
17.7 Notices.........................................................37
17.8 Governing Law...................................................37
17.9 Survival of Representations and Warranties......................38
17.10 Effect of Investigation; Knowledge..............................38
17.11 Exercise of Rights and Remedies.................................38
17.12 Time............................................................38
17.13 Reformation and Severability....................................38
17.14 Remedies Cumulative.............................................38
17.15 Captions........................................................38
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ANNEXES
ANNEX I - FORM OF LEASE
ANNEX II - FORM OF OPINION OF COUNSEL TO METALS
ANNEX III - FORM OF EMPLOYMENT AGREEMENT
ANNEX IV -A- FORM OF OPINION OF COALE, DUKES & KIRKPATRICK
ANNEX IV -B- FORM OF OPINION OF LYONS, PIPES & COOK
ANNEX V - FORM OF ESCROW AGREEMENT
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<PAGE>
AGREEMENT
THIS AGREEMENT (the "Agreement") is made as of the 26th day of September,
1997, by and among Metals USA, Inc., a Delaware corporation ("Metals"), Jeffreys
Steel Company, Inc., an Alabama corporation (the "Company"), (a) Toby L.
Jeffreys, individually, (b) Toby L. Jeffreys, as Trustee of the A. Leon Jeffreys
Qualified Annuity Trust, (c) Toby L. Jeffreys, as Trustee of the Mary Helen Sims
Jeffreys Qualified Annuity Trust, (d) Toby L. Jeffreys, as General Partner of
the Jeffreys Family Limited Partnership, and (e) South Trust Bank, N.A., as
Trustee (the "ESOP Trustee") of the Jeffreys Steel Company, Inc. Employee Profit
Sharing Pension Stock Ownership Plan and Trust (the "ESOP") (the individuals and
trustees identified in the foregoing clauses (a), (b), (c) and (d) acting in
their respective capacities as such, being hereinafter called the
"Stockholders"). The Stockholders and the ESOP are all the stockholders of the
Company.
WHEREAS, the Stockholders and the ESOP desire to exchange all of the
outstanding capital stock of the Company ("Company Stock") for the
consideration described herein;
WHEREAS, Metals desires to acquire all of the outstanding shares of
Company Stock in exchange for the consideration described herein;
WHEREAS, the Board of Directors of the Company desires to evidence
its approval of the transactions contemplated hereby and to obligate the
Company to perform its obligations hereunder;
WHEREAS, the Stockholders and the ESOP desire to transfer the
capital stock of the Company to Metals in exchange for the consideration
described herein (the "Exchange");
WHEREAS, concurrently with the execution and delivery hereof, a
wholly owned subsidiary of Metals (or, at Metal's election, a wholly owned
subsidiary of the Company) is purchasing certain real estate from the
Jeffreys Family Limited Partnership;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
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<PAGE>
1. THE EXCHANGE
1.1 EFFECTIVE TIME OF THE EXCHANGE. The Exchange shall become effective at
such time (the "Effective Time") as Metals and the Stockholders have completed
their obligations pursuant to Section 4 hereof (the "Closing"). At the Effective
Time of the Exchange, the Company shall become a wholly owned subsidiary of
Metals, and the Stockholders and the ESOP shall be entitled to receive the
consideration described herein, subject to the provisions hereof and as set
forth herein.
1.2 ARTICLES OF INCORPORATION, BYLAWS AND BOARD OF DIRECTORS. At the
Effective Time of the Exchange:
(i) the Articles of Incorporation of the Company then in effect
shall remain the Articles of Incorporation of the Company until changed as
provided by law;
(ii) the Board of Directors of the Company shall consist of the
persons who are on the Board of Directors of the Company immediately prior
to the Effective Time of the Exchange, provided that Michael J. Kirksey
shall be elected as a director of the Company effective as of the
Effective Time of the Exchange; the Board of Directors of the Company
shall hold office subject to the provisions of the laws of the State of
Alabama and of the Articles of Incorporation and Bylaws of the Company;
and
(iii) the officers of the Company immediately prior to the Effective
Time of the Exchange shall continue as the officers of the Company in the
same capacity or capacities, and effective upon the Effective Time of the
Exchange Michael J. Kirksey shall be appointed as a vice president of the
Company, Keith St. Clair shall be appointed as an Assistant Treasurer and
John A. Hageman shall be appointed as an Assistant Secretary of the
Company, each of such officers to serve, subject to the provisions of the
Articles of Incorporation and Bylaws of the Company, until his or her
successor is duly elected and qualified.
1.3 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE COMPANY
AND METALS. The respective designations and numbers of outstanding shares and
voting rights of each class of outstanding capital stock of the Company and
Metals as of the date of this Agreement are as follows:
(i) as of the date of this Agreement, the authorized and outstanding
capital stock of the Company is as set forth on Schedule 1.3 hereto; and
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<PAGE>
(ii) immediately prior to the Closing, the authorized capital stock
of Metals will consist of 50,000,000 shares of common stock, $.01 par
value ("Metals Stock"), of which the number of issued and outstanding
shares will be 18,544,109, and 5,000,000 shares of preferred stock, $.01
par value, of which no shares will be issued and outstanding, and
3,122,914 shares of Restricted Voting Common Stock, $.01 par value, all of
which will be issued and outstanding.
2. EXCHANGE OF STOCK
2.1 MANNER OF EXCHANGE. The manner of exchanging (i) all of the
outstanding shares of capital stock of the Company ("Company Stock") for (ii)
shares of Metals Stock shall be as follows:
As of the Effective Time of the Exchange, all of the shares of Company
Stock issued and outstanding immediately prior to the Effective Time of the
Exchange, shall be exchanged by the Stockholders and the ESOP for the number of
shares of Metals Stock set forth on Schedule 3.1 hereto with respect to each
Stockholder and the ESOP.
2.2 RIGHTS OF EXCHANGED METALS STOCK. All Metals Stock received by the
Stockholders and the ESOP pursuant to this Agreement shall, except for
restrictions on resale or transfer described in Sections 16 and 17 hereof, have
the same rights as all the other shares of outstanding Metals Stock by reason of
the provisions of the Certificate of Incorporation of Metals or as otherwise
provided by the Delaware General Corporation Law. All voting rights of such
Metals Stock received by the Stockholders and the ESOP shall be fully
exercisable by the Stockholders and the ESOP and the Stockholders and the ESOP
shall be neither deprived nor restricted in exercising those rights. At the
Effective Time of the Exchange, Metals shall have no class of capital stock
issued and outstanding other than the Metals Stock.
2.3 VOLUNTARY SHARE EXCHANGE. The parties agree that the Exchange is
intended to qualify as a voluntary share exchange pursuant to Code of Alabama
ss. 10-2B-11.02(d) and not as a compulsory share exchange.
3. DELIVERY OF EXCHANGE CONSIDERATION
3.1 DELIVERY OF METALS STOCK; ESCROW. At the Closing the Stockholders and
the ESOP, who are the holders of all outstanding certificates representing
shares of Company Stock, shall, upon surrender of such certificates, receive the
respective number of shares of Metals Stock set forth on Schedule 3.1; provided
that the number of shares shown on Schedule 3.1 as being subject to the
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Escrow Agreement described herein (including a portion of the shares otherwise
deliverable to the ESOP pursuant to this Agreement) shall be deposited directly
into escrow and shall be held, administered and distributed by the Escrow Agent
identified in the Escrow Agreement in accordance with the terms of the Escrow
Agreement.
3.2 DELIVERY OF COMPANY STOCK. The Stockholders and the ESOP shall deliver
to Metals at the Closing the certificates representing Company Stock, duly
endorsed in blank by the Stockholders and the ESOP, or accompanied by blank
stock powers, and with all necessary transfer tax and other revenue stamps,
acquired at the expense of the Stockholders and the ESOP, affixed and canceled.
Each Stockholder and the ESOP agrees to promptly cure any deficiencies with
respect to the endorsement of the stock certificates or other documents of
conveyance with respect to such Company Stock or with respect to the stock
powers accompanying any Company Stock.
4. CLOSING
At or prior to the Closing, the parties shall take all actions necessary
to prepare to (i) effect the Exchange and (ii) effect the delivery of shares
referred to in Section 3 hereof. The closing of the transactions contemplated by
this Agreement shall take place at the offices of Coale, Dukes & Kirkpatrick,
51-D Tacon Street, Mobile, Alabama 36607, following the satisfaction or waiver
of all conditions set forth herein to the obligations of the parties to
consummate the transactions contemplated hereby (other than conditions to be
satisfied at or concurrently with the Closing) or on such other date as Metals
and the Company may mutually determine (the "Closing Date").
5. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
The Stockholders (specifically excluding the ESOP and its participants and
their beneficiaries in their capacities as such) jointly and severally represent
and warrant that all of the following representations and warranties are true at
the date of this Agreement.
5.1 DUE ORGANIZATION. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Alabama (the "State
of Incorporation"), and has all requisite corporate power and authority to carry
on its business as it is now being conducted. The Company is duly qualified to
do business and is in good standing in each jurisdiction in which the nature of
its business or the ownership or leasing of its properties makes such
qualification necessary, except where the failure to be so authorized or
qualified would not have a material adverse effect on the business, operations,
properties, assets or condition (financial or otherwise), of the Company taken
as a whole (as used herein with respect to the Company, or with respect to any
other person, a "Material Adverse Effect"). Schedule 5.1 sets forth a list of
all jurisdictions in which
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<PAGE>
the Company is authorized or qualified to do business. True, complete and
correct copies of the Articles of Incorporation and Bylaws, each as amended, of
the Company (the "Charter Documents") are all attached to Schedule 5.1. The
stock records of the Company, a copy of which is attached to Schedule 5.1, are
correct and complete in all material respects. There are no minutes in the
possession of the Company or the Stockholders which have not been made available
to Metals, and all of such minutes are correct and complete in all respects.
5.2 AUTHORIZATION. (i) The representatives of the Company executing this
Agreement have the authority to enter into and bind the Company to the terms of
this Agreement and (ii) the Company has the full legal right, corporate power
and authority to enter into this Agreement. This Agreement has been approved by
the Board of Directors of the Company, and copies of resolutions unanimously
adopted by the Board of Directors of the Company approving this Agreement,
certified by the Secretary or an Assistant Secretary of the Company, are
attached hereto as Schedule 5.2. This Agreement has been validly executed and
delivered by the Company, and the Stockholders and constitutes the legal, valid
and binding obligation of each of them enforceable in accordance with its terms.
5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the
Company consists solely of 100,000 shares of common stock, par value $0.415 per
share, of which 100,000 shares are issued and outstanding and represent all of
the Company Stock. Each of the Stockholders and the ESOP represents and
warrants, severally, that each such Stockholder and the ESOP owns, of record
and, except for the beneficial interests of the participants and beneficiaries
in the shares held of record by the ESOP, beneficially, the number of issued and
outstanding shares of the capital stock of the Company set forth on Schedule 5.3
and, except as set forth on Schedule 5.3, thatsuch shares are owned free and
clear of all liens, security interests, pledges, charges, voting trusts,
restrictions, encumbrances and claims of every kind. All of the issued and
outstanding shares of the capital stock of the Company have been duly authorized
and validly issued, are fully paid and nonassessable, and were offered, issued,
sold and delivered by the Company in compliance with all applicable state and
federal laws concerning the issuance of securities. None of such shares were
issued in violation of any preemptive rights or similar rights of any person.
Except as set forth on Schedule 5.3, no option, warrant, call, conversion right
or commitment of any kind exists which obligates the Company to issue any shares
of its capital stock or obligates any of the Stockholders or the ESOP to
transfer any shares of the Company Stock to any person except pursuant to this
Agreement.
5.4 SUBSIDIARIES. Except as set forth on Schedule 5.4, the Company has no
subsidiaries or d/b/a names and has not conducted business under any other name
except its legal name on its certificate or articles of incorporation. Except as
set forth in Schedule 5.4, the Company does not
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<PAGE>
own, of record or beneficially, or control, directly or indirectly, any capital
stock, securities convertible into capital stock or any other equity interest in
any corporation, association or other business entity, and the Company is not,
directly or indirectly, a participant in any joint venture, partnership or other
non-corporate entity.
5.5 FINANCIAL STATEMENTS. Complete and correct copies of the following
financial statements are attached as Schedule 5.5: the balance sheets of the
Company as of July 31, 1997 (the "Balance Sheet Date") and July 31, 1996 and the
related statements of operations, stockholder's equity and cash flows for the
two-year period ended July 31, 1997, together with the related notes and
schedules (such balance sheets, the related statements of operations,
stockholder's equity and cash flows and the related notes and schedules are
referred to herein as the "Financial Statements"). The Financial Statements have
been prepared from the books and records of the Company in conformity with
generally accepted accounting principles applied on a basis consistent with
preceding years and throughout the periods involved ("GAAP") (except as
otherwise indicated in the notes thereto) and present fairly in all material
respects the financial position and results of operations of the Company as of
the dates of such statements and for the periods covered thereby. The books of
account of the Company have been kept accurately in all material respects in the
ordinary course of business, the transactions entered therein represent bona
fide transactions, and the revenues, expenses, assets and liabilities of the
Company have been properly recorded therein in all material respects.
5.6 LIABILITIES AND OBLIGATIONS. Except as and to the extent disclosed and
adequately provided for in the Financial Statements or on Schedule 5.6 hereto,
the Company has no material liabilities or obligations of any kind, whether
accrued, absolute, secured or unsecured, contingent or otherwise. Except and to
the extent disclosed on Schedule 5.6, there are no material claims, liabilities
or obligations, nor any reasonable basis for assertion against the Company, of
any claim, liability or obligation, of any nature whatsoever. Except as
expressly set forth on Schedule 5.6, all of the liabilities of the Company
listed on Schedule 5.6 are covered by the Company's insurance policies, and no
such liability will exceed the policy limits of such insurance policies.
Schedule 5.6 contains a reasonable estimate by the Stockholders of the maximum
amount which may be payable with respect to liabilities which are not fixed. For
each such liability for which the amount is not fixed, the Stockholders have
provided a summary description of the liability together with copies of all
relevant documentation relating thereto.
5.7 ACCOUNTS AND NOTES RECEIVABLE. Schedule 5.7 sets forth an accurate
list of the accounts and notes receivable of the Company, as of the Balance
Sheet Date and generated subsequent to the Balance Sheet Date, including any
such amounts which are not reflected in the balance sheet as of the Balance
Sheet Date. Receivables from and advances to employees and the
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Stockholders and any entities or persons related to or affiliated with any of
the Stockholders are separately identified on Schedule 5.7. Schedule 5.7 also
sets forth an accurate aging analysis of all accounts, notes and other
receivables as of the Balance Sheet Date, showing amounts due in 30-day aging
categories. Except to the extent reflected on Schedule 5.7, all such accounts,
notes and other receivables were incurred in the ordinary course of business,
are stated in accordance with GAAP and are collectible in the amounts shown on
Schedule 5.7, net of reserves reflected in the balance sheet as of the Balance
Sheet Date.
5.8 PERMITS AND INTANGIBLES. To the best knowledge of the Stockholders,
the Company and its employees hold all material licenses, franchises, permits
and other governmental authorizations required in connection with the conduct of
the Company's business as it is now being conducted. Schedule 5.8 sets forth an
accurate list and summary description of all such licenses, franchises, permits
and other governmental authorizations, including permits, titles (including
licenses, franchises, certificates, trademarks, trade names, patents, patent
applications and copyrights owned or held by the Company or any of its employees
(including interests in software or other technology systems, programs and
intellectual property) (it being understood and agreed that a list of all
environmental permits and other environmental approvals is set forth on Schedule
5.9). To the best knowledge of the Stockholders, the licenses, franchises,
permits and other governmental authorizations listed on Schedules 5.8 and 5.9
are valid. The Company has not received any notice that any person intends to
cancel, terminate or not renew any such license, franchise, permit or other
governmental authorization. The Company has conducted for the past five years
and is conducting its business in compliance with the requirements, standards,
criteria and conditions set forth in the licenses, franchises, permits and other
governmental authorizations listed on Schedules 5.8 and 5.9 and is not in
violation of any of the foregoing, except where any such violation has not had
and will not have a Material Adverse Effect. Except as specifically set forth on
Schedule 5.8 or 5.9, the transactions contemplated by this Agreement will not
result in a default under or a breach or violation of, or adversely affect the
rights and benefits afforded to the Company by, any such licenses, franchises,
permits or government authorizations.
5.9 ENVIRONMENTAL MATTERS. To the best knowledge of the Stockholders and
except as set forth on Schedule 5.9, the Company has complied with and is in
compliance with all federal, state, local and foreign statutes (civil and
criminal), laws, ordinances, regulations, rules, notices, permits, judgments,
orders and decrees applicable to it or any of its properties, assets, operations
and businesses relating to environmental protection (collectively "Environmental
Laws") including, without limitation, Environmental Laws relating to air, water,
land and the generation, storage, use, handling, transportation, treatment or
disposal of Hazardous Wastes, Hazardous Materials and Hazardous Substances
including petroleum and petroleum products (as such terms are defined in any
applicable Environmental Law) except to the extent that noncompliance with any
Environmental
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Laws, either singly or in the aggregate, (i) has not had and will not have a
Material Adverse Effect on the Company or any of its businesses, and (ii) will
not necessitate any material expenditure by or on behalf of the Company. The
parties acknowledge that Metals has caused the reports attached to Schedule 5.9
to be prepared and the Stockholders have reviewed the same. The Company has
obtained and adhered to all necessary permits and other approvals necessary to
treat, transport, store, dispose of and otherwise handle Hazardous Wastes,
Hazardous Materials and Hazardous Substances, a list of all of which permits and
approvals is set forth on Schedule 5.9, and have reported to the appropriate
authorities, to the extent required by all Environmental Laws, all past and
present sites owned and operated by the Company where Hazardous Wastes,
Hazardous Materials or Hazardous Substances have been treated, stored, disposed
of or otherwise handled. To the best knowledge of the Stockholders, there have
been no releases or threats of releases (as defined in Environmental Laws) at,
from, in or on any property owned or operated by the Company except as permitted
by Environmental Laws. To the best knowledge of the Stockholders, there is no
on-site or off-site location to which the Company has transported or disposed of
Hazardous Wastes, Hazardous Materials or Hazardous Substances or arranged for
the transportation of Hazardous Wastes, Hazardous Materials or Hazardous
Substances which is the subject of any federal, state, local or foreign
enforcement action or any other investigation which could lead to any claim
against the Company, or Metals for any clean-up cost, remedial work, damage to
natural resources, property damage or personal injury, including, but not
limited to, any claim under (i) the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, (ii) the Resource
Conservation and Recovery Act, (iii) the Hazardous Materials Transportation Act
or (iv) comparable state or local statutes and regulations. To the best
knowledge of the Stockholders, the Company has no contingent liability in
connection with any release or threatened release of any Hazardous Waste,
Hazardous Material or Hazardous Substance into the environment except as set
forth in Schedule 5.9.
5.10 PERSONAL PROPERTY. Schedule 5.10 sets forth an accurate list of (a)
all personal property included in "plant, property and equipment" on the balance
sheet of the Company, (b) all other personal property owned by the Company with
an individual value in excess of $10,000 (i) as of the Balance Sheet Date and
(ii) acquired since the Balance Sheet Date and (c) all leases and agreements in
respect of personal property, including, in the case of each of (a), (b) and
(c), (1) true, complete and correct copies of all such leases and (2) an
indication as to which assets are currently owned, or were formerly owned, by
Stockholders, relatives of Stockholders, or Affiliates of the Company or the
Stockholders. Except as set forth on Schedule 5.10, (i) all material personal
property used by the Company in its business is either owned by the Company or
leased by the Company pursuant to a lease included on Schedule 5.10, (ii) all of
the personal property listed on Schedule 5.10 is in good working order and
condition, ordinary wear and tear excepted and (iii) all leases and agreements
included on Schedule 5.10 are in full force and effect and constitute valid and
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binding agreements of the parties (and their successors) thereto in accordance
with their respective terms.
5.11 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. Schedule
5.11 sets forth a list of (i) all customers representing 5% or more of the
Company's revenues in any of the periods covered by the Financial Statements,
and (ii) all material contracts, commitments and similar agreements to which the
Company is a party or by which it or any of its properties are bound (including,
but not limited to, contracts with significant customers, joint venture or
partnership agreements, contracts with any labor organizations, strategic
alliances and options to purchase land). True, complete and correct copies of
such agreements are attached to Schedule 5.11. Except as described on Schedule
5.11, (i) none of the Company's significant customers (including those
identified on Schedule 5.11) have canceled or substantially reduced or, to the
knowledge of the Company, are currently attempting or threatening to cancel a
contract or substantially reduce utilization of the services provided by the
Company, and (ii) to the best knowledge of the Stockholders, the Company has
complied with all material commitments and obligations pertaining to it, and is
not in default under any contracts or agreements listed on Schedule 5.11 which
would cause a Material Adverse Effect and no notice of default under any such
contract or agreement has been received. Schedule 5.11 also includes a summary
description of all plans or projects involving the opening of new operations,
expansion of existing operations, the acquisition of any property, business or
assets requiring, in any event, the payment of more than $10,000 by the Company.
5.12 REAL PROPERTY. Schedule 5.12 includes a list of all real property
owned or leased by the Company at the date hereof, and all other real property,
if any, currently used by the Company in the conduct of its business. True,
complete and correct copies of all leases and agreements in respect of real
property leased by the Company are attached to Schedule 5.12, and all other real
estate used by the Company and owned by the Stockholders or entities controlled
by the Stockholders is being transferred to a wholly owned subsidiary of Metals
on the date hereof. An indication as to which such properties, if any, are
currently owned, or were formerly owned, by Stockholders or affiliates of the
Company or Stockholders is included in Schedule 5.12. Except as set forth on
Schedule 5.12, all of such leases included on Schedule 5.12 are in full force
and effect and constitute valid and binding agreements of the parties (and their
successors) thereto in accordance with their respective terms.
5.13 INSURANCE. Schedule 5.13 sets forth an accurate list as of the
Balance Sheet Date of all insurance policies carried by the Company and an
accurate list of all insurance loss runs or workers compensation claims received
for the past five policy years. True, complete and correct copies of all
insurance policies currently in effect are attached to Schedule 5.13. Such
insurance policies evidence all of the insurance that the Company is required to
carry pursuant to all of its
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contracts and other agreements and pursuant to all applicable laws, and provide
adequate coverage against the risks involved in the Company's business. None of
such policies is a "claims made" policy. All of such insurance policies are
currently in full force and effect and shall remain in full force and effect
through the Closing Date.
5.14 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS.
Schedule 5.14 sets forth an accurate list showing all officers, directors and
key employees of the Company, listing all employment agreements with such
officers, directors and key employees and the rate of compensation (and the
portions thereof attributable to salary, bonus and other compensation,
respectively) of each of such persons as of (i) the Balance Sheet Date and (ii)
the date hereof. Attached to Schedule 5.14 are true, complete and correct copies
of any employment agreements for the persons listed on Schedule 5.14 and all
other employment and other agreements of any nature containing any provision
that could require the Company to make any payment to any person as a result of
the transactions contemplated by this Agreement, which provisions are
specifically identified on Schedule 5.14. Since the Balance Sheet Date, there
have been no increases in the compensation payable or any special bonuses to any
officer, director, key employee or other employee, except ordinary salary
increases implemented on a basis consistent with past practices.
Except as set forth on Schedule 5.14, (i) the Company is not bound by or
subject to (and none of its respective assets or properties is bound by or
subject to) any arrangement with any labor union, (ii) no employees of the
Company are represented by any labor union or covered by any collective
bargaining agreement, (iii) to the best knowledge of the Stockholders, no
campaign to establish such representation is in progress and (iv) there is no
pending or, to the best knowledge of the Stockholders, threatened, labor dispute
involving the Company and any group of its employees. The Company has not
experienced any labor interruptions over the past five years. The Company's
relationship with its employees is good.
5.15 EMPLOYEE BENEFIT PLANS. Schedule 5.15 sets forth an accurate schedule
showing all employee benefit plans of Company, including all agreements or
arrangements (other than agreements or arrangements set forth on Schedule 5.14)
containing "golden parachute" or other similar provisions, and deferred
compensation agreements, together with true, complete and correct copies of such
plans, agreements and any trusts related thereto, and classifications of
employees covered thereby as of the Balance Sheet Date. Except for the employee
benefit plans, if any, described on Schedule 5.15, the Company does not sponsor,
maintain or contribute to any plan program, fund or arrangement that constitutes
an "employee pension benefit plan," nor does the Company have any obligation to
contribute to or accrue or pay any benefits under any deferred compensation or
retirement funding arrangement on behalf of any employee or employees (such as,
for example, and without limitation, any individual retirement account or
annuity, any "excess
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benefit plan" (within the meaning of Section 3(36) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")) or any non-qualified deferred
compensation arrangement). For the purposes of this Agreement, the term
"employee pension benefit plan" shall have the same meaning as is given that
term in Section 3(2) of ERISA. The Company has not sponsored, maintained or
contributed to any employee pension benefit plan other than the plans set forth
on Schedule 5.15, and the Company is not required to contribute to any
retirement plan pursuant to the provisions of any collective bargaining
agreement establishing the terms and conditions or employment of any of the
Company's employees.
The Company is not now, and to the best knowledge of the Stockholders,
cannot as a result of its past activities become, liable to the Pension Benefit
Guaranty Corporation or to any multi employer employee pension benefit plan
under the provisions of Title IV of ERISA. To the best knowledge of the
Stockholders, all employee benefit plans listed on Schedule 5.15 and the
administration thereof are in substantial compliance with their terms and all
applicable provisions of ERISA and the regulations issued thereunder, as well as
with all other applicable federal, state and local statutes, ordinances and
regulations. All accrued contribution obligations of the Company with respect to
any plan listed on Schedule 5.15 have either been fulfilled in their entirety or
are fully reflected on the balance sheet of the Company as of the Balance Sheet
Date. All plans listed on Schedule 5.15 that are intended to qualify (the
"Qualified Plans") under Section 401(a) of the Code are, and have been so
qualified and have been determined by the Internal Revenue Service to be so
qualified, and copies of the determination letters relating thereto are included
as part of Schedule 5.15. To the best knowledge of the Stockholders, except as
disclosed on Schedule 5.15, all reports and other documents required to be filed
with any governmental agency or distributed to plan participants or
beneficiaries (including, but not limited to, actuarial reports, audits or tax
returns) have been timely filed or distributed, and copies thereof are included
as part of Schedule 5.15. Neither the Stockholders, any plan listed in Schedule
5.15 nor the Company has engaged in any transaction prohibited under the
provisions of Section 4975 of the Code or Section 406 of ERISA. No plan listed
in Schedule 5.15 has incurred an accumulated funding deficiency, as defined in
Section 412(a) of the Code and Section 302(1) of ERISA; and the Company has not
incurred any liability for excise tax or penalty due to the Internal Revenue
Service or any liability to the Pension Benefit Guaranty Corporation. There have
been no terminations, partial terminations or discontinuance of contributions to
any such Qualified Plan intended to qualify under Section 401(a) of the Code
without notice to and approval by the Internal Revenue Service; no plan listed
in Schedule 5.15 subject to the provisions of Title IV of ERISA has been
terminated; there have been no "reportable events" (as that phrase is defined in
Section 4043 of ERISA) with respect to any such plan listed in Schedule 5.15;
the Company has not incurred liability under Section 4062 of ERISA; and no
circumstances exist pursuant to which the Company could have any direct or
indirect liability whatsoever (including, but not limited to, any liability to
any multi employer plan or the PBGC
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under Title IV of ERISA or to the Internal Revenue Service for any excise tax or
penalty, or being subject to any statutory lien to secure payment of any such
liability) with respect to any plan now or heretofore maintained or contributed
to by any entity other than the Company that is, or at any time was, a member of
a "controlled group" (as defined in Section 412(n)(6)(B) of the Code) that
includes the Company.
5.16 CONFORMITY WITH LAW; LITIGATION. Except as set forth on Schedule
5.16, there are no claims, actions, suits or proceedings, pending or threatened
against or affecting the Company, at law or in equity, or before or by any
federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality having jurisdiction over the Company. Except
as set forth on Schedule 5.16, no notice of any claim, action, suit or
proceeding, whether pending or threatened, has been received by the Company
during the last five years and, to the best knowledge of the Stockholders, there
is no basis therefor. Except as set forth on Schedule 5.16, and except for any
failures to comply or violations that have not had and will not have a Material
Adverse Effect or require any material expenditure by the Company, the Company
has conducted for the past five years and now conducts its business in
compliance with all laws, regulations, writs, injunctions, decrees and orders
applicable to the Company or its assets, and is not in violation of any law or
regulation or any order of any court or federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over any of them. The Company has conducted for the past
five years and is conducting its business in substantial compliance with the
requirements, standards, criteria and conditions set forth in applicable
federal, state and local statutes, ordinances, permits, licenses, orders,
approvals, variances, rules and regulations, including all such permits,
licenses, orders and other governmental approvals set forth on Schedules 5.8 and
5.9.
5.17 TAXES. For purposes of this Agreement, the term "Taxes" shall mean
all taxes, charges, fees, levies or other assessments including, without
limitation, income, gross receipts, excise, property, sales, withholding, social
security, unemployment, occupation, use, service, license, payroll, franchise,
transfer and recording taxes, fees and charges, imposed by the United States or
any state, local or foreign government or subdivision or agency thereof, whether
computed on a separate, consolidated, unitary, combined or any other basis; and
such term shall include any interest, fines, penalties or additional amounts
attributable to or imposed with respect to any such taxes, charges, fees, levies
or other assessments. The Company (including any subsidiaries) has timely filed
all requisite federal, state and other tax returns or extension requests for all
fiscal periods ended on or before the Balance Sheet Date. Except as set forth on
Schedule 5.17, there are no examinations in progress or claims against the
Company for federal, state or other taxes (including penalties and interest) for
any period or periods prior to or on the Balance Sheet Date and no notice of any
claim for taxes, whether pending or threatened, has been received. All Taxes,
including interest and
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penalties (whether or not shown on any tax return) owed by the Company, any of
the Company's subsidiaries, any member of an affiliated or consolidated group
which includes or included the Company or any of the Company's subsidiaries,
have been paid. The amounts shown as accruals for taxes on the Financial
Statements are sufficient for the payment of all taxes of the kinds indicated
(including penalties and interest) for all periods shown. Copies of (i) any tax
examinations, (ii) extensions of time for filing and (iii) the federal and local
income tax returns and franchise tax returns of Company (including any
subsidiaries) for the last three fiscal years, or such shorter period of time as
any of them shall have existed, are attached hereto as Schedule 5.17. The
Company uses the accrual method of accounting for income tax purposes, and the
Company's methods of accounting have not changed in the past five years. The
Company is not an investment company as defined in Section 351(e)(1) of the
Code. No liens for Taxes exist upon any asset of the Company except for Taxes
not yet due. The Company is not and has not been a party to any tax sharing
agreement. All amounts required to be withheld by the Company and paid to
governmental agencies for income, social security, unemployment insurance,
sales, excise, use and other Taxes have been collected or withheld and paid to
the proper authority. The Company has made all deposits required by law to be
made with respect to employees' withholding and other employment Taxes. The
Company has not made is not obligated to make and is not a party to any
agreement that could require it to make any payment that is not deductible under
Section 280G of the Code.
5.18 NO VIOLATIONS; NO CONSENTS REQUIRED. The Company is not in violation
of its Articles of Incorporation or Bylaws, each as amended to date ("Charter
Documents") . Neither the Company nor, to the best knowledge of the
Stockholders, any other party thereto, is in material default under any lease,
instrument, license, permit or material agreement to which the Company is a
party or by which its properties are bound (the "Material Documents"). Except as
set forth in Schedule 5.18, (a) the execution of this Agreement and the
performance of the obligations hereunder and the consummation of the
transactions contemplated hereby will not result in any violation or breach or
constitute a default under, any of the terms or provisions of the Material
Documents or the Charter Documents, and (b) the rights and benefits of the
Company under the Material Documents will not be adversely affected by the
transactions contemplated hereby. Except as set forth on Schedule 5.18, none of
the Material Documents requires notice to, or the consent or approval of, any
governmental agency or other third party with respect to any of the transactions
contemplated hereby in order to remain in full force and effect and consummation
of the transactions contemplated hereby will not give rise to any right to
termination, cancellation or acceleration or loss of any right or benefit.
Except as set forth on Schedule 5.18, none of the Material Documents prohibits
the use or publication by the Company or Metals of the name of any other party
to such Material Document, and none of the Material Documents prohibits or
restricts the Company from freely providing services to any other customer or
potential customer of the Company or Metals.
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5.19 GOVERNMENT CONTRACTS. Except as set forth on Schedule 5.19, the
Company is not a party to any governmental contracts subject to price
redetermination or renegotiation.
5.20 ABSENCE OF CHANGES. Since the Balance Sheet Date, the Company has
conducted its operations in the ordinary course of business and, except as set
forth on Schedule 5.20, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of the Company;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
the Company;
(iii) any change in the authorized capital of the Company or its
outstanding securities or any change in its ownership interests or any
grant of any options, warrants, calls, conversion rights or commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption,
purchase or other acquisition of any of the capital stock of the Company;
(v) any increase in the compensation, bonus, sales commissions or
fee arrangement payable or to become payable by the Company to any of its
officers, directors, Stockholders, employees, consultants or agents;
(vi) any work interruptions, labor grievances or claims filed, or
any event or condition of any character, materially adversely affecting
the business of the Company;
(vii) any sale or transfer, or any agreement to sell or transfer,
any material assets, property or rights of Company to any person,
including, without limitation, the Stockholders and their affiliates;
(viii)any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the Company, including without limitation any
indebtedness or obligation of any Stockholder or any affiliate thereof;
(ix) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property
or rights of the Company or
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requiring consent of any party to the transfer and assignment of any such
assets, property or rights;
(x) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets outside
of the ordinary course of the Company's business;
(xi) any waiver of any material rights or claims of the Company;
(xii) any amendment or termination of any material contract,
agreement, license, permit or other right to which the Company is a party;
(xiii) any transaction by the Company outside the ordinary course of
its business;
(xiv) any cancellation or termination of a material contract with a
customer or client prior to the scheduled termination date; or
(xv) any distribution of property or assets by the Company other
than in the ordinary course of business.
5.21 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. Schedule 5.21 sets forth a
schedule as of the date of this Agreement of: (i) the name of each financial
institution in which the Company has accounts or safe deposit boxes, (ii) the
names in which the accounts or boxes are held, (iii) the type of account and
account number, (iv) the type of account and the amount of cash, cash
equivalents and securities held in such account, and (v) the name of each person
authorized to draw thereon or have access thereto. Schedule 5.21 also sets forth
the name of each person, corporation, firm or other entity holding any general
or special power of attorney from the Company and a description of the terms of
each such power.
5.22 COMPETING LINES OF BUSINESS; RELATED-PARTY TRANSACTIONS. Except as
set forth on Schedule 5.22, neither any of the Stockholders nor any other
affiliate of the Company owns, directly or indirectly, any interest in, or is an
officer, director, employee or consultant of or otherwise receives remuneration
from, any business which is a competitor, lessor, lessee, customer or supplier
of the Company. Except as set forth on Schedule 5.22, no officer, director or
Stockholder of the Company has, nor during the period beginning January 1, 1990
through the date hereof had, any interest in any property, real or personal,
tangible or intangible, used in or pertaining to the Company's business.
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5.23 DISCLOSURE. The Stockholders have provided Metals with all the
information that Metals has requested in analyzing whether to consummate the
Exchange. Neither the information so provided nor any representation or warranty
of the Stockholders contained in this Agreement contains any untrue statement or
omits to state a material fact necessary in order to make the statements herein
or therein, in light of the circumstances under which they were made, not
misleading. There is no fact known to the Stockholders which has specific
application to the Company (other than general economic or industry conditions)
which materially adversely affects or, so far as the Stockholders can reasonably
foresee, materially threatens, the assets, business, condition (financial or
otherwise), results of operations or prospects of the Company, which has not
been described in this Agreement or the Schedules hereto. The disclosures in the
Schedules, and those in any supplement thereto, shall relate only to the
representations and warranties in the Section of this Agreement to which each
Schedule expressly relates, and to no other representation or warranty in this
Agreement.
5.24 PROHIBITED ACTIVITIES. Except as set forth on Schedule 5.24, the
Company has not, between the Balance Sheet Date and the date hereof, taken any
of the actions (Prohibited Activities) set forth in Section 7.3.
5.25 PREEMPTIVE RIGHTS. Neither the ESOP nor any Stockholder has, and the
ESOP and each Stockholder hereby waives, any preemptive or other right to
acquire shares of Company Stock or Metals Stock that such Stockholder has or may
have had other than rights of any Stockholder to acquire Metals Stock pursuant
to (i) this Agreement or (ii) any option granted by Metals.
5.26 CERTAIN BUSINESS PRACTICES. Neither the Company nor any person acting
on its behalf has given or offered anything of value to any governmental
official, political party or candidate for government office nor has it or any
of them otherwise taken any action which would cause the Company to be in
violation of the Foreign Corrupt Practices Act of 1977, as amended, or any law
of similar effect.
5.27 POOLING-OF-INTERESTS ACCOUNTING. The Company has never been a
subsidiary or division of another corporation or a part of an acquisition which
was later rescinded and, within the past two years, there has not been any sale
or spin-off of a significant amount of assets of the Company or any affiliate of
the Company other than in the ordinary course of business. Except as set forth
on Schedule 5.27, the Company owns no capital stock of Metals. The Company has
not acquired any of its capital stock during the past two years. Except as set
forth on Schedule 5.27, the Company has no obligation (contingent or otherwise)
to purchase, redeem or otherwise acquire any of the Company Stock or any
interest therein or to pay any dividend or make any distribution in respect
thereof. Neither the voting stock structure of the Company nor the relative
ownership of
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shares among any of the Company's stockholders has been altered or changed
within the last two years in contemplation of the Exchange. There has been no
transaction or action taken with respect to the equity ownership of the Company
in contemplation of the Exchange which would prevent Metals from accounting for
the Exchange under the pooling-of-interests method of accounting in accordance
with Opinion No. 16 of the Accounting Principles Board ("Opinion No. 16"). If
required, the Stockholders and the President or Chief Financial Officer of the
Company will execute any documentation reasonably required by Metals'
independent public accountants to enable Metals to account for the Exchange as a
pooling-of-interests.
6. REPRESENTATIONS OF METALS
Metals represents and warrants that all of the following representations
and warranties in this Section 6 are true at the date of this Agreement and
shall be true at the time of Closing.
6.1 DUE ORGANIZATION. Metals is a corporation duly incorporated, validly
existing and in good standing under the laws of the state of Delaware, and has
the requisite power and authority to carry on its business as it is now being
conducted. Metals is qualified to do business and is in good standing in each
jurisdiction in which the nature of its business makes such qualification
necessary, except where the failure to be so authorized or qualified would not
have a Material Adverse Effect.
6.2 AUTHORIZATION. (i) The representatives of Metals executing this
Agreement have the authority to enter into and bind Metals to the terms of this
Agreement and (ii) Metals has the full legal right, power and authority to enter
into this Agreement and the Exchange.
6.3 NO VIOLATIONS. The execution of this Agreement and the performance of
the obligations hereunder and the consummation of the transactions contemplated
hereby will not result in any violation or breach or constitute a default under
any of the terms or provisions of the Restated Certificate of Incorporation, as
amended, of Metals or the Amended and Restated Bylaws of Metals.
6.4 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by Metals and the performance of the transactions contemplated herein have been
duly and validly authorized by the Board of Directors of Metals and this
Agreement has been duly and validly authorized by all necessary corporate action
and is a legal, valid and binding obligation of Metals.
6.5 METALS STOCK. At the time of issuance thereof, the Metals Stock to be
delivered to the Stockholders pursuant to this Agreement will constitute valid
and legally issued, fully paid and nonassessable shares of Metals.
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6.6 METALS' FINANCIAL STATEMENTS. Prior to the execution and delivery
hereof, Metals had delivered to the Company for delivery to the Stockholders and
the ESOP copies of Metals' Prospectus contained in its Registration Statement on
Form S-1 filed with the Securities and Exchange Commission on September 12, 1997
(the "Public Reports"). The financial statements of Metals contained in the
Public Reports have been prepared from and in accordance with the books and
records of Metals in accordance with GAAP, except to the extent otherwise
disclosed therein.
6.7 LIABILITIES.Metals has no material liabilities of any kind, whether
absolute or contingent, which are not reflected in the financial statements or
other information contained in the Public Reports.
6.8 NO MATERIAL ADVERSE CHANGE. No material adverse change has occurred in
Metals' business since the date of the most recent balance sheet contained in
the Public Reports.
6.9 NO LITIGATION. There is no litigation pending or, to the knowledge of
Metals, threatened, against Metals that would have a Material Adverse Effect on
Metals.
6.10. TAXES. Metals has filed all required federal and state income tax
returns due through the date hereof and has paid, or made adequate provision for
the payment of, all taxes shown thereon to be due.
7. COVENANTS PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION; DUE DILIGENCE. The Company will afford to the
officers and authorized representatives of Metals access to all of the Company's
sites, properties, books and records and will furnish Metals with such
additional financial and operating data and other information as to the business
and properties of the Company as Metals may from time to time reasonably
request. The Company will cooperate with Metals, its representatives, auditors
and counsel in the preparation of any documents or other material which may be
required in connection with any documents or materials required by this
Agreement. Metals, the Stockholders and the Company will treat all information
obtained in connection with the negotiation and performance of this Agreement as
confidential in accordance with the provisions of Section 16 hereof.
7.2 NOTICE TO BARGAINING AGENTS. Prior to the Closing Date, the Company
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under applicable collective bargaining agreements, and shall
provide Metals with proof that any required notice has been sent.
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7.3 AGREEMENTS. The Stockholders and the Company shall terminate (i) any
stockholders agreements, voting agreements, voting trusts, options, warrants and
employment agreements between the Company and any employee except as
specifically approved in writing by Metals and (ii) any existing agreement
between the Company and any Stockholder except as specifically approved in
writing by Metals, on or prior to the Closing Date. Copies of such termination
agreements shall be delivered to Metals at the Closing or prior thereto. The
parties acknowledge and agree that no employee benefit plans, including the
ESOP, will be terminated on the Closing Date, except as otherwise listed on
Schedule 7.3.
7.4 NOTIFICATION OF CERTAIN MATTERS. The Stockholders and the Company
shall give prompt notice to Metals of (i) the occurrence or non-occurrence of
any event the occurrence or non-occurrence of which would be likely to cause any
representation or warranty of the Company or the Stockholders contained herein
to be untrue or inaccurate in any material respect at or prior to the Closing
and (ii) any material failure of any Stockholder or the Company to comply with
or satisfy any covenant, condition or agreement to be complied with or satisfied
by such person hereunder at or prior to the Closing. Metals shall give prompt
notice to the Company of (i) the occurrence or non-occurrence of any event the
occurrence or non-occurrence of which would be likely to cause any
representation or warranty of Metals contained herein to be untrue or inaccurate
in any material respect at or prior to the Closing and (ii) any material failure
of Metals to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder at or prior to the Closing. The
delivery of any notice pursuant to this Section 7.4 shall not be deemed to (i)
modify the representations or warranties hereunder of the party delivering such
notice, (ii) modify the conditions to Closing set forth herein, or (iii) limit
or otherwise affect the remedies available hereunder to the party receiving such
notice.
7.5 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with respect to
the representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until the Closing occurs to
notify the other parties hereto with respect to any matter hereafter arising or
discovered which, if existing or known at the date of this Agreement, would have
been required to be set forth or described in the Schedules.
7.6 FURTHER ASSURANCES. The parties hereto agree to execute and deliver,
or cause to be executed and delivered, such further instruments or documents or
take such other action as may be reasonably necessary or convenient to carry out
the transactions contemplated hereby.
7.7 COMPLIANCE WITH THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF
1976 (THE "HART-SCOTT ACT"). All parties to this Agreement hereby recognize that
one or more filings under the Hart-Scott Act may be required in connection with
the transactions contemplated herein.
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If it is determined by the parties to this Agreement that filings under the
Hart-Scott Act are required, then: (i) each of the parties hereto agrees to
cooperate and use its best efforts to comply with the Hart-Scott Act, (ii) such
filings and expiration or termination of the applicable waiting period
thereunder shall be deemed a condition precedent in addition to the conditions
precedent set forth elsewhere in this Agreement, and (iii) the parties agree to
cooperate and use their best efforts to cause all filings required under the
Hart-Scott Act to be made. If filings under the Hart-Scott Act are required, the
costs and expenses thereof (including filing fees) shall be borne by Metals.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY
The obligations of Stockholders and the Company with respect to actions to
be taken on the Closing Date are subject to the satisfaction or waiver on or
prior to the Closing Date of all of the following conditions. If any such
conditions has not been satisfied, the Stockholders (acting in unison) shall
have the right to terminate this Agreement, or in the alternative, waive any
condition not so satisfied. Any act or action of the Stockholders in
consummating the Closing or delivering certificates representing Company Stock
as of the Closing Date shall constitute a waiver of any conditions not so
satisfied. However, no such waiver shall be deemed to affect the survival of the
representations and warranties and indemnification obligations of Metals
contained herein.
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
representations and warranties of Metals contained in Section 6 shall be true
and correct in all material respects as of the Closing Date as though such
representations and warranties had been made as of that time; all of the terms,
covenants and conditions of this Agreement to be complied with and performed by
Metals on or before the Closing Date shall have been duly complied with and
performed in all material respects; and certificates to the foregoing effect
dated the Closing Date and signed by the President or any Vice President of
Metals shall have been delivered to the Stockholders.
8.2 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall be reasonably satisfactory to the Company and its counsel.
8.3 OPINION OF COUNSEL. The Company shall have received an opinion from
counsel for Metals, dated the Closing Date, in the form annexed hereto as Annex
II.
8.4 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the transaction
contemplated
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herein shall have been obtained and made and no action or proceeding shall have
been instituted or threatened to restrain or prohibit the Exchange and no
governmental agency or body shall have taken any other action or made any
request of the Company as a result of which the Company deems it inadvisable to
proceed with the transactions hereunder.
8.5 EMPLOYMENT AGREEMENT. A. Leon Jeffreys, Toby L. Jeffreys and Sam
Sciple shall have been afforded an opportunity to enter into an Employment
Agreement with the Company in the form of Annex III hereto.
8.6 ESOP OPINION. The ESOP shall have received in form and substance
acceptable to the ESOP (i) an opinion from Shareholder Strategies, Inc. to the
effect that as of the Closing Date, the value of each share of Company Stock
held by the ESOP immediately prior to the Closing is not more than the
consideration per share received by the ESOP (the "Appraisal") and (ii) an
opinion from Shareholder Strategies, Inc. to the effect that as of the Closing
Date, the transactions contemplated hereby are fair to the ESOP from a financial
point of view (the "Fairness Opinion").
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF METALS
The obligations of Metals with respect to actions to be taken on the
Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions. If any such conditions has not
been satisfied, Metals shall have the right to terminate this Agreement, or in
the alternative, waive any condition not so satisfied. Any act or action of
Metals in consummating the Closing shall constitute a waiver of any conditions
not so satisfied. However, no such waiver shall be deemed to affect the survival
of the representations and warranties of the Stockholders contained herein or of
the indemnification obligations of the Stockholders contained herein.
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All the
representations and warranties of the Stockholders and the Company contained in
this Agreement shall be true and correct in all material respects as of the
Closing Date with the same effect as though such representations and warranties
had been made on and as of such date; all of the terms, covenants and conditions
of this Agreement to be complied with or performed by the Stockholders and the
Company on or before the Closing Date, as the case may be, shall have been duly
performed or complied with in all material respects; and the Stockholders shall
have delivered to Metals certificates dated the Closing Date and signed by them
to such effect.
9.2 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred with respect to the Company which would constitute a Material Adverse
Effect, and the Company shall not have suffered any material loss or damages to
any of its properties or assets, whether or not
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covered by insurance, which change, loss or damage could affect or impair the
ability of the Company to conduct its business.
9.3 STOCKHOLDERS' RELEASE. The Stockholders shall have delivered to Metals
an instrument dated the Closing Date releasing the Company from (i) any and all
claims of the Stockholders against the Company and Metals and (ii) obligations
of the Company and Metals to the Stockholders, except for (a) items specifically
identified on Schedule 5.6 or 5.12 as being claims of or obligations to the
Stockholders, (b) continuing obligations to Stockholders relating to their
employment by the Company, (c) obligations arising under this Agreement or the
transactions contemplated hereby, and (d) obligations of the Company to the
ESOP.
9.4 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out the transactions contemplated by this Agreement or
incidental hereto and all other related legal matters shall have been approved
by counsel to Metals.
9.5 OPINION OF COUNSEL. Metals shall have received opinions from counsel
to the Company and the Stockholders, dated the Closing Date, in the forms
annexed hereto as Annexes IV-A and IV-B.
9.6 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made; all consents
and approvals of third parties listed on Schedule 5.18 shall have been obtained;
and no action or proceeding shall have been instituted or threatened to restrain
or prohibit the Exchange and no governmental agency or body shall have taken any
other action or made any request of Metals as a result of which Metals deems it
inadvisable to proceed with the transactions hereunder.
9.7 GOOD STANDING CERTIFICATES. The Company shall have delivered to Metals
a certificate, dated as of a date no earlier than ten days prior to the Closing
Date, duly issued by the appropriate governmental authority in the State of
Incorporation and in each state in which the Company is authorized to do
business, showing the Company is in good standing and authorized to do business
and that all state franchise and/or income tax returns and taxes for the Company
for all periods prior to the Closing have been filed and paid.
9.8 FIRPTA CERTIFICATE. Each Stockholder shall have delivered to Metals a
certificate to the effect that he is not a foreign person pursuant to Section
1.1445-2(b) of the Treasury regulations.
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9.9 RELATED PARTY TRANSACTIONS. All existing leases, agreements and
arrangements between the Company and the Stockholder or any affiliate of the
Stockholder shall either have been canceled or the terms thereof shall have been
renegotiated on an arm's length basis satisfactory to Metals.
9.10 EMPLOYMENT AGREEMENT. The persons identified in Section 8.5 shall
have entered into the Employment Agreement referred to therein.
9.11 POOLING TREATMENT. Metals shall have received advice in form and
substance satisfactory to Metals from an accounting firm satisfactory to Metals
to the effect that the Exchange will qualify for pooling-of-interests accounting
under Opinion No. 16.
9.12 ESCROW AGREEMENT. The Stockholders and the ESOP and the other parties
identified in the form of Escrow Agreement attached hereto as Annex V shall have
entered into an Escrow Agreement in the form of Annex V.
10. COVENANTS AFTER CLOSING
10.1 RELEASE FROM GUARANTEES. Metals shall use all reasonable efforts to
have the Stockholders released from any and all guarantees of the Company's
indebtedness identified on Schedule 10.1. In the event that Metals cannot obtain
such releases on or prior to the date 120 days subsequent to the Closing Date,
Metals shall pay off or otherwise refinance or retire such indebtedness.
10.2 ESOP LOAN. The ESOP Trustee hereby agrees to effect the repayment of
the existing loan to the ESOP with funds to be generated by the sale of a
portion of the Metals Stock to be received by the ESOP pursuant to this
Agreement; such sale and repayment to be effected reasonably promptly after such
shares may be sold publicly by the ESOP Trustee pursuant to Rule 144 under the
Securities Act of 1933, as amended, or otherwise. The Company shall pay interest
accruing on such loan until the loan is repaid as described above.
11. INDEMNIFICATION
The Stockholders (specifically excluding the ESOP and its participants and
their beneficiaries in their capacities as such) and Metals each make the
following covenants that are applicable to them, respectively:
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11.1 SURVIVAL OF STOCKHOLDERS' REPRESENTATIONS AND WARRANTIES.
(a) The representations and warranties of the Stockholders (and the
representation and warranty of the ESOP in Section 5.3 regarding its ownership
of shares of Company Stock) made in this Agreement and in the documents and
certificates delivered in accordance herewith shall survive the Exchange for a
period of one year from the Closing Date, except that the specific
indemnification provided in Section 11.4 hereof shall survive for a period of
ten years after the Closing Date; provided, however, that representations and
warranties and indemnification obligations with respect to which a claim is made
within the applicable survival period shall survive until such claim is finally
determined and paid.
(b) The representations and warranties of Metals made in this
Agreement and in the certificates delivered in connection herewith shall survive
the Exchange for a period of one year following the Closing Date, provided,
however, that representations and warranties with respect to which a claim is
made within such one-year period shall survive until such claim is finally
determined and paid.
(c) The date on which a representation or warranty expires as
provided herein is herein called the "Expiration Date." No claim for
indemnification may be made with respect to a representation or warranty after
the Expiration Date.
11.2 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. The Stockholders
(specifically excluding the ESOP and its participants and their beneficiaries,
in their capacities as such) covenant and agree that they will jointly and
severally indemnify, defend, protect, and hold harmless the Company and Metals
at all times from and after the date of this Agreement until the Expiration Date
from and against all claims, damages actions, suits, proceedings, demands,
assessments, adjustments, costs and expenses (including specifically, but
without limitation, reasonable attorneys' fees and expenses of investigation)
(collectively "Damages") incurred by such indemnified person as a result of or
incident to (i) any breach of any representation or warranty of any Stockholder
set forth herein or in the certificates or other documents delivered in
accordance herewith, and (ii) any breach or nonfulfillment of any covenant or
agreement by the Company or the Stockholders under this Agreement; provided,
however, that the payment of the amount of any Damages shall be reduced by any
tax benefit accruing to the Indemnified Party (as defined below) and any
insurance proceeds paid to the Indemnified Party as a result of the event giving
rise to such Damages, even though such benefit may arise after the Expiration
Date.
11.3 INDEMNIFICATION BY METALS. Metals covenants and agrees that it will
indemnify, defend, protect and hold harmless the Stockholders at all times from
and after the date of this
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Agreement until the Expiration Date from and against all Damages incurred by the
Stockholders as a result of (i) any breach of any representation or warranty of
Metals set forth herein or in the certificates or other documents delivered in
accordance with this Agreement; (ii) any breach or nonfulfillment of any
covenant or agreement by Metals under this Agreement, and (iii) any Damages
incurred by the Stockholders as a result of violations by Metals of
Environmental Laws after the Closing Date.
11.4 SPECIFIC INDEMNIFICATION. In addition to the indemnification provided
for in Section 11.1, each Stockholder (specifically excluding the ESOP and its
participants and their beneficiaries, in their capacities as such) covenants and
agrees that he will jointly and severally indemnify, defend, protect and hold
harmless the Company and Metals from and against all Damages incurred by any of
them as a result of any condition of the properties owned or operated by the
Company at any time prior to the Closing Date and described in the report or
reports of ENSR, copies of which are attached hereto.
11.5 THIRD PERSON CLAIMS. Promptly after any party hereto (the
"Indemnified Party") has received notice of or has knowledge of any claim by a
person not a party to this Agreement ("Third Person") or the commencement of any
action or proceeding by a Third Person that may give rise to a right of
indemnification hereunder, such Indemnified Party shall give to the party
obligated to provide indemnification hereunder (an "Indemnifying Party") written
notice of such claim or the commencement of such action or proceeding; provided,
however, that the failure to give such notice will not relieve such Indemnifying
Party from liability under this Section with respect to such claim, action or
proceeding, except to the extent that the Indemnifying Party has been actually
prejudiced as a result of such failure. The Indemnifying Party (at its own
expense) shall have the right and shall be given the opportunity to associate
with the Indemnified Party in the defense of such claim, suit or proceedings,
provided that counsel for the Indemnified Party shall act as lead counsel in all
matters pertaining to the defense or settlement of such claims, suit or
proceedings. The Indemnified Party shall not, except at its own cost, make any
settlement with respect to any such claim, suit or proceeding without the prior
consent of the Indemnifying Party, which consent shall not be unreasonably
withheld or delayed.
11.6 LIMITATIONS ON INDEMNIFICATION. Metals and the other persons or
entities indemnified pursuant to this Section shall not assert any claim for
indemnification hereunder against the Stockholders until such time as, and
solely to the extent that, the aggregate of all claims which such persons may
have against such the Stockholders shall exceed $375,000 (the "Indemnification
Threshold"). The Stockholders shall not assert any claim for indemnification
hereunder against Metals until such time as, and solely to the extent that the
aggregate of all claims which Stockholders may have against Metals shall exceed
the Indemnification Threshold.
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No person shall be entitled to indemnification under this Section 11 if
and to the extent that such person's claim for indemnification is directly or
indirectly caused by a breach by such person of any representation, warranty,
covenant or other agreement set forth is this Agreement.
11.7 INDEMNIFICATION BY ESOP. Notwithstanding anything else set forth in
this Agreement, no benefit which shall be payable out of the ESOP to any person
(including a participant or his or her beneficiary) shall be subject in any
manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance or charge, and any attempt to anticipate, alienate, sell, transfer,
assign, pledge, encumber or charge the same shall be void.
12. NONCOMPETITION
12.1 PROHIBITED ACTIVITIES. A. Leon Jeffreys and Toby L. Jeffreys will
not, for a period of five (5) years following the Closing Date, for any reason
whatsoever, directly or indirectly, for themselves or on behalf of or in
conjunction with any other person, persons, company, partnership, corporation or
business of whatever nature:
(i) engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant or advisor, or as a sales
representative, in any business offering services or products in direct
competition with Metals or any of its subsidiaries within 200 miles of
where the Company and Metals or any of its subsidiaries conducts business
(the "Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of Metals or any of its subsidiaries for the
purpose or with the intent of enticing such employee away from or out of
the employ of Metals or any of its subsidiaries;
(iii) call upon any person or entity which is, at that time, or
which has been, within one year prior to the Closing Date, a customer of
Metals or any of its subsidiaries within the Territory for the purpose of
soliciting or selling products or services in direct competition with
Metals or any of its subsidiaries within the Territory.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit any Stockholder from acquiring as a passive investor with no
involvement in the operations or management of the business, not more than one
percent (1%) of the capital stock of a competing business whose stock is
publicly traded on a national securities exchange or over-the-counter market.
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12.2 EQUITABLE RELIEF. Because of the difficulty of measuring economic
losses to Metals as a result of a breach of the foregoing covenant, and because
of the immediate and irreparable damage that could be caused to Metals for which
it would have no other adequate remedy, each Stockholder agrees that the
foregoing covenant may be enforced by Metals in the event of breach by such
Stockholder, by injunctions, restraining orders and other equitable actions.
12.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this Section impose a reasonable restraint on the
Stockholders in light of the activities and business of Metals and its
subsidiaries on the date of the execution of this Agreement and the current
plans of Metals; but it is also the intent of Metals and the Stockholders that
such covenants be construed and enforced in accordance with the changing
activities; business and locations of Metals and its subsidiaries throughout the
term of this covenant. During the term of this covenant, if Metals or one of its
subsidiaries engages in new and different activities, enters a new business or
establishes new locations for its current activities or business in addition to
or other than the activities or business it is currently conducting in the
locations currently established therefor, then the Stockholders will be
precluded from soliciting the customers or employees of such new activities or
business or from such new location and from directly competing with such new
activities or business within 100 miles of its then-established operating
location(s) through the term of this covenant.
12.4 SEVERABILITY; REFORMATION. The covenants in this Section are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and the Agreement shall thereby be reformed.
12.5 INDEPENDENT COVENANT. The Stockholders acknowledge that their
covenants set forth in this Section 12 are material conditions to Metals'
willingness to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. All of the covenants in this Section 12 shall
be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any Stockholder
against Metals or any subsidiary thereof, whether predicated on this Agreement
or otherwise, shall not constitute a defense to the enforcement by Metals of
such covenants. It is specifically agreed that the period of five (5) years
stated at the beginning of this Section 12, during which the agreements and
covenants of each Stockholder made in this Section 12 shall be effective, shall
be computed by excluding from such computation any time during which such
Stockholder is in violation of any provision of this Section 12. The covenants
contained in this Section 12 shall not be affected by any breach of any other
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provision hereof by any party hereto and shall have no effect if the
transactions contemplated by this Agreement are not consummated.
13. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
13.1 GENERAL. The Stockholders recognize and acknowledge that they had in
the past, currently have, and in the future may possibly have, access to certain
confidential information of the Company and/or Metals, such as operational
policies, pricing and cost policies, and other information, that are valuable,
special and unique assets of the Company and/or Metals. The Stockholders agree
that they will not disclose such confidential information to any person, firm,
corporation, association or other entity for any purpose or reason whatsoever,
except (a) to authorized representatives of Metals, (b) following the Closing,
such information may be disclosed by the Stockholders as is required in the
course of performing their duties for the Company and (c) to counsel and other
advisers, provided that such advisers (other than counsel) agree to the
confidentiality provisions of this Section 13.1, unless (i) such information
becomes known to the public generally through no fault of the Stockholders, or
(ii) disclosure is required by law or the order of any governmental authority
under color of law, provided, that prior to disclosing any information pursuant
to this clause (ii), the Stockholders shall, if possible, give prior written
notice thereof to Metals and provide Metals with the opportunity to contest such
disclosure. In the event of a breach or threatened breach by any of the
Stockholders of the provisions of this Section, Metals shall be entitled to
injunctive or other equitable relief restraining such Stockholders from
disclosing, in whole or in part, such confidential information. Nothing herein
shall be construed as prohibiting Metals from pursuing any other available
remedy for such breach or threatened breach, including the recovery of damages.
13.2 EQUITABLE RELIEF. Because of the difficulty of measuring economic
losses as a result of the breach of the foregoing covenants, and because of the
immediate and irreparable damage that would be caused for which Metals would
have no other adequate remedy, the Stockholders agree that the foregoing
covenants may be enforced against them by injunctions, restraining orders and
other appropriate equitable relief.
13.3 SURVIVAL. The obligations of the parties under this Section 13 shall
survive the termination of this Agreement for a period of five years.
14. INTENDED TAX TREATMENT AND POOLING-OF-INTERESTS ACCOUNTING
14.1 TAX-FREE REORGANIZATION. Metals and the Stockholders are entering
into this Agreement with the intention that the Exchange qualify as a tax-free
reorganization for federal
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income tax purposes, and the Stockholders will not take any actions that
disqualify the Exchange for such treatment. The Stockholders represent, warrant
and covenant that:
(i) the Company operates at least one historic business line, or
owns at least a significant portion of its historic business assets, in
each case within the meaning of Reg. 1.368-1(d) under the Code; and
(ii) none of the Stockholders has any present plan, intention or
arrangement to dispose of any of the Metals Stock to be received in the
Exchange that would reduce the fair value of the Metals Stock (measured as
of the Effective Time) retained by such Stockholder to an amount less than
50% of the fair value of the Company Stock held by such Stockholder
immediately prior to the Effective Time.
14.2 RESTRICTIONS ON RESALE. Metals has informed the Stockholders that
Metals intends to account for the Exchange as a pooling-of-interests under
Opinion No. 16. Metals has also informed the Stockholders that its ability to
account for the Exchange as a pooling-of-interests was a material factor
considered by Metals in Metals' decision to enter into this Agreement.
Therefore, pursuant to Opinion No. 16, prior to the publication and
dissemination by Metals of consolidated financial results which include results
of the combined operations of the Company and Metals for at least thirty days on
a consolidated basis following the Effective time, the Stockholders shall not
sell, offer to sell, or otherwise transfer or dispose of, any shares of the
Metals Common Stock received by Stockholders, engage in put, call, short-sale,
straddle or similar transactions, or in any other way reduce the Stockholders'
risk of owning shares of Metals. The certificates evidencing the Metals Common
Stock to be received by the Stockholders will bear a legend substantially in the
form set forth below:
The shares represented by this certificate have not been registered and
may not be sold, transferred or assigned, and the issuer shall not be
required to give effect to any attempted sale, transfer or assignment,
except pursuant to an exemption from federal registration requirements
(such as the exemption provided by Rule 144) and all applicable state
registration requirements.
15. SECURITIES LAW MATTERS
15.1 ECONOMIC RISK; SOPHISTICATION. Each Stockholder represents and
warrants that such Stockholder has not relied on any purchaser representative,
or on the Company or any other Stockholder, in connection with the acquisition
of shares of Metals Stock hereunder. The Stockholders each (A) have such
knowledge, sophistication and experience in business and financial
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matters that they are capable of evaluating the merits and risks of an
investment in the shares of Metals Stock, (B) fully understand the nature, scope
and duration of any limitations on transfer described in this Agreement and (C)
can bear the economic risk of an investment in the shares of Metals Stock and
can afford a complete loss of such investment. The Stockholders have each had an
adequate opportunity to ask questions and receive answers from the officers of
Metals concerning any and all matters relating to the transactions described
herein including without limitation the background and experience of the
officers and directors of Metals, the plans for the operations of the business
of Metals, the business, operations and financial condition of Metals, and any
plans for additional acquisitions and the like. The Stockholders have each asked
any and all questions in the nature described in the preceding sentence and all
questions have been answered to their satisfaction.
15.2 PRIVATE PLACEMENT. The Stockholders understand that the issuance of
the shares of Metals Stock to be issued hereunder has not been registered under
the Securities Act of 1933, as amended (the "Act"), and may not be sold as
transferred in the absence of registration thereunder or an exemption from the
registration requirements of the Act.
16. REGISTRATION RIGHTS
16.1 PIGGYBACK REGISTRATION RIGHTS. For purposes of this Section 16, the
term "Stockholders" shall include the ESOP. At any time following the Closing,
whenever Metals proposes to register any Metals Stock for its own or others
account under the 1933 Act for a public offering, other than (i) any
registration of shares to be used as consideration for the acquisition of
businesses or (ii) registrations relating to employee benefit plans, Metals
shall give each of the Stockholders prompt written notice of its intent to do
so. Upon the written request of any of the Stockholders given within 30 days
after receipt of such notice, Metals shall cause to be included in such
registration the number of shares of Stockholders' Metals Stock (including any
stock issued as (or issuable upon the conversion or exchange of any convertible
security, warrant, right or other security which is issued by Metals as) a
dividend or other distribution with respect to, or in exchange for, or in
replacement of such Metals Stock) specified in such written request by such
Stockholder, provided that (i) Metals shall not be required to register more
than 30% of the Stockholders' Metals Stock in any such registration, and (ii) if
Metals is advised in writing in good faith by any managing underwriter of an
underwritten offering of the securities being offered that the number of shares
to be sold by persons other than Metals is greater than the number of such
shares which can be offered without adversely affecting the offering, Metals may
reduce pro rata the number of shares offered for the accounts of such persons
(based upon the number of shares held by such person) to a number deemed
satisfactory by such managing underwriter.
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16.2 DEMAND REGISTRATION RIGHTS.
(a) At any time after the date one year after the Closing and prior
to the date three years after the Closing, the holders of twenty percent or more
of the shares of Metals Stock issued to the Stockholders pursuant to this
Agreement which have not been previously registered or sold and which are not
entitled to be sold under Rule 144(k) (or any similar or successor provision)
promulgated under the 1933 Act may request in writing that Metals file a
registration statement under the 1933 Act covering the registration of all or
any part of the shares of Metals Stock issued to the Stockholders pursuant to
this Agreement (including any stock issued as (or issuable upon the conversion
or exchange of any convertible security, warrant, right or other security which
is issued by Metals as) a dividend or other distribution with respect to, or in
exchange for, or in replacement of such Metals Stock) then held by such
Stockholders (a "Demand Registration"). Within ten (10) days of the receipt of
such request, Metals shall give written notice of such request to all
Stockholders. As soon as practicable but in no event later than 45 days after
the initial written request of Stockholders regarding such registration, Metals
shall file and use its best efforts to cause to become effective a registration
statement covering (i) all of the shares requested to be included in such
registration pursuant to the initial written request and (ii) of all of the
shares of other Stockholders joining in such request within 20 days following
Metals' notice. Metals shall be obligated to effect only one Demand Registration
hereunder, and will keep such Demand Registration current and effective for not
less than 120 days (or such shorter period as is required to complete the
distribution of the shares registered thereby).
(b) Notwithstanding the foregoing paragraph, following any such a
demand, a majority of Metals' disinterested directors (i.e. directors who have
not demanded or elected to sell shares in any such public offering) may defer
the filing of the registration statement for up to a 30 day period after the
date on which Metals would otherwise be required to make such filing pursuant to
the foregoing paragraph.
If at the time of any request by the Stockholders for a Demand
Registration Metals has fixed plans to file within 60 days after such request a
registration statement covering the sale of any of its securities in a public
offering under the 1933 Act, Metals may so inform the Stockholders requesting
registration and no registration of the Stockholders' Metals Stock shall be
initiated under this Section 16.2 until 90 days after the effective date of such
registration unless Metals is no longer proceeding diligently to effect such
registration; provided that Metals shall provide the Stockholders the right to
participate in such public offering pursuant to, and subject to, Section 16.1
hereof. If, pursuant to this paragraph, Metals does not effect the requested
Demand Registration (and some or all of the Stockholders do not sell all of
their shares of Metals Stock pursuant to any offering effected pursuant to
Section 16.1), such Stockholders shall be entitled to a second Demand
Registration.
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16.3 REGISTRATION PROCEDURES. Whenever Metals is required to register
shares of Metals Stock pursuant to Sections 16.1 and 16.2, Metals will, as
expeditiously as possible:
(a) Prepare and file with the SEC a registration statement with
respect to such shares and use its best efforts to cause such registration
statement to become effective (provided that before filing a registration
statement or prospectus or any amendments or supplements or term sheets thereto,
Metals will furnish a representative of the Stockholders with copies of all such
documents proposed to be filed) as promptly as practical;
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection therewith as
may be necessary to comply with the provisions of the Securities Act and to keep
such registration statement effective for a period of not less than 120 days;
(c) Furnish to each Stockholder who so requests such number of
copies of such registration statement, each amendment and supplement thereto and
the prospectus included in such registration statement (including each
preliminary prospectus and any term sheet associated therewith), and such other
documents as such Stockholder may reasonably request in order to facilitate the
disposition of the relevant shares;
(d) Use its best efforts to register or qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Stockholders,
and to keep such registration or qualification effective during the period such
registration statement is to be kept effective, provided that Metals shall not
be required to become subject to taxation, to qualify to do business or to file
a general consent to service of process in any such states or jurisdictions;
(e) Cause all such shares of Metals Stock to be listed or included
on any securities exchanges or trading systems on which similar securities
issued by Metals are then listed or included;
(f) Notify each Stockholder at any time when a prospectus relating
thereto is required to be delivered under the 1933 Act within the period that
Metals is required to keep the registration statement effective of the happening
of any event as a result of which the prospectus included in such registration
statement, together with any associated term sheet, contains an untrue statement
of a material fact or omits any fact necessary to make the statement therein not
misleading, and, at the request of any such Stockholder, Metals will prepare a
supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of the covered shares, such prospectus
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will not contain an untrue statement of material fact or omit to state any fact
necessary to make the statements therein not misleading.
All expenses incurred in connection with the registration under this
Section 16 (including all registration, filing, qualification, legal, printer
and accounting fees, but excluding underwriting commissions and discounts),
shall be borne by Metals.
16.4 INDEMNIFICATION.
(a) In connection with any demand registration, Metals shall
indemnify, to the extent permitted by law, each Stockholder (an "Indemnified
Party") against all losses, claims, damages, liabilities and expenses arising
out of or resulting from any untrue or alleged untrue statement of material fact
contained in any registration statement, prospectus or preliminary prospectus or
associated term sheet or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading except insofar as the same are caused by or contained in
or omitted from any information furnished in writing to Metals by such
Indemnified Party expressly for use therein or by any Indemnified Parties'
failure to deliver a copy of the registration statement or prospectus or any
amendment or supplements thereto after Metals has furnished such Indemnified
Party with a sufficient number of copies of the same.
(b) In connection with any demand registration, each Stockholder
shall furnish to Metals in writing such information as is reasonably requested
by Metals for use in any such registration statement or prospectus and will
indemnify, to the extent permitted by law, Metals, its directors and officers
and each person who controls Metals (within the meaning of the 1933 Act) against
any losses, claims, damages, liabilities and expenses resulting from any untrue
or alleged untrue statement or material fact or any omission or alleged omission
of a material fact required to be stated in the registration statement or
prospectus or any amendment thereof or supplement thereto necessary to make the
statements therein not misleading, but only to the extent that such untrue
statement or omission is contained in information so furnished in writing by
such Stockholder specifically for use in preparing the registration statement.
Notwithstanding the foregoing, the liability of a Stockholder under this Section
16.4 shall be limited to an amount equal to the net proceeds actually received
by such Stockholder from the sale of the relevant shares covered by the
registration statement.
(c) Any person entitled to indemnification hereunder will (i) give
prompt notice to the indemnifying party of any claim with respect to which it
seeks indemnification and (ii) unless in such indemnified parties' reasonable
judgment, a conflict of interest between such indemnified
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and indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. Any failure to give prompt notice shall
deprive a party of its right to indemnification hereunder only to the extent
that such failure shall have adversely effected the indemnifying party. If the
defense of any claim is assumed, the indemnifying party will not be subject to
any liability for any settlement made without its consent (but such consent
shall not be unreasonably withheld). An indemnifying party who is not entitled
or elects not, to assume the defense of a claim, will not be obligated to pay
the fees and expenses of more than one counsel for all parties indemnified by
such indemnifying party with respect to such claim, unless in the reasonable
judgment of any indemnified party, a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim.
(d) If the indemnification provided for in this Section 16.4 is held
by a court of competent jurisdiction to be unavailable to an indemnified party
with respect to any loss, liability, claim, damage, or expenses referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of as a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(e) Notwithstanding the foregoing, to the extent that the provisions
on indemnification and contribution contained in the underwriting agreement
entered into in connection with the underwritten public offering are in conflict
with the foregoing provisions, the provisions in the underwriting agreement
shall control.
16.5 UNDERWRITING AGREEMENT. In connection with each registration pursuant
to Sections 16.1 and 16.2 covering an underwritten registered offering, Metals
and each participating holder agree to enter into a written agreement with the
managing underwriters in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
managing underwriters and companies of Metals's size and investment stature,
including indemnification.
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16.6 RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the SEC that may permit the sale of Metals
stock to the public without registration, Metals agrees to use its best efforts
to:
(i) make and keep public information regarding Metals available as
those terms are defined in Rule 144 under the 1933 Act, for a period of
four years beginning on the Closing Date;
(ii) file with the SEC in a timely manner all reports and other
documents required of Metals under the 1933 Act and the 1934 Act; and
(iii) so long as a Stockholder owns any restricted Metals Common
Stock, furnish to each Stockholder forthwith upon written request a
written statement by Metals as to its compliance with the reporting
requirements of Rule 144 and of the 1933 Act and the 1934 Act, a copy of
the most recent annual or quarterly report of Metals, and such other
reports and documents so filed as a Stockholder may reasonably request in
availing itself of any rule or regulation of the SEC allowing a
Stockholder to sell any such shares without registration.
16.7 ASSIGNMENT OF REGISTRATION RIGHTS. A Stockholder or any person to
which such rights under this Agreement have been transferred may transfer the
rights granted by this Section 16 only to a transferee or assignee of Metals
Stock representing no less than 10% of the aggregate number of shares of Metals
Stock (as adjusted for any stock dividends, combinations or splits with respect
to such shares) issued pursuant to this Agreement (or, if less, 100% of the
Metals Stock originally issued to such Stockholder or transferred to such other
person). Any transfer or assignment of the registration rights granted under
this Agreement shall be conditioned upon (i) the Company's being given written
notice at the time of or within 10 days after said transfer or assignment,
stating the name and address of the transferee or assignee and identifying the
securities with respect to which such registration rights are being transferred
or assigned and (ii) the assumption in writing by the transferee or assignee of
the obligations of a Stockholder under this Section 16.
16.8 ALLOCATION OF REGISTRATION OPPORTUNITIES. In any circumstance in
which all of the Metals Stock requested to be included in a registration on
behalf of the Stockholders cannot be so included as a result of limitations of
the aggregate number of shares of Metals Stock that may be so included, the
number of shares of Metals Stock that may be so included by the Stockholders
shall be allocated among the Stockholders requesting inclusion of shares pro
rata on the basis of the number of shares of Metals Stock held by such
Stockholders. The Company shall not limit the number of shares of Metals Stock
to be included in a registration pursuant to this Section 16 in order
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to include shares held by stockholders with no registration rights or, with
respect to registrations under Section 16.2 hereof, in order to include in such
registration securities registered for the Company's own account or securities
held by persons other than the Stockholders.
17. GENERAL
17.1 COOPERATION. The Company, Stockholders and Metals shall each deliver
or cause to be delivered to the other on the Closing Date, and at such other
times and places as shall be reasonably agreed to, such additional instruments
as the other may reasonably request for the purpose of carrying out this
Agreement. The Company will cooperate and use its reasonable efforts to have the
present officers, directors and employees of the Company cooperate with Metals
on and after the Closing Date in furnishing information, evidence, testimony and
other assistance in connection with any tax return filing obligations, actions,
proceedings, arrangements or disputes of any nature with respect to matters
pertaining to all periods prior to the Closing Date.
17.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law) and shall be binding
upon and shall inure to the benefit of the parties hereto, the successors of
Metals, and the heirs and legal representatives of the Stockholders.
17.3 ENTIRE AGREEMENT. This Agreement (including the schedules, exhibits
and annexes attached hereto) and the documents delivered pursuant hereto
constitute the entire agreement and understanding among the Stockholders, the
Company and Metals and supersede any prior agreement and understanding relating
to the subject matter of this Agreement. This Agreement, upon execution,
constitutes a valid and binding agreement of the parties hereto enforceable in
accordance with its terms and may be modified or amended only by a written
instrument executed by the Stockholders, the Company and Metals, acting through
their respective officers, duly authorized by their respective Boards of
Directors.
17.4 COUNTERPARTS. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
17.5 BROKERS AND AGENTS. Each party represents and warrants that it
employed no broker or agent in connection with this transaction and agrees to
indemnify the other parties hereto against all loss, cost, damages or expense
arising out of claims for fees or commission of brokers employed or alleged to
have been employed by such indemnifying party.
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17.6 EXPENSES. Whether or not the transactions herein contemplated shall
be consummated, Metals will pay the fees and expenses of Metals'
representatives, accountants and counsel incurred in connection herewith, and
the Stockholders will pay the fees and expenses of the Stockholders'
representatives, accountants and counsel incurred in connection herewith. Each
Stockholder shall pay all sales, use, transfer, real property transfer,
recording, gains, stock transfer and other similar taxes and fees ("Transfer
Taxes") imposed in connection with the Exchange. Each Stockholder shall file all
necessary documentation and Returns with respect to such Transfer Taxes. In
addition, each Stockholder acknowledges that he, and not the Company or Metals,
will pay all taxes due upon receipt of the consideration payable pursuant to
this Agreement.
17.7 NOTICES. All notices and communications required or permitted
hereunder shall be in writing and may be given by depositing the same in United
States mail, addressed to the party to be notified, postage prepaid and
registered or certified with return receipt requested, or by delivering the same
in person to an officer or agent of such party, as follows:
(a) If to Metals, addressed to it at:
Metals USA, Inc.
4801 Woodway, Suite 300E
Houston, Texas 77056
Attn: General Counsel
(b) If to the Company, addressed to it at:
Jeffreys Steel Company, Inc.
1251 Woodland Avenue
P.O. Box 2763
Mobile, Alabama 36652
Attn: President
(c) If to the Stockholders, addressed to them at their addresses
set forth Schedule 1.3 hereto;
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 17.7 from time to time.
17.8 GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Alabama other than its principles governing conflicts
of laws.
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17.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties, covenants and agreements of the parties made herein and at the time
of the Closing or in writing delivered pursuant to the provisions of this
Agreement shall survive the consummation of the transactions contemplated hereby
and any examination on behalf of the parties until the applicable Expiration
Date.
17.10 EFFECT OF INVESTIGATION; KNOWLEDGE.
(a) No investigation by the parties hereto in connection with this
Agreement or otherwise shall affect the representations and warranties of the
parties contained herein or in any certificate or other document delivered in
connection herewith and each such representation and warranty shall survive such
investigation.
(b) When a representation or warranty contained herein or in any
certificate or other document delivered in connection herewith is made to the
"knowledge" of a party, such party shall be deemed to know all facts and
circumstances that a reasonable investigation of the subject matter of such
representation or warranty would have revealed.
17.11 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
17.12 TIME. Time is of the essence with respect to this Agreement.
17.13 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
17.14 REMEDIES CUMULATIVE. No right, remedy or election given by any term
of this Agreement shall be deemed exclusive but each shall be cumulative with
all other rights, remedies and elections available at law or in equity.
17.15 CAPTIONS. The headings of this Agreement are inserted for
convenience only, and shall not constitute a part of this Agreement or be used
to construe or interpret any provision hereof.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
METALS USA, INC.
By: /s/ ARTHUR L. FRENCH
Arthur L. French
President and Chief Executive Officer
JEFFREYS STEEL COMPANY, INC.
By:/s/ TOBY JEFFREYS
Name: Toby Jeffreys
Title: President and CEO
<PAGE>
STOCKHOLDERS:
/s/ TOBY L. JEFFREYS
Toby L. Jeffreys, Individually
/s/ TOBY L. JEFFREYS
Toby L. Jeffreys, as Trustee of Leon
Jeffreys Qualified Annuity Trust
/s/ TOBY L. JEFFREYS
Toby L. Jeffreys, as Trustee of the Mary
Helen Sims Jeffreys Qualified Annuity
Trust
The Jeffreys Family Limited Partnership
By: /s/ TOBY L. JEFFREYS
Toby L. Jeffreys
General Partner
The Jeffreys Steel Company, Inc. Employee
Profit Sharing Pension Stock Ownership
Plan and Trust
By: South Trust Bank, N.A., Trustee
By: /s/ LESLIE L. DEAN
Name: Leslie L. Dean
Title: VP and Trust Officer
EXHIBIT 10.34
ASSET PURCHASE AGREEMENT
dated as of September 26, 1997
by and among
METALS USA, INC.
FEDERAL BRONZE ALLOYS INC.
(a subsidiary of Metals USA, Inc.)
FEDERAL BRONZE PRODUCTS, INC.
and
the Stockholders named herein
<PAGE>
TABLE OF CONTENTS
Page
1. PURCHASE AND SALE......................................................1
1.1 Purchase and Sale................................................1
1.2 Purchase Price...................................................3
1.3 Assumption of Liabilities........................................3
1.4 Indemnification..................................................3
1.5 The Closing......................................................4
1.6 Instruments of Transfer; Further Assurances......................4
1.7 Value Assigned to the Assets.....................................4
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY..........................4
2.1 Due Organization.................................................4
2.2 Authorization....................................................5
2.3 Capital Stock of the Company.....................................5
2.4 Subsidiaries.....................................................5
2.5 Financial Statements.............................................6
2.6 Liabilities and Obligations......................................6
2.7 Accounts and Notes Receivable....................................6
2.8 Permits and Intangibles..........................................7
2.9 Environmental Matters............................................7
2.10 Personal Property................................................8
2.11 Significant Customers; Material Contracts and Commitments........9
2.12 Real Property....................................................9
2.13 Insurance........................................................9
2.14 Compensation; Employment Agreements; Organized Labor Matters....10
2.15 Employee Benefit Plans..........................................10
2.16 Conformity with Law; Litigation.................................12
2.17 Taxes...........................................................12
2.18 No Violations; All Required Consents Obtained...................13
2.19 Government Contracts............................................14
2.20 Absence of Changes..............................................14
2.21 Powers of Attorney..............................................15
2.22 Competing Lines of Business; Related-party Transactions.........15
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2.23 Disclosure......................................................15
2.24 Certain Business Practices......................................15
2.25 Notices and Consents............................................16
3. REPRESENTATIONS OF METALS.............................................16
3.1 Due Organization................................................16
3.2 Authorization...................................................16
3.3 No Violations...................................................16
3.4 Validity of Obligations.........................................16
4. DELIVERIES............................................................17
4.1 Opinion of Counsel..............................................17
4.2 Good Standing Certificates......................................17
4.3 Employment and Consulting Agreements............................17
4.4 Ferdon Street Warehouse Lease...................................17
4.5 The 50 Wheeler Point Road Lease.................................17
4.6 General Conveyance, Transfer and Assignment.....................17
4.7 Escrow Agreement................................................17
4.8 Additional Deliveries...........................................17
5. POST-CLOSING COVENANTS................................................18
5.1 Future Cooperation..............................................18
5.2 Expenses........................................................18
5.3 Payment of Liabilities; Bulk Transfer Compliance................18
5.4 Change of the Company's Name....................................18
5.5 Agreements......................................................18
5.6 Union Employees and the Collective Bargaining Agreement.........19
5.7 Union Employees and the Multiemployer Plan......................19
6. INDEMNIFICATION.......................................................20
6.1 Survival of Representations and Warranties. ...................20
6.2 General Indemnification by the Company..........................21
6.3 Indemnification by Metals.......................................21
6.4 Third Person Claims.............................................21
6.5 Method of Payment...............................................22
6.6 Limitations on Indemnification..................................22
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7. NONCOMPETITION........................................................23
7.1 Prohibited Activities...........................................23
7.2 Equitable Relief................................................23
7.3 Reasonable Restraint............................................24
7.4 Severability; Reformation.......................................24
7.5 Independent Covenant............................................24
8. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.............................24
8.1 General.........................................................24
8.2 Equitable Relief................................................25
8.3 Survival........................................................25
9. GENERAL...............................................................25
9.1 Successors and Assigns..........................................25
9.2 Entire Agreement................................................25
9.3 Counterparts....................................................25
9.4 Brokers and Agents..............................................26
9.5 Notices.........................................................26
9.6 Governing Law...................................................26
9.7 Effect of Investigation.........................................26
9.8 Exercise of Rights and Remedies.................................26
9.9 Time............................................................27
9.10 Reformation and Severability....................................27
9.11 Captions........................................................27
9.12 Press Releases and Public Announcements.........................27
9.13 No Third-Party Beneficiaries....................................27
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ANNEXES
Annex I - Form of General Conveyance, Transfer and Assignment
Annex IIA - Form of Employment Agreement
Annex IIB - Form of Consulting Agreement
Annex III - Form of Opinion of Counsel to Company and
Stockholders
Annex IV - Form of Lease
Annex V - Form of Escrow Agreement
Annex VI - Form of Amendment and Assignment of the
50 Wheeler Point Road Lease
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made and entered into
as of September 26, 1997 by and among Federal Bronze Alloys Inc., a Delaware
corporation ("Purchaser") and wholly-owned subsidiary of Metals USA, Inc., a
Delaware corporation ("Metals"), Federal Bronze Products, Inc., a New Jersey
corporation (the "Company"), and the stockholders of the Company identified on
the signature pages hereto (the "Stockholders").
WHEREAS, the Company desires to sell to Purchaser the business of the
Company as a going concern and along therewith substantially all of the assets
of the Company (collectively, the "Business"), and Purchaser desires to purchase
the Business, upon the terms and conditions set forth in this Agreement (the
"Transaction");
WHEREAS, concurrently with the execution and delivery hereof, the parties
hereto are consummating the Transaction;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants contained
herein, the parties hereto, intending to be legally bound, agree as follows:
1. PURCHASE AND SALE
1.1 PURCHASE AND SALE. Upon the terms and subject to the conditions of
this Agreement, the Company hereby sells, conveys, transfers, assigns and
delivers to Purchaser, and Purchaser hereby purchases from the Company, all of
the assets, properties, business, franchises, goodwill and rights of every kind
and character, tangible or intangible, owned or leased by the Company or any of
its subsidiaries (collectively, the "Assets"), free and clear of all liens,
claims and encumbrances of any kind; provided, however, that the Assets do not
include the assets (the "Excluded Assets") identified as such on Schedule 1.1.
Without limiting the generality of the foregoing, the Assets consist of all
assets of the Company other than the Excluded Assets, including, without
limitation, the following:
(a) CUSTOMER LISTS. All customer lists, sales records, credit data
and other information relating to customers of the Company.
(b) CUSTOMER CONTRACTS. All right, title and interest of the Company
in, to and under all existing contracts and agreements, written and verbal, with
customers of the Company,
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including, without limitation, those contracts and agreements identified in
Schedule 1.1(b) (the "Scheduled Contracts").
(c) ACCOUNTS AND NOTES RECEIVABLE. All trade and other accounts and
notes receivable of the Company identified on Schedule 2.7.
(d) VEHICLES. The vehicles and other transportation equipment
identified on Schedule 1.1(d).
(e) EQUIPMENT. All of the equipment, machinery, tools, appliances,
telephone systems, copy machines, fax machines, implements, spare parts,
supplies and all other tangible personal property of every kind and description
owned by the Company (the "Equipment"). The Equipment includes, without
limitation, all of the items listed in Schedule 1.1(e).
(f) LICENSES, FRANCHISES AND PERMITS. All right, title and interest
of the Company in, to and under all licenses, franchises, permits,
authorizations, certificates, approvals, registrations and other governmental
authorizations (collectively, the "Operating Authorities") owned or possessed by
the Company and relating to the Business or all or any of the Assets, including
those identified on Schedules 2.8 and .2.9.
(g) INTANGIBLE ASSETS. All right, title and interest of the Company
in, to and under all patents, trademarks, service marks, technology, know-how,
copyrights and applications for each of the foregoing, trade names, licenses,
covenants by others not to compete with the Company, rights and privileges used
in the conduct of the Business and the right to recover for infringement thereon
and all goodwill associated with the Business in connection with which any
intellectual property is used.
(h) CORPORATE NAMES. The names "Federal Bronze Products," any
variation thereof and any other names under which the Company operates.
(i) GOODWILL. The goodwill and going concern value of the Business.
(j) BOOKS AND RECORDS. Copies of the Company's books, records,
papers and instruments of whatever nature and wherever located that relate to
the Business or the Assets or which are required or necessary in order for
Purchaser to conduct the Business from and after the date hereof in the manner
in which it is presently being conducted (the "Records").
(k) INSURANCE PROCEEDS. All insurance proceeds and insurance claims
of the Company relating to the Business or all or any part of the Assets and, to
the extent transferable, the
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benefit of and the right to enforce the covenants and warranties, if any, that
the Company is entitled to enforce with respect to the Assets against the
Company's predecessors in title to the Assets, if any.
(l) COMPUTERS AND SOFTWARE. All right, title and interest of the
Company in computer equipment and hardware, including, without limitation, all
central processing units, terminals, disk drives, tape drives, electronic memory
units, printers, keyboards, screens, peripherals (and other input/output
devices), modems and other communication controllers, networking equipment, and
any and all parts and appurtenances thereto, together with all software and
intellectual property used by the Company with such computer equipment and
hardware.
(m) OTHER INTANGIBLES. All right, title and interest of the Company
in, to and under all rights, privileges, claims, causes of action, and options
relating to or pertaining to the Business or the Assets.
(n) CRANES. All cranes and related equipment used by the Company in
the Business.
(o) OTHER PROPERTY. All other or additional privileges, rights,
interests, properties and assets of the Company of every kind and description
and wherever located that are used or intended for use in connection with, or
that are necessary to the continued conduct of, the Business as presently being
conducted.
1.2 PURCHASE PRICE. The aggregate purchase price (the "Purchase Price")
for the Assets shall consist of $X,XXX,XXX in cash, of which $XXX,XXX shall be
deposited directly into escrow and held and disbursed in accordance with the
provisions of the Escrow Agreement described herein, and of which $X,XXX,XXX
shall be paid to the Company by wire transfer of immediately available funds.
1.3 ASSUMPTION OF LIABILITIES. As additional consideration for the
purchase of the Assets, Purchaser shall assume and discharge the obligations of
the Company under the leases and agreements specifically identified on Schedule
1.3 (the "Scheduled Obligations"); provided, however, that the aggregate
principal amount of all interest-bearing indebtedness included in the Scheduled
Obligations shall not exceed $240,000.
1.4 INDEMNIFICATION. Except for the Scheduled Obligations, Purchaser does
not assume or agree to pay, perform or discharge, and shall not be responsible
for, any other liabilities or obligations of the Company or any other person,
whether accrued, absolute, contingent or otherwise. The Company agrees that it
shall remain solely responsible for, and it hereby agrees to
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indemnify and hold Purchaser harmless from, any and all liabilities and
obligations of the Company, whether accrued, absolute, contingent or otherwise,
except for the Scheduled Obligations.
1.5 THE CLOSING. The closing of the transactions contemplated by this
Agreement (the "Closing") is occurring concurrently with the execution and
delivery hereof.
1.6 INSTRUMENTS OF TRANSFER; FURTHER ASSURANCES. Concurrently herewith,
the Company and Purchaser are executing and delivering to each other (a) a
completed General Conveyance, Transfer and Assignment, in the form attached as
Annex I hereto ("General Conveyance, Transfer and Assignment"), covering all of
the Assets, (b) certificates of title to any Asset covered by a certificate of
title, and (c) such other instruments of transfer as may be reasonably necessary
or appropriate to vest in Purchaser good and indefeasible title to the Assets.
At all times hereafter as may be necessary, the Company and, if appropriate, the
stockholders of the Company, shall execute and deliver to Purchaser such
additional instruments of transfer as shall be reasonably necessary or
appropriate to vest in Purchaser good and indefeasible title to the Assets and
to comply with the purposes and intent of this Agreement.
1.7 VALUE ASSIGNED TO THE ASSETS. The Purchase Price shall be allocated to
the Assets as set forth on Schedule 1.7 hereto. Purchaser and the Company and
the Stockholders agree that they shall not take any position or action
inconsistent with such allocation in the filing of any federal income or other
tax returns.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Purchaser as follows:
2.1 DUE ORGANIZATION. The Company is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of New Jersey
(the "State of Incorporation"), and has full power and authority to carry on its
business as it is now being conducted. The Company is duly authorized or
qualified to do business and is in good standing in each jurisdiction in which
the nature of its business or the ownership or leasing of its properties makes
such qualification necessary, except where the failure to be so authorized or
qualified would not have a material adverse effect on the Business, the Assets,
or the operations or condition (financial or otherwise), of the Company taken as
a whole (as used herein with respect to the Company, or with respect to any
other person, a "Material Adverse Effect"). Schedule 2.1 sets forth a list of
all jurisdictions in which the Company is authorized or qualified to do
business. True, complete and correct copies of the Certificate of Incorporation
and By-laws, each as amended, of the Company (the "Charter Documents") are all
attached to Schedule 2.1. There are no minutes in
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the possession of the Company which have not been made available to Metals, and
all of such minutes are correct and complete in all material respects.
2.2 AUTHORIZATION. (i) The representatives of the Company executing this
Agreement have full power and authority to execute and deliver this Agreement
and (ii) the Company has full power and authority to enter into this Agreement
and the transactions contemplated hereby. This Agreement and the transactions
contemplated hereby have been approved by the holders of the requisite majority
of the outstanding capital stock of the Company and the Board of Directors of
the Company, and copies of resolutions adopted by the stockholders and the Board
of Directors of the Company approving this Agreement and the transactions
contemplated hereby, certified by the Secretary or an Assistant Secretary of the
Company, are attached hereto as Schedule 2.2. No stockholder of the Company or
other person has any right to dissent from the Company's sale of the Assets as
contemplated hereby or any right to an appraisal proceeding or any other similar
right as a result of the transactions contemplated hereby. This Agreement has
been validly executed and delivered by the Company and the Stockholders and
constitutes the legal, valid and binding obligation of each of them enforceable
in accordance with its terms, except as may be limited by bankruptcy,
insolvency, reorganization or similar laws now or hereafter in effect relating
to creditors' rights generally.
2.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the
Company is herein called the "Company Stock". Schedule 2.3 sets forth the
ownership of the outstanding shares of Company Stock, all of which shares have
been duly authorized and validly issued, are fully paid and nonassessable. No
person other than the persons set forth on Schedule 2.3 has any right to vote
any of the shares of Company Stock. None of such shares were issued in violation
of any preemptive rights or similar rights of any person. Except as set forth on
Schedule 2.3, no option, warrant, call, conversion right or commitment of any
kind exists which obligates the Company to issue any shares of its capital stock
or obligates any stockholder of the Company to transfer any shares of Company
Stock to any person.
2.4 SUBSIDIARIES. Except as set forth on Schedule 2.4, the Company has no
subsidiaries or d/b/a names and has not conducted business under any other name
except its legal name on its certificate or articles of incorporation. Except as
set forth in Schedule 2.4, the Company does not own, of record or beneficially,
or control, directly or indirectly, any capital stock, securities convertible
into capital stock or any other equity interest in any corporation, association
or other business entity, and the Company is not, directly or indirectly, a
participant in any joint venture, partnership or other non-corporate entity.
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2.5 FINANCIAL STATEMENTS. Complete and correct copies of the following
financial statements are attached as Schedule 2.5:
(i) the balance sheets of the Company as of December 31, 1996 and
1995 and the related statements of operations, retained earnings and cash
flows for the two-year period ended December 31, 1996, together with the
related notes and schedules (the "Year-end Financial Statements"); and
(ii) the balance sheet (the "Interim Balance Sheet") of the Company
as of August 31, 1997 (the "Balance Sheet Date") and the related statement
of operations for the eight-month period ended August 31, 1997 (the
"Interim Financial Statements"). The Year-end Financial Statements and the
Interim Financial Statements are collectively called the "Financial
Statements".
The Financial Statements have been prepared from the books and records of
the Company in conformity with generally accepted accounting principles applied
on a basis consistent with preceding years and throughout the periods involved
("GAAP") (except as reflected in the independent accountants' review report
thereon or on Schedule 2.5 hereto), and the Financial Statements present fairly
in all material respects the financial position and results of operations of the
Company as of the dates of such statements and for the periods covered thereby.
The books of account of the Company have been kept accurately in all material
respects in the ordinary course of business, the transactions entered therein
represent bona fide transactions, and the revenues, expenses, assets and
liabilities of the Company have been properly recorded therein in all material
respects.
2.6 LIABILITIES AND OBLIGATIONS. Other than liabilities arising in the
ordinary course of business after the Balance Sheet Date, and except as and to
the extent disclosed and adequately provided for in the Financial Statements
(including any notes thereto) or on Schedule 2.6 hereto, the Company has no
liabilities or obligations of any kind, whether accrued, absolute, secured or
unsecured, contingent or otherwise, which would be required to be reflected or
reserved against in a year-end balance sheet (including the notes thereto).
2.7 ACCOUNTS AND NOTES RECEIVABLE. Schedule 2.7 sets forth an accurate
list of the accounts and notes receivable of the Company, as of the Balance
Sheet Date and generated subsequent to the Balance Sheet Date, including any
such amounts which are not reflected in the balance sheet as of the Balance
Sheet Date. Receivables from and advances to employees and the stockholders of
the Company and any entities or persons related to or affiliated with any of
them are separately identified on Schedule 2.7. Schedule 2.7 also sets forth an
accurate aging analysis of all accounts, notes and other receivables as of the
Balance Sheet Date, showing amounts due in 30-day
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aging categories. Except to the extent reflected on Schedule 2.7, all such
accounts, notes and other receivables were incurred in the ordinary course of
business, are stated in accordance with GAAP and are, to the best knowledge of
the Company, collectible in the amounts shown on Schedule 2.7, net of reserves
reflected in the balance sheet as of the Balance Sheet Date.
2.8 PERMITS AND INTANGIBLES. The Company holds all licenses, franchises,
permits and other governmental authorizations required in connection with the
conduct of the Company's business, the absence of any of which would have a
Material Adverse Effect. Schedule 2.8 sets forth an accurate list of all such
licenses, franchises, permits and other governmental authorizations, including
permits, titles (including licenses, franchises, certificates, trademarks, trade
names, patents, patent applications and copyrights owned or held by the Company
or any of its employees (including interests in software or other technology
systems, programs and intellectual property) (collectively, the "Intangible
Assets")) (it being understood and agreed that a list of all environmental
permits and other environmental approvals is set forth on Schedule 2.9). To the
best knowledge of the Company, the Intangible Assets and other governmental
authorizations listed on Schedules 2.8 and 2.9 are valid. The Company has not
received any notice that any person intends to cancel, terminate or not renew
any such Intangible Assets or other governmental authorization. To the best
knowledge of the Company, the Company has conducted and is conducting its
business in compliance with the requirements, standards, criteria and conditions
set forth in the Intangible Assets and other governmental authorizations listed
on Schedules 2.8 and 2.9 and is not in violation of any of the foregoing, except
where any such violation would not have a Material Adverse Effect. Except as
specifically set forth on Schedule 2.8 or 2.9, (a) the transactions contemplated
by this Agreement will not result in a default under or a breach or violation
of, or adversely affect the rights and benefits afforded to the Company by, any
such Intangible Assets or other governmental authorizations, and (b) all of such
rights and benefits are transferable to the Purchaser and are being transferred
to the Purchaser on the date hereof.
2.9 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 2.9 and except
where any of the following has not had and will not have a Material Adverse
Effect or require any material expenditure in connection with the Business after
the date hereof, (i) the Company is in compliance with all federal, state, local
and foreign statutes (civil and criminal), laws, ordinances, regulations, rules,
notices, permits, judgments, orders and decrees applicable to the Company or any
of its properties, assets, operations and businesses relating to environmental
protection (collectively "Environmental Laws") including, without limitation,
Environmental Laws relating to air, water, land and the generation, storage,
use, handling, transportation, treatment or disposal of Hazardous Wastes,
Hazardous Materials and Hazardous Substances including petroleum and petroleum
products (as such terms are defined in any applicable Environmental Law)
(collectively referred to herein as "Hazardous Substances"), (ii) the Company
has obtained and adhered to all material
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permits and other approvals necessary to treat, transport, store, dispose of and
otherwise handle Hazardous Substances, a list of all of which permits and
approvals is set forth on Schedule 2.9, and have reported to the appropriate
authorities, to the extent required by all Environmental Laws, all past and
present sites owned and operated by the Company where Hazardous Substances have
been treated, stored, disposed of or otherwise handled, (iii) there have been no
releases or threats of releases (as defined in Environmental Laws) at, from, in
or on any property owned or operated by the Company except as permitted by
Environmental Laws, (iv) to the Company's best knowledge, there is no on-site or
off-site location to which the Company has transported or disposed of Hazardous
Substances or arranged for the transportation of Hazardous Substances which is
the subject of any federal, state, local or foreign enforcement action or any
other investigation which could lead to any claim against the Company, Metals or
Purchaser for any clean-up cost, remedial work, damage to natural resources,
property damage or personal injury, including, but not limited to, any claim
under (i) the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended, (ii) the Resource Conservation and Recovery Act, (iii)
the Hazardous Materials Transportation Act or (iv) comparable state or local
statutes and regulations. The Company has no contingent liability in connection
with any release of any Hazardous Substance into the environment.
2.10 PERSONAL PROPERTY. Schedule 2.10 sets forth an accurate list of (a)
all material personal property included in "plant, property and equipment" or
"inventory" on the balance sheet of the Company, (b) all other personal property
owned by the Company with an individual value in excess of $10,000 (i) as of the
Balance Sheet Date and (ii) acquired since the Balance Sheet Date and (c) all
leases and agreements in respect of personal property, including, in the case of
each of (a), (b) and (c), (1) true, complete and correct copies of all such
leases and (2) an indication as to which assets are currently owned, or were
formerly owned, by stockholders of the Company, relatives of stockholders of the
Company, or persons controlling, controlled by, or under common control with,
the Company or any of such stockholders (collectively, "Affiliates"). Except as
set forth on Schedule 2.10, (i) all material personal property used by the
Company in its business is either owned by the Company or leased by the Company
pursuant to a lease included on Schedule 2.10, (ii) all of the personal property
listed on Schedule 2.10 is in good working order and condition, ordinary wear
and tear excepted or, in the case of inventory (except the inventory described
as Special Inventory on Schedule 2.10), is salable in the ordinary course of
business, and (iii) all leases and agreements included on Schedule 2.10 are in
full force and effect and constitute valid and binding agreements of the parties
(and to the Company's knowledge their successors) thereto in accordance with
their respective terms. Except as set forth on Schedule 2.10, the Company has
good and marketable title to the tangible and intangible personal property
included in the Assets, including the assets listed on Schedule 2.10, subject to
no security interest, pledge, lien, claim, conditional sales agreement,
encumbrance, charge or restriction on transfer. The overhead cranes and related
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equipment used in the Company's business constitute personal property under
applicable law, are owned by the Company, and are included in the Assets to be
conveyed to Purchaser pursuant to this Agreement.
2.11 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. Schedule
2.11 sets forth a list of (i) all customers representing 5% or more of the
Company's revenues during the eight months ended on the Balance Sheet Date or
during the 12 months ended December 31, 1996 ("Significant Customers"), and (ii)
all material contracts, commitments and similar agreements to which the Company
is a party or by which it or any of its properties are bound (including, but not
limited to, contracts with Significant Customers, joint venture or partnership
agreements, contracts with any labor organizations, strategic alliances and
options to purchase land). True, complete and correct copies of such agreements
are attached to Schedule 2.11. Except as described on Schedule 2.11, (i) none of
the Company's Significant Customers have canceled or substantially reduced or,
to the knowledge of the Company, are currently attempting or threatening to
cancel a contract or substantially reduce utilization of the services provided
by the Company, and (ii) the Company has complied with all material commitments
and obligations pertaining to the Company, and is not in default under any
contracts or agreements listed on Schedule 2.11 and no notice of default under
any such contract or agreement has been received. Except as specifically set
forth on Schedule 2.11, (a) the transactions contemplated by this Agreement will
not result in a default under or a breach or violation of, or adversely affect
the rights and benefits afforded to the Company by, any such contracts or
agreements, and (b) all of the rights and benefits under all such contracts and
agreements are transferable to the Purchaser and are being transferred to the
Purchaser as of the date hereof. Schedule 2.11 also includes a list of all
material plans or projects relating to the Business or any of the Assets
involving the opening of new operations, expansion of existing operations, the
acquisition of any property, business or assets requiring, in any event, the
payment of more than $10,000.
2.12 REAL PROPERTY. Schedule 2.12 includes a list of all real property
owned or leased by the Company at the date hereof, and all other real property,
if any, used by the Company in the conduct of its business. True, complete and
correct copies of all leases and agreements in respect of real property leased
by the Company that is being assigned to Purchaser, if any, are attached to
Schedule 2.12, and an indication as to which such properties, if any, are
currently owned, or were formerly owned, by stockholders or affiliates of the
Company or stockholders is included in Schedule 2.12. Except as set forth on
Schedule 2.12, all of such leases included on Schedule 2.12 are in full force
and effect and constitute valid and binding agreements of the parties (and, to
the knowledge of the Company, their successors) thereto in accordance with their
respective terms.
2.13 INSURANCE. The Company has been covered during the past three years
by insurance in scope and amount customary and reasonable for the businesses in
which the Company has
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engaged during such period. Schedule 2.13 sets forth an accurate list as of the
Balance Sheet Date of all insurance policies then or now carried by the Company
and an accurate list of all insurance loss runs and workers compensation claims
received for the past three policy years. True, complete and correct copies of
all insurance policies currently in effect are attached to Schedule 2.13. Such
insurance policies evidence all of the insurance that the Company is required to
carry pursuant to all of its contracts and other agreements and pursuant to all
applicable laws, and provide adequate coverage against the risks involved in the
Company's business. Except as set forth in Schedule 2.13, none of such policies
is a "claims made" policy except the Employers' Liability Policy relating to the
Company's employee benefit plans. All of such insurance policies are currently
in full force and effect.
2.14 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS.
Schedule 2.14 sets forth an accurate list showing all officers, directors and
key employees of the Company, listing all employment agreements with such
officers, directors and key employees and the rate of compensation (and the
portions thereof attributable to salary, bonus and other compensation,
respectively) of each of such persons as of (i) the Balance Sheet Date and (ii)
the date hereof. Since the Balance Sheet Date, except as specifically noted on
Schedule 2.14, or reflected in the Interim Balance Sheet, there have been no
increases in the compensation payable or any special bonuses to any officer,
director, key employee or other employee.
Except as set forth on Schedule 2.14, (i) the Company is not bound by or
subject to (and none of its respective assets or properties is bound by or
subject to) any arrangement with any labor union, (ii) no employees of the
Company are represented by any labor union or covered by any collective
bargaining agreement, (iii) to the knowledge of the Company, no campaign to
establish such representation is in progress and (iv) there is no pending or, to
the best of the Company's knowledge, threatened, labor dispute involving the
Company and any group of its employees. The Company has not experienced any
labor interruptions over the past three years. The Company believes its
relationship with its employees is good.
2.15 EMPLOYEE BENEFIT PLANS. Schedule 2.15 sets forth an accurate schedule
showing all employee benefit plans of Company, copies of which are attached
thereto. There are no agreements or arrangements (oral or in writing) containing
"golden parachute" or other similar provisions, and deferred compensation
agreements. Except for the employee benefit plans described on Schedule 2.15,
the Company does not sponsor, maintain or contribute to any plan program, fund
or arrangement that constitutes an "employee pension benefit plan," nor does the
Company have any obligation to contribute to or accrue or pay any benefits under
any deferred compensation or retirement funding arrangement on behalf of any
employee or employees (such as, for example, and without limitation, any
individual retirement account or annuity, any "excess benefit plan" (within
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the meaning of Section 3(36) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA")) or any non-qualified deferred compensation
arrangement). For the purposes of this Agreement, the term "employee pension
benefit plan" shall have the same meaning as is given that term in Section 3(2)
of ERISA. Except as set forth on Schedule 2.15, the Company has not sponsored,
maintained or contributed to any employee pension benefit plan other than the
plans set forth on Schedule 2.15, and is not required to contribute to any
retirement plan pursuant to the provisions of any collective bargaining
agreement establishing the terms and conditions or employment of any of the
Company's employees except as set forth on Schedule 2.15.
The Company is not now, and will not as a result of its past activities
become, liable to the Pension Benefit Guaranty Corporation or to any multi
employer employee pension benefit plan under the provisions of Title IV of ERISA
except as set forth on Schedule 2.15. All employee benefit plans listed on
Schedule 2.15 and the administration thereof are in compliance in all material
respects with their terms and all applicable provisions of ERISA and the
regulations issued thereunder, as well as with all other applicable federal,
state and local statutes, ordinances and regulations. All accrued contribution
obligations of the Company with respect to any plan listed on Schedule 2.15 have
either been fulfilled in their entirety or are fully reflected on the balance
sheet of the Company as of the Balance Sheet Date.
All plans listed on Schedule 2.15 that are intended to qualify (the
"Qualified Plans") under Section 401(a) of the Internal Revenue Code of 1986, as
amended (the "Code") are and have been so qualified and have been determined by
the Internal Revenue Service to be so qualified. Except as disclosed on Schedule
2.15, all reports and other documents required to be filed with any governmental
agency or distributed to plan participants or beneficiaries (including, but not
limited to, actuarial reports, audits or tax returns) have been timely filed or
distributed, and copies thereof are included as part of Schedule 2.15. Neither
any plan listed in Schedule 2.15 nor the Company has engaged in any transaction
prohibited under the provisions of Section 4975 of the Code or Section 406 of
ERISA. No plan listed in Schedule 2.15 has incurred an accumulated funding
deficiency, as defined in Section 412(a) of the Code and Section 302(1) of
ERISA; and the Company has not incurred any liability for excise tax or penalty
due to the Internal Revenue Service or any liability to the Pension Benefit
Guaranty Corporation. Except as set forth on Schedule 2.15, there have been no
terminations, partial terminations or discontinuance of contributions to any
such Qualified Plan intended to qualify under Section 401(a) of the Code without
notice to and approval by the Internal Revenue Service; no plan listed in
Schedule 2.15 subject to the provisions of Title IV of ERISA has been
terminated; there have been no "reportable events" (as that phrase is defined in
Section 4043 of ERISA) with respect to any such plan listed in Schedule 2.15;
the Company has not incurred liability under Section 4062 of ERISA; and except
as set forth on Schedule 2.15, no circumstances exist pursuant to which the
Company could have any direct or indirect liability whatsoever
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(including, but not limited to, any liability to any multi employer plan or the
PBGC under Title IV of ERISA or to the Internal Revenue Service for any excise
tax or penalty, or being subject to any statutory lien to secure payment of any
such liability) with respect to any plan now or heretofore maintained or
contributed to by any entity other than the Company that is, or at any time was,
a member of a "controlled group" (as defined in Section 412(n)(6)(B) of the
Code) that includes the Company.
2.16 CONFORMITY WITH LAW; LITIGATION. Except as set forth on Schedule
2.16, there are no claims, actions, suits or proceedings, pending or, to the
knowledge of the Company, threatened against or affecting the Company, the
Business or any of the Assets, at law or in equity, or before or by any federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality having jurisdiction over the Company, the Business or
any of the Assets. Except as set forth on Schedule 2.16, no notice of any claim,
action, suit or proceeding, whether pending or threatened, has been received by
the Company during the last five years and there is no basis therefor. Except as
set forth on Schedule 2.16, the Company has conducted for the past five years
and now conducts its business in material compliance with all laws, regulations,
writs, injunctions, decrees and orders of governmental authorities applicable to
the Company or its assets. The Company is not in violation of any law or
regulation or any order of any court or federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over it. The Company has conducted and is conducting its
business in compliance with the requirements, standards, criteria and conditions
set forth in applicable federal, state and local statutes, ordinances, permits,
licenses, orders, approvals, variances, rules and regulations, including all
such permits, licenses, orders and other governmental approvals set forth on
Schedules 2.8 and 2.9, except where any failure to comply has not had and will
not have a Material Adverse Effect or require any material expenditure in
connection with the operation of the Business after the date hereof.
2.17 TAXES. For purposes of this Agreement, the term "Taxes" shall mean
all taxes, charges, fees, levies or other assessments including, without
limitation, income, gross receipts, excise, property, sales, withholding, social
security, unemployment, occupation, use, service, license, payroll, franchise,
transfer and recording taxes, fees and charges, imposed by the United States or
any state, local or foreign government or subdivision or agency thereof, whether
computed on a separate, consolidated, unitary, combined or any other basis; and
such term shall include any interest, fines, penalties or additional amounts
attributable to or imposed with respect to any such taxes, charges, fees, levies
or other assessments. The Company has timely filed all requisite federal, state
and other tax returns or extension requests for all fiscal periods ended on or
before the Balance Sheet Date. Except as set forth on Schedule 2.17, there are
no examinations in progress or claims against the Company for federal, state or
other taxes (including penalties and interest) for any period or
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periods prior to or on the Balance Sheet Date and no notice of any claim for
taxes, whether pending or threatened, has been received. All Taxes, including
interest and penalties (whether or not shown on any tax return) owed by the
Company, any member of an affiliated or consolidated group which includes or
included the Company has been paid. The amounts shown as accruals for taxes on
the Financial Statements are sufficient for the payment of all taxes of the
kinds indicated (including penalties and interest) for all periods shown. Copies
of (i) any tax examinations, (ii) extensions of time for filing and (iii) the
federal and local income tax returns and franchise tax returns of Company for
the last three fiscal years, or such shorter period of time as any of them shall
have existed, are attached hereto as Schedule 2.17. The stockholders of the
Company made a valid election under the provisions of Subchapter S of the Code
and the Company has not, within the past five years, been taxed under the
provisions of Subchapter C of the Code. The stockholders of the Company shall
remain liable for all income taxes payable for all periods through and including
the date hereof. The Company uses the accrual method of accounting for income
tax purposes, and the Company's methods of accounting have not changed in the
past five years. The Company is not an investment company as defined in Section
351(e)(1) of the Code.
2.18 NO VIOLATIONS; ALL REQUIRED CONSENTS OBTAINED. The Company is not in
violation of its Articles of Incorporation or Bylaws, each as amended to date
("Charter Documents") . Neither the Company nor, to the knowledge of the
Company, any other party thereto, is in material default under any lease,
instrument, license, permit or material agreement to which the Company is a
party or by which its properties are bound (the "Material Documents"). Except as
set forth in Schedule 2.18, (a) the execution of this Agreement by the Company
and the performance by the Company of its obligations hereunder and the
consummation of the transactions contemplated hereby (including, without
limitation, the assignment to Purchaser of the rights and benefits to which the
Company is entitled under the Material Documents) will not result in any
violation or breach or constitute a default under, any of the terms or
provisions of the Material Documents or the Charter Documents, and (b) at and
after the date hereof the Purchaser will be entitled to the rights and benefits
the under the Material Documents to which the Company is entitled immediately
prior to the date hereof. Except as set forth on Schedule 2.18 (and except for
consents already obtained), none of the Material Documents requires notice to,
or the consent or approval of, any governmental agency or other third party with
respect to any of the transactions contemplated hereby in order to remain in
full force and effect and consummation of the transactions contemplated hereby
will not give rise to any right to termination, cancellation or acceleration or
loss of any right or benefit. Except as set forth on Schedule 2.18, none of the
Material Documents prohibits the use or publication of the name of any other
party to such Material Document, and none of the Material Documents prohibits or
restricts the Company or will prevent or restrict the Purchaser from freely
providing services to any person.
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2.19 GOVERNMENT CONTRACTS. Except as set forth on Schedule 2.19, the
Company is not a party to any governmental contract subject to price
redetermination or renegotiation.
2.20 ABSENCE OF CHANGES. Since the Balance Sheet Date, the Company has
conducted its operations in the ordinary course of business and, except as set
forth on Schedule 2.20 or as otherwise contemplated hereby, there has not been:
(i) any change in the Business, any of the Assets, or financial
condition of the Company which would have a Material Adverse Effect;
(ii) any damage, destruction or loss (whether or not covered by
insurance) affecting any of the Assets or the Business that would have a
Material Adverse Effect;
(iii) any change in the authorized capital of the Company or its
outstanding securities or any change in its ownership interests or any
grant of any options, warrants, calls, conversion rights or commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption,
purchase or other acquisition of any of the capital stock of the Company;
(v) any increase in the compensation, bonus, sales commissions or
fee arrangement payable or to become payable by the Company to any of its
officers, directors, employees, consultants or agents except as reflected
in the Interim Balance Sheet;
(vi) any work interruptions, labor grievances or claims filed, or
any event or condition of any character that would have a Material Adverse
Effect;
(vii) any sale or transfer, or any agreement to sell or transfer,
any material assets, property or rights of Company to any person;
(viii)any cancellation, or agreement to cancel, any material
indebtedness or other obligation owing to the Company;
(ix) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property
or rights of the Company or requiring consent of any party to the transfer
and assignment of any such assets, property or rights;
(x) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets outside
of the ordinary course of the Company's business;
(xi) any waiver of any material rights or claims of the Company;
(xii) any amendment or termination of any material contract,
agreement, license, permit or other right to which the Company is a party;
(xiii)any transaction by the Company outside the ordinary course of
its business;
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(xiv) any cancellation or termination of a material contract with a
customer or client prior to the scheduled termination date; or
(xv) any distribution of property or assets by the Company, other
than as set forth on Schedule 2.20 or otherwise permitted by this
Agreement.
2.21 POWERS OF ATTORNEY. Schedule 2.21 sets forth a schedule as of the
date of this Agreement of the name of each person, corporation, firm or other
entity holding any general or special power of attorney from the Company.
2.22 COMPETING LINES OF BUSINESS; RELATED-PARTY TRANSACTIONS. Except as
set forth on Schedule 2.22, neither any of the stockholders of the Company nor
any other affiliate of the Company owns, directly or indirectly, any interest
in, or is an officer, director, employee or consultant of or otherwise receives
remuneration from, any business which is a competitor, lessor, lessee, customer
or supplier of the Company. Except as set forth on Schedule 2.22, no officer,
director or stockholder of the Company has, nor during the period beginning
January 1, 1990 through the date hereof had, any interest in any property, real
or personal, tangible or intangible, used in or pertaining to the Company's
business.
2.23 DISCLOSURE. The Company has provided Purchaser with all the
information that Purchaser has requested in analyzing whether to consummate the
transactions contemplated hereby. None of the information so provided nor any
representation or warranty of the Company contained in this Agreement contains
any untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements herein or therein, in light of the
circumstances under which they were made, not misleading. There is no fact known
to the Company which has specific application to the Business or the Assets
(other than general economic or industry conditions) which materially adversely
affects or, so far as the Company can reasonably foresee, materially threatens,
the Business or the Assets, or the condition (financial or otherwise), results
of operations or prospects of the Company, which has not been described in this
Agreement or the Schedules hereto. The disclosures in the Schedules, and those
in any supplement thereto, shall relate only to the representations and
warranties in the Section of this Agreement to which each Schedule expressly
relates, and to no other representation or warranty in this Agreement.
2.24 CERTAIN BUSINESS PRACTICES. Neither the Company nor any person acting
on behalf of the Company has given or offered anything of value to any
governmental official, political party or candidate for government office nor
has it or any of them otherwise taken any action which would cause the Company
to be in violation of the Foreign Corrupt Practices Act of 1977, as amended, or
any law of similar effect.
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2.25 NOTICES AND CONSENTS. Except as set forth on Schedule 2.25, the
Company has given any notices to third parties and obtained any third party
consents that may be necessary to transfer the Assets to Purchaser pursuant to
this Agreement.
2.26 NOTICE TO BARGAINING AGENTS. The Company has satisfied any and all
requirements for notice of or consents to the transactions contemplated by this
Agreement under applicable collective bargaining agreements, and copies of such
notices are attached hereto on Schedule 2.26.
3. REPRESENTATIONS OF METALS
Metals represents and warrants that all of the following representations
and warranties in this Section 3 are true at the date of this Agreement.
3.1 DUE ORGANIZATION. Metals and Purchaser are each corporations duly
incorporated, validly existing and in good standing under the laws of the state
of Delaware, and each has the full power and authority to carry on its business
as it is now being conducted. Metals and Purchaser are each qualified to do
business and are each in good standing in each jurisdiction in which the nature
of its business makes such qualification necessary, except where the failure to
be so authorized or qualified would not have a Material Adverse Effect.
3.2 AUTHORIZATION. (i) The respective representatives of Metals and
Purchaser executing this Agreement have the authority to enter into and bind
Metals and Purchaser to the terms of this Agreement and (ii) Metals and
Purchaser have the full legal right, power and authority to enter into this
Agreement and the transactions contemplated hereby. All corporate actions
required to have been taken by Metals and Purchaser to authorize the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby have been taken.
3.3 NO VIOLATIONS. The execution of this Agreement and the performance of
the obligations hereunder and the consummation of the transactions contemplated
hereby will not result in any violation or breach or constitute a default under
any of the terms or provisions of the Restated Certificate of Incorporation, as
amended, of Metals, or the Amended and Restated Bylaws of Metals or the
Certificate of Incorporation or Bylaws of Purchaser.
3.4 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by Metals and Purchaser and the performance of the transactions contemplated
herein have been duly and validly authorized by the respective Boards of
Directors of Metals and Purchaser and this Agreement has been duly and validly
authorized by all necessary corporate action and is a legal, valid and binding
obligation of Metals and Purchaser.
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4. DELIVERIES
Concurrently with the execution and delivery of this Agreement, in
addition to the deliveries described elsewhere herein, the parties hereto are
taking the following actions:
4.1 OPINION OF COUNSEL. Counsel to the Company and the stockholders of the
Company is delivering an opinion dated the date hereof to Purchaser in the form
annexed hereto as Annex III.
4.2 GOOD STANDING CERTIFICATES. The Company is delivering to Purchaser
certificates, dated as of a date no earlier than ten days prior to the date
hereof, duly issued by the appropriate governmental authority in the State of
Incorporation and in each state in which the Company is authorized to do
business, showing the Company is in good standing and authorized to do business
and that all state franchise and/or income tax returns and taxes for the Company
for all periods prior to the date hereof have been filed and paid.
4.3 EMPLOYMENT AND CONSULTING AGREEMENTS. John Stefiuk and Stephan
Stefiuk, Sr. are entering into Employment and Consulting Agreements in the forms
of Annex IIA and Annex IIB hereto.
4.4 FERDON STREET WAREHOUSE LEASE. The Company and Purchaser are entering
into a lease of the Ferdon Street Warehouse in the form of Annex IV hereto.
4.5 THE 50 WHEELER POINT ROAD LEASE. The Company is executing an amendment
to and an assignment of its rights under the 50 Wheeler Point Road lease
effective as of the date hereof in the form of Annex VI hereto.
4.6 GENERAL CONVEYANCE, TRANSFER AND ASSIGNMENT. The Company is executing
and delivering to Purchaser a General Assignment, Transfer and Assignment in the
form of Annex I hereto.
4.7 ESCROW AGREEMENT. The Company and Purchaser are executing and
delivering an Escrow Agreement with the Escrow Agent named therein in the form
of Annex V hereto.
4.8 ADDITIONAL DELIVERIES. In addition to the documents specifically
required to by delivered hereby, Purchaser and the Company shall execute and
deliver such other documents, certificates, and instruments as the other may
reasonably request in order to effect the transactions contemplated hereby.
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5. POST-CLOSING COVENANTS
The parties to this Agreement further covenant and agree as follows:
5.1 FUTURE COOPERATION. The Company and Purchaser shall each deliver or
cause to be delivered to the other following the date hereof such additional
instruments as the other may reasonably request for the purpose of transferring,
assigning and delivering to Purchaser and its assigns the Business and fully
carrying out the intent of this Agreement. After the date hereof, Purchaser
shall permit the Company and its representatives reasonable access, during
regular business hours, and upon reasonable advance notice, to the Company's
books and records in connection with the preparation and review of tax returns
and any audit thereof.
5.2 EXPENSES. Purchaser will pay the fees, expenses and disbursements of
Purchaser and its agents, representatives, financial advisors, accountants and
counsel incurred in connection with the execution, delivery and performance of
this Agreement. The Company will pay the fees, expenses and disbursements of the
Company and its agents, representatives, financial advisors, accountants and
counsel incurred in connection with the execution, delivery and performance of
this Agreement.
5.3 PAYMENT OF LIABILITIES; BULK TRANSFER COMPLIANCE. The Company shall
pay or otherwise satisfy all of its trade payables, other current liabilities
and all other liabilities of the Company and shall fully pay or otherwise
satisfy all other claims or liabilities relating to the Assets, the Business or
the Company other than the Scheduled Obligations. The Company hereby indemnifies
and holds Purchaser harmless from and against all claims, losses, demands,
damages, liabilities, costs and expenses resulting from or relating to
non-compliance by the Company with the bulk transfer provisions of the Uniform
Commercial Code (or any similar law) in connection with the sale and transfer of
the Business to Purchaser. The Company and the Purchaser shall equally bear and
pay when due any sales, transfer or similar Taxes which may become applicable in
respect of the Company's sale of the Business or any of the Assets to Purchaser.
5.4 CHANGE OF THE COMPANY'S NAME. Immediately following the execution of
this Agreement, the Company shall cease to use the name "Federal Bronze
Products" or any similar name or names and as soon as practical thereafter will
file with the office of the Secretary of State of the State of New Jersey any
and all documents necessary to discontinue the authority of the Company to
conduct business under such names.
5.5 AGREEMENTS. Upon the request of Purchaser, at any time after the date
hereof, the Stockholders agree to cause any stockholder of the Company to
terminate any existing agreements
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to which the Company or and any such stockholder of the Company may be parties
relating to or affecting the Business or any of the Assets.
5.6 UNION EMPLOYEES AND THE COLLECTIVE BARGAINING AGREEMENT. Purchaser
agrees to recognize the Glass, Molders, Pottery, Plastics & Allied Workers
International Union, AFL-CIO CLC (the "Union") as the exclusive bargaining
representative of the employees in the applicable bargaining unit, and to assume
the collective bargaining agreement currently in effect between Company and the
Union.
5.7 UNION EMPLOYEES AND THE MULTIEMPLOYER PLAN. (a) The parties intend to
comply with the requirements of Section 4204 of the ERISA in order that the
transactions contemplated by this Agreement shall not be deemed a complete or
partial withdrawal from the GMP and Employers Pension Fund (the "Multiemployer
Plan"). Accordingly, Company and Purchaser agree to the following:
(i) After the date hereof, Purchaser agrees to contribute in a
manner complying with Section 4202 (a) (1) (A) of ERISA to the
Multiemployer Plan for substantially the same number of "contribution base
units" with respect to the operations of the Business for which Company
had an "obligation to contribute" (as those terms are defined in Section
4001 (a) (11) and 4212 of ERISA, respectively) to the Multiemployer Plan
pursuant to the agreement between Company and the Union.
(ii) Prior to the first day of the first plan year after the date
hereof, Purchaser and Company shall jointly apply to the Multiemployer
Plan for a variance from the requirement of Section 4204(a) (1) (B) of
ERISA, that a bond be obtained or an amount be held in escrow as provided
in said Section. In the event that the Multiemployer Plan determines that
the request does not qualify for such variance, within thirty (30) days
after the date on which Company or Purchaser receives notice of the
Multiemployer Plan's decision, Purchaser will provide to the Multiemployer
Plan, for a period of five consecutive plan years commencing with the
first plan year beginning after the Closing Date or such shorter time
period in the manner and to the extent permitted pursuant to ERISA Section
4204, either a bond issued by a surety company that is an acceptable
surety for purposes of Section 412 of ERISA, or an amount held in escrow
by a bank or similar financial institution satisfactory to the
Multiemployer Plan. The amount of such bond or escrow deposit shall be
greater of (i) the average annual contribution that Company was required
to make under the Multiemployer Plan with respect to the operations of the
Business for the three plan years immediately preceding the plan year
which includes the date hereof, or (ii) the annual contribution that
Company was required to make under the Multiemployer Plan with respect to
the operations
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of the Business for the last plan year immediately preceding the plan year
which includes the date hereof.
(iii) If Purchaser withdraws from the Multiemployer Plan with
respect to operations of the Business in a complete withdrawal (within the
meaning of Section 4203 of ERISA), or a partial withdrawal (within the
meaning of Section 4205 of ERISA) prior to the end of the fifth plan year
beginning after the date hereof, and the resulting liability of Purchaser
with respect to the Multiemployer Plan is not paid, then Company shall be
secondarily liable in an amount not to exceed the amount of withdrawal
liability Company would have had to pay to the Multiemployer Plan as a
result of the transactions contemplated by this Agreement but for Section
4204 of ERISA. Purchaser shall indemnify Company against any liability
incurred by Company pursuant to this clause (iii).
(iv) The Company and Purchaser shall take all further actions, and
execute such documents as may be required or appropriate in order to give
effect to the foregoing provisions of this Section 5.7, including to
assure that the parties have properly perfected the "asset sale exception"
pursuant to Section 4204 of ERISA, and to seek calculation of Purchaser's
withdrawal liability, if applicable, pursuant to Section 4204 (b) (1) of
ERISA.
(b) The Company shall cooperate with Purchaser in preparing and submitting
to the Multiemployer Plan or the Pension Benefit Guaranty Corporation ("PBGC")
the request for a variance or exemption from the bond/escrow requirement of
Section 4204 (a) (1) (B) of ERISA (as described in clause (ii). Unless and until
such a variance or exemption is granted, Purchaser shall comply with the
bond/escrow requirement, except to the extent provided in PBGC Regulation
Section 2643.11(d)
6. INDEMNIFICATION
The Company, Metals and Purchaser each make the following covenants that
are applicable to them, respectively:
6.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
(a) The representations and warranties of the Company made in this
Agreement and in the documents and certificates delivered in connection herewith
shall survive for a period of two years from the date hereof, provided that
representations and warranties and indemnification obligations with respect to
which a claim is made within such two-year period shall survive until such claim
is finally determined and paid.
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(b) The representations and warranties of Metals and Purchaser made
in this Agreement and in the certificates delivered in connection herewith shall
survive for a period of two years following the date hereof, provided, however,
that representations and warranties with respect to which a claim is made within
such two year period shall survive until such claim is finally determined and
paid.
(c) The date on which a representation or warranty expires as
provided herein is herein called the "Expiration Date." No claim for
indemnification may be made with respect to a representation or warranty after
the Expiration Date, other than claims based on fraud.
6.2 GENERAL INDEMNIFICATION BY THE COMPANY. The Company covenants and
agrees that it will indemnify, defend, protect, and hold harmless Metals,
Purchaser, and their respective subsidiaries and officers, directors, employees,
stockholders, agents, representatives and affiliates at all times from and after
the date hereof until the Expiration Date from and against all claims, damages,
actions, suits, proceedings, demands, assessments, adjustments, costs and
expenses (including specifically, but without limitation, reasonable attorneys'
fees and expenses of investigation) (collectively "Damages") incurred by such
indemnified person as a result of or incident to (i) any breach of any
representation or warranty of the Company set forth herein or in the
certificates or other documents delivered in connection herewith, and (ii) any
breach or nonfulfillment of any covenant or agreement by the Company under this
Agreement. Purchaser shall not be entitled to indemnification hereunder to the
extent that Purchaser is compensated for any Damages sustained by Purchaser by
any insurance policy proceeds paid to Purchaser or tax benefit realized by
Purchaser as a result of such Damages or is otherwise compensated for such
Damages.
6.3 INDEMNIFICATION BY METALS. Metals covenants and agrees that it will
indemnify, defend, protect and hold harmless the Company at all times from and
after the date hereof until the Expiration Date from and against all Damages
incurred by the Company and the Stockholders (as defined herein) as a result of
or incident to (i) any breach of any representation or warranty of Metals or
Purchaser set forth herein or in the certificates delivered in connection
herewith; (ii) any breach or nonfulfillment of any covenant or agreement by
Metals or Purchaser under this Agreement; and (iii) any environmental condition
arising out of, resulting from or relating to the operation or ownership of the
Assets after the date hereof.
6.4 THIRD PERSON CLAIMS. Promptly after any party hereto (the "Indemnified
Party") has received notice of or has knowledge of any claim by a person not a
party to this Agreement ("Third Person") or the commencement of any action or
proceeding by a Third Person that may give rise to a right of indemnification
hereunder, such Indemnified Party shall give to the party obligated to provide
indemnification hereunder (an "Indemnifying Party") written notice of such claim
or the
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commencement of such action or proceeding; provided, however, that the failure
to give such notice will not relieve such Indemnifying Party from liability
under this Section with respect to such claim, action or proceeding, except to
the extent that the Indemnifying Party has been actually prejudiced as a result
of such failure. The Indemnifying Party (at its own expense) shall have the
right and shall be given the opportunity to associate with the Indemnified Party
in the defense of such claim, suit or proceedings, provided that counsel for the
Indemnified Party shall act as lead counsel in all matters pertaining to the
defense or settlement of such claims, suit or proceedings. The Indemnified Party
shall not, except at its own cost, make any settlement with respect to any such
claim, suit or proceeding without the prior consent of the Indemnifying Party,
which consent shall not be unreasonably withheld or delayed. It is understood
and agreed that in situations where failure of the Indemnified Party to settle a
claim expeditiously could have an adverse effect on the Indemnified Party, the
failure of the Indemnifying Party to act upon the Indemnified Party's request
for consent to such settlement within five business days of the Indemnifying
Party's receipt of notice thereof from the Indemnified Party shall be deemed to
constitute consent by the Indemnifying Party of such settlement for purposes of
this Section.
6.5 METHOD OF PAYMENT. All claims for indemnification shall be paid in
cash.
6.6 LIMITATIONS ON INDEMNIFICATION. Metals, Purchaser and the other
persons or entities indemnified pursuant to this Section shall not assert any
claim for indemnification hereunder against the Company until such time as, and
solely to the extent that, the aggregate of all claims which such persons may
have against the Company shall exceed $75,000 (the "Indemnification Threshold").
The Company shall not assert any claim for indemnification hereunder against
Metals or Purchaser until such time as, and solely to the extent that the
aggregate of all claims which the Company may have against Metals or Purchaser
shall exceed the Indemnification Threshold. The Company's aggregate liability
for indemnification for breaches of representations or warranties contained in
this Agreement shall under no circumstances exceed $750,000. A portion of the
Purchase Price equal to $750,000 (the "Escrowed Funds") shall be placed into an
escrow account and held and disbursed in accordance with the terms of an Escrow
Agreement in the form of Annex V hereto. The amount of any Damages incurred by
Purchaser hereunder shall be disbursed to Purchaser from the Escrowed Funds in
accordance with the terms of such Escrow Agreement.
No person shall be entitled to indemnification under this Section if and
to the extent that such person's claim for indemnification is directly or
indirectly caused by a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement. The indemnification
provided for herein shall be the exclusive remedy in any action seeking damages
or any other form of monetary relief brought by any party to this Agreement
against any other party hereto.
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7. NONCOMPETITION
7.1 PROHIBITED ACTIVITIES. The Stockholders identified on the signature
pages hereto will not, for a period of five (5) years following the date hereof,
for any reason whatsoever, directly or indirectly, for themselves or on behalf
of or in conjunction with any other person, persons, company, partnership,
corporation or business of whatever nature (including, without limitation, the
Company):
(i) engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant or advisor, or as a sales
representative, in any business offering services or products in direct
competition with Metals or any of its subsidiaries within 200 miles of
where the Company is located, conducts business or has sales
representatives located (the "Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of Metals or any of its subsidiaries for the
purpose or with the intent of enticing such employee away from or out of
the employ of Metals or any of its subsidiaries;
(iii) call upon any person or entity which is, at that time, or
which has been, within one year prior to the date hereof, a customer of
Metals or any of its subsidiaries within the Territory for the purpose of
soliciting or selling products or services in direct competition with
Metals or any of its subsidiaries within the Territory.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit any Stockholder from acquiring as a passive investor with no
involvement in the operations or management of the business, not more than one
percent (1%) of the capital stock of a competing business whose stock is
publicly traded on a national securities exchange or over-the-counter market.
The Company acknowledges that Mr. Stephen Stefiuk, Sr. and Mr. George Stefiuk
are presently in involved with Machine Parts, Inc., which engages in precision
machining, and the Company acknowledges that such activities, as conducted as of
the date hereof, are not prohibited by the foregoing covenant.
7.2 EQUITABLE RELIEF. Because of the difficulty of measuring economic
losses to Metals as a result of a breach of the foregoing covenant, and because
of the immediate and irreparable damage that could be caused to Metals for which
it would have no other adequate remedy, each Stockholder agrees that the
foregoing covenant may be enforced by Metals in the event of breach by such
Stockholder, by injunctions, restraining orders and other equitable actions.
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7.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this Section impose a reasonable restraint on the
Stockholders in light of the activities and business of the Company and Metals
and its subsidiaries.
7.4 SEVERABILITY; REFORMATION. The covenants in this Section are severable
and separate, and the unenforceability of any specific covenant shall not affect
the provisions of any other covenant. Moreover, in the event any court of
competent jurisdiction shall determine that the scope, time or territorial
restrictions set forth are unreasonable, then it is the intention of the parties
that such restrictions be enforced to the fullest extent which the court deems
reasonable, and the Agreement shall thereby be reformed.
7.5 INDEPENDENT COVENANT. The Stockholders acknowledge that their
covenants set forth in this Section are material conditions to Metals'
willingness to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. All of the covenants in this Section shall be
construed as an agreement independent of any other provision in this Agreement,
and the existence of any claim or cause of action of any Stockholder against
Metals or any subsidiary thereof, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by Metals of such
covenants. It is specifically agreed that the period of five (5) years stated at
the beginning of this Section, during which the agreements and covenants of each
Stockholder made in this Section shall be effective, shall be computed by
excluding from such computation any time during which such Stockholder is in
violation of any provision of this Section. The covenants contained in this
Section shall not be affected by any breach of any other provision hereof by any
party hereto and shall have no effect if the transactions contemplated by this
Agreement are not consummated.
8. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
8.1 GENERAL. The Stockholders recognize and acknowledge that they have
access to certain confidential information of the Company, such as operational
policies, pricing and cost policies, and other information, that are valuable,
special and unique assets, and are included in the Assets to be acquired by
Purchaser hereunder. The Stockholders agree that they will not disclose such
confidential information, or any confidential information of Purchaser or Metals
to which they may have access in the future, to any person, firm, corporation,
association or other entity for any purpose or reason whatsoever, except (a) to
authorized representatives of Purchaser, (b) such information may be disclosed
by the Stockholders as is required in the course of performing their duties, if
any, for Purchaser and (c) to counsel and other advisers, unless (i) such
information becomes known to the public generally through no fault of the
Stockholders, (ii) disclosure is required by law or the order of any
governmental authority, provided, that prior to disclosing any
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information pursuant to this clause (ii), the Stockholders shall give prior
written notice thereof to Purchaser and provide Purchaser with the opportunity
to contest such disclosure, or (iii) the disclosing party in good faith believes
that such disclosure is required in connection with the defense of a lawsuit
against the other party. In the event of a breach or threatened breach by any of
the Stockholders of the provisions of this Section, Purchaser shall be entitled
to injunctive or other equitable relief restraining such Stockholders from
disclosing, in whole or in part, such confidential information. Nothing herein
shall be construed as prohibiting Purchaser from pursuing any other available
remedy for such breach or threatened breach, including the recovery of damages.
8.2 EQUITABLE RELIEF. Because of the difficulty of measuring economic
losses as a result of the breach of the foregoing covenants, and because of the
immediate and irreparable damage that would be caused for which Purchaser would
have no other adequate remedy, the Stockholders agree that the foregoing
covenants may be enforced against them by injunctions, restraining orders and
other appropriate equitable relief.
8.3 SURVIVAL. The obligations of the parties under this Section shall
survive the termination of this Agreement for a period of five years.
9. GENERAL
9.1 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the parties
hereunder may not be assigned (except as expressly permitted hereby or by
operation of law) and shall be binding upon and shall inure to the benefit of
the parties hereto, the successors of the Company, Purchaser and Metals, and the
heirs and legal representatives of the Stockholders.
9.2 ENTIRE AGREEMENT. This Agreement (including the schedules, exhibits
and annexes attached hereto) and the documents delivered pursuant hereto
constitute the entire agreement and understanding among the Stockholders, the
Company, Purchaser and Metals and supersede any prior agreement and
understanding relating to the subject matter of this Agreement. This Agreement,
upon execution, constitutes a valid and binding agreement of the parties hereto
enforceable in accordance with its terms and may be modified or amended only by
a written instrument executed by the Company, the Stockholders party hereto,
Purchaser and Metals, acting through their respective officers, duly authorized
by their respective Boards of Directors.
9.3 COUNTERPARTS. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
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9.4 BROKERS AND AGENTS. Each party represents and warrants that it
employed no broker or agent in connection with this transaction and agrees to
indemnify the other parties hereto against all loss, cost, damages or expense
arising out of claims for fees or commission of brokers employed or alleged to
have been employed by such indemnifying party.
9.5 NOTICES. All notices and communications required or permitted
hereunder shall be in writing and may be given by depositing the same in United
States mail, addressed to the party to be notified, postage prepaid and
registered or certified with return receipt requested, or by delivering the same
in person or by facsimile to an officer or agent of such party, as follows:
If to Metals or Purchaser, addressed to it at:
Metals USA, Inc.
Three Riverway, Suite 600
Houston, Texas 77056
Attn: General Counsel
Facsimile No.: 713-965-0067
If to the Company or the Stockholders party hereto, addressed to it
or them at their addresses set forth on Schedule 9.5 hereto, or to
such other address as any party hereto shall specify pursuant to
this Section from time to time.
9.6 GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Delaware other than its principles governing conflicts
of laws.
9.7 EFFECT OF INVESTIGATION. No investigation by the parties hereto in
connection with this Agreement or otherwise shall affect the representations and
warranties of the parties contained herein or in any certificate or other
document delivered in connection herewith and each such representation and
warranty shall survive such investigation. Neither Purchaser nor Metals during
the course of its investigation of the Company or its assets, liabilities or
business, has discovered any fact or information that Purchaser or Metals
believes is a breach of a representation or warranty made by the Company.
9.8 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided herein,
no delay of or omission in the exercise of any right, power or remedy accruing
to any party as a result of any breach or default by any other party under this
Agreement shall impair any such right, power or remedy, nor shall it be
construed as a waiver of or acquiescence in any such breach or default, or of
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any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
9.9 TIME. Time is of the essence with respect to this Agreement.
9.10 REFORMATION AND SEVERABILITY. In case any provision of this Agreement
shall be invalid, illegal or unenforceable, it shall, to the extent possible, be
modified in such manner as to be valid, legal and enforceable but so as to most
nearly retain the intent of the parties, and if such modification is not
possible, such provision shall be severed from this Agreement, and in either
case the validity, legality and enforceability of the remaining provisions of
this Agreement shall not in any way be affected or impaired thereby.
9.11 CAPTIONS. The headings of this Agreement are inserted for convenience
only, and shall not constitute a part of this Agreement or be used to construe
or interpret any provision hereof.
9.12 PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No party shall issue any
press release or make any public announcement relating to the subject matter of
this Agreement without the prior written approval of the other party; provided,
however, that any party may make any public disclosure it believes in good faith
is required by applicable law or any listing or trading agreement concerning its
publicly-traded securities.
9.13 NO THIRD-PARTY BENEFICIARIES. This Agreement shall not confer any
rights or remedies upon any person other than the parties and their respective
successors and permitted assigns.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
METALS USA, INC.
By:
Name:
Title:
FEDERAL BRONZE ALLOYS INC.
By:
Name:
Title:
FEDERAL BRONZE PRODUCTS, INC.
By:
Name:
Title:
<PAGE>
Stockholders:
Stephan Stefiuk, Sr.
Jack Stefiuk
George Stefiuk, as Custodian for his minor
children
Jane Archambault
Stephen Stefiuk, Jr.
<PAGE>
ANNEX I
GENERAL CONVEYANCE, TRANSFER AND ASSIGNMENT
Reference is hereby made to the Asset Purchase Agreement dated as of
September 26, 1997 (the "Asset Purchase Agreement") among Federal Bronze Alloys
Inc., a Delaware corporation (the "Purchaser"), Federal Bronze Products, Inc., a
New Jersey corporation (the "Seller"), and the other parties named therein.
Terms defined in the Asset Purchase Agreement and not otherwise defined herein
are used herein with the meanings so defined.
1. For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Seller hereby sells, conveys, transfers,
assigns and delivers to the Purchaser all right, title and interest in and to
all of the Assets, to have and to hold the Assets hereby conveyed, transferred,
assigned and delivered, or intended so to be, unto the Purchaser, its successors
and assigns forever.
2. The Seller hereby irrevocably constitutes and appoints the Purchaser,
its successors and assigns, the true and lawful attorney of the Seller, with
full power of substitution, in the name of the Seller or otherwise, and on
behalf and for the benefit of the Purchaser, its successors and assigns, to
demand and receive from time to time any and all of the Assets hereby conveyed,
transferred, assigned and delivered, or intended so to be, and to institute,
defend and compromise any and all actions, suits or proceedings in respect of
any of the Assets hereby conveyed, transferred, assigned and delivered, or
intended so to be, that the Purchaser, its successors or assigns shall deem
desirable, and to do all acts and things in relation to the Assets and interests
which the Purchaser, its successors or assigns deem desirable. The Seller hereby
declares that the foregoing powers are coupled with an interest and shall be
irrevocable by it in any manner or for any reason.
3. This instrument shall be binding upon and inure to the benefit of the
respective successors and assigns of the Purchaser and the Seller.
IN WITNESS WHEREOF, the Seller has caused this instrument to be duly
executed as of the day and year first above written.
FEDERAL BRONZE PRODUCTS, INC.
By:
Name:
Title:
EXHIBIT 10.35
FOUNDERS' EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") dated this day of
September, 1997 (the "Effective Date"), by and between Harvey
Titanium, Ltd. a Delaware corporation together with its predecessor (the
"Company") which is a wholly-owned subsidiary of Metals USA, Inc., a Delaware
corporation ("Metals") and Barry Harvey ("Executive").
R E C I T A L S
A. As of the Effective Date, the Company and the other subsidiaries of
Metals are or will be engaged primarily in the business of providing metals
processing, metals fabrication and specialty metals services, including
brokering, manufacturing and distribution services; and
B. Executive is employed by the Company in a confidential relationship
wherein Executive, in the course of his employment with the Company, has and
will continue to become familiar with and aware of information as to the
Company's and Metals' customers, specific manner of doing business, including
the processes, techniques and trade secrets utilized by the Company and Metals,
and future plans with respect hereto, all of which has been and will be
established and maintained at great expense to the Company and Metals; this
information is a trade secret and constitute the valuable goodwill of the
Company and Metals; and
C. The parties desire to agree to the various matters described herein and
to memorialize those agreements herein.
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, it is hereby agreed as follows:
A G R E E M E N T S
1. EMPLOYMENT AND DUTIES.
(a) The Company hereby employs Executive as President and Chief Executive
Officer of the Company. As such, Executive shall have responsibilities, duties
and authority reasonably accorded to, expected of, and consistent with
Executive's position and will report to the Board of Directors of the Company
(the "Board"). Executive hereby accepts this employment upon the terms and
conditions herein contained and, subject to Section 3 hereof, agrees to devote
substantially all of his business time, attention and efforts to promote and
further the business of the.
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(b) Executive shall faithfully adhere to, execute and fulfill all lawful
policies established by the Company, as such policies may be changed from time
to time by the Company.
2. COMPENSATION. For all services rendered by Executive, the Company shall
compensate Executive as follows:
(a) BASE SALARY. As of the Effective Date, the base salary payable to
Executive shall be $150,000 per year, payable on a regular basis in accordance
with the Company's standard payroll procedures but not less than monthly. On at
least an annual basis commencing in 1998, the Board will review Executive's
performance and may make increases to such base salary if, in its discretion,
any such increase is warranted. In no event shall the base salary be reduced
unless agreed to in writing by Executive.
(b) EXECUTIVE PERQUISITES, BENEFITS AND OTHER COMPENSATION. Executive
shall be entitled to receive additional benefits and compensation from the
Company in such form and to such extent as specified below:
(i) Admittance for participation for Executive and Executive's
dependent family members under health, hospitalization, disability,
dental, life and other insurance plans that the Company may have in effect
from time to time, with benefits provided to Executive under this clause
(i) to be at least equal to such benefits provided to Company employees
generally; provided, however, that in no event shall the benefits
described hereunder be reduced below the level of benefits presently
provided to Executive and Executive's dependent family members by the
Company.
(ii) Reimbursement for all business travel and other out-of-pocket
expenses reasonably incurred by Executive in the performance of his
services pursuant to this Agreement. All reimbursable expenses shall be
appropriately documented in reasonable detail by Executive upon submission
of any request for reimbursement, and in a format and manner consistent
with the Company's expense reporting policy.
(iii) The Company shall provide Executive with other executive
perquisites as may be available to or deemed appropriate for Executive by
the Board and participation in all other Company-wide employee benefits as
are available from time to time, including but not limited to any
qualified and/or nonqualified retirement plans, bonus plans and stock
option plans that may be sponsored by the Company and/or Metals for
similarly positioned employees.
3. NON-COMPETITION AGREEMENT.
(a) Executive shall not, during the term of his employment hereunder, be
engaged in any other business activity pursued for gain, profit or other
pecuniary advantage if such activity interferes or conflicts in any respect with
Executive's duties and responsibilities hereunder. The foregoing limitations
shall not be construed as prohibiting Executive from making personal investments
in such form or manner as will neither require his services in the operation or
affairs of the companies or enterprises in which such investments are made nor
violate the terms of this Section 3. In addition, Executive shall not, during
the period of his employment by or with the Company, and for a period of two (2)
years immediately following the termination of his employment under this
Agreement, for any reason whatsoever, other than a termination by the Company
without good cause or by Executive for Good Reason, directly or indirectly, for
himself or on behalf of or in conjunction with any other person, company,
partnership, corporation or business of whatever nature:
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(i) engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant or advisor, or as a sales
representative, in any business in direct competition with the Company
anywhere in the world or Metals, within 200 miles of where Metals or any
of its' subsidiaries conducts business, including any territory serviced
by Metals or any of such subsidiaries (collectively the "Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of the Company or Metals (including the respective
subsidiaries thereof) in a managerial capacity for the purpose or with the
intent of enticing such employee away from or out of the employ of the
Company or Metals (including the respective subsidiaries thereof);
(iii) call upon any person or entity which is, at that time, or
which has been, within one (1) year prior to that time, a customer of the
Company or Metals (including the respective subsidiaries thereof) within
the Territory for the purpose of soliciting or selling products or
services in direct competition with the Company or Metals within the
Territory;
(iv) call upon any prospective acquisition candidate, on Executive's
own behalf or on behalf of any competitor, which candidate was, to
Executive's actual knowledge after due inquiry, either called upon by the
Company or Metals (including the respective subsidiaries thereof) or for
which the Company or Metals made an acquisition analysis, for the purpose
of acquiring such entity.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit Executive from acquiring as an investment not more than one percent
(1%) of the capital stock of a competing business, whose stock is traded on a
national securities exchange or on an over-the-counter or similar market, unless
consented to by Metals, such consent not to be unreasonably withheld.
(b) Because of the difficulty of measuring economic losses to the Company
and Metals as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to the Company and Metals
for which they would have no other adequate remedy, Executive agrees that the
foregoing covenant may be enforced by Metals or the Company in the event of
breach by him, by injunctions and restraining orders.
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(c) It is agreed by the parties that the foregoing covenants in this
Section 3 impose a reasonable restraint on Executive in light of the activities
and business of the Company or Metals, as the case may be (including Metals'
other subsidiaries) on the date of execution of this Agreement and the current
plans of Metals (including Metals' other subsidiaries).
(d) The covenants in this Section 3 are severable and separate, and the
unenforceability of any specific covenant shall not affect the provisions of any
other covenant. Moreover, in the event any court of competent jurisdiction shall
determine that the scope, time or territorial restrictions set forth are
unreasonable, then it is the intention of the parties that such restrictions be
enforced to the fullest extent which the court deems reasonable, and the
Agreement shall thereby be reformed.
(e) All of the covenants in this Section 3 shall be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of Executive against the Company or
Metals, whether predicated on this Agreement or otherwise, shall not constitute
a defense to the enforcement by Metals or the Company of such covenants. It is
specifically agreed that the period of two (2) years following termination of
employment stated at the beginning of this Section 3, during which the
agreements and covenants of Executive made in this Section 3 shall be effective,
shall be computed by excluding from such computation any time during which
Executive is in violation of any provision of this Section 3.
4. TERM; TERMINATION; RIGHTS ON TERMINATION OF EMPLOYMENT.
(a) The term of this Agreement shall begin on the Effective Date and
continue for three (3) years (the " Term"), unless terminated sooner as herein
provided, and shall continue thereafter on a year-to-year basis on the same
terms and conditions contained herein in effect as of the time of renewal. The
parties agree and acknowledge that at the end of the Term, they will consider
extending the term of this Agreement or entering into an acceptable two year
consulting arrangement in the event an acceptable successor to Executive's
position is not then employed by the Company. This Agreement and Executive's
employment may be terminated in any one of the followings ways:
(i) DEATH. The death of Executive shall immediately terminate this
Agreement with no severance compensation due to Executive's estate.
(ii) DISABILITY. If, as a result of incapacity due to physical or
mental illness or injury, Executive shall have been absent from his
full-time duties hereunder for one hundred and twenty (120) days, then
thirty (30) days after receiving written notice (which notice may occur
before or after the end of such one hundred and twenty (120) day period,
but which shall not be effective earlier than the last day of such one
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hundred and twenty (120) day period), the Company may terminate
Executive's employment hereunder provided Executive is unable to resume
his full-time duties with or without reasonable accommodation at the
conclusion of such notice period. PROVIDED, HOWEVER, IF COMPANY'S
THEN-EXISTING DISABILITY (SHORT/LONG TERM) PROGRAM PROVIDES MORE BENEFITS,
THEN COMPANY'S DISABILITY PROGRAM SHALL CONTROL. Also, Executive may
terminate his employment hereunder if his health should become impaired to
an extent that makes the continued performance of his duties hereunder
hazardous to his physical or mental health or his life, provided that
Executive shall have furnished the Company with a written statement from a
qualified doctor to such effect and provided, further, that, at the
Company's request made within thirty (30) days of the date of such written
statement, Executive shall submit to an examination by a doctor selected
by the Company who is reasonably acceptable to Executive or Executive's
doctor and such doctor shall have concurred in the conclusion of
Executive's doctor. In the event this Agreement is terminated as a result
of Executive's disability, Executive shall receive from the Company, in a
lump-sum payment due within ten (10) days of the effective date of
termination, the base salary at the rate then in effect for whatever time
period is remaining under the Term of this Agreement or for one (1) year,
whichever amount is greater; provided, however, that any such payments
shall be reduced by the amount of any disability insurance payments
payable to the Executive under Company-sponsored plans as a result of such
disability .
(iii) GOOD CAUSE. The Company may terminate the Agreement
immediately for good cause, which shall be: (1) Executive's willful,
material and irreparable breach of this Agreement; (2) Executive's gross
negligence in the performance or intentional nonperformance of any of
Executive's material duties and responsibilities hereunder; (3)
Executive's willful dishonesty, fraud or misconduct with respect to the
business or affairs of the Company or Metals which materially and
adversely affects the operations or reputation of the Company or Metals;
(4) Executive's conviction of a felony crime; or (5) confirmed positive
illegal drug test result (subject to Company's drug program, if
applicable). In the event of a termination for good cause, Executive shall
have no right to any severance compensation. If the Company intends to
terminate Executive's employment under clauses (1), (2), or (3) above, it
will give Executive not less than 10 days' prior notice of a meeting of
the Board of Directors of the Company called to consider the matter, allow
Executive to attend such meeting with counsel to present Executive's views
of the issues, and allow Executive 10 days after the meeting to cure the
alleged breach or conduct if the Board of Directors reasonably concludes
that it is curable. These procedures will not prohibit the Board of
Directors from a temporary suspension of Executive's duties if it
reasonably concludes that it must do so to protect the Company's
interests.
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(iv) WITHOUT CAUSE. At any time after the commencement of
employment, Executive may, without cause, and without Good Reason (as
hereinafter defined) terminate this Agreement and Executive's employment,
effective thirty (30) days after written notice is provided to the
Company. Executive may only be terminated without cause by the Company
during the Term hereof if such termination is approved by at least eighty
percent (80%) of the members of the Board of Directors of Metals
(excluding the Executive if the Executive is then a member of the Board of
Directors of Metals). Should Executive be terminated by the Company
without cause or should Executive terminate with Good Reason during the
Term, Executive shall receive from the Company, in a lump-sum payment due
on the effective date of termination, the base salary at the rate then in
effect for whatever time period is remaining under the Term of this
Agreement or one (1) year, whichever is greater. Further, any termination
without cause by the Company shall operate to shorten the period set forth
in Section 3(a) and during which the terms of Section 3 apply to one (1)
year from the date of termination of employment. If Executive resigns or
otherwise terminates his employment without Good Reason, the provisions of
Section 3 hereof shall apply, except that Executive shall receive no
severance compensation.
(b) DEFINITION OF "GOOD REASON". Executive shall have "Good Reason" to
terminate this Agreement and his employment hereunder upon the occurrence of any
of the following events: (a) Executive is demoted by means of a reduction in
authority, responsibilities or duties to a position of less stature or
importance within the Company than the position described in Section 1 hereof;
or (b) the Company or Metals materially breaches this Agreement.
(c) CHANGE IN CONTROL OF METALS. In the event of a "Change in Control of
Metals" (as defined below) during the Initial Term, Section 11 below shall
apply.
(d) EFFECT OF TERMINATION. Upon termination of this Agreement for any
reason provided above, Executive shall be entitled to receive all compensation
earned and all benefits and reimbursements due through the effective date of
termination. Additional compensation subsequent to termination, if any, will be
due and payable to Executive only to the extent and in the manner expressly
provided herein. To the extent that the terms of any employee benefit plans or
arrangements then covering the Executive provides for benefits or payments after
the date of termination, the provisions thereof will control notwithstanding any
other provision of this Agreement. All other rights and obligations of the
Company and Executive under this Agreement shall cease as of the effective date
of termination, except that the Company's obligations under Section 8 herein and
Executive's obligations under Sections 3, 5, 6, 7 and 9 herein shall survive
such termination in accordance with their terms.
(e) CERTAIN TERMINATIONS. If Executive is terminated without cause or
terminates his employment hereunder with Good Reason, (1) the Company shall make
the insurance premium payments contemplated by COBRA for a period of 12 months
after such termination, (2) the Executive shall be entitled to receive a pro
rated portion of any annual bonus to which the Executive would have been
entitled for the year during which the termination occurred had the Executive
not been terminated, (3) all of Executive's options to purchase Metals stock
shall vest thereupon, and (4) upon satisfaction of Company's obligations
hereunder, Executive agrees to release Company of any further obligation.
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(f) ANNOUNCEMENTS. Any public announcement or other written pronouncements
with respect to Executive's termination is subject to his prior approval, which
will not be unreasonably withheld.
5. RETURN OF COMPANY PROPERTY. All records, designs, patents, business
plans, financial statements, manuals, memoranda, lists and other property
delivered to or compiled by Executive by or on behalf of the Company, Metals or
their representatives, vendors or customers which pertain to the business of the
Company or Metals shall be and remain the property of the Company or Metals, as
the case may be, and be subject at all times to their discretion and control.
Likewise, all correspondence, reports, records, charts, advertising materials
and other similar data pertaining to the business, activities or future plans of
the Company or Metals which is collected by Executive shall be delivered
promptly to the Company without request by it upon termination of Executive's
employment.
6. INVENTIONS. Executive shall disclose promptly to the Company any and
all significant conceptions and ideas for inventions, improvements and valuable
discoveries, whether patentable or not, which are conceived or made by
Executive, solely or jointly with another, during the period of employment, and
which are directly related to the business or activities of the Company and
which Executive conceives as a result of his employment by the Company.
Executive hereby assigns and agrees to assign all his interests therein to the
Company or its nominee. Whenever reasonably requested to do so by the Company,
Executive shall execute any and all applications, assignments or other
instruments that the Company shall reasonably deem necessary to apply for and
obtain Letters Patent of the United States or any foreign country or to
otherwise protect the Company's interest therein.
7. TRADE SECRETS. Executive agrees that he will not, during or after the
Term of this Agreement with the Company, disclose the specific terms of the
Company's or Metals' relationships or agreements with their respective
significant vendors or customers or any other significant and material trade
secret of the Company or Metals, whether in existence or proposed, to any
third-party person, firm, partnership, corporation or business for any reason or
purpose whatsoever.
8. INDEMNIFICATION. In the event Executive is made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by the Company
or Metals against Executive), by reason of the fact that he is or was performing
services under this Agreement or as an officer or director of the Company or
Metals, then the Company shall indemnify Executive against all expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement, as
actually and reasonably incurred by Executive in connection therewith to the
maximum extent permitted by applicable law. The advancement of expenses shall be
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mandatory to the extent permitted by applicable law. In the event that both
Executive and the Company are made a party to the same third-party action,
complaint, suit or proceeding, the Company agrees to engage counsel reasonably
acceptable to Executive, and Executive agrees to use the same counsel, provided
that if counsel selected by the Company shall have a conflict of interest that
prevents such counsel from representing Executive, Executive may engage separate
counsel and the Company shall pay all reasonable attorneys' fees of such
separate counsel. The Company shall not be required to pay the fees of more than
one law firm except as described in the preceding sentence, and shall not be
required to pay the fees of more than two law firms under any circumstances.
Further, while Executive is expected at all times to use commercially reasonable
efforts to faithfully discharge his duties under this Agreement, Executive
cannot be held liable to the Company or Metals for errors or omissions made in
good faith where Executive has not exhibited gross, willful and wanton
negligence and misconduct or performed criminal and fraudulent acts which
materially damage the business of the Company or Metals.
9. NO PRIOR AGREEMENTS; NO EXISTING CLAIMS. Executive hereby represents
and warrants to the Company that the execution of this Agreement by Executive
and his employment by the Company and the performance of his duties hereunder
will not violate or be a breach of any agreement with a former employer, client
or any other person or entity. Further, Executive agrees to indemnify the
Company for any claim, including, but not limited to, reasonable attorneys' fees
and expenses of investigation, by any such third party that such third party may
now have or may hereafter come to have against the Company based upon or arising
out of any non-competition agreement, invention or secrecy agreement between
Executive and such third party which was in existence as of the date of this
Agreement subject to reimbursement by the Company if it is determined in such
proceeding that such third party was not successful with respect to such claim.
Executive represents and warrants that he has no claim against the
Company, whatsoever, as of the date of this Agreement, other than compensation
unpaid as of the date hereof and owing to him.
10. ASSIGNMENT; BINDING EFFECT. Executive understands that he has been
selected for employment by the Company on the basis of his personal
qualifications, experience and skills. Executive agrees, therefore, he cannot
assign all or any portion of his performance under this Agreement. Subject to
the preceding sentences and the express provisions of Section 12 below, this
Agreement shall be binding upon, inure to the benefit of and be enforceable by
the parties hereto and their respective heirs, legal representatives, successors
and assigns.
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11. CHANGE IN CONTROL.
(a) Unless Executive elects to terminate this Agreement pursuant to (c)
below, Executive understands and acknowledges that Metals and/or the Company may
be merged or consolidated with or into another entity and that such entity shall
automatically succeed to the rights and obligations of Metals and/or the Company
hereunder or that the Company may undergo another type of Change in Control. In
the event such a merger or consolidation or other Change in Control is initiated
prior to the end of the Initial Term, then the provisions of this Section 11
shall be applicable.
(b) In the event of a pending Change in Control wherein Metals and/or the
Company and Executive have not received written notice at least five (5)
business days prior to the anticipated closing date of the transaction giving
rise to the Change in Control from the successor to all or a substantial portion
of Metals' and/or the Company's business and/or assets that such successor is
willing as of the closing to assume and agree to perform Metals' and/or the
Company's obligations under this Agreement in the same manner and to the same
extent that Metals and/or the Company is hereby required to perform, then such
Change in Control shall be deemed to be a termination of this Agreement by
Metals and/or the Company without cause during the Initial Term and the
applicable portions Section 4(a)(ii) will apply; however, under such
circumstances, the amount of the lump-sum severance payment due to Executive
shall be triple the amount calculated under the terms of Section 4(a)(ii) and
the non-competition provisions of Section 3 shall not apply whatsoever.
(c) In any Change in Control situation, Executive may, at his sole
discretion, elect to terminate this Agreement by providing written notice to the
Company at least five (5) business days prior to the anticipated closing of the
transaction giving rise to the Change in Control. In such case, the applicable
provisions of Section 4(a)(iv) will apply as though the Company had terminated
the Agreement without cause during the Initial Term; however, under such
circumstances, the amount of the lump-sum severance payment due to Executive
shall be double the amount calculated under the terms of Section 4(a)(ii) and
the non-competition provisions of Section 3 shall all apply for a period of one
(1) year from the effective date of termination.
(d) For purposes of applying Section 4 under the circumstances described
in (b) and (c) above, the effective date of termination will be the closing date
of the transaction giving rise to the Change in Control and all compensation,
reimbursements and lump-sum payments due Executive must be paid in full by the
Company at or prior to such closing. Further, Executive will be given sufficient
time, opportunity and information to elect whether to exercise all or any of his
vested options to purchase Metals Common Stock, such that he may convert the
options to shares of Metals Common Stock at or prior to the closing of the
transaction giving rise to the Change in Control, if he so desires.
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(e) A "Change in Control" shall be deemed to have occurred if:
(i) any person, other than Metals or an employee benefit plan of
Metals, acquires directly or indirectly the beneficial ownership (as
defined in Section 13(d) of the Securities Exchange Act of 1934, as
amended) of any voting security of the Company and immediately after such
acquisition such Person is, directly or indirectly, the Beneficial Owner
of voting securities representing 50% or more of the total voting power of
all of the then-outstanding voting securities of the Company;
(ii) the following individuals no longer constitute a majority of
the members of the Board of Directors of Metals: (A) the individuals who,
as of the closing date of Metals' initial public offering, constitute the
Board of Directors of Metals (the "Original Directors"); (B) the
individuals who thereafter are elected to the Board of Directors of Metals
and whose election, or nomination for election, to the Board of Directors
of Metals was approved by a vote of at least two-thirds (2/3) of the
Original Directors then still in office (such directors becoming
"Additional Original Directors" immediately following their election); and
(C) the individuals who are elected to the Board of Directors of Metals
and whose election, or nomination for election, to the Board of Directors
of Metals was approved by a vote of at least two-thirds (2/3) of the
Original Directors and Additional Original Directors then still in office
(such directors also becoming "Additional Original Directors" immediately
following their election);
(iii) the stockholders of Metals shall approve a merger,
consolidation, recapitalization, or reorganization of Metals, a reverse
stock split of outstanding voting securities, or consummation of any such
transaction if stockholder approval is not obtained, other than any such
transaction which would result in at least 75% of the total voting power
represented by the voting securities of the surviving entity outstanding
immediately after such transaction being Beneficially Owned by at least
75% of the holders of outstanding voting securities of Metals immediately
prior to the transaction, with the voting power of each such continuing
holder relative to other such continuing holders not substantially altered
in the transaction; or
(iv) the stockholders of Metals shall approve a plan of complete
liquidation of Metals or an agreement for the sale or disposition by
Metals of all or a substantial portion of Metals' assets (i.e., 50% or
more of the total assets of Metals).
(f) Executive must be notified in writing by the Company or Metals at any
time that the Company or any member of its Board anticipates that a Change in
Control may take place.
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(g) Executive shall be reimbursed by the Company or its successor for any
excise taxes that Executive incurs under Section 4999 of the Internal Revenue
Code of 1986, as a result of any Change in Control. Such amount will be due and
payable by the Company or its successor within ten (10) days after Executive
delivers a written request for reimbursement accompanied by a copy of his tax
return(s) showing the excise tax actually incurred by Executive.
12. COMPLETE AGREEMENT. This Agreement sets forth the entire agreement of
the parties hereto relating to the subject matter hereof and supersedes any
other employment agreements or understandings, written or oral, between the
Company and Executive. Executive has no oral representations, understandings or
agreements with the Company or any of its officers, directors or representatives
covering the same subject matter as this Agreement. This written Agreement is
the final, complete and exclusive statement and expression of the agreement
between the Company and Executive and of all the terms of this Agreement, and it
cannot be varied, contradicted or supplemented by evidence of any prior or
contemporaneous oral or written agreements. This written Agreement may not be
later modified except by a further writing signed by a duly authorized officer
of the Company and Executive, and no term of this Agreement may be waived except
by writing signed by the party waiving the benefit of such term.
13. NOTICE. All notices, including communications required or permitted
hereunder shall be in writing. Any notice will be deemed to have been duly given
if personally delivered, sent by a recognized messenger or next day courier
service or sent by United States mail, telex or facsimile transmission, and will
be deemed received, unless earlier received (a) if sent by express, certified or
regular mail, return receipt requested, when actually received or delivery
refused; (b) if sent by messenger or courier, when actually received or delivery
refused; (c) if delivered by hand, on the date of delivery; and (d) if sent by
telex or facsimile transmission, on the date sent, so long as a confirming
notice is sent by one of the foregoing methods. Whenever any notice is required
hereunder, it shall be given in writing addressed as follows:
To the Company: Harvey Titanium, Ltd.
c/o Metals USA, Inc.
Attn: Chairman of the Board
Three Riverway, Suite 600
Houston, Texas 77056
Telephone: (713) 965-0990
Fax: (713) 965-0067
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With a copy to: Metals USA, Inc.
John Hageman, General Counsel
Three Riverway, Suite 600
Houston, Texas 77056
Telephone: (713) 965-0990
Fax: (713) 965-0067
To Executive: Barry Harvey
_____________________________
_____________________________
_____________________________
or to such other address as any party hereto shall specify pursuant to this
Section 13 from time to time.
14. SEVERABILITY; HEADINGS. If any portion of this Agreement is held
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. The
Section headings herein are for reference purposes only and are not intended in
any way to describe, interpret, define or limit the extent or intent of the
Agreement or of any part hereof.
15. ARBITRATION. With the exception of Sections 3 and 7, any unresolved
dispute or controversy arising under or in connection with this Agreement shall
be settled exclusively by arbitration, conducted before a panel of three (3)
arbitrators in, Los Angeles, California in accordance with the National Rules
for the Resolution of Employment Disputes of the American Arbitration
Association ("AAA") then in effect, provided that Executive shall comply with
the Company's grievance procedures in an effort to resolve such dispute or
controversy before resorting to arbitration, and provided further that the
parties may agree to use arbitrators other than those provided by the AAA. The
arbitrators shall not have the authority to add to, detract from, or modify any
provision hereof nor to award punitive damages to any injured party. The
arbitrators shall have the authority to order back-pay, severance compensation,
vesting of options (or cash compensation in lieu of vesting of options),
reimbursement of costs, including those incurred to enforce this Agreement, and
interest thereon in the event the arbitrators determine that Executive was
terminated without disability or good cause, as defined in Sections 4(a)(ii) and
4(a)(iii), respectively, or that the Company has otherwise materially breached
this Agreement. A decision by a majority of the arbitration panel shall be final
and binding. Judgment may be entered on the arbitrators' award in any court
having jurisdiction. The direct expense of any arbitration proceeding shall be
borne by the Company.
16. GOVERNING LAW. This Agreement shall in all respects be construed
according to the laws of the State of California.
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17. COUNTERPARTS. This Agreement may be executed simultaneously in two (2)
or more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
COMPANY:
HARVEY TITANIUM, LTD.
By:
Name:
Title:
EXECUTIVE:
Barry Harvey
EXHIBIT 10.36
EXECUTIVE EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") dated this day of
September, 1997 (the "Effective Date"), by and between Meier Metal
Servicenters, Inc., a Michigan corporation (the "Company") which is a
wholly-owned subsidiary of Metals USA, Inc., a Delaware corporation ("Metals")
and William Targett ("Executive").
R E C I T A L S
A. As of the Effective Date, the Company and the other subsidiaries of
Metals are engaged primarily in the business of providing metals processing,
metals fabrication and specialty metals services, including brokering,
manufacturing and distribution services; and
B. Executive is employed by the Company in a confidential relationship
wherein Executive, in the course of his employment with the Company, has and
will continue to become familiar with and aware of information as to the
Company's and Metals' customers, specific manner of doing business, including
the processes, techniques and trade secrets utilized by the Company and Metals,
and future plans with respect hereto, all of which has been and will be
established and maintained at great expense to the Company and Metals; this
information is a trade secret and constitute the valuable goodwill of the
Company and Metals; and
C. The parties desire to agree to the various matters described herein and
to memorialize those agreements herein.
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, it is hereby agreed as follows:
A G R E E M E N T S
1. EMPLOYMENT AND DUTIES.
(a) The Company hereby employs Executive as President of the Company. As
such, Executive shall have responsibilities, duties and authority reasonably
accorded to, expected of, and consistent with Executive's position and will
report to the Board of Directors of the Company (the "Board"). Executive hereby
accepts this employment upon the terms and conditions herein contained and,
subject to Section 3 hereof, agrees to devote substantially all of his business
time, attention and efforts to promote and further the business of the Company
and Metals.
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(b) Executive shall faithfully adhere to, execute and fulfill all lawful
policies established by the Company, as such policies may be changed from time
to time by the Company.
2. COMPENSATION. For all services rendered by Executive, the Company shall
compensate Executive as follows:
(a) BASE SALARY. As of the Effective Date, the base salary payable to
Executive shall be $150,000 per year, payable on a regular basis in accordance
with the Company's standard payroll procedures but not less than monthly. On at
least an annual basis commencing in 1998, the Board will review Executive's
performance and may make increases to such base salary if, in its discretion,
any such increase is warranted.
(b) BONUS. For the year 1998, Executive shall be entitled to a bonus equal
to that portion of the Bonus Pool (hereinafter defined) allocated to Executive
by the President of the Company. The "Bonus Pool" shall mean an amount equal to
the greater of (i) the aggregate bonus actually earned from the Stockholders'
performance pursuant to the bonus formula to be established by Metals for
calculating bonuses for the Company's four (4) executives ("Formula Bonus") or
(ii) the sum of $150,000 provided, however, that the sum of $150,000 will not be
a part of the Bonus Pool unless the operating profit of the Company for the
calendar year 1998 exceeds $2,100,000. In determining 1998 operating profit, any
charges of Metals or any affiliate thereof for management fees or the like shall
not exceed the annualized 1997 Company headquarters charges. After 1998,
Executive shall only be entitled to the Formula Bonus as determined by the
Company and Metals.
(c) EXECUTIVE PERQUISITES, BENEFITS AND OTHER COMPENSATION. Executive
shall be entitled to receive additional benefits and compensation from the
Company in such form and to such extent as specified below:
(i) Admittance for participation for Executive and Executive's
dependent family members under health, hospitalization, disability,
dental, life and other insurance plans that the Company may have in effect
from time to time, with benefits provided to Executive under this clause
(i) to be at least equal to such benefits provided to Company employees
generally; provided, however, that in no event shall the benefits
described hereunder be reduced below the level of benefits presently
provided to Executive and Executive's dependent family members by the
Company.
(ii) Reimbursement for all business travel and other out-of-pocket
business-related expenses (including golf club expenses) reasonably
incurred by Executive in the performance of his services pursuant to this
Agreement. All reimbursable expenses shall be appropriately documented in
reasonable detail by Executive upon submission of any request for
reimbursement, and in a format and manner consistent with the Company's
expense reporting policy.
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(iii) The Company shall provide Executive with other executive
perquisites as may be available to or deemed appropriate for Executive by
the Board or Metals and participation in all other company-wide employee
benefits as are available from time to time, including but not limited to
any qualified and/or nonqualified retirement plans, bonus plans or stock
option plans that may be sponsored by the Company or Metals for similarly
positioned Executives.
3. NON-COMPETITION AGREEMENT.
(a) Executive shall not, during the term of his employment hereunder, be
engaged in any other business activity pursued for gain, profit or other
pecuniary advantage if such activity interferes or conflicts in any respect with
Executive's duties and responsibilities hereunder. The foregoing limitations
shall not be construed as prohibiting Executive from making personal investments
in such form or manner as will neither require his services in the operation or
affairs of the companies or enterprises in which such investments are made nor
violate the terms of this Section 3. In addition, Executive shall not, during
the period of his employment by or with the Company, and for a period of two (2)
years immediately following the termination of his employment under this
Agreement, for any reason whatsoever, other than a termination by the Company
without cause or by Executive for Good Reason, directly or indirectly, for
himself or on behalf of or in conjunction with any other person, company,
partnership, corporation or business of whatever nature:
(i) engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant or advisor, or as a sales
representative, in any business in direct competition with the Company or
Metals, within 200 miles of where the Company or any of Metals'
subsidiaries conducts business, including any territory serviced by the
Company or Metals or any of such subsidiaries (the "Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of the Company or Metals (including the respective
subsidiaries thereof) in a managerial capacity for the purpose or with the
intent of enticing such employee away from or out of the employ of the
Company or Metals (including the respective subsidiaries thereof);
(iii) call upon any person or entity which is, at that time, or
which has been, within one (1) year prior to that time, a customer of the
Company or Metals (including the respective subsidiaries thereof) within
the Territory for the purpose of soliciting or selling products or
services in direct competition with the Company or Metals within the
Territory;
(iv) call upon any prospective acquisition candidate, on Executive's
own behalf or on behalf of any competitor, which candidate was, to
Executive's actual knowledge after due inquiry, either called upon by the
Company or Metals (including the respective subsidiaries thereof) or for
which the Company or Metals made an acquisition analysis, for the purpose
of acquiring such entity.
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Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit Executive from acquiring as an investment not more than one percent
(1%) of the capital stock of a competing business, whose stock is traded on a
national securities exchange or on an over-the-counter or similar market.
(b) Because of the difficulty of measuring economic losses to the Company
and Metals as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to the Company and Metals
for which they would have no other adequate remedy, Executive agrees that the
foregoing covenant may be enforced by Metals or the Company in the event of
breach by him, by injunctions and restraining orders.
(c) It is agreed by the parties that the foregoing covenants in this
Section 3 impose a reasonable restraint on Executive in light of the activities
and business of the Company or Metals, as the case may be (including Metals'
other subsidiaries) on the date of execution of this Agreement and the current
plans of Metals (including Metals' other subsidiaries); but it is also the
intent of the Company and Executive that such covenants be construed and
enforced in accordance with the changing activities, business and locations of
the Company and Metals, as the case may be (including Metals' other
subsidiaries) throughout the term of this covenant, whether before or after the
date of termination of the employment of Executive. For example, if, during the
term of this Agreement, the Company or Metals, as the case may be (including
Metals' other subsidiaries) engages in new and different activities, enters a
new business or establishes new locations for its current activities or business
in addition to or other than the activities or business enumerated under the
Recitals above or the locations currently established therefor, then Executive
will be precluded from soliciting the customers or employees of such new
activities or business or from such new location and from directly competing
with such new business within 200 miles of its then-established operating
location(s) through the term of this covenant. It is further agreed by the
parties hereto that, in the event that Executive shall cease to be employed
hereunder, and shall enter into a business or pursue other activities not in
competition with the Company or Metals (including Metals' other subsidiaries),
or similar activities or business in locations the operation of which, under
such circumstances, does not violate clause (a) of this Section 3, and in any
event such new business, activities or location are not in violation of this
Section 3 or of Executive's obligations under this Section 3, if any, Executive
shall not be chargeable with a violation of this Section 3 if the Company or
Metals (including Metals' other subsidiaries) shall thereafter enter the same,
similar or a competitive (i) business, (ii) course of activities or (iii)
location, as applicable.
(d) The covenants in this Section 3 are severable and separate, and the
unenforceability of any specific covenant shall not affect the provisions of any
other covenant. Moreover, in the event any court of competent jurisdiction shall
determine that the scope, time or territorial restrictions set forth are
unreasonable, then it is the intention of the parties that such restrictions be
enforced to the fullest extent which the court deems reasonable, and the
Agreement shall thereby be reformed.
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(e) All of the covenants in this Section 3 shall be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of Executive against the Company or
Metals, whether predicated on this Agreement or otherwise, shall not constitute
a defense to the enforcement by Metals or the Company of such covenants. It is
specifically agreed that the period of two (2) years following termination of
employment stated at the beginning of this Section 3, during which the
agreements and covenants of Executive made in this Section 3 shall be effective,
shall be computed by excluding from such computation any time during which
Executive is in violation of any provision of this Section 3.
4. TERM; TERMINATION; RIGHTS ON TERMINATION OF EMPLOYMENT.
(a) The term of this Agreement shall begin on the Effective Date and
continue for two (2) years (the "Term"), unless terminated sooner as herein
provided. This Agreement and Executive's employment may be terminated in any one
of the followings ways:
(i) DEATH. The death of Executive shall immediately terminate this
Agreement with no severance compensation due to Executive's estate.
(ii) DISABILITY. If, as a result of incapacity due to physical or
mental illness or injury, Executive shall have been absent from his
full-time duties hereunder for four (4) consecutive months, then thirty
(30) days after receiving written notice (which notice may occur before or
after the end of such four (4) month period, but which shall not be
effective earlier than the last day of such four (4) month period), the
Company may terminate Executive's employment hereunder provided Executive
is unable to resume his full-time duties with or without reasonable
accommodation at the conclusion of such notice period. PROVIDED, HOWEVER,
IF COMPANY'S THEN-EXISTING DISABILITY (SHORT/LONG TERM) PROGRAM PROVIDES
MORE BENEFITS, THEN COMPANY'S DISABILITY PROGRAM SHALL CONTROL. Also,
Executive may terminate his employment hereunder if his health should
become impaired to an extent that makes the continued performance of his
duties hereunder hazardous to his physical or mental health or his life,
provided that Executive shall have furnished the Company with a written
statement from a qualified doctor to such effect and provided, further,
that, at the Company's request made within thirty (30) days of the date of
such written statement, Executive shall submit to an examination by a
doctor selected by the Company who is reasonably acceptable to Executive
or Executive's doctor and such doctor shall have concurred in the
conclusion of Executive's doctor. In the event this Agreement is
terminated as a result of Executive's disability, Executive shall receive
from the Company, in a lump-sum payment due within ten (10) days of the
effective date of termination, the base salary at the rate then in effect
for whatever time period is remaining under the Term of this Agreement or
for one (1) year, whichever amount is greater; provided, however, that any
such payments shall be reduced by the amount of any disability insurance
payments payable to the Executive as a result of such disability.
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(iii) GOOD CAUSE. The Company may terminate the Agreement
immediately for good cause, which shall be: (1) Executive's willful,
material and irreparable breach of this Agreement; (2) Executive's gross
negligence in the performance or intentional nonperformance of any of
Executive's material duties and responsibilities hereunder; (3)
Executive's willful dishonesty, fraud or misconduct with respect to the
business or affairs of the Company or Metals which materially and
adversely affects the operations or reputation of the Company or Metals;
(4) Executive's conviction of a felony crime; or (5) confirmed positive
illegal drug test result (subject to Company's drug program, if
applicable). In the event of a termination for good cause, Executive shall
have no right to any severance compensation.
(iv) WITHOUT CAUSE. At any time after the commencement of
employment, Executive may, without cause, and without Good Reason (as
hereinafter defined) terminate this Agreement and Executive's employment,
effective thirty (30) days after written notice is provided to the
Company. Executive may only be terminated without cause by the Company
during the Term hereof if such termination is approved by at least eighty
percent (80%) of the members of the Board of Directors of Metals
(excluding the Executive if the Executive is then a member of the Board of
Directors of Metals). Should Executive be terminated by the Company
without cause or should Executive terminate with Good Reason during the
Term, Executive shall receive from the Company, in a lump-sum payment due
on the effective date of termination, the base salary at the rate then in
effect for whatever time period is remaining under the Term of this
Agreement or one (1) year, whichever is greater. Further, any termination
without cause by the Company shall operate to shorten the period set forth
in Section 3(a) and during which the terms of Section 3 apply to one (1)
year from the date of termination of employment. If Executive resigns or
otherwise terminates his employment without Good Reason, the provisions of
Section 3 hereof shall apply, except that Executive shall receive no
severance compensation.
(b) DEFINITION OF "GOOD REASON". Executive shall have "Good Reason" to
terminate this Agreement and his employment hereunder upon the occurrence of any
of the following events: (a) Executive is demoted by means of a reduction in
authority, responsibilities or duties to a position of less stature or
importance within the Company than the position described in Section 1 hereof;
or (b) Executive's annual base salary as determined pursuant to Section 2 hereof
is reduced to a level that is less than 90% of the base salary paid to Executive
during the prior contract year under this Agreement, unless Executive has agreed
in writing to that demotion or reduction.
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(c) CHANGE IN CONTROL OF METALS. In the event of a "Change in Control of
Metals" (as defined below) during the Term, Section 11 below shall apply.
(d) EFFECT OF TERMINATION. Upon termination of this Agreement for any
reason provided above, Executive shall be entitled to receive all compensation
earned and all benefits and reimbursements due through the effective date of
termination. Additional compensation subsequent to termination, if any, will be
due and payable to Executive only to the extent and in the manner expressly
provided herein. All other rights and obligations of the Company and Executive
under this Agreement shall cease as of the effective date of termination, except
that the Company's obligations under Section 8 herein and Executive's
obligations under Sections 3, 5, 6, 7 and 9 herein shall survive such
termination in accordance with their terms.
(e) MATERIAL BREACH BY COMPANY. If termination of Executive's employment
arises out of the Company's failure to pay Executive on a timely basis the
amounts to which he is entitled under this Agreement or as a result of any other
material breach of this Agreement by the Company, as determined by a court of
competent jurisdiction or pursuant to the provisions of Section 15 below, the
Company shall pay the greater of the base salary at the rate then in effect for
whatever time period is remaining under the Agreement or for one (1) year,
whichever is greater and the provisions of Section 3 shall not apply.
(f) CERTAIN TERMINATIONS. If Executive is terminated without cause or
terminates his employment hereunder with Good Reason, (1) the Company shall make
the insurance premium payments contemplated by COBRA for a period of 12 months
after such termination, (2) the Executive shall be entitled to receive a pro
rated portion of any annual bonus to which the Executive would have been
entitled for the year during which the termination occurred had the Executive
not been terminated and (3) all of Executive's options to purchase Metals stock
shall vest thereupon.
5. RETURN OF COMPANY PROPERTY. All records, designs, patents, business
plans, financial statements, manuals, memoranda, lists and other property
delivered to or compiled by Executive by or on behalf of the Company, Metals or
their representatives, vendors or customers which pertain to the business of the
Company or Metals shall be and remain the property of the Company or Metals, as
the case may be, and be subject at all times to their discretion and control.
Likewise, all correspondence, reports, records, charts, advertising materials
and other similar data pertaining to the business, activities or future plans of
the Company or Metals which is collected by Executive shall be delivered
promptly to the Company without request by it upon termination of Executive's
employment.
6. INVENTIONS. Executive shall disclose promptly to the Company any and
all significant conceptions and ideas for inventions, improvements and valuable
discoveries, whether patentable or not, which are conceived or made by
Executive, solely or jointly with another, during the period of employment or
within one (1) year thereafter, and which are directly related to the business
or activities of the Company and which Executive conceives as a result of his
employment by the Company. Executive hereby assigns and agrees to assign all his
interests therein to the Company or its nominee. Whenever requested to do so by
the Company, Executive shall execute any and all applications, assignments or
other instruments that the Company shall deem necessary to apply for and obtain
Letters Patent of the United States or any foreign country or to otherwise
protect the Company's interest therein.
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7. TRADE SECRETS. Executive agrees that he will not, during or after the
Term of this Agreement with the Company, disclose the specific terms of the
Company's or Metals' relationships or agreements with their respective
significant vendors or customers or any other significant and material trade
secret of the Company or Metals, whether in existence or proposed, to any
person, firm, partnership, corporation or business for any reason or purpose
whatsoever.
8. INDEMNIFICATION. In the event Executive is made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by the Company
or Metals against Executive), by reason of the fact that he is or was performing
services under this Agreement, then the Company shall indemnify Executive
against all expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement, as actually and reasonably incurred by Executive in
connection therewith to the maximum extent permitted by applicable law. The
advancement of expenses shall be mandatory to the extent permitted by applicable
law. In the event that both Executive and the Company are made a party to the
same third-party action, complaint, suit or proceeding, the Company agrees to
engage counsel, and Executive agrees to use the same counsel, provided that if
counsel selected by the Company shall have a conflict of interest that prevents
such counsel from representing Executive, Executive may engage separate counsel
and the Company shall pay all reasonable attorneys' fees of such separate
counsel. The Company shall not be required to pay the fees of more than one law
firm except as described in the preceding sentence, and shall not be required to
pay the fees of more than two law firms under any circumstances. Further, while
Executive is expected at all times to use his best efforts to faithfully
discharge his duties under this Agreement, Executive cannot be held liable to
the Company or Metals for errors or omissions made in good faith where Executive
has not exhibited gross, willful and wanton negligence and misconduct or
performed criminal and fraudulent acts which materially damage the business of
the Company or Metals.
9. NO PRIOR AGREEMENTS. Executive hereby represents and warrants to the
Company that the execution of this Agreement by Executive and his employment by
the Company and the performance of his duties hereunder will not violate or be a
breach of any agreement with a former employer, client or any other person or
entity. Further, Executive agrees to indemnify the Company for any claim,
including, but not limited to, attorneys' fees and expenses of investigation, by
any such third party that such third party may now have or may hereafter come to
have against the Company based upon or arising out of any non-competition
agreement, invention or secrecy agreement between Executive and such third party
which was in existence as of the date of this Agreement.
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10. ASSIGNMENT; BINDING EFFECT. Executive understands that he has been
selected for employment by the Company on the basis of his personal
qualifications, experience and skills. Executive agrees, therefore, he cannot
assign all or any portion of his performance under this Agreement. Subject to
the preceding two (2) sentences and the express provisions of Section 12 below,
this Agreement shall be binding upon, inure to the benefit of and be enforceable
by the parties hereto and their respective heirs, legal representatives,
successors and assigns.
11. CHANGE IN CONTROL.
(a) Unless Executive elects to terminate this Agreement pursuant to (c)
below, Executive understands and acknowledges that Metals and/or the Company may
be merged or consolidated with or into another entity and that such entity shall
automatically succeed to the rights and obligations of Metals and/or the Company
hereunder or that the Company may undergo another type of Change in Control. In
the event such a merger or consolidation or other Change in Control is initiated
prior to the end of the Term, then the provisions of this Section 11 shall be
applicable.
(b) In the event of a pending Change in Control wherein Metals and/or the
Company and Executive have not received written notice at least five (5)
business days prior to the anticipated closing date of the transaction giving
rise to the Change in Control from the successor to all or a substantial portion
of Metals' and/or the Company's business and/or assets that such successor is
willing as of the closing to assume and agree to perform Metals' and/or the
Company's obligations under this Agreement in the same manner and to the same
extent that Metals and/or the Company is hereby required to perform, then such
Change in Control shall be deemed to be a termination of this Agreement by
Metals and/or the Company without cause during the Term and the applicable
portions Section 4(a)(iv) will apply; however, under such circumstances, the
amount of the lump-sum severance payment due to Executive shall be triple the
amount calculated under the terms of Section 4(a)(iv) and the non-competition
provisions of Section 3 shall not apply whatsoever.
(c) In any Change in Control situation, Executive may, at his sole
discretion, elect to terminate this Agreement by providing written notice to the
Company at least five (5) business days prior to the anticipated closing of the
transaction giving rise to the Change in Control. In such case, the applicable
provisions of Section 4(a)(iv) will apply as though the Company had terminated
the Agreement without cause during the Term; however, under such circumstances,
the amount of the lump-sum severance payment due to Executive shall be double
the amount calculated under the terms of Section 4(a)(iv) and the
non-competition provisions of Section 3 shall all apply for a period of two (2)
years from the effective date of termination.
(d) For purposes of applying Section 4 under the circumstances described
in (b) and (c) above, the effective date of termination will be the closing date
of the transaction giving rise to the Change in Control and all compensation,
reimbursements and lump-sum payments due Executive must be paid in full by the
Company at or prior to such closing. Further, Executive will be given sufficient
time and opportunity to elect whether to exercise all or any of his vested
options to purchase Metals Common Stock, such that he may convert the options to
shares of Metals Common Stock at or prior to the closing of the transaction
giving rise to the Change in Control, if he so desires.
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(e) A "Change in Control" shall be deemed to have occurred if:
(i) any person, other than Metals or an employee benefit plan of
Metals, acquires directly or indirectly the beneficial ownership (as
defined in Section 13(d) of the Securities Exchange Act of 1934, as
amended) of any voting security of the Company and immediately after such
acquisition such Person is, directly or indirectly, the Beneficial Owner
of voting securities representing 50% or more of the total voting power of
all of the then-outstanding voting securities of the Company;
(ii) the following individuals no longer constitute a majority of
the members of the Board of Directors of Metals: (A) the individuals who,
as of the closing date of Metals' initial public offering, constitute the
Board of Directors of Metals (the "Original Directors"); (B) the
individuals who thereafter are elected to the Board of Directors of Metals
and whose election, or nomination for election, to the Board of Directors
of Metals was approved by a vote of at least two-thirds (2/3) of the
Original Directors then still in office (such directors becoming
"Additional Original Directors" immediately following their election); and
(C) the individuals who are elected to the Board of Directors of Metals
and whose election, or nomination for election, to the Board of Directors
of Metals was approved by a vote of at least two-thirds (2/3) of the
Original Directors and Additional Original Directors then still in office
(such directors also becoming "Additional Original Directors" immediately
following their election);
(iii) the stockholders of Metals shall approve a merger,
consolidation, recapitalization, or reorganization of Metals, a reverse
stock split of outstanding voting securities, or consummation of any such
transaction if stockholder approval is not obtained, other than any such
transaction which would result in at least 75% of the total voting power
represented by the voting securities of the surviving entity outstanding
immediately after such transaction being Beneficially Owned by at least
75% of the holders of outstanding voting securities of Metals immediately
prior to the transaction, with the voting power of each such continuing
holder relative to other such continuing holders not substantially altered
in the transaction; or
(iv) the stockholders of Metals shall approve a plan of complete
liquidation of Metals or an agreement for the sale or disposition by
Metals of all or a substantial portion of Metals' assets (i.e., 50% or
more of the total assets of Metals).
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(f) Executive must be notified in writing by the Company or Metals at any
time that the Company or any member of its Board anticipates that a Change in
Control may take place.
(g) Executive shall be reimbursed by the Company or its successor for any
excise taxes that Executive incurs under Section 4999 of the Internal Revenue
Code of 1986, as a result of any Change in Control. Such amount will be due and
payable by the Company or its successor within ten (10) days after Executive
delivers a written request for reimbursement accompanied by a copy of his tax
return(s) showing the excise tax actually incurred by Executive.
12. PLACE OF PERFORMANCE
(a) Executive understands that Executive may be requested by the Board to
relocate from Executive's present residence to another geographic location in
order to more efficiently carry out Executive's duties and responsibilities
under this Agreement or as part of a promotion or other increase in duties and
responsibilities. In such event, if Executive agrees to relocate, the Company
will pay all relocation costs to move Executive, Executive's immediate family
and their personal property and effects. Such costs may include, by way of
example, but are not limited to, pre-move visits to search for a new residence,
investigate schools or for other purposes; temporary lodging and living costs
prior to moving into a new permanent residence; duplicate home carrying costs;
all closing costs on the sale of Executive's present residence and on the
purchase of a comparable residence in the new location; and added income taxes
that Executive may incur if any relocation costs are not deductible for tax
purposes. The general intent of the foregoing is that Executive shall not
personally bear any out-of-pocket cost as a result of the relocation, with an
understanding that Executive will use Executive's best efforts to incur only
those costs which are reasonable and necessary to effect a smooth, efficient and
orderly relocation with minimal disruption to the business affairs of the
Company and the personal life of Executive and Executive's family.
(b) Notwithstanding the above, if Executive is requested by the Board to
relocate and Executive refuses, such refusal shall not constitute "cause" for
termination of this Agreement under the terms of paragraph 4(a)(iii).
13. COMPLETE AGREEMENT. This Agreement sets forth the entire agreement of
the parties hereto relating to the subject matter hereof and supersedes any
other employment agreements or understandings, written or oral, between the
Company and Executive. This Agreement is not a promise of future employment.
Executive has no oral representations, understandings or agreements with the
Company or any of its officers, directors or representatives covering the same
subject matter as this Agreement. This written Agreement is the final, complete
and exclusive statement and expression of the agreement between the Company and
Executive and of all the terms of this Agreement, and it cannot be varied,
contradicted or supplemented by evidence of any prior or contemporaneous oral or
written agreements. This written Agreement may not be later modified except by a
further writing signed by a duly authorized officer of the Company and
Executive, and no term of this Agreement may be waived except by writing signed
by the party waiving the benefit of such term.
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14. NOTICE. Whenever any notice is required hereunder, it shall be given
in writing addressed as follows:
To the Company: Meier Metal Servicenters, Inc.
c/o Metals USA, Inc.
Attn: Chairman of the Board
Three Riverway, Suite 600
Houston, Texas 77056
Telephone: (713) 965-0990
Fax: (713) 965-0067
With a copy to: Metals USA, Inc.
John Hageman, General Counsel
Three Riverway, Suite 600
Houston, Texas 77056
Telephone: (713) 965-0990
Fax: (713) 965-0067
To Executive: William Targett
_______________________________
_______________________________
_______________________________
Notice shall be deemed given and effective on the earlier of three (3) days
after the deposit in the U.S. mail of a writing addressed as above and sent
first class mail, certified, return receipt requested, or when actually received
by means of hand delivery, delivery by Federal Express or other courier service,
or by facsimile transmission. Either party may change the address for notice by
notifying the other party of such change in accordance with this Section 13.
15. SEVERABILITY; HEADINGS. If any portion of this Agreement is held
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. The
Section headings herein are for reference purposes only and are not intended in
any way to describe, interpret, define or limit the extent or intent of the
Agreement or of any part hereof.
16. ARBITRATION. With the exception of Sections 3 and 7, any unresolved
dispute or controversy arising under or in connection with this Agreement shall
be settled exclusively by arbitration, conducted before a panel of three (3)
arbitrators in, Detroit, Michigan in accordance with the National Rules for the
Resolution of Employment Disputes of the American Arbitration Association
("AAA") then in effect, provided that Executive shall comply with the Company's
grievance procedures in an effort to resolve such dispute or controversy before
resorting to arbitration, and provided further that the parties may agree to use
arbitrators other than those provided by the AAA. The arbitrators shall not have
the authority to add to, detract from, or modify any provision hereof nor to
award punitive damages to any injured party. The arbitrators shall have the
authority to order back-pay, severance compensation, vesting of options (or cash
compensation in lieu of vesting of options), reimbursement of costs, including
those incurred to enforce this Agreement, and interest thereon in the event the
arbitrators determine that Executive was terminated without disability or good
cause, as defined in Sections 4(a)(ii) and 4(a)(iii), respectively, or that the
Company has otherwise materially breached this Agreement. A decision by a
majority of the arbitration panel shall be final and binding. Judgment may be
entered on the arbitrators' award in any court having jurisdiction. The direct
expense of any arbitration proceeding shall be borne by the Company.
17. GOVERNING LAW. This Agreement shall in all respects be construed
according to the laws of the State of Michigan.
18. COUNTERPARTS. This Agreement may be executed simultaneously in two (2)
or more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
COMPANY:
MEIER METAL SERVICENTERS, INC.
By:
Name:
Title:
EXECUTIVE:
William Targett
EXHIBIT 10.37
FOUNDERS' EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") dated this day of
September, 1997 (the "Effective Date"), by and between Jeffreys Steel
Company, Inc., an Alabama corporation (the "Company") which is a wholly-owned
subsidiary of Metals USA, Inc., a Delaware corporation ("Metals") and Toby
Jeffreys ("Executive").
R E C I T A L S
A. As of the Effective Date, the Company and the other subsidiaries of
Metals are or will be engaged primarily in the business of providing metals
processing, metals fabrication and specialty metals services, including
brokering, manufacturing and distribution services; and
B. Executive is employed by the Company in a confidential relationship
wherein Executive, in the course of his employment with the Company, has and
will continue to become familiar with and aware of information as to the
Company's and Metals' customers, specific manner of doing business, including
the processes, techniques and trade secrets utilized by the Company and Metals,
and future plans with respect hereto, all of which has been and will be
established and maintained at great expense to the Company and Metals; this
information is a trade secret and constitute the valuable goodwill of the
Company and Metals; and
C. The parties desire to agree to the various matters described herein and
to memorialize those agreements herein.
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, it is hereby agreed as follows:
A G R E E M E N T S
1. EMPLOYMENT AND DUTIES.
(a) The Company hereby employs Executive as President of the Company. As
such, Executive shall have responsibilities, duties and authority reasonably
accorded to, expected of, and consistent with Executive's position and will
report to the Board of Directors of the Company (the "Board"). Executive hereby
accepts this employment upon the terms and conditions herein contained and,
subject to Section 3 hereof, agrees to devote substantially all of his business
time, attention and efforts to promote and further the business of the Company
and Metals.
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(b) Executive shall faithfully adhere to, execute and fulfill all lawful
policies established by the Company, as such policies may be changed from time
to time by the Company.
(c) Executive shall not be required to relocate from Mobile, Alabama.
2. COMPENSATION. For all services rendered by Executive, the
Company shall compensate Executive as follows:
(a) BASE SALARY. As of the Effective Date, the base salary payable to
Executive shall be $150,000 per year, payable on a regular basis in accordance
with the Company's standard payroll procedures but not less than monthly. On at
least an annual basis, the Board will review Executive's performance and may
make increases to such base salary if, in its discretion, any such increase is
warranted.
(b) EXECUTIVE PERQUISITES, BENEFITS AND OTHER COMPENSATION. Executive
shall be entitled to receive additional benefits and compensation from the
Company and Metals in such form and to such extent as specified below:
(i) Admittance for participation for Executive and Executive's
dependent family members under health, hospitalization, disability,
dental, life and other insurance plans that the Company may have in effect
from time to time, with benefits provided to Executive under this clause
(i) to be at least equal to such benefits provided to Company employees
generally; provided, however, that in no event shall the benefits
described hereunder be reduced below the level of benefits presently
provided to Executive and Executive's dependent family members by the
Company.
(ii) Reimbursement for all business travel and other out-of-pocket
expenses reasonably incurred by Executive in the performance of his
services pursuant to this Agreement. All reimbursable expenses shall be
appropriately documented in reasonable detail by Executive upon submission
of any request for reimbursement, and in a format and manner consistent
with the Company's expense reporting policy.
(iii) The Company and Metals shall provide Executive with other
executive perquisites as may be available to or deemed appropriate for
Executive by the Board or Metals and participation in all other
Company-wide and Metals' employee benefits as are available from time to
time, including but not limited to any qualified and/or nonqualified
retirement plans, bonus plans, and stock option plans that may be
sponsored by the Company or Metals.
(iv) The Executive agrees to allow the Company to continue to
maintain key man policy no. 20032941 on the life of Executive under the
reverse split dollar agreement annuity in effect. Any death benefits
received by the Company on the life of the Executive shall be paid to the
estate of the Executive.
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3. NON-COMPETITION AGREEMENT.
(a) Executive shall not be engaged in any other business activity pursued
for gain, profit or other pecuniary advantage if such activity interferes or
conflicts in any respect with Executive's duties and responsibilities hereunder.
The foregoing limitations shall not be construed as prohibiting Executive from
making personal investments in such form or manner as will neither require his
services in the operation or affairs of the companies or enterprises in which
such investments are made nor violate the terms of this Section 3. In addition,
Executive shall not, during the period of his employment by or with the Company,
and for a period of one (1) year immediately following the termination of his
employment under this Agreement, for any reason whatsoever, other than a
termination by the Company without cause or by Executive for Good Reason,
directly or indirectly, for himself or on behalf of or in conjunction with any
other person, company, partnership, corporation or business of whatever nature:
(i) engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant or advisor, or as a sales
representative, in any business in direct competition with the Company or
Metals, within 200 miles of where the Company or any of Metals'
subsidiaries conducts business, including any territory serviced by the
Company or Metals or any of such subsidiaries (the "Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of the Company or Metals (including the respective
subsidiaries thereof) in a managerial capacity for the purpose or with the
intent of enticing such employee away from or out of the employ of the
Company or Metals (including the respective subsidiaries thereof);
(iii) call upon any person or entity which is, at that time, or
which has been, within one (1) year prior to that time, a customer of the
Company or Metals (including the respective subsidiaries thereof) within
the Territory for the purpose of soliciting or selling products or
services in direct competition with the Company or Metals within the
Territory;
(iv) call upon any prospective acquisition candidate, on Executive's
own behalf or on behalf of any competitor, which candidate was, to
Executive's actual knowledge after due inquiry, either called upon by the
Company or Metals (including the respective subsidiaries thereof) or for
which the Company or Metals made an acquisition analysis, for the purpose
of acquiring such entity.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit Executive from acquiring as an investment not more than one percent
(1%) of the capital stock of a competing business, whose stock is traded on a
national securities exchange or on an over-the-counter or similar market.
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(b) Because of the difficulty of measuring economic losses to the Company
and Metals as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to the Company and Metals
for which they would have no other adequate remedy, Executive agrees that the
foregoing covenant may be enforced by Metals or the Company in the event of
breach by him, by injunctions and restraining orders.
(c) It is agreed by the parties that the foregoing covenants in this
Section 3 impose a reasonable restraint on Executive in light of the activities
and business of the Company or Metals, as the case may be (including Metals'
other subsidiaries) on the date of execution of this Agreement and the current
plans of Metals (including Metals' other subsidiaries); but it is also the
intent of the Company and Executive that such covenants be construed and
enforced in accordance with the changing activities, business and locations of
the Company and Metals, as the case may be (including Metals' other
subsidiaries) throughout the term of this covenant, whether before or after the
date of termination of the employment of Executive. For example, if, during the
term of this Agreement, the Company or Metals, as the case may be (including
Metals' other subsidiaries) engages in new and different activities, enters a
new business or establishes new locations for its current activities or business
in addition to or other than the activities or business enumerated under the
Recitals above or the locations currently established therefor, then Executive
will be precluded from soliciting the customers or employees of such new
activities or business or from such new location and from directly competing
with such new business within 200 miles of its then-established operating
location(s) through the term of this covenant. It is further agreed by the
parties hereto that, in the event that Executive shall cease to be employed
hereunder, and shall enter into a business or pursue other activities not in
competition with the Company or Metals (including Metals' other subsidiaries),
or similar activities or business in locations the operation of which, under
such circumstances, does not violate clause (a) of this Section 3, and in any
event such new business, activities or location are not in violation of this
Section 3 or of Executive's obligations under this Section 3, if any, Executive
shall not be chargeable with a violation of this Section 3 if the Company or
Metals (including Metals' other subsidiaries) shall thereafter enter the same,
similar or a competitive (i) business, (ii) course of activities or (iii)
location, as applicable.
(d) The covenants in this Section 3 are severable and separate, and the
unenforceability of any specific covenant shall not affect the provisions of any
other covenant. Moreover, in the event any court of competent jurisdiction shall
determine that the scope, time or territorial restrictions set forth are
unreasonable, then it is the intention of the parties that such restrictions be
enforced to the fullest extent which the court deems reasonable, and the
Agreement shall thereby be reformed.
(e) All of the covenants in this Section 3 shall be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of Executive against the Company or
Metals, whether predicated on this Agreement or otherwise, shall not constitute
a defense to the enforcement by Metals or the Company of such covenants. It is
specifically agreed that the period of one (1) year following termination of
employment stated at the beginning of this Section 3, during which the
agreements and covenants of Executive made in this Section 3 shall be effective,
shall be computed by excluding from such computation any time during which
Executive is in violation of any provision of this Section 3.
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4. TERM; TERMINATION; RIGHTS ON TERMINATION OF EMPLOYMENT.
(a) The term of this Agreement shall begin on the Effective Date and continue
for five (5) years (the "Initial Term"), unless terminated sooner as herein
provided, and shall continue thereafter on a year-to-year basis on the same
terms and conditions contained herein in effect as of the time of renewal. This
Agreement and Executive's employment may be terminated in any one of the
followings ways:
(i) DEATH. The death of Executive shall immediately terminate this
Agreement with no severance compensation due to Executive's estate.
(ii) DISABILITY. If, as a result of incapacity due to physical or
mental illness or injury, Executive shall have been absent from his
full-time duties hereunder for four (4) consecutive months, then thirty
(30) days after receiving written notice (which notice may occur before or
after the end of such four (4) month period, but which shall not be
effective earlier than the last day of such four (4) month period), the
Company may terminate Executive's employment hereunder provided Executive
is unable to resume his full-time duties with or without reasonable
accommodation at the conclusion of such notice period. PROVIDED, HOWEVER,
IF COMPANY'S THEN-EXISTING DISABILITY (SHORT/LONG TERM) PROGRAM PROVIDES
MORE BENEFITS, THEN COMPANY'S DISABILITY PROGRAM SHALL CONTROL. Also,
Executive may terminate his employment hereunder if his health should
become impaired to an extent that makes the continued performance of his
duties hereunder hazardous to his physical or mental health or his life,
provided that Executive shall have furnished the Company with a written
statement from a qualified doctor to such effect and provided, further,
that, at the Company's request made within thirty (30) days of the date of
such written statement, Executive shall submit to an examination by a
doctor selected by the Company who is reasonably acceptable to Executive
or Executive's doctor and such doctor shall have concurred in the
conclusion of Executive's doctor. In the event this Agreement is
terminated as a result of Executive's disability, Executive shall receive
from the Company, in a lump-sum payment due within ten (10) days of the
effective date of termination, the base salary at the rate then in effect
for whatever time period is remaining under the Initial Term of this
Agreement or for one (1) year, whichever amount is greater; provided,
however, that any such payments shall be reduced by the amount of any
disability insurance payments payable to the Executive as a result of such
disability.
(iii) GOOD CAUSE. The Company may terminate the Agreement upon ten
days for good cause, which shall be: (1) Executive's willful, material and
irreparable breach of this Agreement after ten (10) days prior written
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notice and Executive has not cured same; (2) Executive's gross negligence
in the performance or intentional nonperformance of any of Executive's
material duties and responsibilities hereunder after ten (10) days prior
written notice and Executive has not cured same; (3) Executive's willful
dishonesty, fraud or misconduct with respect to the business or affairs of
the Company or Metals which materially and adversely affects the
operations or reputation of the Company or Metals after ten (10) days
prior written notice and Executive has not cured same; (4) Executive's
conviction of a felony crime; or (5) confirmed positive illegal drug test
result (subject to Company's drug program, if applicable). In the event of
a termination for good cause, Executive shall have no right to any
severance compensation.
(iv) WITHOUT CAUSE. At any time after the commencement of
employment, Executive may, without cause, and without Good Reason (as
hereinafter defined) terminate this Agreement and Executive's employment,
effective thirty (30) days after written notice is provided to the
Company. Executive may only be terminated without cause by the Company
during the Term hereof if such termination is approved by at least eighty
percent (80%) of the members of the Board of Directors of Metals
(excluding the Executive if the Executive is then a member of the Board of
Directors of Metals). Should Executive be terminated by the Company
without cause or should Executive terminate with Good Reason during the
first four (4) years of the Term, Executive shall receive from the
Company, in a lump-sum payment due on the effective date of termination,
the base salary at the rate then in effect for whatever time period is
remaining under the Initial Term of this Agreement. Should Executive be
terminated by the Company without cause or should Executive terminate with
Good Reason after the fourth anniversary of this Agreement, Executive
shall receive from the Company, in a lump-sum payment due on the effective
date of termination, the base salary rate then in effect equivalent to one
(1) year of salary. Further, any termination without cause by the Company
or by the Executive for good reason shall cause the terms of Section 3 to
not apply whatsoever. If Executive resigns or otherwise terminates his
employment without Good Reason, the provisions of Section 3 hereof shall
apply, except that Executive shall receive no severance compensation.
(b) DEFINITION OF "GOOD REASON". Executive shall have "Good Reason" to
terminate this Agreement and his employment hereunder upon the occurrence of any
of the following events: (a) Executive is demoted by means of a reduction in
authority, responsibilities or duties to a position of less stature or
importance within the Company than the position described in Section 1 hereof;
or (b) Executive's annual base salary as determined pursuant to Section 2 hereof
is reduced unless Executive has agreed in writing to that demotion or reduction;
or (c) Company materially breaches this Agreement.
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(c) CHANGE IN CONTROL OF METALS. In the event of a "Change in Control of
Metals" (as defined below) during the Initial Term, Section 11 below shall
apply.
(d) EFFECT OF TERMINATION. Upon termination of this Agreement for any
reason provided above, Executive shall be entitled to receive all compensation
earned and all benefits and reimbursements due through the effective date of
termination. Additional compensation subsequent to termination, if any, will be
due and payable to Executive only to the extent and in the manner expressly
provided herein. All other rights and obligations of the Company and Executive
under this Agreement shall cease as of the effective date of termination, except
that the Company's obligations under Section 8 herein and Executive's
obligations under Sections 3, 5, 6, 7 and 9 herein shall survive such
termination in accordance with their terms.
(e) CERTAIN TERMINATIONS. If Executive is terminated without cause or
terminates his employment hereunder with Good Reason, (1) the Company shall make
the insurance premium payments contemplated by COBRA for a period of 12 months
after such termination, (2) the Executive shall be entitled to receive a pro
rated portion of any annual bonus to which the Executive would have been
entitled for the year during which the termination occurred had the Executive
not been terminated and (3) all of Executive's options to purchase Metals stock
shall vest thereupon.
5. RETURN OF COMPANY PROPERTY. All records, designs, patents, business
plans, financial statements, manuals, memoranda, lists and other property
delivered to or compiled by Executive by or on behalf of the Company, Metals or
their representatives, vendors or customers which pertain to the business of the
Company or Metals shall be and remain the property of the Company or Metals, as
the case may be, and be subject at all times to their discretion and control.
Likewise, all correspondence, reports, records, charts, advertising materials
and other similar data pertaining to the business, activities or future plans of
the Company or Metals which is collected by Executive shall be delivered
promptly to the Company without request by it upon termination of Executive's
employment.
6. INVENTIONS. Executive shall disclose promptly to the Company any and
all significant conceptions and ideas for inventions, improvements and valuable
discoveries, whether patentable or not, which are conceived or made by
Executive, solely or jointly with another, during the period of employment or
within one (1) year thereafter, and which are directly related to the business
or activities of the Company and which Executive conceives as a result of his
employment by the Company. Executive hereby assigns and agrees to assign all his
interests therein to the Company or its nominee. Whenever requested to do so by
the Company, Executive shall execute any and all applications, assignments or
other instruments that the Company shall deem necessary to apply for and obtain
Letters Patent of the United States or any foreign country or to otherwise
protect the Company's interest therein.
7. TRADE SECRETS. Executive agrees that he will not, during or for a one
(1) year period after the termination of this Agreement with the Company,
disclose the terms of the Company's or Metals' relationships or agreements with
their respective vendors or customers or any other trade secret of the Company
or Metals, whether in existence or proposed, to any person, firm, partnership,
corporation or business for any reason or purpose whatsoever.
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8. INDEMNIFICATION. In the event Executive is made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by the Company
or Metals against Executive), by reason of the fact that he is or was performing
services under this Agreement, then the Company shall indemnify Executive
against all expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement, as actually and reasonably incurred by Executive in
connection therewith to the maximum extent permitted by applicable law. The
advancement of expenses shall be mandatory to the extent permitted by applicable
law. In the event that both Executive and the Company are made a party to the
same third-party action, complaint, suit or proceeding, the Company agrees to
engage counsel, and Executive agrees to use the same counsel, provided that if
counsel selected by the Company shall have a conflict of interest that prevents
such counsel from representing Executive, Executive may engage separate counsel
and the Company shall pay all reasonable attorneys' fees of such separate
counsel. The Company shall not be required to pay the fees of more than one law
firm except as described in the preceding sentence, and shall not be required to
pay the fees of more than two law firms under any circumstances. Further, while
Executive is expected at all times to use his best efforts to faithfully
discharge his duties under this Agreement, Executive cannot be held liable to
the Company or Metals for errors or omissions made in good faith where Executive
has not exhibited gross, willful and wanton negligence and misconduct or
performed criminal and fraudulent acts which materially damage the business of
the Company or Metals.
9. NO PRIOR AGREEMENTS. Executive hereby represents and warrants to the
Company that the execution of this Agreement by Executive and his employment by
the Company and the performance of his duties hereunder will not violate or be a
breach of any agreement with a former employer, client or any other person or
entity. Further, Executive agrees to indemnify the Company for any claim,
including, but not limited to, attorneys' fees and expenses of investigation, by
any such third party that such third party may now have or may hereafter come to
have against the Company based upon or arising out of any non-competition
agreement, invention or secrecy agreement between Executive and such third party
which was in existence as of the date of this Agreement.
10. ASSIGNMENT; BINDING EFFECT. Executive understands that he has been
selected for employment by the Company on the basis of his personal
qualifications, experience and skills. Executive agrees, therefore, he cannot
assign all or any portion of his performance under this Agreement. Subject to
the preceding two (2) sentences and the express provisions of Section 12 below,
this Agreement shall be binding upon, inure to the benefit of and be enforceable
by the parties hereto and their respective heirs, legal representatives,
successors and assigns.
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11. CHANGE IN CONTROL.
(a) Unless Executive elects to terminate this Agreement pursuant to (c)
below, Executive understands and acknowledges that Metals and/or the Company may
be merged or consolidated with or into another entity and that such entity shall
automatically succeed to the rights and obligations of Metals and/or the Company
hereunder or that the Company may undergo another type of Change in Control. In
the event such a merger or consolidation or other Change in Control is initiated
prior to the end of the Initial Term, then the provisions of this Section 11
shall be applicable.
(b) In the event of a pending Change in Control wherein Metals and/or the
Company and Executive have not received written notice at least five (5)
business days prior to the anticipated closing date of the transaction giving
rise to the Change in Control from the successor to all or a substantial portion
of Metals' and/or the Company's business and/or assets that such successor is
willing as of the closing to assume and agree to perform Metals' and/or the
Company's obligations under this Agreement in the same manner and to the same
extent that Metals and/or the Company is hereby required to perform, then such
Change in Control shall be deemed to be a termination of this Agreement by
Metals and/or the Company without cause during the Initial Term and the
applicable portions Section 4(d) will apply; however, under such circumstances,
the amount of the lump-sum severance payment due to Executive shall be triple
the amount calculated under the terms of Section 4(d) and the non-competition
provisions of Section 3 shall not apply whatsoever.
(c) In any Change in Control situation, Executive may, at his sole
discretion, elect to terminate this Agreement by providing written notice to the
Company at least five (5) business days prior to the anticipated closing of the
transaction giving rise to the Change in Control. In such case, the applicable
provisions of Section 4(d) will apply as though the Company had terminated the
Agreement without cause during the Initial Term; however, under such
circumstances, the amount of the lump-sum severance payment due to Executive
shall be double the amount calculated under the terms of Section 4(d) and the
non-competition provisions of Section 3 shall all apply for a period of two (2)
years from the effective date of termination.
(d) For purposes of applying Section 4 under the circumstances described
in (b) and (c) above, the effective date of termination will be the closing date
of the transaction giving rise to the Change in Control and all compensation,
reimbursements and lump-sum payments due Executive must be paid in full by the
Company at or prior to such closing. Further, Executive will be given sufficient
time and opportunity to elect whether to exercise all or any of his vested
options to purchase Metals Common Stock, such that he may convert the options to
shares of Metals Common Stock at or prior to the closing of the transaction
giving rise to the Change in Control, if he so desires.
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(e) A "Change in Control" shall be deemed to have occurred if:
(i) any person, other than Metals or an employee benefit plan of
Metals, acquires directly or indirectly the beneficial ownership (as
defined in Section 13(d) of the Securities Exchange Act of 1934, as
amended) of any voting security of the Company and immediately after such
acquisition such person is, directly or indirectly, the beneficial owner
of voting securities representing 50% or more of the total voting power of
all of the then-outstanding voting securities of the Company;
(ii) the following individuals no longer constitute a majority of
the members of the Board of Directors of Metals: (A) the individuals who,
as of the closing date of Metals' initial public offering, constitute the
Board of Directors of Metals (the "Original Directors"); (B) the
individuals who thereafter are elected to the Board of Directors of Metals
and whose election, or nomination for election, to the Board of Directors
of Metals was approved by a vote of at least two-thirds (2/3) of the
Original Directors then still in office (such directors becoming
"Additional Original Directors" immediately following their election); and
(C) the individuals who are elected to the Board of Directors of Metals
and whose election, or nomination for election, to the Board of Directors
of Metals was approved by a vote of at least two-thirds (2/3) of the
Original Directors and Additional Original Directors then still in office
(such directors also becoming "Additional Original Directors" immediately
following their election);
(iii) the stockholders of Metals shall approve a merger,
consolidation, recapitalization, or reorganization of Metals, a reverse
stock split of outstanding voting securities, or consummation of any such
transaction if stockholder approval is not obtained, other than any such
transaction which would result in at least 75% of the total voting power
represented by the voting securities of the surviving entity outstanding
immediately after such transaction being Beneficially Owned by at least
75% of the holders of outstanding voting securities of Metals immediately
prior to the transaction, with the voting power of each such continuing
holder relative to other such continuing holders not substantially altered
in the transaction; or
(iv) the stockholders of Metals shall approve a plan of complete
liquidation of Metals or an agreement for the sale or disposition by
Metals of all or a substantial portion of Metals' assets (i.e., 50% or
more of the total assets of Metals).
(f) Executive must be notified in writing by the Company or Metals at any
time that the Company or any member of its Board anticipates that a Change in
Control may take place.
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(g) Executive shall be reimbursed by the Company or its successor for any
excise taxes that Executive incurs under Section 4999 of the Internal Revenue
Code of 1986, as a result of any Change in Control. Such amount will be due and
payable by the Company or its successor within ten (10) days after Executive
delivers a written request for reimbursement accompanied by a copy of his tax
return(s) showing the excise tax actually incurred by Executive.
12. COMPLETE AGREEMENT. This Agreement sets forth the entire agreement of
the parties hereto relating to the subject matter hereof and supersedes any
other employment agreements or understandings, written or oral, between the
Company and Executive. This Agreement is not a promise of future employment.
Executive has no oral representations, understandings or agreements with the
Company or any of its officers, directors or representatives covering the same
subject matter as this Agreement. This written Agreement is the final, complete
and exclusive statement and expression of the agreement between the Company and
Executive and of all the terms of this Agreement, and it cannot be varied,
contradicted or supplemented by evidence of any prior or contemporaneous oral or
written agreements. This written Agreement may not be later modified except by a
further writing signed by a duly authorized officer of the Company and
Executive, and no term of this Agreement may be waived except by writing signed
by the party waiving the benefit of such term.
13. NOTICE. Whenever any notice is required hereunder, it shall be given
in writing addressed as follows:
To the Company: Jeffreys Steel Company, Inc.
c/o Metals USA, Inc.
Attn: Chairman of the Board
Three Riverway, Suite 600
Houston, Texas 77056
Telephone: (713) 965-0990
Fax: (713) 965-0067
With a copy to: Metals USA, Inc.
John Hageman, General Counsel
Three Riverway, Suite 600
Houston, Texas 77056
Telephone: (713) 965-0990
Fax: (713) 965-0067
To Executive: Toby Jeffreys
116 East Pinebrook Drive
Mobile, Alabama 36608
Notice shall be deemed given and effective on the earlier of three (3) days
after the deposit in the U.S. mail of a writing addressed as above and sent
first class mail, certified, return receipt requested, or when actually received
by means of hand delivery, delivery by Federal Express or other courier service,
or by facsimile transmission. Either party may change the address for notice by
notifying the other party of such change in accordance with this Section 13.
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14. SEVERABILITY; HEADINGS. If any portion of this Agreement is held
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. The
Section headings herein are for reference purposes only and are not intended in
any way to describe, interpret, define or limit the extent or intent of the
Agreement or of any part hereof.
15. ARBITRATION. With the exception of Sections 3 and 7, any unresolved
dispute or controversy arising under or in connection with this Agreement shall
be settled exclusively by arbitration, conducted before a panel of three (3)
arbitrators in, Mobile, Alabama in accordance with the National Rules for the
Resolution of Employment Disputes of the American Arbitration Association
("AAA") then in effect, provided that Executive shall comply with the Company's
grievance procedures in an effort to resolve such dispute or controversy before
resorting to arbitration, and provided further that the parties may agree to use
arbitrators other than those provided by the AAA. The arbitrators shall not have
the authority to add to, detract from, or modify any provision hereof nor to
award punitive damages to any injured party. The arbitrators shall have the
authority to order back-pay, severance compensation, vesting of options (or cash
compensation in lieu of vesting of options), reimbursement of costs, including
those incurred to enforce this Agreement, and interest thereon in the event the
arbitrators determine that Executive was terminated without disability or good
cause, as defined in Sections 4(b) and 4(c), respectively, or that the Company
has otherwise materially breached this Agreement. A decision by a majority of
the arbitration panel shall be final and binding. Judgment may be entered on the
arbitrators' award in any court having jurisdiction. The direct expense of any
arbitration proceeding shall be borne by the Company.
16. GOVERNING LAW. This Agreement shall in all respects be construed
according to the laws of the State of Alabama.
17. COUNTERPARTS. This Agreement may be executed simultaneously in two (2)
or more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
COMPANY:
JEFFREYS STEEL COMPANY, INC.
By:
Name: Leon Jeffreys
Title: Chairman
EXECUTIVE:
Toby Jeffreys
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EXHIBIT 10.38
KEY EMPLOYEE EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") dated this 26th day of
September, 1997 (the "Effective Date") by and between Federal Bronze Alloys
Inc., a Delaware corporation (the "Company") which, is a wholly-owned subsidiary
of Metals USA, Inc., a Delaware corporation ("Metals"), and Jack Stefiuk
("Employee").
RECITALS
A. As of the Effective Date, the Company is engaged primarily in the
business of providing metals processing, metals fabricating, and/or specialty
metals services; and
B. Employee was previously an employee of Federal Bronze Products, Inc.
("FBP") and is now employed by the Company in a confidential relationship
wherein Employee, in the course of Employee's employment with the Company, has
and will continue to become familiar with and aware of information as to the
Company's and Metals' customers, specific manner of doing business, including
the processes, techniques and trade secrets utilized by the Company and Metals,
and future plans with respect thereto, all of which has been and will be
established and maintained at great expense to the Company and Metals; this
information is a trade secret and constitutes the valuable good will of the
Company and Metals; and
C. The parties desire to agree to the various matters described herein and
to memorialize those agreements herein.
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, it is hereby agreed as follows:
AGREEMENTS
1. EMPLOYMENT AND DUTIES.
(a) The Company hereby employs Employee as President. As such, Employee
shall have responsibilities, duties and authority reasonably and customarily
accorded to and expected of such position and will report directly to the
Chairman of the Company or such other party as is designated from time to time
by the Board of Directors of the Company (the "Board"). Employee hereby accepts
this employment upon the terms and conditions herein contained and, subject to
paragraph 3 hereof, agrees to devote Employee's full time, attention and efforts
to promote and further the business of the Company.
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(b) Employee shall faithfully adhere to, execute and fulfill all policies
established by the Company, as such policies may be changed from time to time by
the Company.
2. COMPENSATION. For all services rendered by Employee, the Company shall
compensate Employee as follows:
(a) BASE SALARY. The base salary payable to Employee shall be $150,000 per
year, payable on a regular basis in accordance with the Company's standard
payroll procedures. On at least an annual basis, the Company will review
Employee's performance and may make increases to such base salary if, in its
discretion, any such increase is warranted.
(b) EMPLOYEE PERQUISITES, BENEFITS AND OTHER COMPENSATION. Employee shall
be entitled to receive additional benefits and compensation from the Company in
such form and to such extent as specified below:
(i) Admittance for participation for Employee and Employee's
dependent family members under health, hospitalization, disability,
dental, life and other insurance plans that the Company may have in effect
from time to time, with benefits provided to Employee under this clause
(i) to be at least equal to such benefits provided to Company employees
generally; provided, however, that in no event shall the benefits
described hereunder be reduced below the level of benefits presently
provided to Employee and Employee's dependent family members by the
Company.
(ii) Reimbursement for all business travel and other out-of-pocket
expenses reasonably incurred by Employee in the performance of Employee's
services pursuant to this Agreement. All reimbursable expenses shall be
appropriately documented in reasonable detail by Employee upon submission
of any request for reimbursement, and in a format and manner consistent
with the Company's expense reporting policy.
(iii) The Company and Metals shall provide Employee with other
employee perquisites as may be available to or deemed appropriate for
Employee by the Board or Metals, and participation in all other
Company-wide employee benefits as may be made available from time to time,
including bonus and stock option plans by Company or Metals, in their sole
discretion.
3. NON-COMPETITION AGREEMENT.
(a) Employee shall not, during the term of Employee's employment
hereunder, be engaged in any other business activity pursued for gain, profit or
other pecuniary advantage if such activity interferes with Employee's duties and
responsibilities hereunder. The foregoing limitations shall not be construed as
prohibiting Employee from making personal investments in such form or manner as
will neither require Employee's services in the operation or affairs of the
companies or enterprises in which such investments are made nor violate the
terms of this paragraph 3. In addition, Employee shall not, during the period of
Employee's employment by or with the Company, and for a period of one (1) year
immediately following the termination of Employee's employment under this
Agreement, directly or indirectly, for Employee or on behalf of or in
conjunction with any other person, persons, company, partnership, corporation or
business of whatever nature:
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(i) engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant or advisor, or as a sales
representative, in any business in direct competition with the Company or
Metals, within 200 miles of where FBP is located, conducts business, has
sales representatives or any area serviced by the Company (the
"Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of the Company in a managerial capacity for the
purpose or with the intent of enticing such employee away from or out of
the employ of the Company;
(iii) call upon any person or entity which is, at that time, or
which has been, within one (1) year prior to that time, a customer of the
Company within the Territory for the purpose of soliciting or selling
products or services in direct competition with the Company within the
Territory; or
(iv) call upon any prospective acquisition candidate, on Employee's
own behalf or on behalf of any competitor, which candidate was, to
Employee's actual knowledge after due inquiry, either called upon by the
Company or for which the Company made an acquisition analysis, for the
purpose of acquiring such entity.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit Employee from acquiring as an investment not more than one percent (1%)
of the capital stock of a competing business, whose stock is traded on a
national securities exchange or over-the-counter.
(b) Because of the difficulty of measuring economic losses to the Company
as a result of a breach of the foregoing covenant, and because of the immediate
and irreparable damage that could be caused to the Company for which they would
have no other adequate remedy, Employee agrees that the foregoing covenant may
be enforced by the Company in the event of breach by Employee, by injunctions
and restraining orders.
(c) It is agreed by the parties that the foregoing covenants in this
paragraph 3 impose a reasonable restraint on Employee in light of the activities
and business of the Company on the date of the execution of this Agreement and
the current plans of the Company. It is further agreed by the parties hereto
that, in the event that Employee shall cease to be employed hereunder, and shall
enter into a business or pursue other activities not in competition with the
Company, or similar activities or business in locations the operation of which,
under such circumstances, does not violate clause (a) of this paragraph 3, and
in any event such new business, activities or location are not in violation of
this paragraph 3 or of Employee's obligations under this paragraph 3, if any,
Employee shall not be chargeable with a violation of this paragraph 3 if the
Company shall thereafter enter the same, similar or a competitive (i) business,
(ii) course of activities or (iii) location, as applicable.
(c) The covenants in this paragraph 3 are severable and separate, and the
unenforceability of any specific covenant shall not affect the provisions of any
other covenant. Moreover, in the event any court of competent jurisdiction shall
determine that the scope, time or territorial restrictions set forth are
unreasonable, then it is the intention of the parties that such restrictions be
enforced to the fullest extent which the court deems reasonable, and the
Agreement shall thereby be reformed.
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(d) All of the covenants in this paragraph 3 shall be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of Employee against the Company,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by the Company of such covenants. It is specifically
agreed that the period of one (1) year following termination of employment
stated at the beginning of this paragraph 3, during which the agreements and
covenants of Employee made in this paragraph 3 shall be effective, shall be
computed by excluding from such computation any time during which Employee is in
violation of any provision of this paragraph 3.
4. PLACE OF PERFORMANCE
(a) Employee understands that Employee may be requested by the Board to
relocate from Employee's present residence to another geographic location in
order to more efficiently carry out Employee's duties and responsibilities under
this Agreement or as part of a promotion or other increase in duties and
responsibilities. In such event, if Employee agrees to relocate, the Company
will pay all relocation costs to move Employee, Employee's immediate family and
their personal property and effects. Such costs may include, by way of example,
but are not limited to, pre-move visits to search for a new residence,
investigate schools or for other purposes; temporary lodging and living costs
prior to moving into a new permanent residence; duplicate home carrying costs;
all closing costs on the sale of Employee's present residence and on the
purchase of a comparable residence in the new location; and added income taxes
that Employee may incur if any relocation costs are not deductible for tax
purposes. The general intent of the foregoing is that Employee shall not
personally bear any out-of-pocket cost as a result of the relocation, with an
understanding that Employee will use Employee's best efforts to incur only those
costs which are reasonable and necessary to effect a smooth, efficient and
orderly relocation with minimal disruption to the business affairs of the
Company and the personal life of Employee and Employee's family.
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(b) Notwithstanding the above, if Employee is requested by the Board to
relocate and Employee refuses, such refusal shall not constitute "cause" for
termination of this Agreement under the terms of paragraph 5(a)(iii).
5. TERM; TERMINATION; RIGHTS ON TERMINATION.
(a) The term of this Agreement shall begin on the Effective Date and
continue for five (5) years (the "Term"), unless terminated sooner as herein
provided, and shall continue thereafter on a year-to-year basis on the same
terms and conditions contained herein in effect as of the time of renewal. This
Agreement and Employee's employment may be terminated in any one of the
following ways:
(i) DEATH. The death of Employee shall immediately terminate this
Agreement with no severance compensation due to Employee's estate.
(ii) DISABILITY. If, as a result of incapacity due to physical or
mental illness or injury, Employee shall have been absent from full-time
duties hereunder for four (4) consecutive months, then thirty (30) days
after receiving written notice (which notice may occur before or after the
end of such four (4) month period, but which shall not be effective
earlier than the last day of such four (4) month period), the Company may
terminate Employee's employment hereunder provided Employee is unable to
resume full-time duties with or without reasonable accommodation at the
conclusion of such notice period. PROVIDED, HOWEVER, IF COMPANY'S
THEN-EXISTING DISABILITY (SHORT/LONG TERM) PROGRAM PROVIDES MORE BENEFITS,
THEN COMPANY'S DISABILITY PROGRAM SHALL CONTROL. Also, Employee may
terminate Employee's employment hereunder if Employee's health should
become impaired to an extent that makes the continued performance of
Employee's duties hereunder hazardous to Employee's physical or mental
health or life, provided that Employee shall have furnished the Company
with a written statement from a qualified doctor to such effect and
provided, further, that, at the Company's request made within thirty (30)
days of the date of such written statement, Employee shall submit to an
examination by a doctor selected by the Company who is reasonably
acceptable to Employee or Employee's doctor. In the event this Agreement
is terminated as a result of Employee's disability, Employee shall receive
from the Company, in a lump-sum payment due within ten (10) days of the
effective date of termination, the base salary at the rate then in effect
for whatever time period is remaining under the term of this Agreement or
for one (1) year, whichever amount is greater; provided, however, that any
such payments shall be reduced by the amount of any disability insurance
payments payable to the Employee as a result of such disability.
(iii) GOOD CAUSE. The Company may terminate the Agreement
immediately for good cause, which shall be: (1) Employee's willful,
material and irreparable breach of this Agreement; (2) Employee's gross
negligence in the performance or intentional nonperformance of any of
Employee's material duties and responsibilities hereunder; (3) Employee's
willful dishonesty, fraud or misconduct with respect to the business or
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affairs of the Company which materially and adversely affects the
operations or reputation of the Company; (4) Employee's conviction of a
felony crime; or (5) Employee's confirmed positive illegal drug test
result (subject to Company's drug program, if applicable). In the event of
a termination for good cause, Employee shall have no right to any
severance compensation.
(iv) WITHOUT CAUSE. At any time after the commencement of
employment, the Company or Employee may, without cause, terminate this
Agreement and Employee's employment, effective thirty (30) days after
written notice is provided to the other. Should Employee be terminated by
the Company without cause, Employee shall receive from the Company, in a
lump-sum payment due on the effective date of termination, at the base
salary at the rate then in effect for whatever time period is remaining
under the Term or one (1) year, whichever is greater, and the
noncompetition provisions of paragraph 3 hereof shall not apply. If
Employee resigns or otherwise terminates Employee's employment without
cause, the provisions of paragraph 3 hereof shall apply, except that
Employee shall receive no severance compensation.
(b) EFFECT OF TERMINATION. Upon termination of this Agreement for any
reason provided above, Employee shall be entitled to receive all compensation
earned and all benefits and reimbursements due through the effective date of
termination. Additional compensation subsequent to termination, if any, will be
due and payable to Employee only to the extent and in the manner expressly
provided herein. All other rights and obligations of the Company and Employee
under this Agreement shall cease as of the effective date of termination, except
that the Company's obligations under paragraph 9 herein and Employee's
obligations under paragraphs 3, 6, 7, 8 and 10 herein shall survive such
termination in accordance with their terms unless otherwise provided herein.
(c) MATERIAL BREACH BY COMPANY. If termination of Employee's employment
arises out of the Company's failure to pay Employee on a timely basis the
amounts to which Employee is entitled under this Agreement or as a result of any
other material breach of this Agreement by the Company, as determined by a court
of competent jurisdiction or pursuant to the provisions of paragraph 15 below,
the Company shall pay, in a lump sum payment, as liquidated damages, the base
salary at the rate then in effect for whatever time period is remaining under
the Term or one (1) year, whichever is greater and the provisions of paragraph 3
shall not apply.
6. RETURN OF COMPANY PROPERTY. All records, designs, patents, business
plans, financial statements, manuals, memoranda, lists and other property
delivered to or compiled by Employee by or on behalf of the Company, Metals or
their representatives, vendors or customers which pertain to the business of the
Company or Metals shall be and remain the property of the Company or Metals, as
the case may be, and be subject at all times to their discretion and control.
Likewise, all correspondence, reports, records, charts, advertising materials
and other similar data pertaining to the business, activities or future plans of
the Company or Metals which is collected by Employee shall be delivered promptly
to the Company without request by it upon termination of Employee's employment.
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7. INVENTIONS. Employee shall disclose promptly to the Company any and all
significant conceptions and ideas for inventions, improvements and valuable
discoveries, whether patentable or not, which are conceived or made by Employee,
solely or jointly with another, during the period of employment or within one
(1) year thereafter, and which are directly related to the business or
activities of the Company and which Employee conceives as a result of Employee's
employment by the Company. Employee hereby assigns and agrees to assign all
Employee's interests therein to the Company or its nominee. Whenever requested
to do so by the Company, Employee shall execute any and all applications,
assignments or other instruments that the Company shall deem necessary to apply
for and obtain Letters Patent of the United States or any foreign country or to
otherwise protect the Company's interest therein.
8. TRADE SECRETS. Employee agrees that Employee will not, during or after
the Term of this Agreement with the Company, disclose the specific terms of the
Company's relationships or agreements with their respective significant vendors
or customers or any other significant and material trade secret of the Company
whether in existence or proposed, to any person, firm, partnership, corporation
or business for any reason or purpose whatsoever.
9. INDEMNIFICATION. In the event Employee is made a party to any
threatened, pending or contemplated action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by the Company
or Metals against Employee), by reason of the fact that Employee is or was
performing services under this Agreement, then the Company shall advance and
indemnify Employee against all expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement, as actually and reasonably incurred by
Employee in connection therewith. In the event that both Employee and the
Company are made a party to the same third party action, complaint, suit or
proceeding, the Company agrees to engage counsel, and Employee agrees to use the
same counsel, provided that if counsel selected by the Company shall have a
conflict of interest that prevents such counsel from representing Employee,
Employee may engage separate counsel and the Company shall pay all reasonable
attorneys' fees of such separate counsel. The Company shall not be required to
pay the fees of more than one law firm except as described in the preceding
sentence, and shall not be required to pay the fees of more than two law firms
under any circumstances. Further, while Employee is expected at all times to use
Employee's best efforts to faithfully discharge Employee's duties under this
Agreement, Employee cannot be held liable to the Company or Metals for errors or
omissions made in good faith where Employee has not exhibited gross, willful and
wanton negligence and misconduct or performed criminal and fraudulent acts which
materially damage the business of the Company or Metals.
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10. NO PRIOR AGREEMENTS. Employee hereby represents and warrants to the
Company that the execution of this Agreement by Employee and Employee's
employment by the Company and the performance of Employee's duties hereunder
will not violate or be a breach of any agreement with a former employer, client
or any other person or entity. Further, Employee agrees to indemnify the Company
for any claim, including, but not limited to, attorneys' fees and expenses of
investigation, by any such third party that such third party may now have or may
hereafter come to have against the Company based upon or arising out of any
non-competition agreement, invention or secrecy agreement between Employee and
such third party which was in existence as of the date of this Agreement.
11. ASSIGNMENT; BINDING EFFECT. Employee understands that Employee has
been selected for employment by the Company on the basis of Employee's personal
qualifications, experience and skills. Employee agrees, therefore, that Employee
cannot assign all or any portion of Employee's performance under this Agreement.
Subject to the preceding two (2) sentences, this Agreement shall be binding
upon, inure to the benefit of and be enforceable by the parties hereto and their
respective heirs, legal representatives, successors and assigns.
12. COMPLETE AGREEMENT. This Agreement sets forth the entire agreement of
the parties hereto relating to the subject matter hereof and supersedes any
other employment agreements or understandings, written or oral, between the
Company and Employee. This Agreement is not a promise of future employment.
Employee has no oral representations, understanding or agreements with the
Company or any of its officers, directors or representatives covering the same
subject matter as this Agreement. This written Agreement is the final, complete
and exclusive statement and expression of the agreement between the Company and
Employee and of all the terms of this Agreement, and it cannot be varied,
contradicted or supplemented by evidence of any prior or contemporaneous oral or
written agreement. This written Agreement may not be later modified except by a
further writing signed by a duly authorized officer of the Company and Employee,
and no term of this Agreement may be waived except by writing signed by the
party waiving the benefit of such term.
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13. NOTICE. Whenever any notice is required hereunder, it shall be given
in writing addressed as follows:
To The Company: Federal Bronze Alloys Inc.
c/o Metals USA, Inc.
Attn: President
Three Riverway, Suite 600
Houston, Texas 77056
Telephone: 713/965-0990
Fax: 713/965-0067
with a copy to: Metals USA, Inc.
Attn: John Hageman, General Counsel
Three Riverway, Suite 600
Houston, Texas 77056
Telephone: 713/965-0990
Fax: 713/965-0067
To Employee: Jack Stefiuk
50 Wheeler Point Road
Newark, New Jersey
Notice shall be deemed given and effective on the earlier of three (3)
days after the deposit in the U.S. mail of a writing addressed as above and sent
first class mail, certified, return receipt requested, or when actually received
by means of hand delivery, delivery by Federal Express or other courier service,
or by facsimile transmission. Either party may change the address for notice by
notifying the other party of such change in accordance with this paragraph 13.
14. SEVERABILITY; HEADINGS. If any portion of this Agreement is held
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. The
paragraph headings herein are for reference purposes only and are not intended
in any way to describe, interpret, define or limit the extent or intent of the
Agreement or of any part hereof.
15. ARBITRATION. With the exception of paragraphs 3 and 8, any unresolved
dispute or controversy arising under or in connection with this Agreement shall
be settled exclusively by arbitration, conducted before a panel of three (3)
arbitrators in New Jersey, in accordance with the National Rules for the
Resolution of Employment Disputes of the American Arbitration Association
("AAA") then in effect, provided that Employee shall comply with the Company's
grievance procedures in an effort to resolve such dispute or controversy before
resorting to arbitration, and provided further that the parties may agree to use
arbitrators other than those provided by the AAA. The arbitrators shall not have
the authority to add to, detract from, or modify any provision hereof not to
award punitive damages to any injured party. The arbitrators shall have the
authority to order back-pay, severance compensation, vesting of options (or cash
compensation in lieu of vesting of options), reimbursement of costs, including
those incurred to enforce this Agreement, and interest thereon in the event the
arbitrators determine that Employee was terminated without disability or good
cause, as defined in paragraph 5(a)(ii) and 5(a)(iii), respectively, or that the
Company has otherwise materially breached this Agreement. A decision by a
majority of the arbitration panel shall be final and binding. Judgment may be
entered on the arbitrator's award in any court having jurisdiction. The direct
expense of any arbitration proceeding shall be borne by the Company.
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16. GOVERNING LAW. This Agreement shall in all respects be construed
according to the laws of the State of New Jersey.
17. COUNTERPARTS. This Agreement may be executed simultaneously in two (2)
or more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
COMPANY:
FEDERAL BRONZE ALLOYS INC.
By:
Name:
Title:
EMPLOYEE:
Jack Stefiuk
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EXHIBIT 10.39
EXECUTION COPY
CREDIT AGREEMENT
Dated as of July 15, 1997
among
METALS USA, INC.
THE INSTITUTIONS FROM TIME TO TIME
PARTIES HERETO AS LENDERS
and
THE FIRST NATIONAL BANK OF CHICAGO,
as Agent
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TABLE OF CONTENTS
SECTION PAGE
ARTICLE I: DEFINITIONS
1.1 Certain Defined Terms............................................1
1.2 References......................................................22
ARTICLE II: THE LOAN FACILITIES
2.1 Loans...........................................................22
2.2 Rate Options for all Advances...................................24
2.3 Optional Payments; Mandatory Prepayments........................24
2.4 Changes in the Commitments......................................25
2.5 Method of Borrowing.............................................27
2.6 Method of Selecting Types and Interest Periods for Advances.....27
2.7 Minimum Amount of Each Advance..................................27
2.8 Method of Selecting Types and Interest Periods for Conversion
and Continuation of Advances....................................28
2.9 Default Rate....................................................28
2.10 Method of Payment...............................................28
2.11 Revolving Notes, Telephonic Notices.............................29
2.12 Promise to Pay; Interest and Commitment Fees; Interest Payment
Dates; Interest and Fee Basis; Taxes; Loan and Control Accounts.29
2.13 Notification of Advances, Interest Rates, Prepayments and
Aggregate Commitment Reductions.................................34
2.14 Lending Installations...........................................34
2.15 Non-Receipt of Funds by the Agent...............................34
2.16 Termination Date................................................35
2.17 Replacement of Certain Lenders..................................35
ARTICLE III: THE LETTER OF CREDIT FACILITY
3.1 Obligation to Issue.............................................36
3.2 Types and Amounts...............................................36
3.3 Conditions......................................................36
3.4 Procedure for Issuance of Letters of Credit.....................37
3.5 Letter of Credit Participation..................................37
3.6 Reimbursement Obligation........................................38
3.7 Letter of Credit Fees...........................................38
3.8 Issuing Bank Reporting Requirements.............................38
3.9 Indemnification; Exoneration....................................39
3.10 Cash Collateral.................................................40
ARTICLE IV: CHANGE IN CIRCUMSTANCES
4.1 Yield Protection................................................40
4.2 Changes in Capital Adequacy Regulations.........................41
4.3 Availability of Types of Advances...............................42
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SECTION PAGE
4.4 Funding Indemnification.........................................42
4.5 Lender Statements; Survival of Indemnity........................42
ARTICLE V: CONDITIONS PRECEDENT
5.1 Initial Advances and Letters of Credit..........................43
5.2 Each Advance and Letter of Credit...............................44
ARTICLE VI: REPRESENTATIONS AND WARRANTIES
6.1 Organization; Corporate Powers..................................45
6.2 Authority.......................................................45
6.3 No Conflict; Governmental Consents..............................46
6.4 Financial Statements............................................46
6.5 No Material Adverse Change......................................47
6.6 Taxes...........................................................47
6.7 Litigation; Loss Contingencies and Violations...................47
6.8 Subsidiaries....................................................48
6.9 ERISA...........................................................48
6.10 Accuracy of Information.........................................49
6.11 Securities Activities...........................................49
6.12 Material Agreements.............................................49
6.13 Compliance with Laws............................................50
6.14 Assets and Properties...........................................50
6.15 Statutory Indebtedness Restrictions.............................50
6.16 Insurance.......................................................50
6.17 Labor Matters...................................................50
6.18 Initial Acquisitions; Related Transactions......................50
6.19 Environmental Matters...........................................51
6.20 The Public Offering.............................................51
6.21 Benefits........................................................52
ARTICLE VII : COVENANTS
7.1 Reporting.......................................................52
7.2 Affirmative Covenants...........................................56
7.3 Negative Covenants..............................................58
7.4 Financial Covenants.............................................66
ARTICLE VIII: DEFAULTS
8.1 Defaults........................................................67
ARTICLE IX: ACCELERATION, DEFAULTING LENDERS; WAIVERS,
AMENDMENTS AND REMEDIES
9.1 Termination of Commitments; Acceleration........................70
9.2 Defaulting Lender...............................................70
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SECTION PAGE
9.3 Amendments......................................................71
9.4 Preservation of Rights..........................................72
ARTICLE X: GENERAL PROVISIONS
10.1 Survival of Representations.....................................72
10.2 Governmental Regulation.........................................72
10.3 Performance of Obligations......................................73
10.4 Headings........................................................73
10.5 Entire Agreement................................................73
10.6 Several Obligations; Benefits of this Agreement.................73
10.7 Expenses; Indemnification.......................................73
10.8 Numbers of Documents............................................75
10.9 Accounting......................................................75
10.10 Severability of Provisions......................................75
10.11 Nonliability of Lenders.........................................75
10.12 GOVERNING LAW...................................................76
10.13 CONSENT TO JURISDICTION; SERVICE OF PROCESS; JURY TRIAL........76
10.14 No Strict Construction.........................................77
10.15 Subordination of Intercompany Indebtedness.....................77
10.16 Usury Not Intended..............................................79
10.17.Business Loans..................................................79
ARTICLE XI: THE AGENT
11.1 Appointment; Nature of Relationship.............................79
11.2 Powers..........................................................80
11.3 General Immunity................................................80
11.4 No Responsibility for Loans, Creditworthiness, Recitals, Etc....80
11.5 Action on Instructions of Lenders...............................80
11.6 Employment of Agents and Counsel................................81
11.7 Reliance on Documents; Counsel..................................81
11.8 The Agent's Reimbursement and Indemnification...................81
11.9 Rights as a Lender..............................................81
11.10 Lender Credit Decision..........................................81
11.11 Successor Agent.................................................82
ARTICLE XII: SETOFF; RATABLE PAYMENTS
12.1 Setoff..........................................................82
12.2 Ratable Payments................................................82
12.3 Application of Payments.........................................83
12.4 Relations Among Lenders.........................................84
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SECTION PAGE
ARTICLE XIII: BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS
13.1 Successors and Assigns..........................................84
13.2 Participations..................................................84
13.3 Assignments.....................................................85
13.4 Confidentiality.................................................86
13.5 Dissemination of Information....................................87
ARTICLE XIV: NOTICES
14.1 Giving Notice...................................................87
14.2 Change of Address...............................................87
ARTICLE XV: COUNTERPARTS
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EXHIBITS AND SCHEDULES
EXHIBITS
EXHIBIT A -- Form of Assignment Agreement
(Definitions, Sections 2.17 and 13.3)
EXHIBIT B -- Commitments
(Definitions)
EXHIBIT C -- Form of Revolving Note
(Definitions)
EXHIBIT D -- Form of Swing Line Note
(Definitions)
EXHIBIT E -- Commitment and Acceptance
(Section 2.4(b))
EXHIBIT F -- Form of Opinion in respect of Increases in Aggregate
Commitment (Section 2.4(b))
EXHIBIT G -- Form of Borrowing Notice (Section 2.6)
EXHIBIT H -- Form of Request for Letter of Credit (Section 3.3)
EXHIBIT I -- Form of Borrower's Counsel's Opinion
(Section 5.1)
EXHIBIT J -- Form of Officer's Certificate
(Sections 5.2 and 7.1(A)(iii))
EXHIBIT K -- Form of Compliance Certificate
(Sections 5.2 and 7.1(A)(iii))
EXHIBIT L -- Form of Guaranty Supplement
(Section 7.3(G)(ii))
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SCHEDULES
Schedule 1.1 -- Founding Companies (Definitions)
Schedule 1.1 -- Initial Shareholders (Definitions)
Schedule 1.1 -- Permitted Existing Indebtedness (Definitions)
Schedule 1.1 -- Permitted Existing Investments (Definitions)
Schedule 1.1 -- Permitted Existing Liens (Definitions)
Schedule 6.8 -- Subsidiaries (Section 6.8)
Schedule 7.3 -- Subordination Terms (Section 7.3(A))
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CREDIT AGREEMENT
This Credit Agreement dated as of July 15, 1997 is entered into among
Metals USA, Inc., a Delaware corporation, the institutions from time to time
parties hereto as Lenders, whether by execution of this Agreement or an
Assignment Agreement pursuant to SECTION 13.3, and The First National Bank of
Chicago, in its capacity as contractual representative for itself and the other
Lenders. The parties hereto agree as follows:
ARTICLE I: DEFINITIONS
1.1 CERTAIN DEFINED TERMS. In addition to the terms defined above, the
following terms used in this Agreement shall have the following meanings,
applicable both to the singular and the plural forms of the terms defined.
As used in this Agreement:
"ACQUISITION" means any transaction, or any series of related
transactions, consummated on or after the date of this Agreement, by which the
Borrower or any of its Subsidiaries (i) acquires any going business or all or
substantially all of the assets of any firm, corporation or division thereof,
whether through purchase of assets, merger or otherwise or (ii) directly or
indirectly acquires (in one transaction or as the most recent transaction in a
series of transactions) at least a majority (in number of votes) of the
securities of a corporation which have ordinary voting power for the election of
directors (other than securities having such power only by reason of the
happening of a contingency) or a majority (by percentage of voting power) of the
outstanding equity interests of another Person.
"ACQUISITION DOCUMENTS" means all material documents, instruments and
agreements entered into in connection with the Initial Acquisitions.
"ADVANCE" means a borrowing hereunder consisting of the aggregate amount
of the several Revolving Loans made by the Lenders to the Borrower of the same
Type and, in the case of Eurodollar Rate Advances, for the same Interest Period.
"AFFECTED LENDER" is defined in SECTION 2.17 hereof.
"AFFILIATE" of any Person means any other Person directly or indirectly
controlling, controlled by or under common control with such Person. A Person
shall be deemed to control another Person if the controlling Person is the
"beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange Act
of 1934) of greater than ten percent (10%) or more of any class of voting
securities (or other voting interests) of the controlled Person or possesses,
directly or indirectly, the power to direct or cause the direction of the
management or policies of the controlled Person, whether through ownership of
Capital Stock, by contract or otherwise.
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"AGENT" means First Chicago in its capacity as contractual representative
for itself and the Lenders pursuant to ARTICLE XI hereof and any successor Agent
appointed pursuant to ARTICLE XI hereof.
"AGGREGATE COMMITMENT" means the aggregate of the Commitments of all the
Lenders, as amended from time to time pursuant to the terms hereof. The initial
Aggregate Commitment is One Hundred Fifty Million and 00/100 Dollars
($150,000,000.00).
"AGREEMENT" means this Credit Agreement, as it may be amended, restated or
otherwise modified and in effect from time to time.
"AGREEMENT ACCOUNTING PRINCIPLES" means generally accepted accounting
principles in effect from time to time, applied in a manner consistent with that
used in preparing the financial statements referred to in SECTION 6.4(A) hereof,
PROVIDED, HOWEVER, that with respect to the calculation of financial ratios and
other financial tests required by this Agreement, "Agreement Accounting
Principles" means generally accepted accounting principles as in effect as of
the date of this Agreement, applied in a manner consistent with that used in
preparing the financial statements referred to in SECTION 6.4(A) hereof;
PROVIDED, FURTHER, HOWEVER, all PRO FORMA financial statements reflecting
Acquisitions shall be prepared in accordance with the requirements established
by the Commission for acquisition accounting for reporting acquisitions by
public companies (whether or not such Acquisitions are required to be publicly
reported).
"ALTERNATE BASE RATE" means, for any day, a fluctuating rate of interest
per annum equal to the higher of (i) the Corporate Base Rate for such day and
(ii) the sum of (a) the Federal Funds Effective Rate for such day and (b)
one-half of one percent (0.5%) per annum.
"APPLICABLE COMMITMENT FEE PERCENTAGE" means, as at any date of
determination, the rate per annum then applicable in the determination of the
amount payable under SECTION 2.12(C)(I) hereof determined in accordance with the
provisions of SECTION 2.12(D)(II) hereof.
"APPLICABLE EURODOLLAR MARGIN" means, as at any date of determination, the
rate per annum then applicable to Eurodollar Rate Loans determined in accordance
with the provisions of SECTION 2.12(D)(II) hereof.
"APPLICABLE FLOATING RATE MARGIN" means, as at any date of determination,
the rate per annum then applicable to Floating Rate Loans determined in
accordance with the provisions of SECTION 2.12(D)(II) hereof.
"APPLICABLE L/C FEE PERCENTAGE" means, with respect to any Letter of
Credit and as at any date of determination, a rate per annum equal to the
Applicable Eurodollar Margin in effect on such date.
"ARRANGER" means First Chicago Capital Markets, Inc., in its capacity as
the arranger for the loan transaction evidenced by this Agreement.
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"ASSET SALE" means, with respect to any Person, the sale, lease,
conveyance, disposition or other transfer by such Person of any of its assets
(including by way of a sale-leaseback transaction and including the sale or
other transfer of any of the Equity Interests of any Subsidiary of such Person).
"ASSIGNMENT AGREEMENT" shall mean an assignment and acceptance agreement
entered into in connection with an assignment pursuant to SECTION 13.3 hereof in
substantially the form of EXHIBIT A.
"AUTHORIZED OFFICER" means any of the chief executive officer, president,
chief financial officer, treasurer or assistant treasurer of the Borrower,
acting singly.
"BENEFIT PLAN" means a defined benefit plan as defined in Section 3(35) of
ERISA (other than a Multiemployer Plan) in respect of which the Borrower or any
other member of the Controlled Group is, or within the immediately preceding six
(6) years was, an "employer" as defined in Section 3(5) of ERISA.
"BORROWER" means Metals USA, Inc., a Delaware corporation, together with
its successors and assigns, including a debtor-in-possession on behalf of the
Borrower.
"BORROWING DATE" means a date on which an Advance or Swing Line Loan is
made hereunder.
"BORROWING NOTICE" is defined in SECTION 2.6 hereof.
"BUSINESS DAY" means (i) with respect to any borrowing, payment or rate
selection of Loans bearing interest at the Eurodollar Rate, a day (other than a
Saturday or Sunday) on which banks are open for business in Chicago, Illinois
and on which dealings in Dollars are carried on in the London interbank market
and (ii) for all other purposes a day (other than a Saturday or Sunday) on which
banks are open for business in Chicago, Illinois.
"BUYING LENDER(S)" is defined in SECTION 2.4(C) hereof.
"CAPITAL EXPENDITURES" means, for any period, the aggregate of all
expenditures (whether paid in cash or accrued as liabilities, including
Capitalized Leases and Permitted Purchase Money Indebtedness) (other than in
connection with Permitted Acquisitions) by the Borrower and its Subsidiaries
during that period that, in conformity with Agreement Accounting Principles, are
required to be included in or reflected by the property, plant, equipment or
similar fixed asset accounts reflected in the consolidated balance sheet of the
Borrower and its Subsidiaries.
"CAPITAL STOCK" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited) and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.
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"CAPITALIZED LEASE" of a Person means any lease of property by such Person
as lessee which would be capitalized on a balance sheet of such Person prepared
in accordance with Agreement Accounting Principles.
"CAPITALIZED LEASE OBLIGATIONS" of a Person means the amount of the
obligations of such Person under Capitalized Leases which would be capitalized
on a balance sheet of such Person prepared in accordance with Agreement
Accounting Principles.
"CASH EQUIVALENTS" means (i) marketable direct obligations issued or
unconditionally guaranteed by the United States government and backed by the
full faith and credit of the United States government; (ii) domestic and
Eurodollar certificates of deposit and time deposits, bankers' acceptances and
floating rate certificates of deposit issued by any commercial bank organized
under the laws of the United States, any state thereof, the District of
Columbia, any foreign bank, or its branches or agencies (fully protected against
currency fluctuations for any such deposits with a term of more than ten (10)
days); (iii) shares of money market, mutual or similar funds having assets in
excess of $100,000,000 and the investments of which are limited to investment
grade securities (i.e., securities rated at least Baa by Moody's Investors
Service, Inc. or at least BBB by Standard & Poor's Corporation); (iv) commercial
paper of United States and foreign banks and bank holding companies and their
subsidiaries and United States and foreign finance, commercial industrial or
utility companies which, at the time of acquisition, are rated A-1 (or better)
by Standard & Poor's Ratings Group or P-1 (or better) by Moody's Investors
Services, Inc.; (v) corporate bonds, mortgage-backed securities and municipal
bonds in each case of a domestic issuer rated at the date of acquisition not
less than Aaa by Moody's Investor Services, Inc. or AAA by Standard & Poor's
Corporation with maturities of no more than two (2) years from the date of
acquisition; (vi) repurchase agreements secured by debt securities of the type
described in part (i) above, the market value of which, including accrued
interest, is not less than 100% of the amount of the repurchase agreement, with
maturities of no more than two years from the date of acquisition, issued by or
acquired from or through any Lender or any bank or trust company organized under
the laws of the United States or any state thereof and having capital and
surplus aggregating at least $100,000,000.00; and (vii) money market funds with
respect to which not less than 90% of such funds are invested in the type of
investments specified in clauses (i) through (v) above; PROVIDED, unless the
context otherwise requires, that the maturities of such Cash Equivalents shall
not exceed 365 days.
"CHANGE" is defined in SECTION 4.2 hereof.
"CHANGE OF CONTROL" means an event or series of events by which:
(i) any "person" or "group" (as such terms are used in SECTIONS
13(D) and 14(D) of the Exchange Act), other than the Initial Shareholders,
is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5
under the Exchange Act, except that a person shall be deemed to have
"beneficial ownership" of all securities that such person has the right to
acquire, whether such right is exercisable immediately or only after the
passage of time), directly or indirectly, of 30% or more of the combined
voting power of the Borrower's Capital Stock ordinarily having the right
to vote at an election of directors;
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(ii) during any period of 24 consecutive calendar months,
individuals:
(a) who were directors of the Borrower on the first day of such
period, or
(b) whose election or nomination for election to the board of
directors of the Borrower was recommended or approved by at
least a majority of the directors then still in office who
were directors of the Borrower on the first day of such
period, or whose election or nomination for election was so
approved,
shall cease to constitute a majority of the board of directors of the
Borrower;
(iii) the Borrower consolidates with or merges into another
corporation or conveys, transfers or leases all or substantially all of
its property to any Person, or any corporation consolidates with or merges
into the Borrower, in either event pursuant to a transaction in which the
outstanding Capital Stock of the Borrower is reclassified or changed into
or exchanged for cash, securities or other property; and
(iv) other than as a result of a transaction permitted under the
terms of this Agreement, the Borrower shall cease to own, of record and
beneficially, with sole voting and dispositive power, (a) 100% of the
outstanding shares of Capital Stock of each of the Founding Companies, (b)
80% of the outstanding shares of Capital Stock of each of the other
Guarantors or (c) shall cease to have the power, directly or indirectly,
to elect a majority of the members of the board of directors of each of
the Guarantors.
"CLOSING DATE" means the date on which the initial Loans are advanced
hereunder.
"CODE" means the Internal Revenue Code of 1986, as amended, reformed or
otherwise modified from time to time, or any successor statute.
"COMMISSION" means the Securities and Exchange Commission and any Person
succeeding to the functions thereof.
"COMMITMENT" means, for each Lender, the obligation of such Lender to make
Revolving Loans and to purchase participations in Letters of Credit not
exceeding the amount set forth on EXHIBIT B to this Agreement opposite its name
thereon under the heading "Commitment" or on Schedule 1 of the Assignment
Agreement by which it became a Lender or as set forth in the Commitment and
Acceptance pursuant to which it became a Lender, as such amount may be modified
from time to time pursuant to the terms of this Agreement or to give effect to
any applicable Assignment Agreement or Commitment and Acceptance.
"COMMITMENT INCREASE NOTICE" is defined in SECTION 2.4(B).
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"CONSOLIDATED TANGIBLE ASSETS" means the total assets of the Borrower and
its Subsidiaries on a consolidated basis, but excluding therefrom all items that
are treated as intangibles under Agreement Accounting Principles.
"CONSOLIDATED TANGIBLE NET WORTH" means, at a particular date, all amounts
which would be included under shareholders' equity for the Borrower and its
consolidated Subsidiaries determined in accordance with Agreement Accounting
Principles, excluding all items properly classified as intangibles in accordance
with Agreement Accounting Principles.
"CONTAMINANT" means any waste, pollutant, hazardous substance, toxic
substance, hazardous waste, special waste, petroleum or petroleum-derived
substance or waste, asbestos, polychlorinated biphenyls ("PCBS"), or any
constituent of any such substance or waste, and includes but is not limited to
these terms as defined in Environmental, Health or Safety Requirements of Law.
"CONTINGENT OBLIGATION", as applied to any Person, means any Contractual
Obligation, contingent or otherwise, of that Person with respect to any
Indebtedness of another or other obligation or liability of another, including,
without limitation, any such Indebtedness, obligation or liability of another
directly or indirectly guaranteed, endorsed (otherwise than for collection or
deposit in the ordinary course of business), co-made or discounted or sold with
recourse by that Person, or in respect of which that Person is otherwise
directly or indirectly liable, including Contractual Obligations (contingent or
otherwise) arising through any agreement to purchase, repurchase, or otherwise
acquire such Indebtedness, obligation or liability or any security therefor, or
to provide funds for the payment or discharge thereof (whether in the form of
loans, advances, stock purchases, capital contributions or otherwise), or to
maintain solvency, assets, level of income, or other financial condition, or to
make payment other than for value received.
"CONTRACTUAL OBLIGATION", as applied to any Person, means any provision of
any equity or debt securities issued by that Person or any indenture, mortgage,
deed of trust, security agreement, pledge agreement, guaranty, contract,
undertaking, agreement or instrument, in each case in writing, to which that
Person is a party or by which it or any of its properties is bound, or to which
it or any of its properties is subject.
"CONTROLLED GROUP" means the group consisting of (i) any corporation which
is a member of the same controlled group of corporations (within the meaning of
Section 414(b) of the Code) as the Borrower; (ii) a partnership or other trade
or business (whether or not incorporated) which is under common control (within
the meaning of Section 414(c) of the Code) with the Borrower; and (iii) a member
of the same affiliated service group (within the meaning of Section 414(m) of
the Code) as the Borrower, any corporation described in CLAUSE (I) above or any
partnership or trade or business described in CLAUSE (II) above.
"CONTROLLED SUBSIDIARY" of any Person means a Subsidiary of such Person
(i) 90% or more of the total Equity Interests or other ownership interests of
which (other than directors' qualifying shares) shall at the time be owned by
such Person or by one or more wholly-owned Subsidiaries of such Person and (ii)
of which such Person possesses, directly or indirectly, the power to direct or
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cause the direction of the management or policies, whether through the ownership
of voting securities, by agreement or otherwise.
"CONVERSION/CONTINUATION NOTICE" is defined in SECTION 2.8(D) hereof.
"CORPORATE BASE RATE" means the corporate base rate of interest announced
by First Chicago from time to time, changing when and as said corporate base
rate changes.
"CURE LOAN" is defined in SECTION 9.2(III) hereof.
"CUSTOMARY PERMITTED LIENS" means:
(i) Liens with respect to the payment of taxes, assessments or
governmental charges in all cases which are not yet due or (if
foreclosure, distraint, sale or other similar proceedings shall not have
been commenced) which are being contested in good faith by appropriate
proceedings properly instituted and diligently conducted and with respect
to which adequate reserves or other appropriate provisions are being
maintained in accordance with Agreement Accounting Principles;
(ii) statutory Liens of landlords and Liens of suppliers, mechanics,
carriers, materialmen, warehousemen or workmen and other similar Liens
imposed by law created in the ordinary course of business for amounts not
yet due or which are being contested in good faith by appropriate
proceedings properly instituted and diligently conducted and with respect
to which adequate reserves or other appropriate provisions are being
maintained in accordance with Agreement Accounting Principles;
(iii) Liens incurred or deposits made, in each case, in the ordinary
course of business in connection with worker's compensation, unemployment
insurance or other types of social security benefits or to secure the
performance of bids, tenders, sales, contracts (other than for the
repayment of borrowed money), surety, appeal and performance bonds;
PROVIDED that (A) all such Liens do not in the aggregate materially
detract from the value of the Borrower's or such Subsidiary's assets or
property taken as a whole or materially impair the use thereof in the
operation of the businesses taken as a whole, and (B) with respect to
Liens securing bonds to stay judgments or in connection with appeals do
not secure at any time an aggregate amount which if paid at such time
would result in the occurrence or existence of a Default;
(iv) Liens arising with respect to zoning restrictions, easements,
licenses, reservations, covenants, rights-of-way, utility easements,
building restrictions and other similar charges or encumbrances on the use
of real property which do not in any case materially detract from the
value of the property subject thereto or interfere with the ordinary
conduct of the business of the Borrower or any of its Subsidiaries;
(v) Liens of attachment or judgment with respect to judgments, writs
or warrants of attachment, or similar process against the Borrower or any
of its Subsidiaries which do not constitute a Default under SECTION 8.1(H)
hereof; and
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(vi) any interest or title of the lessor in the property subject to
any operating lease entered into by the Borrower or any of its
Subsidiaries in the ordinary course of business.
"DEFAULT" means an event described in ARTICLE VIII hereof.
"DISQUALIFIED STOCK" means any Capital Stock that, by its terms (or by
the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the holder thereof, in whole or in part, on or prior to the date
that is 91 days after the Termination Date.
"DOL" means the United States Department of Labor and any Person
succeeding to the functions thereof.
"DOLLAR" and "$" means dollars in the lawful currency of the United
States.
"EBITDA" means, for any period, on a consolidated basis for the Borrower
and its Subsidiaries, the sum of the amounts for such period, without
duplication, of:
(i) Net Income,
PLUS (ii) Interest Expense,
PLUS (iii) charges against income for foreign, federal, state and
local taxes, to the extent deducted in computing Net Income,
PLUS (iv) depreciation expense, to the extent deducted in computing Net
Income,
PLUS (v) amortization expense, including, without limitation,
amortization of goodwill, other intangible assets and
Transaction Costs, to the extent deducted in computing Net
Income,
PLUS (vi) other non-cash charges classified as long-term deferrals
in accordance with Agreement Accounting Principles, to the
extent deducted in computing Net Income,
MINUS (vii) Net Extraordinary Gains,
PLUS (viii)non-cash extraordinary losses (and any non-cash
nonrecurring unusual losses arising in or outside of the
ordinary course of business not included in extraordinary
losses determined in accordance with Agreement Accounting
Principles) but only to the extent such amounts were not
utilized to offset gains in calculating Net Extraordinary
Gains,
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PLUS (ix) for the fiscal quarters ending September 30, 1997 through
the fiscal quarter ending June 30, 1998, all non-cash
compensation expenses of the Borrower associated with the
issuance of the Borrower's common stock to management of the
Borrower or the Founding Companies and consultants to the
Borrower,
PLUS (x) the PRO FORMA adjustments which are consistent with the
Commission's regulations and practices as of the Closing Date
(whether or not applicable) to account for adjustments to
historical EBITDA for the Founding Companies as described in
the Registration Statement,
PLUS (xi) for the fiscal quarters ending June 30, 1997 and
September 30, 1997, the $400,000 non-cash charge for recurring
salary expenses of management reflected in Note 4 to the
Borrower's unaudited pro forma combined financial statements
contained in the Registration Statement,
PLUS (xii) for the fiscal quarters ending June 30, 1997 through the
fiscal quarter ending December 31, 1997, the $175,000 non-cash
charge for recurring salary expenses of management reflected
in Note 4 to the Borrower's unaudited pro forma combined
financial statements contained in the Registration Statement,
and
PLUS (xii) for all calculations of EBITDA other than for purposes of
SECTION 2.12, the sum, without duplication of (A) any PRO
FORMA adjustments which are consistent with the Commission's
regulations and practices as of the Closing Date (whether or
not applicable) to account for adjustments to historical
EBITDA for an acquired entity (other than the Founding
Companies) and which are realizable as a result of negotiated
and executed contractual arrangements and (B) any other
adjustments for easily identifiable expense add-backs which
have been approved by the Agent.
As used herein "NET EXTRAORDINARY GAINS" shall mean the sum of, but only if
positive, extraordinary gains (and any nonrecurring unusual gains arising in or
outside of the ordinary course of business not included in extraordinary gains
determined in accordance with Agreement Accounting Principles which have been
included in the determination of Net Income) MINUS extraordinary losses (and any
nonrecurring unusual losses arising in or outside of the ordinary course of
business not included in extraordinary losses determined in accordance with
Agreement Accounting Principles). EBITDA shall be calculated for any period by
including the actual amount for the applicable period ending on such day,
including the EBITDA attributable to Permitted Acquisitions occurring during
such period on a PRO FORMA basis for the period from the first day of the
applicable period through the date of the closing of each Permitted Acquisition,
utilizing (a) where available or required pursuant to the terms of this
Agreement, historical audited and/or reviewed unaudited financial statements
obtained from the seller, broken down by fiscal quarter in the Borrower's
reasonable judgment or (b) unaudited financial statements (where no audited or
reviewed financial statements are required pursuant to the terms of this
Agreement) reviewed internally by the Borrower, broken down in the Borrower's
reasonable judgment.
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"EFFECTIVE COMMITMENT AMOUNTS" is defined in SECTION 2.4(B) hereof.
"ENVIRONMENTAL, HEALTH OR SAFETY REQUIREMENTS OF LAW" means all
Requirements of Law derived from or relating to federal, state and local laws or
regulations relating to or addressing pollution or protection of the
environment, or protection of worker health or safety, including, but not
limited to, the Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C. ss. 9601 ET SEQ., the Occupational Safety and Health Act of 1970,
29 U.S.C. ss. 651 ET SEQ., and the Resource Conservation and Recovery Act of
1976, 42 U.S.C. ss. 6901 ET SEQ., in each casE including any amendments thereto,
any successor statutes, and any regulations or guidance promulgated thereunder,
and any state or local equivalent thereof.
"ENVIRONMENTAL LIEN" means a lien in favor of any Governmental Authority
for (a) any liability under Environmental, Health or Safety Requirements of Law,
or (b) damages arising from, or costs incurred by such Governmental Authority in
response to, a Relaease or threatened Release of a Contraminant into the
environment.
"ENVIRONMENTAL PROPERTY TRANSFER ACT" means any applicable requirement of
law that conditions, restricts, prohibits or requires any notification or
disclosure triggered by the closure of any property or the transfer, sale or
lease of any property or deed or title for any property for environmental
reasons, including, but not limited to, any so-called "Industrial Site Recovery
Act" or "Responsible Property Transfer Act."
"EQUITY INTERESTS" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time including (unless the context otherwise requires) any
rules or regulations promulgated thereunder.
"EURODOLLAR BASE RATE" means, with respect to a Eurodollar Rate Loan for
the relevant Interest Period, the rate determined by the Agent to be the
arithmetic average of the respective rates at which deposits in Dollars are
offered by First Chicago to first-class banks in the London interbank market at
approximately 11 a.m. (London time) two Business Days prior to the first day of
such Interest Period, in the approximate amounts of the portions of the relevant
Eurodollar Rate Loan of First Chicago, and having a maturity approximately equal
to such Interest Period, as adjusted for Reserves.
"EURODOLLAR RATE" means, with respect to a Eurodollar Rate Loan for the
relevant Interest Period, the Eurodollar Base Rate applicable to such Interest
Period PLUS the then Applicable Eurodollar Margin. The Eurodollar Rate shall be
rounded to the next higher multiple of 1/100 of 1% if the rate is not such a
multiple.
"EURODOLLAR RATE ADVANCE" means an Advance which bears interest at the
Eurodollar Rate.
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"EURODOLLAR RATE LOAN" means a Loan, or portion thereof, which bears
interest at the Eurodollar Rate.
"EXISTING LETTER OF CREDIT" means that certain letter of credit issued by
NationsBank, N.A. for the benefit of Raffles Insurance Limited and expiring on
May 20, 1998 with an amount available for drawing as of the Closing Date of
$394,640.00 Notwithstanding anything else to the contrary set forth in this
Agreement, for purposes of this Agreement (a) all payments to and from the
Issuing Bank with respect to the Existing Letter of Credit shall be made to
NationsBank of Texas, N.A. as a Lender hereunder and its shall be the
responsibility of NationsBank of Texas, N.A. to settle the payment of such
amounts with NationsBank, N.A. as the actual issuing bank with respect to such
Existing Letter of Credit and (b) all references herein to "Issuing Banks" as
relates to the Existing Letter of Credit shall be to NationsBank of Texas, N.A.
as the representative for NationsBank, N.A.]
" FAIR VALUE" means (a) with respect to the Capital Stock of the Borrower,
the closing price for such Capital Stock on the trading date immediately
preceding the date of the applicable acquisition agreement; PROVIDED, such
amount may be discounted to the extent such discount is permitted by Agreement
Accounting Principles and (b) with respect to other assets, the value of the
relevant asset as of the date of acquisition or sale determined in an
arm's-length transaction conducted in good faith between an informed and willing
buyer and an informed and willing seller under no compulsion to buy.
"FEDERAL FUNDS EFFECTIVE RATE" means, for any day, an interest rate per
annum 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 for such day (or, if such day is not a
Business Day, for the immediately preceding Business Day) by the Federal Reserve
Bank of New York, or, if such rate is not so published for any day which is a
Business Day, the average of the quotations at approximately 10:00 a.m. (Chicago
time) on such day on such transactions received by the Agent from three Federal
funds brokers of recognized standing selected by the Agent in its sole
discretion.
"FIRST CHICAGO" means The First National Bank of Chicago, in its
individual capacity, and its successors.
"FIXED CHARGE COVERAGE RATIO" is defined in SECTION 7.4(A) hereof.
"FLOATING RATE" means, for any day for any Loan, a rate per annum equal to
the Alternate Base Rate for such day PLUS the then Applicable Floating Rate
Margin, changing and as the Alternate Base Rate or Applicable Floating Rate
Margin changes.
"FLOATING RATE ADVANCE" means an Advance which bears interest at the
Floating Rate.
"FLOATING RATE LOAN" means a Loan, or portion thereof, which bears
interest at the Floating Rate.
"FOUNDING COMPANIES" means each of the Persons listed on SCHEDULE 1.1.1
hereto.
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"GOVERNMENTAL ACTS" is defined in SECTION 3.9(A) hereof.
"GOVERNMENTAL AUTHORITY" means any nation or government, any federal,
state, local or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"GROSS NEGLIGENCE" means recklessness, the absence of the slightest care
or the complete disregard of consequences. Gross Negligence does not mean the
absence of ordinary care or diligence, or an inadvertent act or inadvertent
failure to act. If the term "gross negligence" is used with respect to the Agent
or any Lender or any indemnitee in any of the other Loan Documents, it shall
have the meaning set forth herein.
"GUARANTORS" means all of the Borrower's Subsidiaries (which shall include
the Founding Companies) as of the Effective Date and any other New Subsidiaries
which have satisfied the provisions of SECTION 7.3(G)(II) hereof, and their
respective successors and assigns.
"GUARANTY" means that certain Subsidiary Guaranty dated as of July 16,
1997 executed by the Guarantors in favor of the Agent, for the ratable benefit
of the Lenders, as it may be amended, modified, supplemented and/or restated
(including to add new Guarantors), and as in effect from time to time.
"HEDGING OBLIGATIONS" of a Person means any and all obligations of such
Person, whether absolute or contingent and howsoever and whensoever created,
arising, evidenced or acquired (including all renewals, extensions and
modifications thereof and substitutions therefor), under (i) any and all
agreements, devices or arrangements designed to protect at least one of the
parties thereto from the fluctuations of interest rates, exchange rates or
forward rates applicable to such party's assets, liabilities or exchange
transactions, including, but not limited to, dollar-denominated or
cross-currency interest rate exchange agreements, forward currency exchange
agreements, interest rate cap or collar protection agreements, forward rate
currency or interest rate options, puts and warrants, and (ii) any and all
cancellations, buy backs, reversals, terminations or assignments of any of the
foregoing.
"INDEBTEDNESS" of any Person means, without duplication, such Person's (a)
obligations for borrowed money, (b) obligations representing the deferred
purchase price of property or services (other than accounts payable arising in
the ordinary course of such Person's business payable on terms customary in the
trade), (c) obligations, whether or not assumed, secured by Liens or payable out
of the proceeds or production from property or assets now or hereafter owned or
acquired by such Person, (d) obligations which are evidenced by notes,
acceptances or other instruments, (e) Capitalized Lease Obligations, (f)
reimbursement obligations with respect to letters of credit (other than
commercial letters of credit) issued for the account of such Person, (g) Hedging
Obligations, (h) Off Balance Sheet Liabilities and (i) Contingent Obligations in
respect of obligations of another Person of the type described in the foregoing
clauses (a) through (h). The amount of Indebtedness of any Person at any date
shall be without duplication (i) the outstanding balance at such date of all
unconditional obligations as described above and the maximum liability of any
such Contingent Obligations at such date and (ii) in the case of Indebtedness of
others secured by a Lien to which the
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property or assets owned or held by such Person is subject, the lesser of the
fair market value at such date of any asset subject to a Lien securing the
Indebtedness of others and the amount of the Indebtedness secured.
"INDEMNIFIED MATTERS" is defined in SECTION 10.7(B) hereof.
"INDEMNITEES" is defined in SECTION 10.7(B) hereof.
"INFORMATION MEMORANDUM" is defined in SECTION 6.4(A).
"INITIAL ACQUISITIONS" means the acquisition by the Borrowers in separate
merger transactions (the "MERGERS"), in exchange for cash and shares of its
common stock, of the Founding Companies.
"INITIAL SHAREHOLDERS" means the Persons set forth on SCHEDULE 1.1.2
hereto.
"INTEREST EXPENSE" means, for any period, the total interest expense of
the Borrower and its consolidated Subsidiaries, whether paid or accrued
(including the interest component of Capitalized Leases, commitment and letter
of credit fees), but excluding interest expense not payable in cash (including
amortization of discount), all as determined in conformity with Agreement
Accounting Principles.
"INTEREST PERIOD" means, with respect to a Eurodollar Rate Loan, a period
of one (1), two (2), three (3), or six (6) months commencing on a Business Day
selected by the Borrower pursuant to this Agreement. Such Interest Period shall
end on (but exclude) the day which corresponds numerically to such date one,
two, three or six months thereafter; PROVIDED, HOWEVER, that if there is no such
numerically corresponding day in such next, second, third or sixth succeeding
month, such Interest Period shall end on the last Business Day of such next,
second, third or sixth succeeding month. If an Interest Period would otherwise
end on a day which is not a Business Day, such Interest Period shall end on the
next succeeding Business Day, PROVIDED, HOWEVER, that if said next succeeding
Business Day falls in a new calendar month, such Interest Period shall end on
the immediately preceding Business Day.
"INVESTMENT" means, with respect to any Person, (i) any purchase or other
acquisition by that Person of any Indebtedness, Equity Interests or other
securities, or of a beneficial interest in any Indebtedness, Equity Interests or
other securities, issued by any other Person, (ii) any purchase by that Person
of all or substantially all of the assets of a business conducted by another
Person, and (iii) any loan, advance (other than deposits with financial
institutions available for withdrawal on demand, prepaid expenses, accounts
receivable, advances to employees and similar items made or incurred in the
ordinary course of business) or capital contribution by that Person to any other
Person, including all Indebtedness to such Person arising from a sale of
property by such Person other than in the ordinary course of its business.
"IRS" means the Internal Revenue Service and any Person succeeding to the
functions thereof.
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"ISSUING BANKS" means (a) NationsBank of Texas, N.A. as representative for
NationsBank, N.A. with respect to the Existing Letter of Credit and (b) First
Chicago and any other Lender which, at the Borrower's request, agrees, in each
such Lender's sole discretion, to become an Issuing Bank for the purpose of
issuing Letters of Credit, and their respective successors and assigns, in each
case in such Lender's separate capacity as an issuer of Letters of Credit
pursuant to SECTION 3.1. The designation of any Lender as an Issuing Bank after
the date hereof shall be subject to the prior written consent of the Agent.
"L/C DRAFT" means a draft drawn on an Issuing Bank pursuant to a Letter of
Credit.
"L/C INTEREST" shall have the meaning ascribed to such term in SECTION 3.5
hereof.
"L/C OBLIGATIONS" means, without duplication, an amount equal to the sum
of (i) the aggregate of the amount then available for drawing under each of the
Letters of Credit, (ii) the face amount of all outstanding L/C Drafts
corresponding to the Letters of Credit, which L/C Drafts have been accepted by
the applicable Issuing Bank, (iii) the aggregate outstanding amount of all
Reimbursement Obligations at such time and (iv) the aggregate face amount of all
Letters of Credit requested by the Borrower but not yet issued (unless the
request for an unissued Letter of Credit has been denied).
"LENDERS" means the lending institutions listed on the signature pages of
this Agreement and each Proposed New Lender which becomes a Lender hereto
pursuant to the provisions of SECTION 2.4(B) and their respective successors and
assigns.
"LENDING INSTALLATION" means, with respect to a Lender or the Agent, any
office, branch, subsidiary or affiliate of such Lender or the Agent.
"LETTER OF CREDIT" means (a) the Existing Letter of Credit and (b) the
letters of credit issued by the Issuing Banks pursuant to SECTION 3.1 hereof.
"LEVERAGE RATIO" is defined in SECTION 7.4(B) hereof.
"LIEN" means any lien (statutory or other), mortgage, pledge,
hypothecation, assignment, encumbrance or security agreement or preferential
arrangements of any kind or nature whatsoever (including, without limitation,
the interest of a vendor or lessor under any conditional sale, Capitalized Lease
or other title retention agreement).
"LOAN(S)" means, with respect to a Lender, such Lender's portion of any
Advance made pursuant to SECTION 2.1(A) hereof (individually a "REVOLVING LOAN"
and collectively, the "REVOLVING LOANS"), and in the case of the Swing Line
Bank, any Swing Line Loan made pursuant to SECTION 2.1(B) hereof, and
collectively all such Revolving Loans and Swing Line Loans, whether made or
continued as or converted to Floating Rate Loans or Eurodollar Rate Loans.
"LOAN ACCOUNT" is defined in SECTION 2.12(F) hereof.
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"LOAN DOCUMENTS" means this Agreement, the Notes, the Guaranty and all
other documents, instruments and agreements executed in connection therewith or
contemplated thereby, as the same may be amended, restated or otherwise modified
and in effect from time to time.
"MARGIN STOCK" shall have the meaning ascribed to such term in Regulation
U.
"MATERIAL ADVERSE EFFECT" means a material adverse effect upon (a) the
business, condition (financial or otherwise), operations, performance or
properties of the Borrower, or the Borrower and its Subsidiaries, taken as a
whole or (b) the ability of the Borrower or any of its Subsidiaries to perform
their respective obligations under the Loan Documents in any material respect.
"MATERIAL SUBSIDIARY" means (a) any "Significant Subsidiary" as defined in
Regulation S-X issued pursuant to the Securities Act and the Exchange Act and
(b) any other Subsidiary of the Borrower which at any time comprises ten percent
(10%) or more of the Borrower's Consolidated Tangible Assets.
"MAXIMUM RATE" means the maximum nonusurious interest rate under
applicable law. To the extent Texas law may apply to this Agreement, the maximum
lawful rate under this Agreement shall be the weekly indicated rate ceiling
under Article 5069-1.04 of the Texas Revised Civil Statutes, unless any other
lawful rate ceiling exceeds the rate ceiling so determined, and then the higher
rate ceiling shall apply.
"MERGER(S)" is defined in the definition of Initial Acquisitions above.
"MULTIEMPLOYER PLAN" means a "Multiemployer Plan" as defined in Section
4001(a)(3) of ERISA which is, or within the immediately preceding six (6) years
was, contributed to by either the Borrower or any member of the Controlled
Group.
"NET INCOME" means, for any period, the net earnings (or loss) after taxes
of the Borrower and its Subsidiaries on a consolidated basis for such period
taken as a single accounting period determined in conformity with Agreement
Accounting Principles.
"NEW SUBSIDIARY" is defined in SECTION 7.3(G)(II).
"NON PRO RATA LOAN" is defined in SECTION 9.2 hereof.
"NOTICE OF ASSIGNMENT" is defined in SECTION 13.3(B) hereof.
"NOTES" means the Revolving Notes and the Swing Line Note.
"OBLIGATIONS" means all Loans, advances, debts, liabilities, obligations,
covenants and duties owing by the Borrower to the Agent, any Lender, the Swing
Line Bank, the Arranger, any Affiliate of the Agent or any Lender, or any
Indemnitee, of any kind or nature, present or future, arising under this
Agreement, the Notes or any other Loan Document, whether or not evidenced by any
note, guaranty or other instrument, whether or not for the payment of money,
whether arising by reason
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of an extension of credit, loan, guaranty, indemnification, or in any other
manner, whether direct or indirect (including those acquired by assignment),
absolute or contingent, due or to become due, now existing or hereafter arising
and however acquired. The term includes, without limitation, all interest,
charges, expenses, fees, attorneys' fees and disbursements, paralegals' fees (in
each case whether or not allowed), and any other sum chargeable to the Borrower
under this Agreement or any other Loan Document.
"OFF BALANCE SHEET LIABILITIES" of a Person means (a) any repurchase
obligation or liability of such Person or any of its Subsidiaries with respect
to accounts or notes receivable sold by such Person or any of its Subsidiaries,
(b) any liability under any sale and leaseback Transactions which do not create
a liability on the consolidated balance sheet of such Person, (c) any liability
under any financing lease or so-called "synthetic" lease transaction, or (d) any
obligations arising with respect to any other transaction which is the
functional equivalent of or takes the place of borrowing but which does not
constitute a liability on the consolidated balance sheets of such Person and its
Subsidiaries.
"OTHER TAXES" is defined in SECTION 2.12(E)(II) hereof.
"PARTICIPANTS" is defined in SECTION 13.2(A) hereof.
"PAYMENT DATE" means the last Business Day of each March, June, September
and December.
"PBGC" means the Pension Benefit Guaranty Corporation, or any successor
thereto.
"PERMITTED ACQUISITION" is defined in SECTION 7.3(G)(III) hereof.
"PERMITTED EXISTING INDEBTEDNESS" means the Indebtedness of the Borrower
and its Subsidiaries identified as such on SCHEDULE 1.1.3 to this Agreement.
"PERMITTED EXISTING INVESTMENTS" means the Investments of the Borrower and
its Subsidiaries identified as such on SCHEDULE 1.1.4 to this Agreement.
"PERMITTED EXISTING LIENS" means the Liens on assets of the Borrower and
its Subsidiaries identified as such on SCHEDULE 1.1.5 to this Agreement.
"PERMITTED PURCHASE MONEY INDEBTEDNESS" is defined in SECTION 7.3(A)(IX)
hereof.
"PERMITTED REFINANCING INDEBTEDNESS" means any replacement, renewal,
refinancing or extension of any Indebtedness permitted by this Agreement that
(i) does not exceed the aggregate principal amount (plus associated fees and
expenses) of the Indebtedness being replaced, renewed, refinanced or extended,
(ii) does not rank at the time of such replacement, renewal, refinancing or
extension senior to the Indebtedness being replaced, renewed, refinanced or
extended, and (iii) does not contain terms (including, without limitation, terms
relating to security, amortization, interest rate, premiums, fees, covenants,
event of default and remedies) materially less favorable to the Borrower
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or to the Lenders than those applicable to the Indebtedness being replaced,
renewed, refinanced or extended.
"PERMITTED SUBORDINATED INDEBTEDNESS" is defined in SECTION 7.3(A)(III)
hereof.
"PERSON" means any individual, corporation, firm, enterprise, partnership,
trust, incorporated or unincorporated association, joint venture, joint stock
company, limited liability company or other entity of any kind, or any
government or political subdivision or any agency, department or instrumentality
thereof.
"PLAN" means an employee benefit plan defined in Section 3(3) of ERISA in
respect of which the Borrower or any member of the Controlled Group is, or
within the immediately preceding six (6) years was, an "employer" as defined in
Section 3(5) of ERISA.
"PROPOSED NEW LENDER" is defined in SECTION 2.4(B).
"PRO RATA SHARE" means, with respect to any Lender, the percentage
obtained by dividing (A) such Lender's Commitment at such time (as adjusted from
time to time in accordance with the provisions of this Agreement) by (B) the sum
of the Aggregate Commitments at such time; PROVIDED, HOWEVER, if the Commitments
are terminated pursuant to the terms of this Agreement, then "Pro Rata Share"
means the percentage obtained by dividing (x) the sum of such Lender's L/C
Obligations and Revolving Loans, and in the case of the Swing Line Bank, Swing
Line Loans by (y) the aggregate amount of all Revolving Loans, Swing Line Loans
and L/C Obligations.
"PUBLIC OFFERING" means the offerings by the Borrower of 5,900,000 shares
of its common stock, $.01 par value, pursuant to the Registration Statement.
"PUBLIC OFFERING DOCUMENTS" means the Registration Statement, the
Underwriting Agreement, and all other material instruments and agreements, if
any, executed or obtained by the Borrower or any of its Subsidiaries pursuant to
or in connection with the Public Offering.
"PURCHASERS" is defined in SECTION 13.3(A) hereof.
"RATE OPTION" means the Eurodollar Rate or the Floating Rate.
"REGISTER" is defined in SECTION 13.3(C) hereof.
"REGISTRATION STATEMENT" means the Registration Statement on Form S-1
filed by the Borrower with the Commission on May 7, 1997, with respect to the
initial public offerings of its common stock, $.01 par value, as filed on such
date, except that for purposes of SECTION 6.20, "Registration Statement" means
such Registration Statement as amended from time to time prior to the Closing
Date.
"REGULATION G" means Regulation G of the Board of Governors of the Federal
Reserve System as from time to time in effect and any successor or other
regulation or official interpretation
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of said Board of Governors relating to the extension of credit by nonbank,
nonbroker lenders for the purpose of purchasing or carrying margin stock (as
defined therein).
"REGULATION T" means Regulation T of the Board of Governors of the Federal
Reserve System as from time to time in effect and any successor or other
regulation or official interpretation of said Board of Governors relating to the
extension of credit by and to brokers and dealers of securities for the purpose
of purchasing or carrying margin stock (as defined therein).
"REGULATION U" means Regulation U of the Board of Governors of the Federal
Reserve System as from time to time in effect and any successor or other
regulation or official interpretation of said Board of Governors relating to the
extension of credit by banks for the purpose of purchasing or carrying Margin
Stock applicable to member banks of the Federal Reserve System.
"REGULATION X" means Regulation X of the Board of Governors of the Federal
Reserve System as from time to time in effect and any successor or other
regulation or official interpretation of said Board of Governors relating to the
extension of credit by foreign lenders for the purpose of purchasing or carrying
margin stock (as defined therein).
"REIMBURSEMENT OBLIGATION" is defined in SECTION 3.6 hereof.
"RELATED TRANSACTIONS" means the Initial Acquisitions, the Mergers and the
Public Offering.
"RELEASE" means any release, spill, emission, leaking, pumping, injection,
deposit, disposal, discharge, dispersal, leaching or migration into the indoor
or outdoor environment, including the movement of Contaminants through or in the
air, soil, surface water or groundwater.
"RENTALS" of a Person means the aggregate fixed amounts payable by such
Person under any lease of real or personal property but does not include any
amounts payable under Capitalized Leases of such Person.
"REPLACEMENT LENDER" is defined in SECTION 2.17 hereof.
"REPORTABLE EVENT" means a reportable event as defined in Section 4043 of
ERISA and the regulations issued under such section, with respect to a Plan,
excluding, however, such events as to which the PBGC by regulation waived the
requirement of Section 4043(a) of ERISA that it be notified within 30 days after
such event occurs, PROVIDED, HOWEVER, that a failure to meet the minimum funding
standards of Section 412 of the Code and of Section 302 of ERISA shall be a
Reportable Event regardless of the issuance of any such waiver of the notice
requirement in accordance with either Section 4043(a) of ERISA or Section 412(d)
of the Code.
"REQUIRED LENDERS" means Lenders whose Pro Rata Shares, in the aggregate,
are equal to or greater than fifty-one percent (51%); PROVIDED, HOWEVER, that,
if any of the Lenders shall have failed to fund its Pro Rata Share of any
Revolving Loan requested by the Borrower, or any Swing Line Loan as requested by
the Agent, which such Lenders are obligated to fund under the terms of this
Agreement and any such failure has not been cured, then for so long as such
failure continues,
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"REQUIRED LENDERS" means Lenders (excluding all Lenders whose failure to
fund their respective Pro Rata Shares of such Revolving Loans or Swing Line
Loans has not been so cured) whose Pro Rata Shares represent at least fifty-one
percent (51%) of the aggregate Pro Rata Shares of such Lenders; PROVIDED
FURTHER, HOWEVER, that, if the Commitments have been terminated pursuant to the
terms of this Agreement, "REQUIRED LENDERS" means Lenders (without regard to
such Lenders' performance of their respective obligations hereunder) whose
aggregate ratable shares (stated as a percentage) of the aggregate outstanding
principal balance of all Loans and L/C Obligations are equal to or greater than
fifty-one percent (51%).
"REQUIREMENTS OF LAW" means, as to any Person, the charter and by-laws or
other organizational or governing documents of such Person, and any law, rule or
regulation, or determination of an arbitrator or a court or other Governmental
Authority, in each case applicable to or binding upon such Person or any of its
property or to which such Person or any of its property is subject including,
without limitation, the Securities Act of 1933, the Securities Exchange Act of
1934, Regulations G, T, U and X, ERISA, the Fair Labor Standards Act, the Worker
Adjustment and Retraining Notification Act, Americans with Disabilities Act of
1990, and any certificate of occupancy, zoning ordinance, building,
environmental or land use requirement or permit or environmental, labor,
employment, occupational safety or health law, rule or regulation, including
Environmental, Health or Safety Requirements of Law.
"RESERVES" shall mean the maximum reserve requirement, as prescribed by
the Board of Governors of the Federal Reserve System (or any successor) with
respect to "Eurocurrency liabilities" or in respect of any other category of
liabilities which includes deposits by reference to which the interest rate on
Eurodollar Rate Loans is determined or category of extensions of credit or other
assets which includes loans by a non-United States office of any Lender to
United States residents.
"RESTRICTED PAYMENT" means (i) any dividend or other distribution, direct
or indirect, on account of any Equity Interests of the Borrower now or hereafter
outstanding, except a dividend payable solely in the Borrower's Capital Stock
(other than Disqualified Stock) or in options, warrants or other rights to
purchase such Capital Stock, (ii) any redemption, retirement, purchase or other
acquisition for value, direct or indirect, of any Equity Interests of the
Borrower or any of its Subsidiaries now or hereafter outstanding, other than in
exchange for, or out of the proceeds of, the substantially concurrent sale
(other than to a Subsidiary of the Borrower) of other Equity Interests of the
Borrower (other than Disqualified Stock), (iii) any redemption, purchase,
retirement, defeasance, prepayment or other acquisition for value, direct or
indirect, of any Permitted Subordinated Indebtedness, and (iv) any payment of a
claim for the rescission of the purchase or sale of, or for material damages
arising from the purchase or sale of, any Permitted Subordinated Indebtedness or
any Equity Interests of the Borrower or any of the Borrower's Subsidiaries, or
of a claim for reimbursement, indemnification or contribution arising out of or
related to any such claim for damages or rescission.
"REVOLVING CREDIT AVAILABILITY" means, at any particular time, the amount
by which the Aggregate Commitment at such time exceeds the Revolving Credit
Obligations at such time.
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"REVOLVING CREDIT OBLIGATIONS" means, at any particular time, the sum of
(i) the outstanding principal amount of the Loans (including the Swing Line
Loans) at such time, PLUS (ii) the L/C Obligations at such time.
"REVOLVING NOTE" means a promissory note, in substantially the form of
EXHIBIT C hereto, duly executed by the Borrower and payable to the order of a
Lender in the amount of its Commitment, including any amendment, restatement,
modification, renewal or replacement of such Revolving Note.
"RISK-BASED CAPITAL GUIDELINES" is defined in SECTION 4.2 hereof.
"SELLING LENDER(S)" is defined in SECTION 2.4(C) hereof.
"SINGLE EMPLOYER PLAN" means a Plan maintained by the Borrower or any
member of the Controlled Group for employees of the Borrower or any member of
the Controlled Group.
"SUBSIDIARY" of a Person means (i) any corporation more than 50% of the
outstanding securities having ordinary voting power of which shall at the time
be owned or controlled, directly or indirectly, by such Person or by one or more
of its Subsidiaries or by such Person and one or more of its Subsidiaries, or
(ii) any partnership, association, joint venture or similar business
organization more than 50% of the ownership interests having ordinary voting
power of which shall at the time be so owned or controlled. Unless otherwise
expressly provided, all references herein to a "Subsidiary" shall mean a
Subsidiary of the Borrower.
"SWING LINE BANK" means First Chicago or any other Lender as a successor
Swing Line Bank.
"SWING LINE COMMITMENT" means the obligation of the Swing Line Bank to
make Swing Line Loans up to a maximum principal amount of $5,000,000 at any one
time outstanding.
"SWING LINE LOAN" means a Loan made available to the Borrower by the Swing
Line Bank pursuant to SECTION 2.1(B) hereof.
"SWING LINE NOTE" means a promissory note, in substantially the form of
EXHIBIT D hereto, duly executed by the Borrower and payable to the order of the
Swing Line Bank in the amount of its Swing Line Commitment, including any
amendment, restatement, modification, renewal or replacement of such Swing Line
Note.
"SYNDICATION PERIOD" is defined in SECTION 2.2 hereof.
"TAXES" is defined in SECTION 2.12(E)(I) hereof.
"TERMINATION DATE" means the earlier of (a) July 15, 2002 and (b) the date
of termination of the Aggregate Commitment pursuant to SECTION 2.4 hereof or the
Commitments pursuant to SECTION 9.1 hereof.
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"TERMINATION EVENT" means (i) a Reportable Event with respect to any
Benefit Plan; (ii) the withdrawal of the Borrower or any member of the
Controlled Group from a Benefit Plan during a plan year in which the Borrower or
such Controlled Group member was a "substantial employer" as defined in Section
4001(a)(2) of ERISA or the cessation of operations which results in the
termination of employment of twenty percent (20%) of Benefit Plan participants
who are employees of the Borrower or any member of the Controlled Group; (iii)
the imposition of an obligation on the Borrower or any member of the Controlled
Group under Section 4041 of ERISA to provide affected parties written notice of
intent to terminate a Benefit Plan in a distress termination described in
Section 4041(c) of ERISA; (iv) the institution by the PBGC of proceedings to
terminate a Benefit Plan; (v) any event or condition which might constitute
grounds under Section 4042 of ERISA for the Termination of, or the appointment
of a trustee to administer, any Benefit Plan; or (vi) the partial or complete
withdrawal of the Borrower or any member of the Controlled Group from a
Multiemployer Plan.
"TOTAL DEBT" means, for any period, on a consolidated basis for the
Borrower and its Subsidiaries, the sum of Indebtedness of the Borrower and its
Subsidiaries, other than Hedging Obligations.
"TRANSACTION COSTS" means the fees, costs and expenses payable by the
Borrower in connection with the execution, delivery and performance of the
Transaction Documents, in connection with the Public Offering, and the
consummation of the Initial Acquisitions and the Related Transactions.
"TRANSACTION DOCUMENTS" means the Loan Documents, the Public Offering
Documents the Acquisition Documents and the other material documents executed in
connection with the Related Transactions.
"TRANSFEREE" is defined in SECTION 13.5 hereof.
"TYPE" means, with respect to any Loan, its nature as a Floating Rate Loan
or a Eurodollar Rate Loan.
"UNDERWRITING AGREEMENT" means that certain Underwriting Agreement from
the Borrower confirmed and accepted by Alex. Brown & Sons Incorporated for
itself and certain other underwriters in connection with the Public Offering.
"UNFUNDED LIABILITIES" means (i) in the case of Single Employer Plans, the
amount (if any) by which the present value of all vested nonforfeitable benefits
under all Single Employer Plans exceeds the fair market value of all such Plan
assets allocable to such benefits, all determined as of the then most recent
valuation date for such Plans, and (ii) in the case of Multiemployer Plans, the
withdrawal liability that would be incurred by the Controlled Group if all
members of the Controlled Group completely withdrew from all Multiemployer
Plans.
"UNMATURED DEFAULT" means an event which, but for the lapse of time or the
giving of notice, or both, would constitute a Default.
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Any accounting terms used in this Agreement which are not specifically
defined herein shall have the meanings customarily given them in accordance with
generally accepted accounting principles in existence as of the date hereof.
1.2 REFERENCES. The existence throughout the Agreement of references to
the Borrower's Subsidiaries is for a matter of convenience only. Any references
to Subsidiaries of the Borrower set forth herein shall (i) with respect to
representations and warranties which deal with historical matters be deemed to
include each of the Founding Companies and their respective subsidiaries,
together with the businesses acquired pursuant to the Initial Acquisitions; and
(ii) shall not in any way be construed as consent by the Agent or any Lender to
the establishment, maintenance or acquisition of any Subsidiary, except as may
otherwise be permitted hereunder.
ARTICLE II: THE LOAN FACILITIES
2.1 LOANS. (a) REVOLVING LOANS. Upon the satisfaction of the conditions
precedent set forth in SECTIONS 5.1 and 5.2, from and including the date of this
Agreement and prior to the Termination Date, each Lender severally and not
jointly agrees, on the terms and conditions set forth in this Agreement, to make
Revolving Loans to the Borrower from time to time, in Dollars, in an amount not
to exceed such Lender's Pro Rata Share of Revolving Credit Availability at such
time; PROVIDED, HOWEVER, at no time shall the Revolving Credit Obligations
exceed the Aggregate Commitment at such time. Subject to the terms of this
Agreement, the Borrower may borrow, repay and reborrow Revolving Loans at any
time prior to the Termination Date. The Revolving Loans made on the Closing Date
shall initially be Floating Rate Loans and thereafter may be continued as
Floating Rate Loans or converted into Eurodollar Rate Loans in the manner
provided in SECTION 2.8 and subject to the other conditions and limitations
therein set forth and set forth in this ARTICLE II. On the Termination Date, the
Borrower shall repay in full the outstanding principal balance of the Loans.
Each Advance under this SECTION 2.1(A) shall consist of Revolving Loans made by
each Lender ratably in proportion to such Lender's respective Pro Rata Share.
(b) SWING LINE LOANS.
(i) AMOUNT OF SWING LINE LOANS. Upon the satisfaction of the
conditions precedent set forth in SECTION 5.1 and 5.2, from and including
the date of this Agreement and prior to the Termination Date, the Swing
Line Bank agrees, on the terms and conditions set forth in this Agreement,
to make swing line loans to the Borrower from time to time, in Dollars, in
an amount not to exceed the Swing Line Commitment (each, individually, a
"SWING LINE LOAN" and collectively, the "SWING LINE LOANS"); PROVIDED,
HOWEVER, at no time shall the Revolving Credit Obligations exceed the
Aggregate Commitment; and PROVIDED, FURTHER, that at no time shall the sum
of (a) the outstanding amount of the Swing Line Loans, PLUS (b) the
outstanding amount of Revolving Loans made by the Swing Line Bank pursuant
to SECTION 2.1(A) (after giving effect to any concurrent repayment of
Loans), exceed the Swing Line Bank's Commitment at such time. Subject to
the terms of this Agreement, the Borrower may borrow, repay and reborrow
Swing Line Loans at any time prior to the Termination Date.
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(ii) BORROWING NOTICE. The Borrower shall deliver to the Agent and
the Swing Line Bank a Borrowing Notice, signed by it, not later than 10:00
a.m. (Chicago time) on the Borrowing Date of each Swing Line Loan,
specifying (i) the applicable Borrowing Date (which shall be a Business
Day), and (ii) the aggregate amount of the requested Swing Line Loan. The
Swing Line Loans shall at all times be Floating Rate Loans, which shall be
an amount not less than $250,000 and increments of $100,000 in excess
thereof. The Agent shall promptly notify each Lender of such request.
(iii) MAKING OF SWING LINE LOANS. Promptly after receipt of the
Borrowing Notice under SECTION 2.1(B)(II) in respect of Swing Line Loans,
the Agent shall notify each Lender by telex or telecopy, or other similar
form of transmission, of the requested Swing Line Loan. Not later than
2:00 p.m. (Chicago time) on the applicable Borrowing Date, the Swing Line
Bank shall make available its Swing Line Loan, in funds immediately
available in Chicago to the Agent at its address specified pursuant to
ARTICLE XIV. The Agent will promptly make the funds so received from the
Swing Line Bank available to the Borrower at the Agent's aforesaid
address.
(iv) REPAYMENT OF SWING LINE LOANS. The Swing Line Loans shall be
evidenced by the Swing Line Note, and each Swing Line Loan shall be paid
in full by the Borrower on or before the fifth Business Day after the
Borrowing Date for such Swing Line Loan. The Borrower may at any time pay,
without penalty or premium, all outstanding Swing Line Loans or, in a
minimum amount and increments of $100,000, any portion of the outstanding
Swing Line Loans, upon notice to the Agent and the Swing Line Bank. In
addition, the Agent (i) may at any time in its sole discretion with
respect to any outstanding Swing Line Loan, or (ii) shall on the fifth
Business Day after the Borrowing Date of any Swing Line Loan, require each
Lender (including the Swing Line Bank) to make a Revolving Loan in the
amount of such Lender's Pro Rata Share of such Swing Line Loan, for the
purpose of repaying such Swing Line Loan. Not later than 2:00 p.m.
(Chicago time) on the date of any notice received pursuant to this SECTION
2.1(B)(IV), each Lender shall make available its required Revolving Loan
or Revolving Loans, in funds immediately available in Chicago to the Agent
at its address specified pursuant to ARTICLE XIV. Revolving Loans made
pursuant to this SECTION 2.1(B)(IV) shall initially be Floating Rate Loans
and thereafter may be continued as Floating Rate Loans or converted into
Eurodollar Rate Loans in the manner provided in SECTION 2.8 and subject to
the other conditions and limitations therein set forth and set forth in
this ARTICLE II. Unless a Lender shall have notified the Swing Line Bank,
prior to its making any Swing Line Loan, that any applicable condition
precedent set forth in SECTIONS 5.1 and 5.2 had not then been satisfied,
such Lender's obligation to make Revolving Loans pursuant to this SECTION
2.1(B)(IV) to repay Swing Line Loans shall be unconditional, continuing,
irrevocable and absolute and shall not be affected by any circumstances,
including, without limitation, (A) any set-off, counterclaim, recoupment,
defense or other right which such Lender may have against the Agent, the
Swing Line Bank or any other Person, (B) the occurrence of continuance of
a Default or Unmatured Default, (C) any adverse change in the condition
(financial or otherwise) of the Borrower, or (D) any other circumstances,
happening or event whatsoever. In the event that any Lender fails to make
payment to the Agent of any amount due under this SECTION 2.1(B)(IV), the
Agent shall be entitled to receive, retain and
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apply against such obligation the principal and interest otherwise payable
to such Lender hereunder until the Agent receives such payment from such
Lender or such obligation is otherwise fully satisfied. In addition to the
foregoing, if for any reason any Lender fails to make payment to the Agent
of any amount due under this SECTION 2.1(B)(IV), such Lender shall be
deemed, at the option of the Agent, to have unconditionally and
irrevocably purchased from the Swing Line Bank, without recourse or
warranty, an undivided interest and participation in the applicable Swing
Line Loan in the amount of such Revolving Loan, and such interest and
participation may be recovered from such Lender together with interest
thereon at the Federal Funds Effective Rate for each day during the period
commencing on the date of demand and ending on the date such amount is
received. On the Termination Date, the Borrower shall repay in full the
outstanding principal balance of the Swing Line Loans.
2.2 RATE OPTIONS FOR ALL ADVANCES. The Revolving Loans may be Floating
Rate Advances or Eurodollar Rate Advances, or a combination thereof, selected by
the Borrower in accordance with SECTION 2.8. The Borrower may select, in
accordance with SECTION 2.8, Rate Options and Interest Periods applicable to
portions of the Revolving Loans; PROVIDED that there shall be no more than seven
(7) Interest Periods in effect with respect to all of the Revolving Loans at any
time; and PROVIDED, FURTHER, HOWEVER, notwithstanding anything herein to the
contrary, the Borrower may not select the Eurodollar Rate for any Loans without
the Agent's consent during the period from the Closing Date through the earlier
to occur of (i) the date that is 60 days after the Closing Date and (ii) the
date on which the Arranger notifies the Borrower that the primary syndication of
the Loans and Commitments has been completed (the "SYNDICATION PERIOD"). The
Swing Line Loans shall at all times be Floating Rate Loans.
2.3 OPTIONAL PAYMENTS; MANDATORY PREPAYMENTS.
(A) OPTIONAL PAYMENTS. The Borrower may from time to time repay or prepay,
without penalty or premium all or any part of outstanding Floating Rate
Advances; PROVIDED, that the Borrower may not so prepay Floating Rate Advances
unless it shall have provided at least one Business Day's written notice to the
Agent of such prepayment. Eurodollar Rate Advances may be voluntarily repaid or
prepaid prior to the last day of the applicable Interest Period, subject to the
indemnification provisions contained in SECTION 4.4, PROVIDED, that the Borrower
may not so prepay Eurodollar Rate Advances unless it shall have provided at
least two (2) Business Days' written notice to the Agent of such prepayment.
(B) MANDATORY PREPAYMENTS. If at any time and for any reason the Revolving
Credit Obligations are greater than the Aggregate Commitment, the Borrower shall
immediately make a mandatory prepayment of the Obligations in an amount equal to
such excess. In addition, if Revolving Credit Availability is at any time less
than the amount of contingent L/C Obligations outstanding at any time, the
Borrower shall deposit cash collateral with the Agent in an amount equal to the
amount by which such L/C Obligations exceed such Revolving Credit Availability.
All of the mandatory prepayments made under this SECTION 2.3(B) shall be applied
first to Floating Rate Loans and to any Eurodollar Rate Loans maturing on such
date and then to subsequently maturing Eurodollar Rate Loans in order of
maturity.
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2.4 CHANGES IN THE COMMITMENTS. (a) REDUCTION OF COMMITMENTS. The Borrower
may permanently reduce the Aggregate Commitment in whole, or in part ratably
among the Lenders, in an aggregate minimum amount of $5,000,000 and integral
multiples of $5,000,000 in excess of that amount (unless the Aggregate
Commitment is reduced in whole), upon at least three (3) Business Days' written
notice to the Agent, which notice shall specify the amount of any such
reduction; PROVIDED, HOWEVER, that the amount of the Aggregate Commitment may
not be reduced below the aggregate principal amount of the outstanding Revolving
Credit Obligations. All accrued commitment fees shall be payable on the
effective date of any partial or complete termination of the obligations of the
Lenders to make Revolving Loans hereunder.
(b) INCREASES OF COMMITMENTS. At any time, the Borrower may request
that the Aggregate Commitment be increased; PROVIDED that, without the prior
written consent of all of the Lenders, (i) the Aggregate Commitment shall at no
time exceed $200,000,000 MINUS the aggregate amount of all reductions in the
Aggregate Commitment previously made pursuant to SECTION 2.4(A) and (ii) the
Borrower shall not make any such request during the six month period following
any reduction in the Aggregate Commitment occurring under SECTION 2.4(A). Such
request shall be made in a written notice given to the Agent and the Lenders by
the Borrower not less than twenty (20) Business Days prior to the proposed
effective date of such increase, which notice (a "COMMITMENT INCREASE NOTICE")
shall specify the amount of the proposed increase in the Aggregate Commitment
and the proposed effective date of such increase. On or prior to the date that
is fifteen (15) Business Days after receipt of the Commitment Increase Notice,
each Lender shall submit to the Agent a notice indicating the maximum amount by
which it is willing to increase its Commitment in connection with such
Commitment Increase Notice (any such notice to the Agent being herein a "LENDER
INCREASE NOTICE"). Any Lender which does not submit a Lender Increase Notice to
the Agent prior to the expiration of such fifteen (15) Business Day period shall
be deemed to have denied any increase in its Commitment. In the event that the
increases of Commitments set forth in the Lender Increase Notices exceed the
amount requested by the Borrower in the Commitment Increase Notice, the Agent
and the Arranger shall have the right, in consultation with the Borrower, to
allocate the amount of increases necessary to meet the Borrower's Commitment
Increase Notice. In the event that the Lender Increase Notices are less than the
amount requested by the Borrower, not later than 3 Business Days prior to the
proposed effective date the Borrower may notify the Agent of any financial
institution that shall have agreed to become a "Lender" party hereto (a
"PROPOSED NEW LENDER") in connection with the Commitment Increase Notice. Any
Proposed New Lender shall be consented to by the Agent (which consent shall not
be unreasonably withheld). If the Borrower shall not have arranged any Proposed
New Lender(s) to commit to the shortfall from the Lender Increase Notices, then
the Borrower shall be deemed to have reduced the amount of its Commitment
Increase Notice to the aggregate amount set forth in the Lender Increase
Notices. Based upon the Lender Increase Notices, any allocations made in
connection therewith and any notice regarding any Proposed New Lender, if
applicable, the Agent shall notify the Borrower and the Lenders on or before the
Business Day immediately prior to the proposed effective date of the amount of
each Lender's and Proposed New Lenders' Commitment (such new amounts being the
"EFFECTIVE COMMITMENT AMOUNTS") and the amount of the Aggregate Commitment,
which amounts shall be effective on the following Business Day. Any increase in
the Aggregate Commitment shall be subject to the following conditions precedent:
(A) the Borrower shall have obtained the consent thereto of
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each Guarantor and its reaffirmation of the Loan Document(s) executed by it,
which consent and reaffirmation shall be in writing and in form and substance
reasonably satisfactory to the Agent, (B) as of the date of the Commitment
Increase Notice and as of the proposed effective date of the increase in the
Aggregate Commitment, no event shall have occurred and then be continuing which
constitutes a Default or Unmatured Default, (C) the Borrower, the Agent and each
Proposed New Lender or Lender that shall have agreed to provide a "Commitment"
in support of such increase in the Aggregate Commitment shall have executed and
delivered a "COMMITMENT AND ACCEPTANCE" substantially in the form of EXHIBIT E
hereto, (D) counsel for the Borrower and for the Guarantors shall have provided
to the Agent supplemental opinions substantially in the form (and limited to the
matters) set forth in EXHIBIT F hereto and (E) the Borrower and the Proposed New
Lender shall otherwise have executed and delivered such other instruments and
documents as may be required under SECTION 2.12(E)(VI) or that the Agent shall
have reasonably requested in connection with such increase. If any fee shall be
charged by the Lenders in connection with any such increase, such fee shall be
in accordance with then prevailing market conditions, which market conditions
shall have been reasonably documented by the Agent to the Borrower. Upon
satisfaction of the conditions precedent to any increase in the Aggregate
Commitment, the Agent shall promptly advise the Borrower and each Lender of the
effective date of such increase. Upon the effective date of any increase in the
Aggregate Commitment that is supported by a Proposed New Lender, such Proposed
New Lender shall be a party hereto as a Lender and shall have the rights and
obligations of a Lender hereunder. Nothing contained herein shall constitute, or
otherwise be deemed to be, a commitment on the part of any Lender to increase
its Commitment hereunder at any time. Upon the effective date of any increase in
the Aggregate Commitment, the Lenders (including Proposed New Lenders allocated
a Commitment) shall be bound by the terms of the following CLAUSE (C).
(c) MASTER ASSIGNMENT IN CONNECTION WITH COMMITMENT INCREASES. For
purposes of this CLAUSE (C), the term "BUYING LENDER(S)" shall mean (1) each
Lender the Effective Commitment Amount of which is greater than its Commitment
prior to the effective date of any increase in the Aggregate Commitment and (2)
each Proposed New Lender that is allocated an Effective Commitment Amount in
connection with any Commitment Increase Notice and the term "SELLING LENDER(S)"
shall mean each Lender whose Commitment under this Agreement is not being
increased from that in effect prior to such increase in the Aggregate
Commitment. Effective on the effective date of any increase in the Aggregate
Commitment pursuant to CLAUSE (B) above, each Selling Lender hereby sells,
grants, assigns and conveys to each Buying Lender, without recourse, warranty,
or representation of any kind, except as specifically provided herein, an
undivided percentage in such Selling Lender's right, title and interest in and
to its outstanding Loans and L/C Obligations in the respective dollar amounts
and percentages necessary so that, from and after such sale, each such Selling
Lender's outstanding Loans and L/C Obligations shall equal such Selling Lender's
Pro Rata Share (calculated based upon the Effective Commitment Amounts) of the
outstanding Loans and L/C Obligations under this Agreement. Effective on the
effective date of the increase in the Aggregate Commitment pursuant to CLAUSE
(B) above, each Buying Lender hereby purchases and accepts such grant,
assignment and conveyance from the Selling Lenders. Each Buying Lender hereby
agrees that its respective purchase price for the portion of the outstanding
Loans and L/C Obligations purchased hereby shall equal the respective dollar
amount necessary so that, from and after such payments, each Buying Lender's
outstanding Loans and L/C Obligations shall equal such Buying Lender's Pro Rata
Share (calculated based upon the Effective Commitment Amounts) of the
outstanding Loans and L/C
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Obligations under this Agreement. Such amount shall be payable on the effective
date of the increase in the Aggregate Commitment by wire transfer of immediately
available funds to the Agent. The Agent, in turn, shall wire transfer any such
funds received to the Selling Lenders, in same day funds, for the sole account
of the Selling Lenders. Each Selling Lender hereby represents and warrants to
each Buying Lender that such Selling Lender owns the Loans and L/C Obligations
being sold and assigned hereby for its own account and has not sold, transferred
or encumbered any or all of its interest in such Loans or L/C Obligations,
except for participations which will be extinguished upon payment to Selling
Lender of an amount equal to the portion of the outstanding Loans and L/C
Obligations being sold by such Selling Lender. Each Buying Lender hereby
acknowledges and agrees that, except for each Selling Lender's representations
and warranties contained in the foregoing sentence, each such Buying Lender has
entered into its Commitment and Acceptance with respect to such increase on the
basis of its own independent investigation and has not relied upon, and will not
rely upon, any explicit or implicit written or oral representation, warranty or
other statement of the Lenders or the Agent concerning the authorization,
execution, legality, validity, effectiveness, genuineness, enforceability or
sufficiency of this Agreement or the other Loan Documents. The Borrower hereby
agrees to compensate each Selling Lender for all losses, expenses and
liabilities incurred by each Lender in connection with the sale and assignment
of any Eurodollar Rate Loans hereunder on the terms and in the manner as set
forth in SECTION 4.4.
2.5 METHOD OF BORROWING. Not later than 2:00 p.m. (Chicago time) on each
Borrowing Date, each Lender shall make available its Revolving Loan, in funds
immediately available in Chicago to the Agent at its address specified pursuant
to ARTICLE XIV. The Agent will promptly make the funds so received from the
Lenders available to the Borrower at the Agent's aforesaid address.
2.6 METHOD OF SELECTING TYPES AND INTEREST PERIODS FOR ADVANCES. The
Borrower shall select the Type of Advance and, in the case of each Eurodollar
Rate Advance, the Interest Period applicable to each Advance from time to time.
The Borrower shall give the Agent irrevocable notice in substantially the form
of EXHIBIT G hereto (a "BORROWING NOTICE") not later than 10:00 a.m. (Chicago
time) (a) on the Borrowing Date of each Floating Rate Advance and (b) three
Business Days before the Borrowing Date for each Eurodollar Rate Advance,
specifying: (i) the Borrowing Date (which shall be a Business Day) of such
Advance; (ii) the aggregate amount of such Advance; (iii) the Type of Advance
selected; and (iv) in the case of each Eurodollar Rate Advance, the Interest
Period applicable thereto. Each Floating Rate Advance and all Obligations other
than Loans shall bear interest from and including the date of the making of such
Advance to (but not including) the date of repayment thereof at the Floating
Rate, changing when and as such Floating Rate changes. Changes in the rate of
interest on that portion of any Advance maintained as a Floating Rate Loan will
take effect simultaneously with each change in the Alternate Base Rate. Each
Eurodollar Rate Advance shall bear interest from and including the first day of
the Interest Period applicable thereto to (but not including) the last day of
such Interest Period at the interest rate determined as applicable to such
Eurodollar Rate Advance.
2.7 MINIMUM AMOUNT OF EACH ADVANCE. Each Advance (other than an Advance to
repay Swing Line Loans pursuant to SECTION 2.1(B)(IV)or a Reimbursement
Obligation pursuant to SECTION 3.6) shall be in the minimum amount of $5,000,000
(and in multiples of $1,000,000 if in excess
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thereof), PROVIDED, HOWEVER, that any Floating Rate Advance may be in the amount
of the unused Aggregate Commitment.
2.8 METHOD OF SELECTING TYPES AND INTEREST PERIODS FOR CONVERSION AND
CONTINUATION OF ADVANCES.
(A) RIGHT TO CONVERT. The Borrower may elect from time to time, subject to
the provisions of SECTION 2.2 and this SECTION 2.8, and, for any conversion of a
Eurodollar Rate Advance other than at the end of an Interest Period, subject to
payment of amounts payable under SECTION 4.4, to convert all or any part of a
Revolving Loan of any Type into any other Type or Types of Loans.
(B) AUTOMATIC CONVERSION AND CONTINUATION. Floating Rate Loans shall
continue as Floating Rate Loans unless and until such Floating Rate Loans are
converted into Eurodollar Rate Loans. Eurodollar Rate Loans shall continue as
Eurodollar Rate Loans until the end of the then applicable Interest Period
therefor, at which time such Eurodollar Rate Loans shall be automatically
converted into Floating Rate Loans unless the Borrower shall have given the
Agent notice in accordance with SECTION 2.8(D) requesting that, at the end of
such Interest Period, such Eurodollar Rate Loans continue as a Eurodollar Rate
Loan.
(C) NO CONVERSION POST-DEFAULT OR POST-UNMATURED DEFAULT. Notwithstanding
anything to the contrary contained in SECTION 2.8(A) or SECTION 2.8(B), no
Revolving Loan may be converted into or continued as a Eurodollar Rate Loan
(except with the consent of the Required Lenders) when any Default or Unmatured
Default has occurred and is continuing.
(D) CONVERSION/CONTINUATION NOTICE. The Borrower shall give the Agent
irrevocable notice (a "CONVERSION/CONTINUATION NOTICE") of each conversion of a
Floating Rate Loan into a Eurodollar Rate Loan or continuation of a Eurodollar
Rate Loan not later than 10:00 a.m. (Chicago time) three (3) Business Days prior
to the date of the requested conversion or continuation, specifying: (1) the
requested date (which shall be a Business Day) of such conversion or
continuation; (2) the amount and Type of the Loan to be converted or continued;
and (3) the amount of Eurodollar Rate Loan(s) into which such Loan is to be
converted or continued and the duration of the Interest Period applicable
thereto.
2.9 DEFAULT RATE. After the occurrence and during the continuance of a
Default, at the option of the Agent or at the direction of the Required Lenders,
the interest rate(s) applicable to the Obligations shall be equal to the
Floating Rate PLUS two percent (2.0%) per annum and fees payable under SECTION
3.7 with respect to standby Letters of Credit shall be increased by two percent
(2.0%) per annum.
2.10 METHOD OF PAYMENT. All payments of principal, interest, and fees
hereunder shall be made, without setoff, deduction or counterclaim, in
immediately available funds to the Agent at the Agent's address specified
pursuant to ARTICLE XIV, or at any other Lending Installation of the Agent
specified in writing by the Agent to the Borrower, by 2:00 p.m. (Chicago time)
on the date when due and shall be made ratably among the Lenders (unless such
amount is not to be shared ratably in accordance with the terms hereof). Each
payment delivered to the Agent for the account of any
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Lender shall be delivered promptly by the Agent to such Lender in the same type
of funds which the Agent received at its address specified pursuant to ARTICLE
XIV or at any Lending Installation specified in a notice received by the Agent
from such Lender. The Borrower authorizes the Agent to charge the account of the
Borrower maintained with First Chicago for each payment of principal, interest,
fees and other amounts as it becomes due hereunder.
2.11 REVOLVING NOTES, TELEPHONIC NOTICES. Each Lender is authorized to
record the principal amount of each of its Revolving Loans and each repayment
with respect to its Revolving Loans on the schedule attached to its respective
Revolving Note; PROVIDED, HOWEVER, that the failure to so record shall not
affect the Borrower's obligations under any such Revolving Note. The Borrower
authorizes the Lenders and the Agent to extend Advances, effect selections of
Types of Advances and to transfer funds based on telephonic notices made by any
person or persons the Agent or any Lender in good faith believes to be acting on
behalf of the Borrower. The Borrower agrees to deliver promptly to the Agent a
written confirmation, signed by an Authorized Officer, if such confirmation is
requested by the Agent or any Lender, of each telephonic notice. If the written
confirmation differs in any material respect from the action taken by the Agent
and the Lenders, (i) the telephonic notice shall govern absent manifest error
and (ii) the Agent or the Lender, as applicable, shall promptly notify the
Authorized Officer who provided such confirmation of such difference.
2.12 PROMISE TO PAY; INTEREST AND COMMITMENT FEES; INTEREST PAYMENT DATES;
INTEREST AND FEE BASIS; TAXES; LOAN AND CONTROL ACCOUNTS.
(A) PROMISE TO PAY. The Borrower unconditionally promises to pay when due
the principal amount of each Loan and all other Obligations incurred by it, and
to pay all unpaid interest accrued thereon, in accordance with the terms of this
Agreement and the Notes.
(B) INTEREST PAYMENT DATES. Interest accrued on each Floating Rate Loan
shall be payable on each Payment Date, commencing with the first such date to
occur after the date hereof and at maturity (whether by acceleration or
otherwise). Interest accrued on each Eurodollar Rate Loan shall be payable on
the last day of its applicable Interest Period, on any date on which the
Eurodollar Rate Loan is prepaid, whether by acceleration or otherwise, and at
maturity; PROVIDED, HOWEVER, interest accrued on each Eurodollar Rate Loan
having an Interest Period longer than three months shall also be payable on the
last day of each three-month interval during such Interest Period. Interest
accrued on the principal balance of all other Obligations shall be payable in
arrears (i) on the last day of each calendar month, commencing on the first such
day following the incurrence of such Obligation, (ii) upon repayment thereof in
full or in part, and (iii) if not theretofore paid in full, at the time such
other Obligation becomes due and payable (whether by acceleration or otherwise).
(C) COMMITMENT FEES. (i) The Borrower shall pay to the Agent, for the
account of the Lenders in accordance with their Pro Rata Shares, from and after
the Closing Date until the date on which the Aggregate Commitment shall be
terminated in whole, a commitment fee accruing at the rate of the then
Applicable Commitment Fee Percentage, on the amount by which (A) the Aggregate
Commitment in effect from time to time exceeds (B) the Revolving Credit
Obligations in effect from time to time. All such commitment fees payable under
this CLAUSE (C) shall be payable quarterly in arrears on each Payment Date
occurring after the Closing Date (with the first such payment being
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calculated for the period from the Closing Date and ending on such Payment
Date), and, in addition, on the date on which the Aggregate Commitment shall be
terminated in whole.
(ii) The Borrower agrees to pay to the Agent for the sole account of the
Agent and the Arranger (unless otherwise agreed between the Agent or the
Arranger and any Lender) the fees set forth in the letter agreement between the
Agent and the Borrower dated June 12, 1997, payable at the times and in the
amounts set forth therein.
(D) INTEREST AND FEE BASIS; APPLICABLE EURODOLLAR MARGIN, APPLICABLE
FLOATING RATE MARGIN AND APPLICABLE COMMITMENT FEE PERCENTAGE.
(i) Interest and fees shall be calculated for actual days elapsed on the
basis of a 360-day year. Interest shall be payable for the day an Obligation is
incurred but not for the day of any payment on the amount paid if payment is
received prior to 2:00 p.m. (Chicago time) at the place of payment. If any
payment of principal of or interest on a Loan or any payment of any other
Obligations shall become due on a day which is not a Business Day, such payment
shall be made on the next succeeding Business Day and, in the case of a
principal payment, such extension of time shall be included in computing
interest in connection with such payment.
(ii) The Applicable Eurodollar Margin, Applicable Floating Rate Margin and
Applicable Commitment Fee Percentage shall be determined from time to time by
reference to the table set forth below, on the basis of the then applicable
Leverage Ratio as described in this SECTION 2.12(D)(II); PROVIDED, HOWEVER, for
the period from the Closing Date until the Applicable Eurodollar Margins,
Applicable Floating Rate Margin and Applicable Commitment Fee Percentage are
first adjusted pursuant to this CLAUSE (D), it shall be assumed that the
Leverage Ratio is (greater than) 2.50 to 1.00 and (less than or equal to)2.75 to
1.00.
<TABLE>
<CAPTION>
Level I Level II Level III Level IV
----------------------- --------------------------- --------------------------- -------------
<S> <C> <C> <C> <C>
Leverage Ratio (less than or equal to) (greater than) 2.50 to 1.00 (greater than) 2.75 to 1.00 (greater than)
2.50 to 1.00 and (less than or equal to) and(less than or equal to) 3.00 to 1.00
2.75 to 1.00 3.00 to 1.00
Applicable
Commitment 0.20% 0.225% 0.25% 0.25%
Fee Percentage
Applicable Eurodollar
Rate Margin and 0.625% 0.75% 0.875% 1.00%
Applicable L/C Fee
Percentage
Applicable Floating
Rate Margin 0% 0% 0% 0%
----------------------- --------------------------- --------------------------- -------------
</TABLE>
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For purposes of this SECTION 2.12(D)(II), the Leverage Ratio shall be determined
as of the last day of each fiscal quarter based upon (a) for Total Debt, Total
Debt as of the last day of each such fiscal quarter; and (b) for EBITDA, EBITDA
for the twelve-month period ending on such day calculated as set forth in the
definition thereof. Upon receipt of the financial statements delivered pursuant
to SECTIONS 7.1(A)(I) (subject to adjustment for upon receipt of the financial
statements delivered pursuant to SECTION 7.1(A)(II)), the Applicable Eurodollar
Margin, Applicable Floating Rate Margin and Applicable Commitment Fee Percentage
shall be adjusted, such adjustment being effective five (5) Business Days
following the Agent's receipt of such financial statements and the compliance
certificate required to be delivered in connection therewith pursuant to SECTION
7.1(A)(III); PROVIDED, that if the Borrower shall not have timely delivered its
financial statements in accordance with SECTION 7.1(A)(I) or (II), as
applicable, then commencing on the date upon which such financial statements
should have been delivered and continuing until such financial statements are
actually delivered, it shall be assumed for purposes of determining the
Applicable Eurodollar Margin, Applicable Floating Rate Margin and Applicable
Commitment Fee Percentage that the Leverage Ratio was greater than 3.0 to 1.0.
(E) TAXES.
(i) Any and all payments by the Borrower hereunder shall be made
free and clear of and without deduction for any and all present or future
taxes, levies, imposts, deductions, charges or withholdings or any
liabilities with respect thereto including those arising after the date
hereof as a result of the adoption of or any change in any law, treaty,
rule, regulation, guideline or determination of a Governmental Authority
or any change in the interpretation or application thereof by a
Governmental Authority but excluding, in the case of each Lender and the
Agent, such taxes (including income taxes, franchise taxes and branch
profit taxes) as are imposed on or measured by such Lender's or Agent's,
as the case may be, income by the United States of America or any
Governmental Authority of the jurisdiction under the laws of which such
Lender or Agent, as the case may be, is organized (all such non-excluded
taxes, levies, imposts, deductions, charges, withholdings, and liabilities
which the Agent or a Lender determines to be applicable to this Agreement,
the other Loan Documents, the Commitments, the Loans or the Letters of
Credit being hereinafter referred to as "TAXES"). If the Borrower shall be
required by law to deduct any Taxes from or in respect of any sum payable
hereunder or under the other Loan Documents to any Lender or the Agent
(other than due to a Lender's failure to comply with SECTION
2.12(E)(VII)), (i) the sum payable shall be increased as may be necessary
so that after making all required deductions (including deductions
applicable to additional sums payable under this SECTION 2.12(E)) such
Lender or the Agent (as the case may be) receives an amount equal to the
sum it would have received had no such deductions been made, (ii) the
Borrower shall make such deductions, and (iii) the Borrower shall pay the
full amount deducted to the relevant taxation authority or other authority
in accordance with applicable law. If a withholding tax of the United
States of America or any other Governmental Authority shall be or become
applicable (y) after the date of this Agreement, to such payments by the
Borrower made to the Lending Installation or any other office that a
Lender may claim as its Lending Installation, or (z) after such Lender's
selection and designation of any other Lending Installation, to such
payments made to such other Lending Installation, such Lender shall use
reasonable efforts to make, fund and
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maintain its Loans through another Lending Installation of such Lender in
another jurisdiction so as to reduce the Borrower's liability hereunder,
if the making, funding or maintenance of such Loans through such other
Lending Installation of such Lender does not, in the judgment of such
Lender, otherwise adversely affect such Loans, or obligations under the
Commitments or such Lender.
(ii) In addition, the Borrower agrees to pay any present or future
stamp or documentary taxes or any other excise or property taxes, charges,
or similar levies which arise from any payment made hereunder, from the
issuance of Letters of Credit hereunder, or from the execution, delivery
or registration of, or otherwise with respect to, this Agreement, the
other Loan Documents, the Commitments, the Loans or the Letters of Credit
(hereinafter referred to as "OTHER TAXES").
(iii) The Borrower indemnifies each Lender and the Agent for the
full amount of Taxes and Other Taxes (including, without limitation, any
Taxes or Other Taxes imposed by any Governmental Authority on amounts
payable under this SECTION 2.12(E)) paid by such Lender or the Agent (as
the case may be) and any liability (including penalties, interest, and
expenses) arising therefrom or with respect thereto, whether or not such
Taxes or Other Taxes were correctly or legally asserted. This
indemnification shall be made within thirty (30) days after the date such
Lender or the Agent (as the case may be) makes written demand therefor. A
certificate as to any additional amount payable to any Lender or the Agent
under this SECTION 2.12(E) submitted to the Borrower and the Agent (if a
Lender is so submitting) by such Lender or the Agent shall show in
reasonable detail the amount payable and the calculations used to
determine such amount and shall, absent manifest error, be final,
conclusive and binding upon all parties hereto. With respect to such
deduction or withholding for or on account of any Taxes and to confirm
that all such Taxes have been paid to the appropriate Governmental
Authorities, the Borrower shall promptly (and in any event not later than
thirty (30) days after receipt) furnish to each Lender and the Agent such
certificates, receipts and other documents as may be required (in the
judgment of such Lender or the Agent) to establish any tax credit to which
such Lender or the Agent may be entitled.
(iv) Within thirty (30) days after the date of any payment of Taxes
or Other Taxes by the Borrower, the Borrower shall furnish to the Agent
the original or a certified copy of a receipt evidencing payment thereof.
(v) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower
contained in this SECTION 2.12(E) shall survive the payment in full of
principal and interest hereunder, the termination of the Letters of Credit
and the termination of this Agreement.
(vi) Without limiting the obligations of the Borrower under this
SECTION 2.12(E), each Lender that is not created or organized under the
laws of the United States of America or a political subdivision thereof
shall deliver to the Borrower and the Agent on or before the Closing Date,
or, if later, the date on which such Lender becomes a Lender pursuant to
SECTION 2.4(B) or SECTION 13.3, a true and accurate certificate executed
in duplicate by a duly
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authorized officer of such Lender, in a form satisfactory to the Borrower
and the Agent, to the effect that such Lender is capable under the
provisions of an applicable tax treaty concluded by the United States of
America (in which case the certificate shall be accompanied by two
executed copies of Form 1001 of the IRS) or under Section 1442 of the Code
(in which case the certificate shall be accompanied by two copies of Form
4224 of the IRS) of receiving payments of interest hereunder without
deduction or withholding of United States federal income tax. Each such
Lender further agrees to deliver to the Borrower and the Agent from time
to time a true and accurate certificate executed in duplicate by a duly
authorized officer of such Lender substantially in a form satisfactory to
the Borrower and the Agent, before or promptly upon the occurrence of any
event requiring a change in the most recent certificate previously
delivered by it to the Borrower and the Agent pursuant to this SECTION
2.12(E)(VI). Further, each Lender which delivers a certificate accompanied
by Form 1001 of the IRS covenants and agrees to deliver to the Borrower
and the Agent within fifteen (15) days prior to January 1, 1998, and every
third (3rd) anniversary of such date thereafter on which this Agreement is
still in effect, another such certificate and two accurate and complete
original signed copies of Form 1001 (or any successor form or forms
required under the Code or the applicable regulations promulgated
thereunder), and each Lender that delivers a certificate accompanied by
Form 4224 of the IRS covenants and agrees to deliver to the Borrower and
the Agent within fifteen (15) days prior to the beginning of each
subsequent taxable year of such Lender during which this Agreement is
still in effect, another such certificate and two accurate and complete
original signed copies of IRS Form 4224 (or any successor form or forms
required under the Code or the applicable regulations promulgated
thereunder). Each such certificate shall certify as to one of the
following:
(a) that such Lender is capable of receiving payments of
interest hereunder without deduction or withholding of United States
of America federal income tax;
(b) that such Lender is not capable of receiving payments of
interest hereunder without deduction or withholding of United States
of America federal income tax as specified therein but is capable of
recovering the full amount of any such deduction or withholding from
a source other than the Borrower and will not seek any such recovery
from the Borrower; or
(c) that, as a result of the adoption of or any change in any
law, treaty, rule, regulation, guideline or determination of a
Governmental Authority or any change in the interpretation or
application thereof by a Governmental Authority after the date such
Lender became a party hereto, such Lender is not capable of
receiving payments of interest hereunder without deduction or
withholding of United States of America federal income tax as
specified therein and that it is not capable of recovering the full
amount of the same from a source other than the Borrower.
Each Lender shall promptly furnish to the Borrower and the Agent such
additional documents as may be reasonably required by the Borrower or the
Agent to establish any exemption from
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or reduction of any Taxes or Other Taxes required to be deducted or
withheld and which may be obtained without undue expense to such Lender.
(F) LOAN ACCOUNT. Each Lender shall maintain in accordance with its usual
practice an account or accounts (a "LOAN ACCOUNT") evidencing the Obligations of
the Borrower to such Lender owing to such Lender from time to time, including
the amount of principal and interest payable and paid to such Lender from time
to time hereunder and under the Notes.
(G) CONTROL ACCOUNT. The Register maintained by the Agent pursuant to
SECTION 13.3(C) shall include a control account, and a subsidiary account for
each Lender, in which accounts (taken together) shall be recorded (i) the date
and amount of each Advance made hereunder, the type of Loan comprising such
Advance and any Interest Period applicable thereto, (ii) the effective date and
amount of each Assignment Agreement delivered to and accepted by it and the
parties thereto pursuant to SECTION 13.3, (iii) the amount of any principal or
interest due and payable or to become due and payable from the Borrower to each
Lender hereunder or under the Notes, (iv) the amount of any sum received by the
Agent from the Borrower hereunder and each Lender's share thereof, (v) the
amount of any increase of the Aggregate Commitment pursuant to SECTION 2.4(B)
and the applicable Lenders with respect thereto and (vi) all other appropriate
debits and credits as provided in this Agreement, including, without limitation,
all fees, charges, expenses and interest.
(H) ENTRIES BINDING. The entries made in the Register and each Loan
Account shall be conclusive and binding for all purposes, absent manifest error,
unless the Borrower objects to information contained in the Register and each
Loan Account within thirty (30) days of the Borrower's receipt of such
information.
2.13 NOTIFICATION OF ADVANCES, INTEREST RATES, PREPAYMENTS AND AGGREGATE
COMMITMENT REDUCTIONS. Promptly after receipt thereof, the Agent will notify
each Lender of the contents of each Aggregate Commitment reduction notice,
Commitment Increase Notice, Borrowing Notice, Continuation/Conversion Notice,
and repayment notice received by it hereunder. The Agent will notify each Lender
of the interest rate applicable to each Eurodollar Rate Loan promptly upon
determination of such interest rate and will give each Lender prompt notice of
each change in the Alternate Base Rate.
2.14 LENDING INSTALLATIONS. Each Lender may book its Loans at any Lending
Installation selected by such Lender and may change its Lending Installation
from time to time. All terms of this Agreement shall apply to any such Lending
Installation and the Revolving Notes shall be deemed held by each Lender for the
benefit of such Lending Installation. Each Lender may, by written or facsimile
notice to the Agent and the Borrower, designate a Lending Installation through
which Loans will be made by it and for whose account Loan payments are to be
made.
2.15 NON-RECEIPT OF FUNDS BY THE AGENT. Unless the Borrower or a Lender,
as the case may be, notifies the Agent prior to the date on which it is
scheduled to make payment to the Agent of (i) in the case of a Lender, the
proceeds of a Loan or (ii) in the case of the Borrower, a payment of principal,
interest or fees to the Agent for the account of the Lenders, that it does not
intend to make such payment, the Agent may assume that such payment has been
made. The Agent may, but shall
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not be obligated to, make the amount of such payment available to the intended
recipient in reliance upon such assumption. If such Lender or the Borrower, as
the case may be, has not in fact made such payment to the Agent, the recipient
of such payment shall, on demand by the Agent, 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 such amount was so made available by the Agent
until the date the Agent recovers such amount at a rate per annum equal to (i)
in the case of payment by a Lender, the Federal Funds Effective Rate for such
day or (ii) in the case of payment by the Borrower, the interest rate applicable
to the relevant Loan.
2.16 TERMINATION DATE. This Agreement shall be effective until the
Termination Date. Notwithstanding the termination of this Agreement on the
Termination Date, until all of the Obligations (other than contingent indemnity
obligations) shall have been fully and indefeasibly paid and satisfied, all
financing arrangements among the Borrower and the Lenders in connection with
this Agreement shall have been terminated (other than under agreements with
respect to Hedging Obligations) and all of the Letters of Credit shall have
expired, been canceled or terminated, all of the rights and remedies under this
Agreement and the other Loan Documents shall survive.
2.17 REPLACEMENT OF CERTAIN LENDERS. In the event a Lender ("AFFECTED
LENDER") shall have: (i) failed to fund its Pro Rata Share of any Advance
requested by the Borrower, or to fund a Revolving Loan in order to repay Swing
Line Loans pursuant to SECTION 2.1(B)(IV), which such Lender is obligated to
fund under the terms of this Agreement and which failure has not been cured,
(ii) requested compensation from the Borrower under SECTIONS 2.12(E), 4.1 or 4.2
to recover Taxes, Other Taxes or other additional costs incurred by such Lender
which are not being incurred generally by the other Lenders, (iii) delivered a
notice pursuant to SECTION 4.3 claiming that such Lender is unable to extend
Eurodollar Rate Loans to the Borrower for reasons not generally applicable to
the other Lenders or (iv) has invoked SECTION 10.2, then, in any such case, the
Borrower or the Agent may make written demand on such Affected Lender (with a
copy to the Agent in the case of a demand by the Borrower and a copy to the
Borrower in the case of a demand by the Agent) for the Affected Lender to
assign, and such Affected Lender shall use its best efforts to assign pursuant
to one or more duly Assignment Agreements five (5) Business Days after the date
of such demand, to one or more financial institutions that comply with the
provisions of SECTION 13.3(A) which the Borrower or the Agent, as the case may
be, shall have engaged for such purpose ("REPLACEMENT LENDER"), all of such
Affected Lender's rights and obligations under this Agreement and the other Loan
Documents (including, without limitation, its Commitment, all Loans owing to it,
all of its participation interests in existing Letters of Credit, and its
obligation to participate in additional Letters of Credit hereunder) in
accordance with SECTION 13.3. The Agent agrees, upon the occurrence of such
events with respect to an Affected Lender and upon the written request of the
Borrower, to use its reasonable efforts to obtain the Commitments from one or
more financial institutions to act as a Replacement Lender. The Agent is
authorized to execute one or more of such assignment agreements as
attorney-in-fact for any Affected Lender failing to execute and deliver the same
within five (5) Business Days after the date of such demand. Further, with
respect to such assignment the Affected Lender shall have concurrently received,
in cash, all amounts due and owing to the Affected Lender hereunder or under any
other Loan Document, including, without limitation, the aggregate outstanding
principal amount of the Loans owed to such Lender, together with accrued
interest thereon through the date of such assignment, amounts payable under
SECTIONS 2.12(E), 4.1,
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and 4.2 with respect to such Affected Lender and compensation payable under
SECTION 2.12(C) in the event of any replacement of any Affected Lender under
CLAUSE (II) or CLAUSE (III) of this SECTION 2.17; PROVIDED that upon such
Affected Lender's replacement, such Affected Lender shall cease to be a party
hereto but shall continue to be entitled to the benefits of SECTIONS 2.12(E),
4.1, 4.2, 4.4, and 10.7, as well as to any fees accrued for its account
hereunder and not yet paid, and shall continue to be obligated under SECTION
11.8. Upon the replacement of any Affected Lender pursuant to this SECTION 2.17,
the provisions of SECTION 9.2 shall continue to apply with respect to Advances
which are then outstanding with respect to which the Affected Lender failed to
fund its Pro Rata Share and which failure has not been cured.
ARTICLE III: THE LETTER OF CREDIT FACILITY
3.1 OBLIGATION TO ISSUE. Subject to the terms and conditions of this
Agreement and in reliance upon the representations, warranties and covenants of
the Borrower herein set forth, each Issuing Bank hereby agrees to issue for the
account of the Borrower through such Issuing Bank's branches as it and the
Borrower may jointly agree, one or more Letters of Credit in accordance with
this ARTICLE III, from time to time during the period, commencing on the date
hereof and ending on the Business Day prior to the Termination Date. Upon the
Closing Date, each Existing Letter of Credit shall be treated for all purposes
as a Letter of Credit originally issued under the terms of this Agreement.
3.2 TYPES AND AMOUNTS. No Issuing Bank shall have any obligation to and no
Issuing Bank shall:
(i) issue any Letter of Credit if on the date of issuance, before or
after giving effect to the Letter of Credit requested hereunder, (a) the
Revolving Credit Obligations at such time would exceed the Aggregate
Commitment at such time, or (b) the aggregate outstanding amount of the
L/C Obligations would exceed $25,000,000; or
(ii) issue any Letter of Credit which has an expiration date later
than the date which is the earlier of one (1) year after the date of
issuance thereof or five (5) Business Days immediately preceding the
Termination Date.
3.3 CONDITIONS. In addition to being subject to the satisfaction of the
conditions contained in SECTIONS 5.1 and 5.2, the obligation of an Issuing Bank
to issue any Letter of Credit is subject to the satisfaction in full of the
following conditions:
(i) the Borrower shall have delivered to the applicable Issuing Bank
at such times and in such manner as such Issuing Bank may reasonably
prescribe, a request for issuance of such Letter of Credit in
substantially the form of EXHIBIT H hereto, duly executed applications for
such Letter of Credit, and such other documents, instructions and
agreements as may be reasonably required pursuant to the terms thereof,
and the proposed Letter of Credit shall be reasonably satisfactory to such
Issuing Bank as to form and content; and
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(ii) as of the date of issuance no order, judgment or decree of any
court, arbitrator or Governmental Authority shall purport by its terms to
enjoin or restrain the applicable Issuing Bank from issuing such Letter of
Credit and no law, rule or regulation applicable to such Issuing Bank and
no request or directive (whether or not having the force of law) from a
Governmental Authority with jurisdiction over such Issuing Bank shall
prohibit or request that such Issuing Bank refrain from the issuance of
Letters of Credit generally or the issuance of that Letter of Credit.
If any provision in a letter of credit application delivered in connection with
the foregoing is inconsistent with or more restrictive than a provision
contained in this Agreement, the provisions contained in this Agreement shall
control.
3.4 PROCEDURE FOR ISSUANCE OF LETTERS OF CREDIT. (a) Subject to the terms
and conditions of this ARTICLE III and provided that the applicable conditions
set forth in SECTIONS 5.1 and 5.2 hereof have been satisfied, the applicable
Issuing Bank shall, on the requested date, issue a Letter of Credit on behalf of
the Borrower in accordance with such Issuing Bank's usual and customary business
practices and, in this connection, such Issuing Bank may assume that the
applicable conditions set forth in SECTION 5.2 hereof have been satisfied unless
it shall have received notice to the contrary from the Agent or a Lender or has
knowledge that the applicable conditions have not been met.
(b) The applicable Issuing Bank shall give the Agent written or telex
notice, or telephonic notice confirmed promptly thereafter in writing, of the
issuance of a Letter of Credit, PROVIDED, HOWEVER, that the failure to provide
such notice shall not result in any liability on the part of such Issuing Bank.
(c) No Issuing Bank shall extend or amend any Letter of Credit unless the
requirements of this SECTION 3.4 are met as though a new Letter of Credit was
being requested and issued.
3.5 LETTER OF CREDIT PARTICIPATION. Unless a Lender shall have notified
the Issuing Bank, prior to its issuance of a Letter of Credit, that any
applicable condition precedent set forth in SECTIONS 5.1 and 5.2 had not then
been satisfied, (a) upon the Closing Date with respect to the Existing Letter of
Credit and (b) immediately upon the issuance of each other Letter of Credit
hereunder, each Lender shall be deemed to have automatically, irrevocably and
unconditionally purchased and received from the applicable Issuing Bank an
undivided interest and participation in and to such Letter of Credit, the
obligations of the Borrower in respect thereof, and the liability of such
Issuing Bank thereunder (collectively, an "L/C INTEREST") in an amount equal to
the amount available for drawing under such Letter of Credit multiplied by such
Lender's Pro Rata Share. Each Issuing Bank will notify each Lender promptly upon
presentation to it of an L/C Draft or upon any other draw under a Letter of
Credit. On or before the Business Day on which an Issuing Bank makes payment of
each such L/C Draft or, in the case of any other draw on a Letter of Credit, on
demand by the Agent, each Lender shall make payment to the Agent, for the
account of the applicable Issuing Bank, in immediately available funds in an
amount equal to such Lender's Pro Rata Share of the amount of such payment or
draw. The obligation of each Lender to reimburse the Issuing Banks under this
SECTION 3.5 shall be unconditional, continuing, irrevocable and absolute. In the
event that any Lender fails to make payment to the Agent of any amount due under
this SECTION 3.5, the Agent shall be entitled to receive,
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retain and apply against such obligation the principal and interest otherwise
payable to such Lender hereunder until the Agent receives such payment from such
Lender or such obligation is otherwise fully satisfied; PROVIDED, HOWEVER, that
nothing contained in this sentence shall relieve such Lender of its obligation
to reimburse the applicable Issuing Bank for such amount in accordance with this
SECTION 3.5.
3.6 REIMBURSEMENT OBLIGATION. The Borrower agrees unconditionally,
irrevocably and absolutely to pay immediately to the Agent, for the account of
the Lenders, the amount of each advance which may be drawn under or pursuant to
a Letter of Credit or an L/C Draft related thereto (such obligation of the
Borrower to reimburse the Agent for an advance made under a Letter of Credit or
L/C Draft being hereinafter referred to as a "REIMBURSEMENT OBLIGATION" with
respect to such Letter of Credit or L/C Draft). If the Borrower at any time
fails to repay a Reimbursement Obligation pursuant to this SECTION 3.6, the
Borrower shall be deemed to have elected to borrow Revolving Loans from the
Lenders, as of the date of the advance giving rise to the Reimbursement
Obligation, equal in amount to the amount of the unpaid Reimbursement
Obligation. Such Revolving Loans shall be made as of the date of the payment
giving rise to such Reimbursement Obligation, automatically, without notice and
without any requirement to satisfy the conditions precedent otherwise applicable
to an Advance of Revolving Loans. Such Revolving Loans shall constitute a
Floating Rate Advance, the proceeds of which Advance shall be used to repay such
Reimbursement Obligation. If, for any reason, the Borrower fails to repay a
Reimbursement Obligation on the day such Reimbursement Obligation arises and,
for any reason, the Lenders are unable to make or have no obligation to make
Revolving Loans, then such Reimbursement Obligation shall bear interest from and
after such day, until paid in full, at the interest rate applicable to a
Floating Rate Advance.
3.7 LETTER OF CREDIT FEES. The Borrower agrees to pay (i) quarterly, in
arrears, on each Payment Date to the Agent for the ratable benefit of the
Lenders, except as set forth in SECTION 9.2, a letter of credit fee at a rate
per annum equal to the Applicable L/C Fee Percentage on the average daily
outstanding face amount available for drawing under all Letters of Credit, (ii)
quarterly in arrears to the Agent for the sole account of the Issuing Banks, a
fronting fee at such percentage rate per annum as shall be agreed between the
Borrower and each such Issuing Bank on the aggregate average daily outstanding
amount available for drawing under each such Issuing Bank's Letters of Credit,
payable quarterly in arrears, and (iii) to the Agent for the benefit of each
Issuing Bank, all customary fees and other issuance, amendment, document
examination, negotiation and presentment expenses and related charges in
connection with the issuance, amendment, presentation of L/C Drafts, and the
like customarily charged by the Issuing Banks with respect to standby and
commercial Letters of Credit, including, without limitation, standard
commissions with respect to commercial Letters of Credit, payable at the time of
invoice of such amounts. With respect to the Existing Letter of Credit, the
provisions of this SECTION 3.7 shall supersede any existing fee agreements with
respect to such Existing Letter of Credit.
3.8 ISSUING BANK REPORTING REQUIREMENTS. In addition to the notices
required by SECTION 3.4(C), each Issuing Bank shall, no later than the tenth
Business Day following the last day of each month, provide to the Agent, upon
the Agent's request, schedules, in form and substance reasonably satisfactory to
the Agent, showing the date of issue, account party, amount, expiration date and
the reference number of each Letter of Credit issued by it outstanding at any
time during such month and
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the aggregate amount payable by the Borrower during such month. In addition,
upon the request of the Agent, each Issuing Bank shall furnish to the Agent
copies of any Letter of Credit and any application for or reimbursement
agreement with respect to a Letter of Credit to which the Issuing Bank is party
and such other documentation as may reasonably be requested by the Agent. Upon
the request of any Lender, the Agent will provide to such Lender information
concerning such Letters of Credit.
3.9 INDEMNIFICATION; EXONERATION. (a) In addition to amounts payable as
elsewhere provided in this ARTICLE III, the Borrower hereby agrees to protect,
indemnify, pay and save harmless the Agent, each Issuing Bank and each Lender
from and against any and all liabilities and costs which the Agent, such Issuing
Bank or such Lender may incur or be subject to as a consequence, direct or
indirect, of (i) the issuance of any Letter of Credit other than, in the case of
the applicable Issuing Bank, as a result of its Gross Negligence or willful
misconduct, as determined by the final judgment of a court of competent
jurisdiction, or (ii) the failure of the applicable Issuing Bank to honor a
drawing under a Letter of Credit as a result of any act or omission, whether
rightful or wrongful, of any present or future DE JURE or DE FACTO Governmental
Authority (all such acts or omissions herein called "GOVERNMENTAL ACTS").
(b) As among the Borrower, the Lenders, the Agent and the Issuing Banks,
the Borrower assumes all risks of the acts and omissions of, or misuse of such
Letter of Credit by, the beneficiary of any Letters of Credit. In furtherance
and not in limitation of the foregoing, subject to the provisions of the Letter
of Credit applications and Letter of Credit reimbursement agreements executed by
the Borrower at the time of request for any Letter of Credit, neither the Agent,
any Issuing Bank nor any Lender shall be responsible (in the absence of Gross
Negligence or willful misconduct in connection therewith, as determined by the
final judgment of a court of competent jurisdiction): (i) for the form,
validity, sufficiency, accuracy, genuineness or legal effect of any document
submitted by any party in connection with the application for and issuance of
the Letters of Credit, even if it should in fact prove to be in any or all
respects invalid, insufficient, inaccurate, fraudulent or forged; (ii) for the
validity or sufficiency of any instrument transferring or assigning or
purporting to transfer or assign a Letter of Credit or the rights or benefits
thereunder or proceeds thereof, in whole or in part, which may prove to be
invalid or ineffective for any reason; (iii) for failure of the beneficiary of a
Letter of Credit to comply duly with conditions required in order to draw upon
such Letter of Credit; (iv) for errors, omissions, interruptions or delays in
transmission or delivery of any messages, by mail, cable, telegraph, telex, or
other similar form of teletransmission or otherwise; (v) for errors in
interpretation of technical trade terms; (vi) for any loss or delay in the
transmission or otherwise of any document required in order to make a drawing
under any Letter of Credit or of the proceeds thereof; (vii) for the
misapplication by the beneficiary of a Letter of Credit of the proceeds of any
drawing under such Letter of Credit; and (viii) for any consequences arising
from causes beyond the control of the Agent, the Issuing Banks and the Lenders,
including, without limitation, any Governmental Acts. None of the above shall
affect, impair, or prevent the vesting of any Issuing Bank's rights or powers
under this SECTION 3.9.
(c) In furtherance and extension and not in limitation of the specific
provisions hereinabove set forth, any action taken or omitted by any Issuing
Bank under or in connection with the Letters of Credit or any related
certificates shall not, in the absence of Gross Negligence or willful
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misconduct, as determined by the final judgment of a court of competent
jurisdiction, put the applicable Issuing Bank, the Agent or any Lender under any
resulting liability to the Borrower or relieve the Borrower of any of its
obligations hereunder to any such Person.
(d) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower contained in
this SECTION 3.9 shall survive the payment in full of principal and interest
hereunder, the termination of the Letters of Credit and the termination of this
Agreement.
3.10 CASH COLLATERAL. Notwithstanding anything to the contrary herein or
in any application for a Letter of Credit, after the occurrence and during the
continuance of Default, the Borrower shall, upon the Agent's demand, deliver to
the Agent for the benefit of the Lenders and the Issuing Banks, cash, or other
collateral of a type satisfactory to the Required Lenders, having a value, as
determined by such Lenders, equal to the aggregate outstanding L/C Obligations.
In addition, if the Revolving Credit Availability is at any time less than the
amount of contingent L/C Obligations outstanding at any time, the Borrower shall
deposit cash collateral with the Agent in an amount equal to the amount by which
such L/C Obligations exceed such Revolving Credit Availability. Any such
collateral shall be held by the Agent in a separate account appropriately
designated as a cash collateral account in relation to this Agreement and the
Letters of Credit and retained by the Agent for the benefit of the Lenders and
the Issuing Banks as collateral security for the Borrower's obligations in
respect of this Agreement and each of the Letters of Credit and L/C Drafts. Such
amounts shall be applied to reimburse the Issuing Banks for drawings or payments
under or pursuant to Letters of Credit or L/C Drafts, or if no such
reimbursement is required, to payment of such of the other Obligations as the
Agent shall determine. If no Default shall be continuing, amounts remaining in
any cash collateral account established pursuant to this SECTION 3.10 which are
not to be applied to reimburse an Issuing Bank for amounts actually paid or to
be paid by such Issuing Bank in respect of a Letter of Credit or L/C Draft,
shall be returned to the Borrower (after deduction of the Agent's expenses
incurred in connection with such cash collateral account).
ARTICLE IV: CHANGE IN CIRCUMSTANCES
4.1 YIELD PROTECTION. If any law or any governmental or quasi-governmental
rule, regulation, policy, guideline or directive (whether or not having the
force of law) adopted after the date of this Agreement and having general
applicability to all banks within the jurisdiction in which such Lender operates
(excluding, for the avoidance of doubt, the effect of and phasing in of capital
requirements or other regulations or guidelines passed prior to the date of this
Agreement), or any interpretation or application thereof by any Governmental
Authority charged with the interpretation or application thereof, or the
compliance of any Lender therewith,
(i) to the extent not otherwise covered pursuant to the provisions
of SECTION 2.12(E), subjects any Lender or any applicable Lending
Installation to any tax, duty, charge or withholding on or from payments
due from the Borrower (excluding, in the case of each Lender and the
Agent, such taxes (including income taxes, franchise taxes and branch
profit taxes) as are imposed on or measured by such Lender's or Agent's,
as the case may be, income by the United States of America or any
Governmental Authority of the jurisdiction under the
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laws of which such Lender or Agent, as the case may be, is organized ), or
changes the basis of taxation of payments to any Lender in respect of its
Loans, its L/C Interests, the Letters of Credit or other amounts due it
hereunder, or
(ii) imposes or increases or deems applicable any reserve,
assessment, insurance charge, special deposit or similar requirement
against assets of, deposits with or for the account of, or credit extended
by, any Lender or any applicable Lending Installation (other than reserves
and assessments taken into account in determining the interest rate
applicable to Eurodollar Rate Loans) with respect to its Loans, L/C
Interests or the Letters of Credit, or
(iii) imposes any other condition the result of which is to increase
the cost to any Lender or any applicable Lending Installation of making,
funding or maintaining the Loans, the L/C Interests or the Letters of
Credit or reduces any amount received by any Lender or any applicable
Lending Installation in connection with Loans or Letters of Credit, or
requires any Lender or any applicable Lending Installation to make any
payment calculated by reference to the amount of Loans or L/C Interests
held or interest received by it or by reference to the Letters of Credit,
by an amount deemed material by such Lender;
and the result of any of the foregoing is to increase the cost to that Lender of
making, renewing or maintaining its Loans, L/C Interests or Letters of Credit or
to reduce any amount received under this Agreement, then, within 15 days after
receipt by the Borrower of written demand by such Lender pursuant to SECTION
4.5, the Borrower shall pay such Lender that portion of such increased expense
incurred or reduction in an amount received which such Lender determines is
attributable to making, funding and maintaining its Loans, L/C Interests,
Letters of Credit and its Commitment.
4.2 CHANGES IN CAPITAL ADEQUACY REGULATIONS. If a Lender determines (i)
the amount of capital required or expected to be maintained by such Lender, any
Lending Installation of such Lender or any corporation controlling such Lender
is increased as a result of a "Change" (as defined below), and (ii) such
increase in capital will result in an increase in the cost to such Lender of
maintaining its Loans, L/C Interests, the Letters of Credit or its obligation to
make Loans hereunder, then, within 15 days after receipt by the Borrower of
written demand by such Lender pursuant to SECTION 4.5, the Borrower shall pay
such Lender the amount necessary to compensate for any shortfall in the rate of
return on the portion of such increased capital which such Lender determines is
attributable to this Agreement, its Loans, its L/C Interests, the Letters of
Credit or its obligation to make Loans hereunder (after taking into account such
Lender's policies as to capital adequacy). "CHANGE" means (i) any change after
the date of this Agreement in the "Risk-Based Capital Guidelines" (as defined
below) excluding, for the avoidance of doubt, the effect of any phasing in of
such Risk-Based Capital Guidelines or any other capital requirements passed
prior to the date hereof, or (ii) any adoption of or change in any other law,
governmental or quasi-governmental rule, regulation, policy, guideline,
interpretation, or directive (whether or not having the force of law) after the
date of this Agreement and having general applicability to all banks and
financial institutions within the jurisdiction in which such Lender operates
which affects the amount of capital required or expected to be maintained by any
Lender or any Lending Installation or any corporation controlling any Lender.
"RISK-BASED CAPITAL GUIDELINES" means (i) the risk-based capital guidelines in
effect in the United States on the
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date of this Agreement, including transition rules, and (ii) the corresponding
capital regulations promulgated by regulatory authorities outside the United
States implementing the July 1988 report of the Basle Committee on Banking
Regulation and Supervisory Practices Entitled "International Convergence of
Capital Measurements and Capital Standards," including transition rules, and any
amendments to such regulations adopted prior to the date of this Agreement.
4.3 AVAILABILITY OF TYPES OF ADVANCES. If (i) any Lender determines that
maintenance of its Eurodollar Rate Loans at a suitable Lending Installation
would violate any applicable law, rule, regulation or directive, whether or not
having the force of law, or (ii) the Required Lenders determine that (x)
deposits of a type and maturity appropriate to match fund Eurodollar Rate
Advances are not available or (y) the interest rate applicable to a Type of
Advance does not accurately reflect the cost of making or maintaining such an
Advance, then the Agent shall suspend the availability of the affected Type of
Advance and, in the case of any occurrence set forth in clause (i) require any
Advances of the affected Type to be converted to Floating Rate Loans until the
circumstances giving rise to such suspension no longer exist.
4.4 FUNDING INDEMNIFICATION. If any payment of a Eurodollar Rate Advance
occurs on a date which is not the last day of the applicable Interest Period,
whether because of acceleration, prepayment, or otherwise, or a Eurodollar Rate
Advance is not made on the date specified by the Borrower for any reason other
than default by the Lenders, or a Eurodollar Rate Advance is converted on a day
other than the last day of the applicable Interest Period, the Borrower
indemnifies each Lender for any loss or cost incurred by it resulting therefrom
(including loss of profit other than loss of profit represented by the
Applicable Eurodollar Margin which would have been payable for such Interest
Period), including, without limitation, any loss or cost in liquidating or
employing deposits acquired to fund or maintain the Eurodollar Rate Advance. In
connection with (a) any assignment by any Lender of any portion of the Loans
made pursuant to SECTION 13.3 and made during the Syndication Period, and if,
notwithstanding the provisions of SECTION 2.2, the Borrower has requested and
the Agent has consented to the use of the Eurodollar Rate and (b) any assignment
by any Lender of any portion of the Loans made pursuant to SECTION 2.4(C), the
Borrower shall be deemed to have repaid all outstanding Eurodollar Rate Advances
as of the effective date of such assignment and reborrowed such amount as a
Floating Rate Advance and/or Eurodollar Rate Advance (chosen in accordance with
the provisions of SECTION 2.2) and the indemnification provisions under this
SECTION 4.4 shall apply.
4.5 LENDER STATEMENTS; SURVIVAL OF INDEMNITY. If reasonably possible, each
Lender shall designate an alternate Lending Installation with respect to its
Eurodollar Rate Loans to reduce any liability of the Borrower to such Lender
under SECTIONS 4.1 and 4.2 or to avoid the unavailability of a Type of Advance
under SECTION 4.3, so long as such designation is not disadvantageous to such
Lender. Each Lender requiring compensation pursuant to SECTION 2.12(E) or to
this ARTICLE IV shall use its reasonable efforts to notify the Borrower and the
Agent in writing of any Change, law, policy, rule, guideline or directive giving
rise to such demand for compensation not later than ninety (90) days following
the date upon which the responsible account officer of such Lender knows or
should have known of such Change, law, policy, rule, guideline or directive;
PROVIDED, HOWEVER, that the failure to so notify the Borrower shall not affect
the Borrower's obligations under this SECTION 4.5. Any demand for compensation
pursuant to this ARTICLE IV shall be in writing and shall state the
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amount due, if any, under SECTION 4.1, 4.2 or 4.4 and shall set forth in
reasonable detail the calculations upon which such Lender determined such
amount. Such written demand shall be rebuttably presumed correct for all
purposes. Determination of amounts payable under such Sections in connection
with a Eurodollar Rate Loan shall be calculated as though each Lender funded its
Eurodollar Rate Loan through the purchase of a deposit of the type and maturity
corresponding to the deposit used as a reference in determining the Eurodollar
Rate applicable to such Loan, whether in fact that is the case or not. The
obligations of the Borrower under SECTIONS 4.1, 4.2 and 4.4 shall survive
payment of the Obligations and termination of this Agreement.
ARTICLE V: CONDITIONS PRECEDENT
5.1 INITIAL ADVANCES AND LETTERS OF CREDIT. The Lenders shall not be
required to make the initial Loans or issue any Letters of Credit or purchase
any participations therein unless (i) such initial Loans are made not later than
August 31, 1997; (ii) the Lenders shall be satisfied in all material respects
(a) with any material modifications or additions to the terms of the Public
Offering Documents from the form of such documents delivered to the Lenders
prior to their execution of this Agreement, (b) that all material conditions
precedent to the Public Offering have been satisfied or waived with the prior
written consent of the Lenders and (c) that the Borrower has received net
proceeds (net of underwriting discount and Transaction Costs) from the Public
Offering of not less than $50,000,000; (iii) no law, regulation, order, judgment
or decree of any Governmental Authority shall, and the Agent shall not have
received any notice that litigation is pending or threatened which is likely to,
(A) enjoin, prohibit or restrain the making of the initial Loans on the Closing
Date or (B) impose or result in the imposition of a Material Adverse Effect;
(iv) the Initial Acquisitions, the Mergers and Related Transactions have been
consummated; (v) there shall have occurred no material adverse change in the
primary and secondary loan syndication markets or capital markets generally; and
(vi) the Borrower has furnished to the Agent each of the following, with
sufficient copies for the Lenders, all in form and substance satisfactory to the
Agent and the Lenders:
(a) Certificates of good standing for the Borrower and each of the
Guarantors from its jurisdiction of incorporation and each other
jurisdiction where the nature of its business requires it to be qualified
as a foreign corporation;
(b) Copies, certified by the Secretary or Assistant Secretary of the
Borrower and each Guarantor, of its articles or certificate of
incorporation (which copies shall be certified as of a recent date by the
appropriate governmental officer in its respective jurisdiction of
incorporation), its by-laws and of its Board of Directors' resolutions
(and resolutions of other bodies, if any are deemed necessary by counsel
for any Lender) authorizing the execution of the Loan Documents;
(c) An incumbency certificate, executed by the Secretary or
Assistant Secretary of the Borrower and each Guarantor, which shall
identify by name and title and bear the signature of the officers of the
Borrower and Guarantors authorized to sign the Loan Documents and, in the
case of the Borrower, to request Loans and Letters of Credit hereunder,
upon which certificate the Lenders shall be entitled to rely until
informed of any change in writing by the Borrower;
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(d) A certificate, in form and substance satisfactory to the Agent,
signed by the chief financial officer of the Borrower, (i) stating that on
Closing Date no Default or Unmatured Default has occurred and is
continuing, (ii) setting forth the calculation of the Leverage Ratio as of
March 31, 1997, (iii) certifying receipt of not less than $50,000,000 of
net proceeds from the Public Offering and (iv) certifying that
arrangements have been made for the repayment by the Founding Companies of
all Indebtedness other than Permitted Existing Indebtedness and the
release of all liens securing any such repaid Indebtedness;
(e) A written opinion of the Borrower's and Guarantors' counsel,
addressed to the Agent and the Lenders, in substantially the form attached
as EXHIBIT I hereto;
(f) Revolving Notes payable to the order of each of the applicable
Lenders;
(g) A Swing Line Note payable to the order of First Chicago;
(h) Written money transfer instructions reasonably requested by the
Agent, addressed to the Agent and signed by an Authorized Officer;
(i) The Guaranty executed by each of the Guarantors; and
(j) Such other documents as the Agent or any Lender or its counsel
may have reasonably requested.
5.2 EACH ADVANCE AND LETTER OF CREDIT. The Lenders shall not be required
to make any Advance, issue any Letter of Credit or purchase any participation
therein, unless on the applicable Borrowing Date, or in the case of a Letter of
Credit, the date on which the Letter of Credit is to be issued:
(i) There exists no Default or Unmatured Default; and
(ii) The representations and warranties contained in ARTICLE VI are
true and correct as of such Borrowing Date (unless such representation and
warranty expressly relates to an earlier date or is no longer true solely
as a result of transactions permitted by this Agreement).
Each Borrowing Notice with respect to each such Advance and the letter of
credit application with respect to a Letter of Credit shall constitute a
representation and warranty by the Borrower that the conditions contained in
SECTIONS 5.2(I) and (II) have been satisfied. If any Lender has a reasonable
basis for believing a Default or Unmatured Default may have occurred and is
continuing or that the Borrower is not able to make one or more of the
representations and warranties set forth in ARTICLE VI, such Lender may require
a duly completed officer's certificate in substantially the form of EXHIBIT J
hereto and/or a duly completed compliance certificate in substantially the form
of EXHIBIT K hereto as a condition to making an Advance or the issuance of any
Letter of Credit.
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ARTICLE VI: REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants as follows to each Lender and the
Agent as of the Closing Date, giving effect to the Initial Acquisitions, the
consummation of the Mergers, the consummation of the Public Offering and the
consummation of the other transactions contemplated by the Transaction Documents
on the Closing Date, and thereafter on each date as required by SECTION 5.2:
6.1 ORGANIZATION; CORPORATE POWERS. The Borrower and each of its
Subsidiaries (i) is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization, (ii) is duly
qualified to do business and is in good standing under the laws of each
jurisdiction in which failure to be so qualified and in good standing could not
reasonably be expected to have a Material Adverse Effect and (iii) has all
requisite corporate power and authority to own, operate and encumber its
property and to conduct its business as presently conducted and as proposed to
be conducted.
6.2 AUTHORITY.
(A) The Borrower and each of its Subsidiaries has the requisite power and
authority (i) to execute, deliver and perform each of the Transaction Documents
which are to be executed by it in connection with the Initial Acquisitions, the
Mergers, the Public Offering and the Related Transactions or which have been
executed by it as required by this Agreement on or prior to Closing Date and
(ii) to file the Transaction Documents which must be filed by it in connection
with the Initial Acquisitions, the Mergers, the Public Offering and the Related
Transactions or which have been filed by it as required by this Agreement on or
prior to the Closing Date with any Governmental Authority.
(B) The execution, delivery, performance and filing, as the case may be,
of each of the Transaction Documents which must be executed or filed by the
Borrower or any of its Subsidiaries in connection with the Initial Acquisitions,
the Mergers, the Public Offering and the Related Transactions or which have been
executed or filed as required by this Agreement on or prior to the Closing Date
and to which the Borrower or any of its Subsidiaries is party, and the
consummation of the transactions contemplated thereby, have been duly approved
by the respective boards of directors and, if necessary, the shareholders of the
Borrower and its Subsidiaries, and such approvals have not been rescinded. No
other corporate action or proceedings on the part of the Borrower or its
Subsidiaries are necessary to consummate such transactions.
(C) Each of the Transaction Documents to which the Borrower or any of its
Subsidiaries is a party has been duly executed, delivered or filed, as the case
may be, by it and constitutes its legal, valid and binding obligation,
enforceable against it in accordance with its terms, is in full force and effect
and no material term or condition thereof has been amended, modified or waived
from the terms and conditions described in the Registration Statement without
the prior written consent of the Required Lenders, and the Borrower and its
Subsidiaries have, and, to the best of the Borrower's and its Subsidiaries'
knowledge, all other parties thereto have, performed and complied with all the
material terms, provisions, agreements and conditions set forth therein and
required to be performed
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or complied with by such parties on or before the Closing Date, and no unmatured
default, default or breach of any material covenant by any such party exists
thereunder.
6.3 NO CONFLICT; GOVERNMENTAL CONSENTS. The execution, delivery and
performance of each of the Loan Documents and other Transaction Documents to
which the Borrower or any of its Subsidiaries is a party do not and will not (i)
conflict with the certificate or articles of incorporation or by-laws of the
Borrower or any such Subsidiary, (ii) with respect to the Transaction Documents
other than the Loan Documents, to the Borrower's knowledge after diligent
inquiry of all relevant Persons constitute a tortious interference with any
Contractual Obligation of any Person or conflict with, result in a breach of or
constitute (with or without notice or lapse of time or both) a default under any
Requirement of Law (including, without limitation, any Environmental Property
Transfer Act) or Contractual Obligation of the Borrower or any such Subsidiary,
or require termination of any Contractual Obligation, except such interference,
breach, default or termination which individually or in the aggregate could not
reasonably be expected to have a Material Adverse Effect, (iii) with respect to
the Loan Documents, constitute a tortious interference with any Contractual
Obligation of any Person or conflict with, result in a breach of or constitute
(with or without notice or lapse of time or both) a default under any
Requirement of Law (including, without limitation, any Environmental Property
Transfer Act) or Contractual Obligation of the Borrower or any such Subsidiary,
or require termination of any Contractual Obligation, except such interference,
breach, default or termination which individually or in the aggregate could not
reasonably be expected to have a Material Adverse Effect, (iv) result in or
require the creation or imposition of any Lien whatsoever upon any of the
property or assets of the Borrower or any such Subsidiary, other than Liens
permitted by the Loan Documents, or (v) require any approval of the Borrower's
or any such Subsidiary's shareholders except such as have been obtained. The
execution, delivery and performance of each of the Transaction Documents to
which the Borrower or any of its Subsidiaries is a party do not and will not
require any registration with, consent or approval of, or notice to, or other
action to, with or by any Governmental Authority, including under any
Environmental Property Transfer Act, except filings, consents or notices which
have been made, obtained or given, or which, if not made, obtained or given,
individually or in the aggregate could not reasonably be expected to have a
Material Adverse Effect.
6.4 FINANCIAL STATEMENTS.
(A) The PRO FORMA financial statements of the Borrower and its
Subsidiaries contained in the Registration Statement, present on a PRO FORMA
basis the financial condition of the Borrower and such Subsidiaries as of the
dates contained therein, and reflect on a PRO FORMA basis those liabilities
reflected in the notes thereto and resulting from consummation of the Initial
Acquisitions, the Mergers, the Public Offering and the Related Transactions and
the other transactions contemplated by this Agreement, and the payment or
accrual of all Transaction Costs payable on the Closing Date with respect to any
of the foregoing. The projections and assumptions contained under Tab 7 of the
confidential information memorandum entitled "Metals USA $150,000,000 Senior
Revolving Credit Facility" dated June 1997 and furnished on behalf of the
Borrower to financial institutions invited to participate in the credit facility
evidenced by this Agreement (the "INFORMATION MEMORANDUM") were prepared in good
faith and on the basis of assumptions and information that the Borrower believed
to be reasonable at the time so furnished.
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(B) The historical financial statements (the "Statement") of the Borrower
and each of the Founding Companies included in the Registration Statement, were
prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods covered thereby (except as otherwise
expressly noted therein), (ii) to the Borrower's knowledge, after diligent
inquiry, fairly present the financial condition of each of the Borrower and the
Founding Companies as of the dates thereof and the results of operations for the
periods covered thereby; and (iii) show all material indebtedness and other
liabilities, direct or contingent, of each of the Borrower and the Founding
Companies as of the dates thereof.
6.5 NO MATERIAL ADVERSE CHANGE. (a) Since December 31, 1996 up to the
Closing Date, there has occurred no event or circumstance which has had or could
reasonably be expected to have a Material Adverse Effect.
(b) Since the Closing Date, there has occurred no event or circumstance
which has had or could reasonably be expected to have a Material Adverse Effect.
6.6 TAXES.
(A) TAX EXAMINATIONS. All material deficiencies which have been asserted
against the Borrower or any of the Borrower's Subsidiaries as a result of any
federal, state, local or foreign tax examination for each taxable year in
respect of which an examination has been conducted have been fully paid or
finally settled or are being contested in good faith, and as of the Closing Date
no issue has been raised by any taxing authority in any such examination which,
by application of similar principles, reasonably can be expected to result in
assertion by such taxing authority of a material deficiency for any other year
not so examined which has not been reserved for in the Borrower's consolidated
financial statements to the extent, if any, required by Agreement Accounting
Principles.
(B) PAYMENT OF TAXES. All tax returns and reports of the Borrower and its
Subsidiaries required to be filed have been timely filed, and all taxes,
assessments, fees and other governmental charges thereupon and upon their
respective property, assets, income and franchises which are shown in such
returns or reports to be due and payable have been paid except those items which
are being contested in good faith and have been reserved for in accordance with
Agreement Accounting Principles or for which the failure to file could not
reasonably be expected to have a Material Adverse Effect. The Borrower has no
knowledge of any proposed tax assessment against the Borrower or any of its
Subsidiaries that will have or could reasonably be expected to have a Material
Adverse Effect.
6.7 LITIGATION; LOSS CONTINGENCIES AND VIOLATIONS. There is no action,
suit, proceeding, arbitration or (to the Borrower's knowledge after diligent
inquiry) investigation before or by any Governmental Authority or private
arbitrator pending or, to the Borrower's knowledge after diligent inquiry,
threatened against the Borrower or any of its Subsidiaries or any property of
any of them (i) challenging the validity or the enforceability of any material
provision of the Transaction Documents or (ii) which will have or could
reasonably be expected to have a Material Adverse Effect. There is no material
loss contingency within the meaning of Agreement Accounting Principles which has
not been reflected in the consolidated financial statements of the Borrower and
its Subsidiaries prepared
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and delivered pursuant to SECTION 7.1(A) for the fiscal period during which such
material loss contingency was incurred. Neither the Borrower nor any of its
Subsidiaries is (A) in violation of any applicable Requirements of Law which
violation will have or could reasonably be expected to have a Material Adverse
Effect, or (B) subject to or in default with respect to any final judgment,
writ, injunction, restraining order or order of any nature, decree, rule or
regulation of any court or Governmental Authority which will have or could
reasonably be expected to have a Material Adverse Effect.
6.8 SUBSIDIARIES. SCHEDULE 6.8 to this Agreement (i) contains a
description as of the Closing Date (or as of the date of any supplement thereto)
of the corporate structure of, the Borrower and its Subsidiaries and any other
Person in which the Borrower or any of its Subsidiaries holds an Equity
Interest; and (ii) accurately sets forth as of the Closing Date (or as of the
date of any supplement thereto) (A) the correct legal name, the jurisdiction of
incorporation and the jurisdictions in which each of the Borrower and the
Subsidiaries of the Borrower is qualified to transact business as a foreign
corporation, (B) for each Subsidiary of the Borrower which is not a wholly-owned
Subsidiary, the authorized, issued and outstanding shares of each class of
Capital Stock of such Subsidiaries and the owners of such shares (both as of the
Closing Date and on a fully-diluted basis), and (C) a summary of the direct and
indirect partnership, joint venture, or other Equity Interests, if any, of the
Borrower and each Subsidiary of the Borrower in any Person that is not a
corporation. After the formation or acquisition of any New Subsidiary permitted
under SECTION 7.3(G)(II), if requested by the Agent, the Borrower shall provide
a supplement to SCHEDULE 6.8 to this Agreement. None of the issued and
outstanding Capital Stock of the Borrower or any of its Subsidiaries is subject
to any redemption or repurchase agreement. The outstanding Capital Stock of the
Borrower and each of the Borrower's Subsidiaries is duly authorized, validly
issued, fully paid and nonassessable and, prior to the Public Offering, is not
Margin Stock. The Borrower has no Subsidiaries other (i) the Subsidiaries set
forth on SCHEDULE 6.8 and (ii) any Subsidiaries acquired in connection with a
Permitted Acquisition, in connection with which the Borrower shall have provided
all of the documents, instruments and agreements as required by this Agreement.
6.9 ERISA. No Benefit Plan has incurred any material accumulated funding
deficiency (as defined in Sections 302(a)(2) of ERISA and 412(a) of the Code)
whether or not waived. Neither the Borrower nor any member of the Controlled
Group has incurred any material liability to the PBGC which remains outstanding
other than the payment of premiums, and there are no premium payments which have
become due which are unpaid. Schedule B to the most recent annual report filed
with the IRS with respect to each Benefit Plan and, if so requested, furnished
to the Lenders, is complete and accurate. Since the date of each such Schedule
B, there has been no material adverse change in the funding status or financial
condition of the Benefit Plan relating to such Schedule B. Neither the Borrower
nor any member of the Controlled Group has (i) failed to make a required
contribution or payment to a Multiemployer Plan or (ii) made a complete or
partial withdrawal under Sections 4203 or 4205 of ERISA from a Multiemployer
Plan, in either event which could result in any material liability. Neither the
Borrower nor any member of the Controlled Group has failed to make a required
installment or any other required payment under Section 412 of the Code, in
either case involving any material amount, on or before the due date for such
installment or other payment. Neither the Borrower nor any member of the
Controlled Group is required to provide security to a Benefit Plan under Section
401(a)(29) of the Code due to a Plan amendment that results in an increase in
current
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liability for the plan year. Neither the Borrower nor any of its Subsidiaries
maintains or contributes to any employee welfare benefit plan within the meaning
of Section 3(1) of ERISA which provides benefits to employees after termination
of employment other than as required by Section 601 of ERISA. Each Plan which is
intended to be qualified under Section 401(a) of the Code as currently in effect
is so qualified, and each trust related to any such Plan is exempt from federal
income tax under Section 501(a) of the Code as currently in effect. The Borrower
and all Subsidiaries are in compliance in all material respects with the
responsibilities, obligations and duties imposed on them by ERISA and the Code
with respect to all Plans. Neither the Borrower nor any of its Subsidiaries nor
any fiduciary of any Plan has engaged in a nonexempt prohibited transaction
described in Sections 406 of ERISA or 4975 of the Code which could reasonably be
expected to subject the Borrower or any Guarantor to material liability. Neither
the Borrower nor any member of the Controlled Group has taken or failed to take
any action which would constitute or result in a Termination Event, which action
or inaction could reasonably be expected to subject the Borrower to material
liability. Neither the Borrower nor any Subsidiary is subject to any liability
under Sections 4063, 4064, 4069, 4204 or 4212(c) of ERISA and no other member of
the Controlled Group is subject to any liability under Sections 4063, 4064,
4069, 4204 or 4212(c) of ERISA which could reasonably be expected to subject the
Borrower or any Guarantor to material liability. Neither the Borrower nor any of
its Subsidiaries has, by reason of the transactions contemplated hereby, any
obligation to make any payment to any employee pursuant to any Plan or existing
contract or arrangement. For purposes of this SECTION 6.9 "material" means any
noncompliance or basis for liability which could reasonably be likely to subject
the Borrower or any of its Subsidiaries to liability individually or in the
aggregate for all such matters in excess of $10,000,000.
6.10 ACCURACY OF INFORMATION. The information, exhibits and reports
furnished by or on behalf of the Borrower and any of its Subsidiaries to the
Agent or to any Lender in connection with the negotiation of, or compliance
with, the Loan Documents, including, without limitation, the Information
Memorandum (other than the projections contained under Tab 7 thereof), the
representations and warranties of the Borrower and its Subsidiaries contained in
the Transaction Documents, and all certificates and documents delivered to the
Agent and the Lenders pursuant to the terms thereof, taken as a whole, do not
contain as of the date furnished any untrue statement of a material fact or omit
to state a material fact necessary in order to make the statements contained
herein or therein, taken as a whole, in light of the circumstances under which
they were made, not misleading.
6.11 SECURITIES ACTIVITIES. Neither the Borrower nor any of its
Subsidiaries is engaged in the business of extending credit for the purpose of
purchasing or carrying Margin Stock.
6.12 MATERIAL AGREEMENTS. Neither the Borrower nor any of its Subsidiaries
is a party to any Contractual Obligation or subject to any charter or other
corporate restriction which individually or in the aggregate will have or could
reasonably be expected to have a Material Adverse Effect. Neither the Borrower
nor any of its Subsidiaries has received notice or has knowledge that (i) it is
in default in the performance, observance or fulfillment of any of the
obligations, covenants or conditions contained in any Contractual Obligation
applicable to it, or (ii) any condition exists which, with the giving of notice
or the lapse of time or both, would constitute a default with respect to any
such Contractual Obligation, in each case, except where such default or
defaults, if any, individually
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or in the aggregate will not have or could not reasonably be expected to have a
Material Adverse Effect.
6.13 COMPLIANCE WITH LAWS. The Borrower and its Subsidiaries are in
compliance with all Requirements of Law applicable to them and their respective
businesses, in each case where the failure to so comply individually or in the
aggregate could reasonably be expected to have a Material Adverse Effect.
6.14 ASSETS AND PROPERTIES. The Borrower and each of its Subsidiaries has
good and marketable title to all of its assets and properties (tangible and
intangible, real or personal) owned by it or a valid leasehold interest in all
of its leased assets (except insofar as marketability may be limited by any laws
or regulations of any Governmental Authority affecting such assets), except
where the failure to have any such title will not have or could not reasonably
be expected to have a Material Adverse Effect, and all such assets and property
are free and clear of all Liens, except Liens permitted under SECTION 7.3(C).
Substantially all of the assets and properties owned by, leased to or used by
the Borrower and/or each such Subsidiary of the Borrower are in adequate
operating condition and repair, ordinary wear and tear excepted. Neither this
Agreement nor any other Transaction Document, nor any transaction contemplated
under any such agreement, will affect any right, title or interest of the
Borrower or such Subsidiary in and to any of its assets in a manner that will
have or could reasonably be expected to have a Material Adverse Effect.
6.15 STATUTORY INDEBTEDNESS RESTRICTIONS. Neither the Borrower nor any of
its Subsidiaries is subject to regulation under the Public Utility Holding
Company Act of 1935, the Federal Power Act, the Interstate Commerce Act, or the
Investment Company Act of 1940, or any other federal, state or local statute,
ordinance or regulation which limits its ability to incur indebtedness or its
ability to consummate the transactions contemplated hereby or in connection with
Initial Acquisitions, the Mergers, the Public Offering and the Related
Transactions.
6.16 INSURANCE. The Borrower's and its Subsidiaries' insurance policies
and programs reflect coverage that is reasonably consistent with prudent
industry practice.
6.17 LABOR MATTERS. As of the Closing Date, to the Borrower's and its
Subsidiaries' knowledge, there are no material labor disputes to which the
Borrower or any of its Subsidiaries may become a party, including, without
limitation, any strikes, lockouts or other disputes relating to such Persons'
plants and other facilities.
6.18 INITIAL ACQUISITIONS; RELATED TRANSACTIONS. As of the Closing Date
and immediately prior to the making of the initial Loans:
(i) the Acquisition Documents are in full force and effect, no
material breach, default or waiver of any material term or provision
thereof by the Borrower or any of its Subsidiaries or, to the best of the
Borrower's knowledge, the other parties thereto, has occurred (except for
such breaches, defaults and waivers, if any, consented to in writing by
the Agent and the Required Lenders) and no action has been taken by any
competent authority which restrains, prevents or imposes any material
adverse condition upon, or seeks to restrain, prevent or
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impose any material adverse condition upon, any of the Initial
Acquisitions, the Mergers or the Related Transactions; and
(ii) all material conditions precedent to, all consents from
applicable Governmental Authorities, and all other material consents
necessary to permit, the Initial Acquisitions pursuant to the Acquisition
Documents have been satisfied, the Initial Acquisitions has been
consummated on the terms described in the Registration Statement, the
Mergers have been consummated and the Related Transactions have been
consummated.
6.19 ENVIRONMENTAL MATTERS. (a)(i) The operations of the Borrower and its
.ubsidiaries comply in all material respects with Environmental, Health or
Safety Requirements of Law;
(ii) the Borrower and its Subsidiaries have all material permits,
licenses or other authorizations required under Environmental, Health or
Safety Requirements of Law and are in material compliance with such
permits;
(iii) neither the Borrower, any of its Subsidiaries nor any of their
respective present property or operations, or, to the best of, the
Borrower's or any of its Subsidiaries' knowledge, any of their respective
past property or operations, are subject to or the subject of, any
investigation known to the Borrower or any of its Subsidiaries, any
judicial or administrative proceeding, order, judgment, decree, settlement
or other agreement respecting: (A) any material violation of
Environmental, Health or Safety Requirements of Law; (B) any material
remedial action; or (C) any material claims or liabilities arising from
the Release or threatened Release of a Contaminant into the environment;
(iv) there is not now, nor to the best of the Borrower's or any of
its Subsidiaries' knowledge has there ever been on or in the property of
the Borrower or any of its Subsidiaries any landfill, waste pile,
underground storage tanks, aboveground storage tanks, surface impoundment
or hazardous waste storage facility of any kind, any polychlorinated
biphenyls (PCBs) used in hydraulic oils, electric transformers or other
equipment, or any asbestos containing material that in the case of any of
the foregoing could be reasonably expected to result in any material
claims or liabilities; and
(v) neither the Borrower nor any of its Subsidiaries has any
material Contingent Obligation in connection with any Release or
threatened Release of a Contaminant into the environment.
(b) For purposes of this SECTION 6.19 "material" means any noncompliance
or basis for liability which could reasonably be expected individually or in the
aggregate to have a Material Adverse Effect.
6.20 THE PUBLIC OFFERING. As of the Closing Date:
(a) The Registration Statement is effective under the Securities Act; the
Public Offering Documents comply in all material respects with the provisions of
the Securities Act, any other federal
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securities law, applicable state securities or "Blue Sky" law, applicable
foreign securities law or applicable general corporation law, and, in each case,
the rules and regulations thereunder.
(b) All conditions precedent to, and all consents necessary to permit, the
Public Offering have been satisfied or delivered and no action has been taken by
any competent authority which restrains, prevents or imposes material adverse
conditions upon, or seeks to restrain, prevent or impose material adverse
conditions upon, the Public Offering or the funding of any Loans and the
issuance of any Letters of Credit hereunder.
6.21. BENEFITS. Each of the Borrower and its Subsidiaries will benefit
from the financing arrangement established by this Agreement. The Agent and the
Lenders have stated and the Borrower acknowledges that, but for the agreement by
each of the Guarantors to execute and deliver the Guaranty, the Agent and the
Lenders would not have made available the credit facilities established hereby
on the terms set forth herein.
ARTICLE VII : COVENANTS
The Borrower covenants and agrees that so long as any Commitments are
outstanding and thereafter until payment in full of all of the Obligations
(other than contingent indemnity obligations), unless the Required Lenders shall
otherwise give prior written consent:
7.1 REPORTING. The Borrower shall:
(A) FINANCIAL REPORTING. Furnish to the Lenders:
(i) QUARTERLY REPORTS. As soon as practicable, and in any event
within forty-five (45) days after the end of each of the first three
quarters in each fiscal year, the consolidated balance sheet of the
Borrower and its Subsidiaries as at the end of such period and the related
consolidated statements of income and cash flows of the Borrower and its
Subsidiaries for such fiscal quarter and for the period from the beginning
of the then current fiscal year to the end of such fiscal quarter,
certified by the chief financial officer of the Borrower on behalf of the
Borrower as fairly presenting the consolidated financial position of the
Borrower and its Subsidiaries as at the dates indicated and the results of
their operations and cash flows for the periods indicated in accordance
with Agreement Accounting Principles, subject to normal year end
adjustments. In addition, as soon as practicable, and in any event within
forty-five (45) days after the end of the fourth fiscal quarter in each
fiscal year, such financial statements and information as shall be
reasonably acceptable to the Agent as sufficient for the calculation of
the Leverage Ratio as of the end of such fiscal quarter, certified by the
chief financial officer of the Borrower.
(ii) ANNUAL REPORTS. As soon as practicable, and in any event within
ninety (90) days after the end of each fiscal year, (a) the consolidated
balance sheet of the Borrower and its Subsidiaries as at the end of such
fiscal year and the related consolidated statements of income,
stockholders' equity and cash flows of the Borrower and its Subsidiaries
for such fiscal year, and in comparative form the corresponding figures
for the previous fiscal year and
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(b) an audit report on the items listed in CLAUSE (A) hereof of
independent certified public accountants of recognized national standing,
which audit report shall be unqualified and shall state that such
financial statements fairly present the consolidated financial position of
the Borrower and its Subsidiaries as at the dates indicated and the
results of their operations and cash flows for the periods indicated in
conformity with Agreement Accounting Principles and that the examination
by such accountants in connection with such consolidated financial
statements has been made in accordance with generally accepted auditing
standards. The deliveries made pursuant to this CLAUSE (II) shall be
accompanied by any management letter prepared by the above-referenced
accountants.
(iii) OFFICER'S CERTIFICATE. Together with each delivery of any
financial statement (a) pursuant to CLAUSES (I)and (II) of this SECTION
7.1(A), an Officer's Certificate of the Borrower, substantially in the
form of EXHIBIT J attached hereto and made a part hereof, stating that no
Default or Unmatured Default exists, or if any Default or Unmatured
Default exists, stating the nature and status thereof and (b) pursuant to
CLAUSES (I) and (II) of this SECTION 7.1(A), a compliance certificate,
substantially in the form of EXHIBIT K attached hereto and made a part
hereof, signed by the Borrower's chief financial officer or treasurer,
setting forth calculations for the period then ended, which demonstrate
compliance, when applicable, with the provisions of SECTION 7.4, and which
calculate the Leverage Ratio for purposes of determining the then
Applicable Eurodollar Margin, Applicable Floating Rate Margin and
Applicable Commitment Fee Percentage.
(iv) BUDGETS; BUSINESS PLANS; FINANCIAL PROJECTIONS. Not less
frequently than once during each 12-month period following the Closing
Date, a copy of the plan and forecast (including a projected balance
sheet, income statement and statement of cash flow) of the Borrower and
its Subsidiaries for the upcoming 12-month period prepared in such detail
as shall be reasonably satisfactory to the Agent.
(B) NOTICE OF DEFAULT. Promptly upon any of the chief executive officer,
chief operating officer, chief financial officer, treasurer or controller of the
Borrower obtaining knowledge (i) of any condition or event which constitutes a
Default or Unmatured Default, or becoming aware that any Lender or Agent has
given any written notice with respect to a claimed Default or Unmatured Default
under this Agreement, or (ii) that any Person has given any written notice to
the Borrower or any Subsidiary of the Borrower or taken any other action with
respect to a claimed default or event or condition of the type referred to in
SECTION 8.1(E), deliver to the Agent and the Lenders a notice specifying (a) the
nature and period of existence of any such claimed default, Default, Unmatured
Default, condition or event, (b) the notice given or action taken by such Person
in connection therewith, and (c) what action the Borrower has taken, is taking
and proposes to take with respect thereto.
(C) LAWSUITS. (i) Promptly upon the Borrower obtaining knowledge of the
institution of, or written threat of, any action, suit, proceeding, governmental
investigation or arbitration against or affecting the Borrower or any of its
Subsidiaries or any property of the Borrower or any of its Subsidiaries, which
action, suit, proceeding, governmental investigation or arbitration exposes, or
in the case of multiple actions, suits, proceedings, governmental investigations
or arbitrations arising
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out of the same general allegations or circumstances which could reasonably be
expected to have a Material Adverse Effect, give written notice thereof to the
Agent and provide such other information as may be reasonably available to
enable each Lender and the Agent and its counsel to evaluate such matters; and
(ii) in addition to the requirements set forth in CLAUSE (I) of this SECTION
7.1(C), upon request of the Agent or the Required Lenders, promptly give written
notice of the status of any action, suit, proceeding, governmental investigation
or arbitration covered by a report delivered pursuant to CLAUSE (I) above or
disclosed in any filing with the Commission and provide such other information
as may be reasonably available to it that would not violate any attorney-client
privilege by disclosure to the Lenders to enable each Lender and the Agent and
its counsel to evaluate such matters.
(D) ERISA NOTICES. Deliver or cause to be delivered to the Agent and the
Lenders, at the Borrower's expense, the following information and notices as
soon as reasonably possible, and in any event:
(i) (a) within ten (10) Business Days after the Borrower obtains
knowledge that a Termination Event has occurred, a written statement of
the chief financial officer of the Borrower describing such Termination
Event and the action, if any, which the Borrower has taken, is taking or
proposes to take with respect thereto, and when known, any action taken or
threatened by the IRS, DOL or PBGC with respect thereto and (b) within ten
(10) Business Days after any member of the Controlled Group obtains
knowledge that a Termination Event has occurred which could reasonably be
expected to subject the Borrower or any member of the Controlled Group to
liability individually or in the aggregate in excess of $1,000,000, a
written statement of the chief financial officer of the Borrower
describing such Termination Event and the action, if any, which the member
of the Controlled Group has taken, is taking or proposes to take with
respect thereto, and when known, any action taken or threatened by the
IRS, DOL or PBGC with respect thereto;
(ii) within ten (10) Business Days after the Borrower or any of its
Subsidiaries obtains knowledge that a prohibited transaction (defined in
Sections 406 of ERISA and Section 4975 of the Code) has occurred which
could result in material liability , a statement of the chief financial
officer of the Borrower describing such transaction and the action which
the Borrower or such Subsidiary has taken, is taking or proposes to take
with respect thereto;
(iii) within ten (10) Business Days after the Borrower or any of its
Subsidiaries receives notice of any unfavorable determination letter from
the IRS regarding the qualification of a Plan under Section 401(a) of the
Code, copies of each such letter;
(iv) within ten (10) Business Days after the filing thereof with the
IRS, a copy of each funding waiver request filed with respect to any
Benefit Plan and all communications received by the Borrower or a member
of the Controlled Group with respect to such request;
(v) within ten (10) Business Days after receipt by the Borrower or
any member of the Controlled Group of the PBGC's intention to terminate a
Benefit Plan or to have a trustee appointed to administer a Benefit Plan,
copies of each such notice;
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(vi) within ten (10) Business Days after receipt by the Borrower or
any member of the Controlled Group of a notice from a Multiemployer Plan
regarding the imposition of withdrawal liability, copies of each such
notice;
(vii) within ten (10) Business Days after the Borrower or any member
of the Controlled Group fails to make a required installment or any other
required payment under Section 412 of the Code on or before the due date
for such installment or payment, a notification of such failure; and
(viii) within ten (10) Business Days after the Borrower or any
member of the Controlled Group knows or has reason to know that (a) a
Multiemployer Plan has been terminated, (b) the administrator or plan
sponsor of a Multiemployer Plan intends to terminate a Multiemployer Plan,
or (c) the PBGC has instituted or will institute proceedings under Section
4042 of ERISA to terminate a Multiemployer Plan.
For purposes of this SECTION 7.1(D), the Borrower, any of its Subsidiaries and
any member of the Controlled Group shall be deemed to know all facts known by
the Administrator of any Plan of which the Borrower or any member of the
Controlled Group or such Subsidiary is the plan sponsor.
(E) LABOR MATTERS. Notify the Agent and the Lenders in writing, promptly
upon the Borrower's learning thereof, of (i) any material labor dispute to which
the Borrower or any of its Subsidiaries may become a party, including, without
limitation, any strikes, lockouts or other disputes relating to such Persons'
plants and other facilities and (ii) any material liability incurred under the
Worker Adjustment and Retraining Notification Act with respect to the closing of
any plant or other facility of the Borrower or any of its Subsidiaries.
(F) OTHER INDEBTEDNESS. Deliver to the Agent (i) a copy of each notice or
communication regarding potential or actual defaults (including any accompanying
officer's certificate) delivered by or on behalf of the Borrower or any of its
Subsidiaries to the holders of funded Indebtedness pursuant to the terms of the
agreements governing such Indebtedness, such delivery to be made at the same
time and by the same means as such notice or other communication is delivered to
such holders, and (ii) a copy of each notice or other communication regarding
potential or actual defaults received by the Borrower or any of its Subsidiaries
from the from the holders of funded Indebtedness pursuant to the terms of such
Indebtedness, such delivery to be made promptly after such notice or other
communication is received by the Borrower or any such Subsidiary.
(G) OTHER REPORTS. Deliver or cause to be delivered to the Agent and the
Lenders copies of all financial statements, reports and notices, if any, sent or
made available generally by the Borrower to its securities holders or filed with
the Commission by the Borrower, all press releases made available generally by
the Borrower or any of the Borrower's Subsidiaries to the public concerning
material developments in the business of the Borrower or any such Subsidiary and
all notifications received from the Commission by the Borrower or its
Subsidiaries pursuant to the Securities Exchange Act of 1934 and the rules
promulgated thereunder (other than customary comment letters received in
connection with registration statements or other routine communications between
the Commission and the Borrower).
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(H) ENVIRONMENTAL NOTICES. As soon as possible and in any event within ten
(10) days after receipt by the Borrower or any of its Subsidiaries, a copy of
(i) any notice or claim to the effect that the Borrower or any of its
Subsidiaries is or may be liable to any Person as a result of the Release by the
Borrower, any of its Subsidiaries, or any other Person of any Contaminant into
the environment, and (ii) any notice alleging any violation of any
Environmental, Health or Safety Requirements of Law by the Borrower or any of
its Subsidiaries if, in either case, such notice or claim relates to an event
which could reasonably be expected to have a Material Adverse Effect.
(I) OTHER INFORMATION. Promptly upon receiving a request therefor from the
Agent or any Lender, prepare and deliver to the Agent and the Lenders such other
information with respect to the Borrower or any of its Subsidiaries as from time
to time may be reasonably requested by the Agent or any Lender.
7.2 AFFIRMATIVE COVENANTS.
(A) CORPORATE EXISTENCE, ETC. Except for mergers permitted pursuant to
SECTION 7.3(I), the Borrower shall, and shall cause each of the Guarantors to,
at all times maintain its corporate existence and preserve and keep, or cause to
be preserved and kept, in full force and effect its rights and franchises
material to its businesses.
(B) CORPORATE POWERS; CONDUCT OF BUSINESS. The Borrower shall, and shall
cause each of its Subsidiaries to, qualify and remain qualified to do business
in each jurisdiction in which the nature of its business requires it to be so
qualified and where the failure to be so qualified will have or could reasonably
be expected to have a Material Adverse Effect. The Borrower will, and will cause
each Subsidiary to, carry on and conduct its business in substantially the same
manner and in substantially the same fields of enterprise as it is presently
conducted.
(C) COMPLIANCE WITH LAWS, ETC. The Borrower shall, and shall cause its
Subsidiaries to, (a) comply with all Requirements of Law and all restrictive
covenants affecting such Person or the business, properties, assets or
operations of such Person, and (b) obtain as needed all Permits necessary for
its operations and maintain such Permits in good standing unless failure to
comply or obtain could not reasonably be expected to have a Material Adverse
Effect.
(D) PAYMENT OF TAXES AND CLAIMS; TAX CONSOLIDATION. The Borrower shall
pay, and cause each of its Subsidiaries to pay, (i) all taxes, assessments and
other governmental charges imposed upon it or on any of its properties or assets
or in respect of any of its franchises, business, income or property before any
penalty or interest accrues thereon, and (ii) all claims (including, without
limitation, claims for labor, services, materials and supplies) for sums which
have become due and payable and which by law have or may become a Lien (other
than a Lien permitted by SECTION 7.3(C)) upon any of the Borrower's or such
Subsidiary's property or assets, prior to the time when any penalty or fine
shall be incurred with respect thereto; PROVIDED, HOWEVER, that no such taxes,
assessments and governmental charges referred to in CLAUSE (I) above or claims
referred to in CLAUSE (II) above (and interest, penalties or fines relating
thereto) need be paid if being contested in good faith by appropriate
proceedings diligently instituted and conducted and if such reserve or other
appropriate provision, if any, as shall be required in conformity with Agreement
Accounting Principles shall have
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been made therefor. The Borrower will not, nor will it permit any of its
Subsidiaries to, file or consent to the filing of any consolidated income tax
return with any other Person other than the consolidated return of the Borrower.
(E) INSURANCE. The Borrower shall maintain for itself and its
Subsidiaries, or shall cause each of its Subsidiaries to maintain in full force
and effect, insurance policies and programs reflecting coverage that is
reasonably consistent with prudent industry practice.
(F) INSPECTION OF PROPERTY; BOOKS AND RECORDS; DISCUSSIONS. The Borrower
shall permit and cause each of the Borrower's Subsidiaries to permit, any
authorized representative(s) designated by either the Agent or any Lender to
visit and inspect any of the properties of the Borrower or any of its
Subsidiaries, to examine, audit, check and make copies of their respective
financial and accounting records, books, journals, orders, receipts and any
correspondence and other data relating to their respective businesses or the
transactions contemplated hereby or by the Initial Acquisitions (including,
without limitation, in connection with environmental compliance, hazard or
liability), and to discuss their affairs, finances and accounts with their
officers and independent certified public accountants, all upon reasonable
notice and at such reasonable times during normal business hours, as often as
may be reasonably requested; PROVIDED, that while no Default exists, all of the
foregoing shall be at the expense of the Agent or Lenders, as applicable. The
Borrower shall keep and maintain, and cause each of the Borrower's Subsidiaries
to keep and maintain, in all material respects, proper books of record and
account in which entries in conformity with Agreement Accounting Principles
shall be made of all dealings and transactions in relation to their respective
businesses and activities. If a Default has occurred and is continuing, the
Borrower, upon the Agent's request, shall turn over any such records to the
Agent or its representatives.
(G) ERISA COMPLIANCE. The Borrower shall, and shall cause each of the
Borrower's Subsidiaries to, establish, maintain and operate all Plans to comply
in all material respects with the provisions of ERISA, the Code, all other
applicable laws, and the regulations and interpretations thereunder and the
respective requirements of the governing documents for such Plans, except where
the failure to comply will not or could not reasonably be expected to subject
the Borrower and its Subsidiaries to liability individually or in the aggregate
in excess of $10,000,000.
(H) MAINTENANCE OF PROPERTY. The Borrower shall cause all property used or
useful in the conduct of its business or the business of any Subsidiary to be
maintained and kept in good condition, repair and working order and supplied
with all necessary equipment and shall cause to be made all necessary repairs,
renewals, replacements, betterments and improvements thereof, all as in the
judgment of the Borrower may be necessary so that the business carried on in
connection therewith may be properly and advantageously conducted at all times;
PROVIDED, HOWEVER, that nothing in this SECTION 7.2(H) shall prevent the
Borrower from discontinuing the operation or maintenance of any of such property
if such discontinuance is, in the judgment of the Borrower, desirable in the
conduct of its business or the business of any Subsidiary and not
disadvantageous in any material respect to the Agent or the Lenders.
(I) ENVIRONMENTAL COMPLIANCE. The Borrower and its Subsidiaries shall
comply with all Environmental, Health or Safety Requirements of Law, except
where noncompliance could not
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reasonably be expected to have a Material Adverse Effect. Neither the Borrower
nor any of its Subsidiaries shall be the subject of any proceeding or
investigation pertaining to (i) the Release by the Borrower or any of its
Subsidiaries of any Contaminant into the environment or (ii) the liability of
the Borrower or any of its Subsidiaries arising from the Release by any other
Person of any Contaminant into the environment, which, in either case, has or is
reasonably likely to have a Material Adverse Effect.
(J) USE OF PROCEEDS. The Borrower shall use the proceeds of the Loans to
(i) repay certain existing Indebtedness of the Founding Companies, (ii) provide
funds for the additional working capital needs and other general corporate
purposes of the Borrower and its Subsidiaries and (iii) fund Permitted
Acquisitions. The Borrower will not, nor will it permit any Subsidiary to, use
any of the proceeds of the Loans to purchase or carry any "Margin Stock" or to
make any Acquisition, other than any Permitted Acquisition pursuant to SECTION
7.3(G).
(K) ADDITION OF GUARANTORS. The Borrower shall cause (i) each Subsidiary
that is, at any time, a Material Subsidiary, and (ii) each other Subsidiary
necessary for the Borrower to comply with the requirements set forth in SECTION
7.3(E), to deliver to the Agent an executed Guaranty Supplement to become a
Guarantor under the Guaranty in the form of EXHIBIT L attached hereto and
appropriate corporate resolutions, opinions and other documentation in form and
substance reasonably satisfactory to the Agent.
7.3 NEGATIVE COVENANTS.
(A) INDEBTEDNESS. Neither the Borrower nor any of its Subsidiaries shall
directly or indirectly create, incur, assume or otherwise become or remain
directly or indirectly liable with respect to any Indebtedness, except:
(i) the Obligations;
(ii) Permitted Existing Indebtedness and Permitted Refinancing
Indebtedness;
(iii) unsecured subordinated indebtedness incurred by the Borrower
(including in connection with any Permitted Acquisition) that (a) does not
have a stated maturity before the Termination Date in effect as of the
date such indebtedness is incurred, (b) has terms that are no more
restrictive than the terms of this Agreement and the other Loan Documents,
and (c) is subordinated to the Obligations on terms at least as favorable
to the Lenders as the terms set forth on SCHEDULE 7.3 attached hereto,
with such changes thereto as may be agreed to by the Agent (such
Indebtedness being referred to herein as "PERMITTED SUBORDINATED
INDEBTEDNESS");
(iv) Indebtedness in respect of obligations secured by Customary
Permitted Liens;
(v) Indebtedness constituting Contingent Obligations in respect of
Indebtedness otherwise permitted hereunder;
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(vi) Indebtedness arising from intercompany loans from the Borrower
to any Controlled Subsidiary or from any Subsidiary to the Borrower or any
Controlled Subsidiary; PROVIDED that in each case such Indebtedness is
subordinated upon terms satisfactory to the Agent to the obligations of
the Borrower and its Subsidiaries with respect to the Obligations;
(vii) guaranties by the Borrower of Indebtedness permitted to be
incurred by any Subsidiary;
(viii) Indebtedness in respect of Hedging Obligations permitted
under SECTION 7.3(Q);
(ix) secured or unsecured purchase money Indebtedness (including
Capitalized Leases) incurred by the Borrower or any of its Subsidiaries
after the Closing Date (including, as a result of the assumption of any
such Indebtedness in connection with a Permitted Acquisition) to finance
the acquisition of fixed assets, if (1) at the time of such incurrence, no
Default or Unmatured Default has occurred and is continuing or would
result from such incurrence, (2) such Indebtedness has a scheduled
maturity and is not due on demand, (3) such Indebtedness does not exceed
the lower of the fair market value or the cost of the applicable fixed
assets on the date acquired, (4) such Indebtedness does not exceed in the
aggregate at any time an amount equal to the sum of (a) $10,000,000 PLUS
(b) an amount equal to 1.5% of consolidated revenues of the Borrower and
its Subsidiaries for each fiscal year, commencing with the fiscal year
ending December 31, 1997, and (5) any Lien securing such Indebtedness is
permitted under SECTION 7.3(C) (such Indebtedness being referred to herein
as "PERMITTED PURCHASE MONEY INDEBTEDNESS");
(x) Indebtedness with respect to surety, appeal and performance
bonds obtained by the Borrower or any of its Subsidiaries in the ordinary
course of business;
(xi) Indebtedness arising under the Guaranty;
(xii) Indebtedness of a Subsidiary consisting of tax-advantaged
industrial revenue bond, industrial development bond or other similar
financings assumed in connection with (but not incurred in connection with
or in anticipation of) a Permitted Acquisition;
(xiii) other Indebtedness (other than working capital financing)
existing at a New Subsidiary at the time of the Permitted Acquisition
thereof (but not incurred in connection or in anticipation of such
Permitted Acquisition) the outstanding principal balance of which does not
exceed ten percent (10%) of the book value of the assets acquired as a
result of such Permitted Acquisition; and
(xiv) other Indebtedness in addition to that referred to elsewhere
in this SECTION 7.3(A) incurred by the Borrower provided that no Default
or Unmatured Default shall have occurred and be continuing at the date of
such incurrence or would result therefrom.
(B) SALES OF ASSETS. Neither the Borrower nor any of its Subsidiaries
shall sell, assign, transfer, lease, convey or otherwise dispose of any property
(including the stock of any Subsidiary),
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whether now owned or hereafter acquired, or any income or profits therefrom, or
enter into any agreement to do so, except:
(i) sales of inventory in the ordinary course of business;
(ii) the disposition in the ordinary course of business of equipment
that is obsolete, excess or no longer useful in the Borrower's or its
Subsidiaries' business; and
(iii) sales, assignments, transfers, leases, conveyances or other
dispositions of other assets (including sales of stock of a Subsidiary) if
such transaction (a) is for consideration consisting of at least 80% of
cash, (b) is for not less than Fair Value, and (c) when combined with all
such other transactions (each such transaction being valued at book value)
(i) during the immediately preceding twelve-month period, represents the
disposition of not greater than ten percent (10.0%) of the Borrower's
Consolidated Tangible Assets at the end of the fiscal year immediately
preceding that in which such transaction is proposed to be entered into,
and (ii) during the period from the Closing Date to the date of such
proposed transaction, represents the disposition of not greater than
twenty percent (20.0%) of the Borrower's Consolidated Tangible Assets at
the end of the fiscal year immediately preceding that in which such
transaction is proposed to be entered into.
(C) LIENS. Neither the Borrower nor any of its Subsidiaries shall directly
or indirectly create, incur, assume or permit to exist any Lien on or with
respect to any of their respective property or assets except:
(i) Permitted Existing Liens;
(ii) Customary Permitted Liens;
(iii) purchase money Liens (including the interest of a lessor under
a Capitalized Lease and Liens to which any property is subject at the time
of the Borrower's acquisition thereof) securing Permitted Purchase Money
Indebtedness; PROVIDED that such Liens shall not apply to any property of
the Borrower or its Subsidiaries other than that purchased or subject to
such Capitalized Lease;
(iv) Liens securing Indebtedness assumed in connection with a
Permitted Acquisition and permitted pursuant to CLAUSE (XII) or CLAUSE
(XIII) of SECTION 7.3(A); PROVIDED that such Liens shall not apply to any
property of the Borrower or its Subsidiaries other than that purchased or
directly financed in connection with such Indebtedness;
(v) Liens, if any, securing the Obligations; and
(vi) Liens (other than on the stock of any Subsidiaries) securing
other obligations not exceeding $5,000,000 in the aggregate at any time
outstanding.
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In addition, neither the Borrower nor any of its Subsidiaries shall become a
party to any agreement, note, indenture or other instrument, or take any other
action, which would prohibit the creation of a Lien on any of its properties or
other assets in favor of the Agent for the benefit of itself and Lenders, as
collateral for the Obligations; PROVIDED that any agreement, note, indenture or
other instrument in connection with Liens permitted pursuant to CLAUSES (I),
(III) and (IV) above may prohibit the creation of a Lien in favor of the Agent
for the benefit of itself and the Lenders on the items of property subject to
such Lien.
(D) INVESTMENTS. Except to the extent permitted pursuant to PARAGRAPH (G)
below, neither the Borrower nor any of its Subsidiaries shall directly or
indirectly make or own any Investment except:
(i) Investments in Cash Equivalents;
(ii) Permitted Existing Investments in an amount not greater than
the amount thereof on the Closing Date;
(iii) Investments in trade receivables or received in connection
with the bankruptcy or reorganization of suppliers and customers and in
settlement of delinquent obligations of, and other disputes with,
customers and suppliers arising in the ordinary course of business;
(iv) Investments consisting of deposit accounts maintained by the
Borrower or its Subsidiaries in the ordinary course of business in
connection with its cash management system;
(v) Investments consisting of non-cash consideration from a sale,
assignment, transfer, lease, conveyance or other disposition of property
permitted by SECTION 7.3(B);
(vi) Investments consisting of intercompany loans from any
Subsidiary to the Borrower or any other Subsidiary permitted by SECTION
7.3(A)(VI);
(vii) Investments in any Controlled Subsidiary of the Borrower;
(viii) Investments constituting Permitted Acquisitions; and
(ix) Investments in addition to those referred to elsewhere in this
SECTION 7.3(D) in an amount not to exceed $1,000,000 in the aggregate at
any time outstanding;
PROVIDED, HOWEVER, that the Investments described in CLAUSES (V), (VIII) and
(IX) above shall not be permitted if either a Default or Unmatured Default shall
have occurred and be continuing on the date thereof or would result therefrom.
(E) NON-GUARANTOR SUBSIDIARIES. The Borrower shall not permit the total
assets of the Subsidiaries which are not Guarantors (excluding therefrom all
items that are treated as intangibles
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under Agreement Accounting Principles) to be equal to or greater than ten
percent (10%) of Consolidated Tangible Assets.
(F) RESTRICTED PAYMENTS. Neither the Borrower nor any of its Subsidiaries
shall declare or make any Restricted Payment, except:
(i) the defeasance, redemption, repurchase or prepayment of any
Permitted Subordinated Indebtedness with the net cash proceeds of
Permitted Refinancing Indebtedness;
(ii) the defeasance, redemption, repurchase or prepayment of any
Permitted Subordinated Indebtedness PROVIDED the aggregate amount so
defeased, redeemed, repurchased or prepaid after the Closing Date shall
not exceed an amount equal to ten percent (10%) of the Aggregate
Commitment;
(iii) in connection with the repurchase, redemption or other
acquisition or retirement for value of any Equity Interests held by
departing officers, directors and employees; PROVIDED, that the aggregate
purchase price of all such repurchased, redeemed, acquired or retired
Equity Interests shall not exceed $1,000,000 in the aggregate since the
Closing Date or such larger amount as may be agreed to by the Required
Lenders; and
(iv) where the consideration therefor consists solely of Equity
Interests (but excluding Disqualified Stock) of the Borrower or its
Subsidiaries provided no Change of Control would occur as a result
thereof;
PROVIDED, HOWEVER, that the Restricted Payments described in CLAUSES(I), (II)
and (III) above shall not be permitted if either a Default shall have occurred
and be continuing at the date of declaration or payment thereof or would result
therefrom.
(G) CONDUCT OF BUSINESS; SUBSIDIARIES; ACQUISITIONS. (i) Neither the
Borrower nor any of its Subsidiaries shall engage in any business other than the
businesses engaged in by the Borrower on the date hereof and any business or
activities which are substantially similar, related or incidental thereto.
(ii) The Borrower may create, acquire and/or capitalize any
Subsidiary (a "NEW SUBSIDIARY") after the date hereof pursuant to any
transaction that is permitted by or not otherwise prohibited by this Agreement;
PROVIDED that upon the creation or acquisition of each New Subsidiary, the
Borrower shall cause each New Subsidiary that is a Material Subsidiary to
promptly deliver to the Agent an executed counterpart of a Guaranty Supplemental
to become a Guarantor under the Guaranty in the form of EXHIBIT L attached
hereto and appropriate corporate resolutions, opinions and other documentation
in form and substance satisfactory to the Agent, and all New Subsidiaries that
are Material Subsidiaries shall be Controlled Subsidiaries.
(iii) The Borrower shall not make any Acquisitions, other than the
Initial Acquisitions and other Acquisitions meeting the following requirements
(each such Acquisition constituting a "PERMITTED ACQUISITION"):
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(a) no Default or Unmatured Default shall have occurred and be
continuing or would result from such Acquisition or the incurrence of any
Indebtedness in connection therewith;
(b) in the case of an Acquisition of Equity Interests of an entity,
such Acquisition shall be of at least ninety percent (90%) of the Equity
Interests of such entity;
(c) the businesses being acquired shall be substantially similar,
related or incidental to the businesses or activities engaged in by the
Borrower and its Subsidiaries on the Closing Date;
(d) the Indebtedness incurred by the Borrower to the Seller as part
of the consideration therefor (other than Indebtedness assumed in
connection therewith and permitted pursuant to CLAUSES (IX), (XII) or
(XIII) of SECTION 7.3(A)) shall be Permitted Subordinated Indebtedness
under SECTION 7.3(A);
(e) prior to each such Acquisition, the Borrower shall deliver to
the Agent and the Lenders a certificate from one of the Authorized
Officers, (1) calculating the purchase price and EBITDA for purposes of
CLAUSE (H) below; and (2) certifying that after giving effect to such
Acquisition and the incurrence of any Indebtedness hereunder and permitted
by SECTION 7.3(A) in connection therewith, on a PRO FORMA basis, as if the
Acquisition and such incurrence of Indebtedness had occurred on the first
day of the twelve-month period ending on the last day of the Borrower's
most recently completed fiscal quarter, the Borrower would have been in
compliance with all of the covenants contained in this Agreement,
including, without limitation, the financial covenants set forth in
SECTION 7.4;
(f) the purchase is consummated pursuant to a negotiated acquisition
agreement on a non-hostile basis;
(g) after giving effect to such Acquisition, the representations and
warranties set forth in ARTICLE VI hereof shall be true and correct in all
material respects on and as of the date of such Acquisition with the same
effect as though made on and as of such date; and
(h) the written consent of the Required Lenders shall have been
obtained in connection with any Acquisition if (1) the aggregate of the
cash portion of the purchase price together with Indebtedness incurred in
connection with such Acquisition is greater than $35,000,000 or (2) the
aggregate purchase price (including, without limitation, cash, stock,
indebtedness, assumed liabilities, and transaction related contractual
payments, including amounts payable under non-compete, consulting or
similar agreements)(valuing all non-cash consideration at Fair Value) is
equal to or greater than eight (8) times the EBITDA of the target entity
for the last 12-month period preceding such Acquisition for which
financial statements are available.
With respect to any Acquisition where the target entity's assets are equal to or
greater than five percent (5.0%) of the Borrower's and its Subsidiaries'
consolidated assets, the Borrower shall (a) have obtained (and shall have based
the calculations set forth above on) historical audited financial statements for
the target and/or reviewed unaudited financial statements for the target for a
period
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of not less than two years, obtained from the seller or provided by independent
certified public accountants retained for the purposes of such Acquisition,
broken down by fiscal quarter in the Borrower's reasonable judgment, copies of
which shall be provided to the Agent and the Lenders and (b) at the request of
the Required Lenders (such request not to be made more frequently than once in
any fiscal quarter) provide such financial information as shall be reasonably
acceptable to the Agent and the Required Lenders demonstrating the Borrower's
PRO FORMA compliance with the covenants after taking into account such
Acquisition and the incurrence of any Indebtedness in connection therewith..
(H) TRANSACTIONS WITH SHAREHOLDERS AND AFFILIATES. Neither the Borrower
nor any of its Subsidiaries shall directly or indirectly enter into or permit to
exist any transaction (including, without limitation, the purchase, sale, lease
or exchange of any property or the rendering of any service) with any holder or
holders of any of the Equity Interests of the Borrower, or with any Affiliate of
the Borrower which is not its Subsidiary, on terms that are less favorable to
the Borrower or any of its Subsidiaries, as applicable, than those that might be
obtained in an arm's length transaction at the time from Persons who are not
such a holder or Affiliate, except for Restricted Payments permitted by SECTION
7.3(F).
(I) RESTRICTION ON FUNDAMENTAL CHANGES. Neither the Borrower nor any of
its Subsidiaries shall enter into any merger or consolidation, or liquidate,
wind-up or dissolve (or suffer any liquidation or dissolution), or convey,
lease, sell, transfer or otherwise dispose of, in one transaction or series of
transactions, all or substantially all of the Borrower's or any such
Subsidiary's business or property, whether now or hereafter acquired, except (i)
transactions permitted under SECTIONS 7.3(B) or 7.3(G) (ii) the merger of a
Subsidiary of the Borrower into a Person acquired in connection with a Permitted
Acquisition; (iii) the merger of a wholly-owned Subsidiary of the Borrower with
and into the Borrower; and (iv) the merger of a Subsidiary of the Borrower with
another Subsidiary of the Borrower; PROVIDED, HOWEVER, (i) with respect to any
such permitted mergers involving any Guarantor, the surviving corporation in the
merger shall also be or become a Guarantor; and (ii) after the consummation of
any such transaction, the Borrower shall be in compliance with the provisions of
SECTIONS 7.2(K) and 7.3(E).
(J) SALES AND LEASEBACKS. Other than the lease transactions disclosed in
the Registration Statement, neither the Borrower nor any of its Subsidiaries
shall become liable, directly, by assumption or by Contingent Obligation, with
respect to any lease, whether an operating lease or a Capitalized Lease, of any
property (whether real or personal or mixed) (i) which it or one of its
Subsidiaries sold or transferred or is to sell or transfer to any other Person,
or (ii) which it or one of its Subsidiaries intends to use for substantially the
same purposes as any other property which has been or is to be sold or
transferred by it or one of its Subsidiaries to any other Person in connection
with such lease, unless (i) the sale involved is not prohibited under SECTION
7.3(B), (ii) the lease does not involve Indebtedness prohibited under SECTION
7.3(A) and (iii) the aggregate amount of all obligations incurred by the
Borrower and its Subsidiaries in connection therewith does not exceed
$10,000,000 outstanding at any time.
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(K) MARGIN REGULATIONS. Neither the Borrower nor any of its Subsidiaries,
shall use all or any portion of the proceeds of any credit extended under this
Agreement to purchase or carry Margin Stock.
(L) ERISA. The Borrower shall not
(i) engage, or permit any of its Subsidiaries to engage, in any
prohibited transaction described in Sections 406 of ERISA or 4975 of the
Code for which a statutory or class exemption is not available or a
private exemption has not been previously obtained from the DOL;
(ii) permit to exist any accumulated funding deficiency (as defined
in Sections 302 of ERISA and 412 of the Code), with respect to any Benefit
Plan, whether or not waived;
(iii) fail, or permit any Controlled Group member to fail, to pay
timely required contributions or annual installments due with respect to
any waived funding deficiency to any Benefit Plan;
(iv) terminate, or permit any Controlled Group member to terminate,
any Benefit Plan which would result in any liability of the Borrower or
any Controlled Group member under Title IV of ERISA;
(v) fail to make any contribution or payment to any Multiemployer
Plan which the Borrower or any Controlled Group member may be required to
make under any agreement relating to such Multiemployer Plan, or any law
pertaining thereto;
(vi) fail, or permit any Controlled Group member to fail, to pay any
required installment or any other payment required under Section 412 of
the Code on or before the due date for such installment or other payment;
or
(vii) amend, or permit any Controlled Group member to amend, a Plan
resulting in an increase in current liability for the plan year such that
the Borrower or any Controlled Group member is required to provide
security to such Plan under Section 401(a)(29) of the Code,
except where such transactions, events, circumstances, or failures will not have
or is not reasonably likely to subject the Borrower and its Subsidiaries to
liability individually or in the aggregate in excess of $10,000,000.
(M) ISSUANCE OF EQUITY INTERESTS. The Borrower shall not issue any Equity
Interests if as a result of such issuance a Change of Control shall occur. None
of the Borrower's Subsidiaries shall issue any Equity Interests other than to
the Borrower.
(N) CORPORATE DOCUMENTS. Neither the Borrower nor any of its Subsidiaries
shall amend, modify or otherwise change any of the terms or provisions in any of
their respective constituent
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documents as in effect on the date hereof in any manner adverse in any material
respect to the interests of the Lenders, without the prior written consent of
the Required Lenders.
(O) FISCAL YEAR. Neither the Borrower nor any of its consolidated
Subsidiaries shall change its fiscal year for accounting or tax purposes from a
period consisting of the 12-month period ending on December 31 of each calendar
year.
(P) SUBSIDIARY COVENANTS. The Borrower will not, and will not permit any
Subsidiary to, create or otherwise cause to become effective any consensual
encumbrance or restriction of any kind on the ability of any Subsidiary to pay
dividends or make any other distribution on its stock, or make any other
Restricted Payment, pay any Indebtedness or other Obligation owed to the
Borrower or any other Subsidiary, make loans or advances or other Investments in
the Borrower or any other Subsidiary, or sell, transfer or otherwise convey any
of its property to the Borrower or any other Subsidiary.
(Q) HEDGING OBLIGATIONS. The Borrower shall not and shall not permit any
of its Subsidiaries to enter into any interest rate, commodity or foreign
currency exchange, swap, collar, cap or similar agreements evidencing Hedging
Obligations, other than interest rate, foreign currency or commodity exchange,
swap, collar, cap or similar agreements entered into by the Borrower or a
Subsidiary pursuant to which the Borrower or such Subsidiary has hedged its
actual interest rate, foreign currency or commodity exposure.
7.4 FINANCIAL COVENANTS. The Borrower shall comply with the following:
(A) FIXED CHARGE COVERAGE RATIO. The Borrower shall maintain a ratio
("FIXED CHARGE COVERAGE RATIO") of (i) the sum of (a) EBITDA, MINUS (b)
depreciation expense, to the extent included in the calculation of EBITDA, PLUS
(c) Rentals of the Borrower and its consolidated Subsidiaries to (ii) Interest
Expense PLUS Rentals of the Borrower and its consolidated Subsidiaries of at
least 3.00 to 1.00 for each fiscal quarter ending from and after the Closing
Date. In each case the Fixed Charge Coverage Ratio shall be determined as of the
last day of each fiscal quarter for the four-quarter period ending on such day.
(B) TOTAL DEBT TO EBITDA RATIO. The Borrower shall not at any time permit
the ratio (the "LEVERAGE RATIO") of (i) Total Debt of the Borrower and its
consolidated Subsidiaries to (ii) EBITDA of the Borrower and its consolidated
Subsidiaries, to be greater than 3.25 to 1.00. The Leverage Ratio shall be
calculated, in each case, determined as of the last day of each fiscal quarter
based upon (a) for Total Debt, Total Debt as of the last day of each such fiscal
quarter; and (b) for EBITDA, EBITDA for the twelve-month period ending on such
day calculated as set forth in the definition thereof.
(C) MINIMUM CONSOLIDATED TANGIBLE NET WORTH. The Borrower shall not permit
its Consolidated Tangible Net Worth at any time to be less than the sum of (a)
$40,000,000, PLUS (b) fifty percent (50%) of Net Income (if positive) calculated
separately for each fiscal quarter ending after December 31, 1996, PLUS (c)
fifty-percent (50%) of the Fair Value of all Capital Stock issued in
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connection with any Permitted Acquisition as part of the consideration therefor;
PLUS (d) seventy-five percent (75%) of the net cash proceeds resulting from the
issuance by the Borrower or any of its Subsidiaries of any Capital Stock (other
than in connection with the Public Offering and other than as part of the
consideration for a Permitted Acquisition).
(D) CAPITAL EXPENDITURES. The Borrower will not, nor will it permit any
Subsidiary to, expend, or be committed to expend, for Capital Expenditures in
the acquisition of fixed assets, during any period of four fiscal quarters, on a
non-cumulative basis except as provided herein, in the aggregate for the
Borrower and its Subsidiaries, in excess of three percent (3%) of consolidated
revenues of the Borrower and its Subsidiaries for the immediately preceding four
fiscal quarters.
ARTICLE VIII: DEFAULTS
8.1 DEFAULTS. Each of the following occurrences shall constitute a Default
under this Agreement:
(a) FAILURE TO MAKE PAYMENTS WHEN DUE. The Borrower shall (i) fail to pay
when due any of the Obligations consisting of principal with respect to the
Loans or (ii) shall fail to pay within three (3) Business Days of the date when
due any of the other Obligations under this Agreement or the other Loan
Documents.
(b) BREACH OF CERTAIN COVENANTS. The Borrower shall fail duly and
punctually to perform or observe any agreement, covenant or obligation binding
on the Borrower under:
(i) SECTION 7.1(I) or 7.2(B) and such failure shall continue
unremedied for fifteen (15) days;
(ii) SECTIONS 7.1(A), 7.2(C), 7.2(D), 7.2(E), 7.2(G) and including
7.2(I) and such failure shall continue unremedied for five (5) Business
Days; or
(iii) SECTIONS 7.1(B),7.2(A), 7.2(F), 7.2(J), 7.3 or 7.4.
(c) BREACH OF REPRESENTATION OR WARRANTY. Any representation or warranty
made or deemed made by the Borrower to the Agent or any Lender herein or by the
Borrower or any of its Subsidiaries in any of the other Loan Documents or in any
written statement or certificate at any time given by any such Person pursuant
to any of the Loan Documents shall be false or misleading in any material
respect on the date as of which made (or deemed made).
(d) OTHER DEFAULTS. The Borrower shall default in the performance of or
compliance with any term contained in this Agreement (other than as covered by
PARAGRAPHS (A), (B) or (C) of this SECTION 8.1), or the Borrower or any of its
Subsidiaries shall default in the performance of or compliance with any term
contained in any of the other Loan Documents, and such default shall continue
for thirty (30) days after the occurrence thereof.
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(e) DEFAULT AS TO OTHER INDEBTEDNESS. The Borrower or any of its
Subsidiaries shall fail to make any payment when due (whether by scheduled
maturity, required prepayment, acceleration, demand or otherwise) with respect
to any Indebtedness the outstanding principal amount of which Indebtedness is in
excess of $5,000,000; or any breach, default or event of default shall occur, or
any other condition shall exist under any instrument, agreement or indenture
pertaining to any such Indebtedness, if the effect thereof is to cause an
acceleration, mandatory redemption, a requirement that the Borrower offer to
purchase such Indebtedness or other required repurchase of such Indebtedness, or
permit the holder(s) of such Indebtedness to accelerate the maturity of any such
Indebtedness or require a redemption or other repurchase of such Indebtedness;
or any such Indebtedness shall be otherwise declared to be due and payable (by
acceleration or otherwise) or required to be prepaid, redeemed or otherwise
repurchased by the Borrower or any of its Subsidiaries (other than by a
regularly scheduled required prepayment) prior to the stated maturity thereof.
(f) INVOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC.
(i) An involuntary case shall be commenced against the Borrower or
any of the Borrower's Subsidiaries and the petition shall not be
dismissed, stayed, bonded or discharged within sixty (60) days after
commencement of the case; or a court having jurisdiction in the premises
shall enter a decree or order for relief in respect of the Borrower or any
of the Borrower's Subsidiaries in an involuntary case, under any
applicable bankruptcy, insolvency or other similar law now or hereinafter
in effect; or any other similar relief shall be granted under any
applicable federal, state, local or foreign law.
(ii) A decree or order of a court having jurisdiction in the
premises for the appointment of a receiver, liquidator, sequestrator,
trustee, custodian or other officer having similar powers over the
Borrower or any of the Borrower's Subsidiaries or over all or a
substantial part of the property of the Borrower or any of the Borrower's
Subsidiaries shall be entered; or an interim receiver, trustee or other
custodian of the Borrower or any of the Borrower's Subsidiaries or of all
or a substantial part of the property of the Borrower or any of the
Borrower's Subsidiaries shall be appointed or a warrant of attachment,
execution or similar process against any substantial part of the property
of the Borrower or any of the Borrower's Subsidiaries shall be issued and
any such event shall not be stayed, dismissed, bonded or discharged within
sixty (60) days after entry, appointment or issuance.
(g) VOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC. The Borrower or
any of the Borrower's Subsidiaries shall (i) commence a voluntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, (ii) consent to the entry of an order for relief in an involuntary case,
or to the conversion of an involuntary case to a voluntary case, under any such
law, (iii) consent to the appointment of or taking possession by a receiver,
trustee or other custodian for all or a substantial part of its property, (iv)
make any assignment for the benefit of creditors or (v) take any corporate
action to authorize any of the foregoing.
(h) JUDGMENTS AND ATTACHMENTS. Any money judgment(s), writ or warrant of
attachment, or similar process against the Borrower or any of its Subsidiaries
or any of their respective assets involving in any single case or in the
aggregate an amount in excess of $5,000,000 is or are entered
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and shall remain undischarged, unvacated, unbonded or unstayed for a period of
sixty (60) days or in any event later than fifteen (15) days prior to the date
of any proposed sale thereunder.
(i) DISSOLUTION. Any order, judgment or decree shall be entered against
the Borrower or any of its Subsidiaries decreeing its involuntary dissolution or
split up and such order shall remain undischarged and unstayed for a period in
excess of sixty (60) days; or the Borrower or any of its Subsidiaries shall
otherwise dissolve or cease to exist except as specifically permitted by this
Agreement.
(j) LOAN DOCUMENTS. At any time, for any reason, any Loan Document as a
whole that materially affects the ability of the Agent, or any of the Lenders to
enforce the Obligations ceases to be in full force and effect or the Borrower or
any of the Borrower's Subsidiaries party thereto seeks to repudiate its
obligations thereunder.
(k) TERMINATION EVENT. Any Termination Event occurs which is reasonably
likely to subject the Borrower or any of its Subsidiaries to liability
individually or in the aggregate in excess of $10,000,000.
(l) WAIVER OF MINIMUM FUNDING STANDARD. If the plan administrator of any
Plan applies under Section 412(d) of the Code for a waiver of the minimum
funding standards of Section 412(a) of the Code and any Lender believes the
substantial business hardship upon which the application for the waiver is based
could reasonably be expected to subject either the Borrower or any Controlled
Group member to liability individually or in the aggregate in excess of
$1,000,000.
(m) CHANGE OF CONTROL. A Change of Control shall occur.
(n) HEDGING AGREEMENTS. Nonpayment by the Borrower or any Subsidiary of
any obligation under any contract with respect to Hedging Obligations entered
into by the Borrower or such Subsidiary with any Lender (or Affiliate thereof)
or the breach by the Borrower or Subsidiary of any other term, provision or
condition contained in any agreement and such nonpayment or breach shall
continue for ten (10) days after the occurrence thereof.
(o) GUARANTOR DEFAULT OR REVOCATION. Any Guaranty shall fail to remain in
full force or effect or any action shall be taken by the Borrower or any
Subsidiary to discontinue or to assert the invalidity or unenforceability of any
Guaranty, or any Guarantor shall fail to comply with any of the terms or
provisions of any Guaranty to which it is a party, or any Guarantor denies that
it has any further liability under any Guaranty to which it is a party, or gives
notice to such effect.
(p) FAILURE OF SUBORDINATION. The subordination provisions of the
documents and instruments evidencing any Permitted Subordinated Indebtedness in
an individual or aggregate principal amount outstanding in excess of $5,000,000
shall, at any time, be invalidated or otherwise cease to be in full force and
effect.
A Default shall be deemed "continuing" until cured or until waived in
writing in accordance with SECTION 9.3.
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ARTICLE IX: ACCELERATION, DEFAULTING LENDERS; WAIVERS, AMENDMENTS AND REMEDIES
9.1 TERMINATION OF COMMITMENTS; ACCELERATION. If any Default described in
SECTION 8.1(F) or 8.1(G) occurs with respect to the Borrower, the obligations of
the Lenders to make Loans hereunder and the obligation of the Agent to issue
Letters of Credit hereunder shall automatically terminate and the Obligations
shall immediately become due and payable without any election or action on the
part of the Agent or any Lender. If any other Default occurs, the Required
Lenders may terminate or suspend the obligations of the Lenders to make Loans
hereunder and the obligation of the Issuing Banks to issue Letters of Credit
hereunder, or declare the Obligations to be due and payable, or both, whereupon,
after written notice to the Borrower, the Obligations shall become immediately
due and payable, without presentment, demand, protest or other notice of any
kind, all of which the Borrower expressly waives.
9.2 DEFAULTING LENDER. In the event that any Lender fails to fund its Pro
Rata Share of any Advance requested or deemed requested by the Borrower, which
such Lender is obligated to fund under the terms of this Agreement (the funded
portion of such Advance being hereinafter referred to as a "NON PRO RATA LOAN"),
until the earlier of such Lender's cure of such failure and the termination of
the Commitments, the proceeds of all amounts thereafter repaid to the Agent by
the Borrower and otherwise required to be applied to such Lender's share of all
other Obligations pursuant to the terms of this Agreement shall be advanced to
the Borrower by the Agent on behalf of such Lender to cure, in full or in part,
such failure by such Lender, but shall nevertheless be deemed to have been paid
to such Lender in satisfaction of such other Obligations. Notwithstanding
anything in this Agreement to the contrary:
(i) the foregoing provisions of this SECTION 9.2 shall apply only
with respect to the proceeds of payments of Obligations and shall not
affect the conversion or continuation of Loans pursuant to SECTION 2.8;
(ii) any such Lender shall be deemed to have cured its failure to
fund its Pro Rata Share of any Advance at such time as an amount equal to
such Lender's original Pro Rata Share of the requested principal portion
of such Advance is fully funded to the Borrower, whether made by such
Lender itself or by operation of the terms of this SECTION 9.2, and
whether or not the Non Pro Rata Loan with respect thereto has been repaid,
converted or continued;
(iii) amounts advanced to the Borrower to cure, in full or in part,
any such Lender's failure to fund its Pro Rata Share of any Advance ("CURE
LOANS") shall bear interest at the rate applicable to Floating Rate Loans
in effect from time to time, and for all other purposes of this Agreement
shall be treated as if they were Floating Rate Loans;
(iv) regardless of whether or not a Default has occurred or is
continuing, and notwithstanding the instructions of the Borrower as to its
desired application, all
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repayments of principal which, in accordance with the other terms of this
Agreement, would be applied to the outstanding Floating Rate Loans shall
be applied FIRST, ratably to all Floating Rate Loans constituting Non Pro
Rata Loans, SECOND, ratably to Floating Rate Loans other than those
constituting Non Pro Rata Loans or Cure Loans and, THIRD, ratably to
Floating Rate Loans constituting Cure Loans;
(v) for so long as and until the earlier of any such Lender's cure
of the failure to fund its Pro Rata Share of any Advance and the
termination of the Commitments, the term "Required Lenders" for purposes
of this Agreement shall mean Lenders (excluding all Lenders whose failure
to fund their respective Pro Rata Shares of such Advance have not been so
cured) whose Pro Rata Shares represent at least fifty-one percent (51%) of
the aggregate Pro Rata Shares of such Lenders; and
(vi) for so long as and until any such Lender's failure to fund its
Pro Rata Share of any Advance is cured in accordance with SECTION 9.2(II),
(A) such Lender shall not be entitled to any commitment fees with respect
to its Commitment and (B) such Lender shall not be entitled to any letter
of credit fees, which commitment fees and letter of credit fees shall
accrue in favor of the Lenders which have funded their respective Pro Rata
Share of such requested Advance, shall be allocated among such performing
Lenders ratably based upon their relative Commitments, and shall be
calculated based upon the average amount by which the aggregate
Commitments of such performing Lenders exceeds the sum of (I) the
outstanding principal amount of the Loans owing to such performing
Lenders, PLUS (II) the outstanding Reimbursement Obligations owing to such
performing Lenders, PLUS (III) the aggregate participation interests of
such performing Lenders arising pursuant to SECTION 3.5 with respect to
undrawn and outstanding Letters of Credit.
9.3 AMENDMENTS. Subject to the provisions of this ARTICLE IX, the Required
Lenders (or the Agent with the consent in writing of the Required Lenders) and
the Borrower may enter into agreements supplemental hereto for the purpose of
adding or modifying any provisions to the Loan Documents or changing in any
manner the rights of the Lenders or the Borrower hereunder or waiving any
Default hereunder; PROVIDED, HOWEVER, that no such supplemental agreement shall,
without the consent of each Lender affected thereby:
(i) Postpone or extend the Termination Date or any other date fixed
for any payment of principal of, or interest on, the Loans, the
Reimbursement Obligations or any fees or other amounts payable to such
Lender (except with respect to (a) any modifications of the provisions
relating to prepayments of Loans and other Obligations and (b) a waiver of
the application of the default rate of interest pursuant to SECTION 2.9
hereof);
(ii) Reduce the principal amount of any Loans or L/C Obligations, or
reduce the rate or extend the time of payment of interest or fees thereon;
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(iii) Reduce the percentage specified in the definition of Required
Lenders or any other percentage of Lenders specified to be the applicable
percentage in this Agreement to act on specified matters;
(iv) Other than pursuant to the provisions of SECTION 2.4(B),
increase the amount of the Commitment of any Lender hereunder;
(v) Permit the Borrower to assign its rights under this Agreement;
(vi) Amend this SECTION 9.3;
(vii) Release any guarantor of the Obligations; or
(viii) Amend the terms of SECTION 12.2.
No amendment of any provision of this Agreement relating to (a) the Agent shall
be effective without the written consent of the Agent, (b) Swing Line Loans
shall be effective without the written consent of the Swing Line Bank and (c)
Letters of Credit shall be effective without the written consent of the Issuing
Banks. The Agent may waive payment of the fee required under SECTION 13.3(B)
without obtaining the consent of any of the Lenders.
9.4 PRESERVATION OF RIGHTS. No delay or omission of the Lenders or the
Agent to exercise any right under the Loan Documents shall impair such right or
be construed to be a waiver of any Default or an acquiescence therein, and the
making of a Loan or the issuance of a Letter of Credit notwithstanding the
existence of a Default or the inability of the Borrower to satisfy the
conditions precedent to such Loan or issuance of such Letter of Credit shall not
constitute any waiver or acquiescence. Any single or partial exercise of any
such right shall not preclude other or further exercise thereof or the exercise
of any other right, and no waiver, amendment or other variation of the terms,
conditions or provisions of the Loan Documents whatsoever shall be valid unless
in writing signed by the Lenders required pursuant to SECTION 9.3, and then only
to the extent in such writing specifically set forth. All remedies contained in
the Loan Documents or by law afforded shall be cumulative and all shall be
available to the Agent and the Lenders until the Obligations have been paid in
full.
ARTICLE X: GENERAL PROVISIONS
10.1 SURVIVAL OF REPRESENTATIONS. All representations and warranties of
the Borrower contained in this Agreement shall survive delivery of the Notes and
the making of the Loans herein contemplated.
10.2 GOVERNMENTAL REGULATION. Anything contained in this Agreement to the
contrary notwithstanding, no Lender shall be obligated to extend credit to the
Borrower in violation of any limitation or prohibition provided by any
applicable statute or regulation.
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10.3 PERFORMANCE OF OBLIGATIONS. The Borrower agrees that the Agent may,
but shall have no obligation, after the occurrence and during the continuance of
a Default to make any payment or perform any act required of the Borrower under
any Loan Document or take any other action which the Agent in its discretion
deems necessary or desirable to enhance the likelihood of repayment of the
Obligations. The Agent shall use its reasonable efforts to give the Borrower and
the Lenders notice of any action taken under this SECTION 10.3 prior to the
taking of such action or promptly thereafter provided the failure to give such
notice shall not affect the Borrower's or Lenders' obligations in respect
thereof. The Borrower agrees to pay the Agent, upon demand, the principal amount
of all funds advanced by the Agent under this SECTION 10.3, together with
interest thereon at the rate from time to time applicable to Floating Rate Loans
from the date of such advance until the outstanding principal balance thereof is
paid in full. If the Borrower fails to make payment in respect of any such
advance under this SECTION 10.3 within one (1) Business Day after the date the
Borrower receives written demand therefor from the Agent, the Agent shall
promptly notify each Lender and each Lender agrees that it shall thereupon make
available to the Agent, in Dollars in immediately available funds, the amount
equal to such Lender's Pro Rata Share of such advance. If such funds are not
made available to the Agent by such Lender within one (1) Business Day after the
Agent's demand therefor, the Agent will be entitled to recover any such amount
from such Lender together with interest thereon at the Federal Funds Effective
Rate for each day during the period commencing on the date of such demand and
ending on the date such amount is received. The failure of any Lender to make
available to the Agent its Pro Rata Share of any such unreimbursed advance under
this SECTION 10.3 shall neither relieve any other Lender of its obligation
hereunder to make available to the Agent such other Lender's Pro Rata Share of
such advance on the date such payment is to be made nor increase the obligation
of any other Lender to make such payment to the Agent. All outstanding principal
of, and interest on, advances made under this SECTION 10.3 shall constitute
Obligations for purposes hereof.
10.4 HEADINGS. Section headings in the Loan Documents are for convenience
of reference only, and shall not govern the interpretation of any of the
provisions of the Loan Documents.
10.5 ENTIRE AGREEMENT. The Loan Documents embody the entire agreement and
understanding among the Borrower, the Agent and the Lenders and supersede all
prior agreements and understandings among the Borrower, the Agent and the
Lenders relating to the subject matter thereof.
10.6 SEVERAL OBLIGATIONS; BENEFITS OF THIS AGREEMENT. The respective
obligations of the Lenders hereunder are several and not joint and no Lender
shall be the partner or agent of any other Lender (except to the extent to which
the Agent is authorized to act as such). The failure of any Lender to perform
any of its obligations hereunder shall not relieve any other Lender from any of
its obligations hereunder. This Agreement shall not be construed so as to confer
any right or benefit upon any Person other than the parties to this Agreement
and their respective successors and assigns.
10.7 EXPENSES; INDEMNIFICATION.
(A) EXPENSES. The Borrower shall reimburse the Agent for any reasonable
costs, internal charges and out-of-pocket expenses (including reasonable
attorneys' and paralegals' fees and time
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charges of attorneys and paralegals for the Agent, which attorneys and
paralegals may be employees of the Agent) paid or incurred by the Agent in
connection with the preparation, negotiation, execution, delivery, syndication,
review, amendment, modification, and administration of the Loan Documents. The
Borrower also agrees to reimburse the Agent and the Lenders for any costs,
internal charges and out-of-pocket expenses (including attorneys' and
paralegals' fees and time charges of attorneys and paralegals for the Agent and
the Lenders, which attorneys and paralegals may be employees of the Agent or the
Lenders) paid or incurred by the Agent or any Lender in connection with the
collection of the Obligations and enforcement of the Loan Documents. In addition
to expenses set forth above, the Borrower agrees to reimburse the Agent,
promptly after the Agent's request therefor, for each audit or other business
analysis performed by or for the benefit of the Lenders in connection with this
Agreement or the other Loan Documents at a time when a Default exists in an
amount equal to the Agent's then reasonable and customary charges for each
person employed to perform such audit or analysis, plus all costs and expenses
(including without limitation, travel expenses) incurred by the Agent in the
performance of such audit or analysis. Agent shall provide the Borrower with a
detailed statement of all reimbursements requested under this SECTION 10.7(A).
(B) INDEMNITY. The Borrower further agrees to defend, protect, indemnify,
and hold harmless the Agent and each and all of the Lenders and each of their
respective Affiliates, and each of such Agent's, Lender's, or Affiliate's
respective officers, directors, employees, attorneys and agents (including,
without limitation, those retained in connection with the satisfaction or
attempted satisfaction of any of the conditions set forth in ARTICLE V)
(collectively, the "INDEMNITEES") from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, claims,
costs, expenses of any kind or nature whatsoever (including, without limitation,
the fees and disbursements of counsel for such Indemnitees in connection with
any investigative, administrative or judicial proceeding, whether or not such
Indemnitees shall be designated a party thereto), imposed on, incurred by, or
asserted against such Indemnitees in any manner relating to or arising out of:
(i) this Agreement, the other Loan Documents or any of the
Transaction Documents, or any act, event or transaction related or
attendant thereto or to the Initial Acquisitions, any Permitted
Acquisition, the Mergers, the Public Offering or the Related Transactions,
the making of the Loans, and the issuance of and participation in Letters
of Credit hereunder, the management of such Loans or Letters of Credit,
the use or intended use of the proceeds of the Loans or Letters of Credit
hereunder, or any of the other transactions contemplated by the
Transaction Documents; or
(ii) any liabilities, obligations, responsibilities, losses,
damages, personal injury, death, punitive damages, economic damages,
consequential damages, treble damages, intentional, willful or wanton
injury, damage or threat to the environment, natural resources or public
health or welfare, costs and expenses (including, without limitation,
attorney, expert and consulting fees and costs of investigation,
feasibility or remedial action studies), fines, penalties and monetary
sanctions, interest, direct or indirect, known or unknown, absolute or
contingent, past, present or future relating to violation of any
Environmental, Health or Safety Requirements of Law arising from or in
connection with the past, present or future operations of the Borrower,
its Subsidiaries or any of their respective predecessors in interest, or,
the
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past, present or future environmental, health or safety condition of any
respective property of the Borrower or its Subsidiaries, the presence of
asbestos-containing materials at any respective property of the Borrower
or its Subsidiaries or the Release or threatened Release of any
Contaminant into the environment (collectively, the "INDEMNIFIED
MATTERS");
PROVIDED, HOWEVER, the Borrower shall have no obligation to an Indemnitee
hereunder with respect to Indemnified Matters caused by or resulting from (y) a
dispute among the Lenders or a dispute between any Lender and the Agent, or (z)
the willful misconduct or Gross Negligence of such Indemnitee or breach of
contract by such Indemnitee with respect to the Loan Documents, in each case, as
determined by the final non-appealed judgment of a court of competent
jurisdiction. If the undertaking to indemnify, pay and hold harmless set forth
in the preceding sentence may be unenforceable because it is violative of any
law or public policy, the Borrower shall contribute the maximum portion which it
is permitted to pay and satisfy under applicable law, to the payment and
satisfaction of all Indemnified Matters incurred by the Indemnitees.
(C) WAIVER OF CERTAIN CLAIMS; SETTLEMENT OF CLAIMS. The Borrower further
agrees to assert no claim against any of the Indemnitees on any theory of
liability for consequential, special, indirect, exemplary or punitive damages.
No settlement shall be entered into by the Borrower or any if its Subsidiaries
with respect to any claim, litigation, arbitration or other proceeding relating
to or arising out of the transactions evidenced by this Agreement, the other
Loan Documents or in connection with the Initial Acquisitions, any Permitted
Acquisition, the Mergers, the Public Offering or Related Transactions (whether
or not the Agent or any Lender or any Indemnitee is a party thereto) unless such
settlement releases all Indemnitees from any and all liability with respect
thereto.
(D) SURVIVAL OF AGREEMENTS. The obligations and agreements of the Borrower
under this SECTION 10.7 shall survive the termination of this Agreement.
10.8 NUMBERS OF DOCUMENTS. All statements, notices, closing documents, and
requests hereunder shall be furnished to the Agent with sufficient counterparts
so that the Agent may furnish one to each of the Lenders.
10.9 ACCOUNTING. Except as provided to the contrary herein, all accounting
terms used herein shall be interpreted and all accounting determinations
hereunder shall be made in accordance with Agreement Accounting Principles.
10.10 SEVERABILITY OF PROVISIONS. Any provision in any Loan Document that
is held to be inoperative, unenforceable, or invalid in any jurisdiction shall,
as to that jurisdiction, be inoperative, unenforceable, or invalid without
affecting the remaining provisions in that jurisdiction or the operation,
enforceability, or validity of that provision in any other jurisdiction, and to
this end the provisions of all Loan Documents are declared to be severable.
10.11 NONLIABILITY OF LENDERS. The relationship between the Borrower and
the Lenders and the Agent shall be solely that of borrower and lender. Neither
the Agent nor any Lender shall have any fiduciary responsibilities to the
Borrower. Neither the Agent nor any Lender undertakes any
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responsibility to the Borrower to review or inform the Borrower of any matter in
connection with any phase of the Borrower's business or operations.
10.12 GOVERNING LAW. ANY DISPUTE BETWEEN THE BORROWER AND THE AGENT, ANY
LENDER, OR ANY INDEMNITEE ARISING OUT OF, CONNECTED WITH, RELATED TO, OR
INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH, THIS
AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, AND WHETHER ARISING IN CONTRACT,
TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED IN ACCORDANCE WITH THE INTERNAL
LAWS (INCLUDING, WITHOUT LIMITATION, SECTION 5-1401 OF THE GENERAL OBLIGATIONS
LAW, BUT OTHERWISE WITHOUT REGARD TO THE CONFLICTS OF LAWS PROVISIONS) OF THE
STATE OF NEW YORK.
10.13 CONSENT TO JURISDICTION; SERVICE OF PROCESS; JURY TRIAL.
(A) EXCLUSIVE JURISDICTION. EXCEPT AS PROVIDED IN SUBSECTION (B), EACH OF
THE PARTIES HERETO AGREES THAT ALL DISPUTES AMONG THEM ARISING OUT OF, CONNECTED
WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN
CONNECTION WITH, THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS WHETHER
ARISING IN CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED EXCLUSIVELY
BY STATE OR FEDERAL COURTS LOCATED IN NEW YORK, NEW YORK, BUT THE PARTIES HERETO
ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT
LOCATED OUTSIDE OF NEW YORK, NEW YORK. EACH OF THE PARTIES HERETO WAIVES IN ALL
DISPUTES BROUGHT PURSUANT TO THIS SUBSECTION (A) ANY OBJECTION THAT IT MAY HAVE
TO THE LOCATION OF THE COURT CONSIDERING THE DISPUTE.
(B) OTHER JURISDICTIONS. THE BORROWER AGREES THAT THE AGENT, ANY LENDER OR
ANY INDEMNITEE SHALL HAVE THE RIGHT TO PROCEED AGAINST THE BORROWER OR ITS
PROPERTY IN A COURT IN ANY LOCATION TO ENABLE SUCH PERSON TO (1) OBTAIN PERSONAL
JURISDICTION OVER THE BORROWER OR (2) ENFORCE A JUDGMENT OR OTHER COURT ORDER
ENTERED IN FAVOR OF SUCH PERSON. THE BORROWER AGREES THAT IT WILL NOT ASSERT ANY
PERMISSIVE COUNTERCLAIMS IN ANY PROCEEDING BROUGHT BY SUCH PERSON TO ENFORCE A
JUDGMENT OR OTHER COURT ORDER IN FAVOR OF SUCH PERSON. THE BORROWER WAIVES ANY
OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT IN WHICH SUCH PERSON HAS
COMMENCED A PROCEEDING DESCRIBED IN THIS SUBSECTION (B).
(C) SERVICE OF PROCESS. THE BORROWER WAIVES PERSONAL SERVICE OF ANY
PROCESS UPON IT AND IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY WRITS,
PROCESS OR SUMMONSES IN ANY SUIT, ACTION OR PROCEEDING BY THE MAILING THEREOF BY
THE AGENT OR THE LENDERS BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO
THE BORROWER ADDRESSED AS PROVIDED
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HEREIN. NOTHING HEREIN SHALL IN ANY WAY BE DEEMED TO LIMIT THE ABILITY OF THE
AGENT OR THE LENDERS TO SERVE ANY SUCH WRITS, PROCESS OR SUMMONSES IN ANY OTHER
MANNER PERMITTED BY APPLICABLE LAW THE BORROWER IRREVOCABLY WAIVES ANY OBJECTION
(INCLUDING, WITHOUT LIMITATION, ANY OBJECTION OF THE LAYING OF VENUE OR BASED ON
THE GROUNDS OF FORUM NON CONVENIENS) WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
BRINGING OF ANY SUCH ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY
OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION
HEREWITH IN ANY JURISDICTION SET FORTH ABOVE.
(D) WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES
ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING
IN CONTRACT, TORT, OR OTHERWISE, ARISING OUT OF, CONNECTED WITH, RELATED TO OR
INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS
AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED
IN CONNECTION HEREWITH. EACH OF THE PARTIES HERETO AGREES AND CONSENTS THAT ANY
SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL
WITHOUT A JURY AND THAT ANY PARTY HERETO MAY FILE AN ORIGINAL COUNTERPART OR A
COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE
PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
(E) WAIVER OF BOND. THE BORROWER WAIVES THE POSTING OF ANY BOND OTHERWISE
REQUIRED OF ANY PARTY HERETO IN CONNECTION WITH ANY JUDICIAL PROCESS OR
PROCEEDING TO ENFORCE ANY JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF SUCH
PARTY, OR TO ENFORCE BY SPECIFIC PERFORMANCE, TEMPORARY RESTRAINING ORDER,
PRELIMINARY OR PERMANENT INJUNCTION, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT.
(F) ADVICE OF COUNSEL. EACH OF THE PARTIES REPRESENTS TO EACH OTHER PARTY
HERETO THAT IT HAS DISCUSSED THIS AGREEMENT AND, SPECIFICALLY, THE PROVISIONS OF
THIS SECTION 10.13, WITH ITS COUNSEL.
10.14 NO STRICT CONSTRUCTION. The parties hereto have participated jointly
in the negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties hereto and no presumption or burden of
proof shall arise favoring or disfavoring any party by virtue of the authorship
of any provisions of this Agreement.
10.15 SUBORDINATION OF INTERCOMPANY INDEBTEDNESS. The Borrower agrees that
any and all claims of the Borrower against any Guarantor, any endorser or any
other guarantor of all or any part of the Obligations, or against any of its
properties, including, without limitation, pursuant to the any
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intercompany Indebtedness permitted under SECTION 7.3(A)(VI), shall be
subordinate and subject in right of payment to the prior payment, in full and in
cash, of all Obligations. Notwithstanding any right of the Borrower to ask,
demand, sue for, take or receive any payment from any Guarantor, all rights,
liens and security interests of the Borrower, whether now or hereafter arising
and howsoever existing, in any assets of any Guarantor shall be and are
subordinated to the rights, if any, of the Lenders and the Agent in those
assets. The Borrower shall have no right to possession of any such asset or to
foreclose upon any such asset, whether by judicial action or otherwise, unless
and until all of the Obligations shall have been paid in full in cash and
satisfied and all financing arrangements under this Agreement and the other Loan
Documents between the Borrower and the Agent and the Lenders have been
terminated. If, during the continuance of a Default, all or any part of the
assets of any Guarantor, or the proceeds thereof, are subject to any
distribution, division or application to the creditors of any Guarantor, whether
partial or complete, voluntary or involuntary, and whether by reason of
liquidation, bankruptcy, arrangement, receivership, assignment for the benefit
of creditors or any other action or proceeding, then, and in any such event, any
payment or distribution of any kind or character, either in cash, securities or
other property, which shall be payable or deliverable upon or with respect to
any indebtedness of any Guarantor to the Borrower, including, without
limitation, pursuant to the any intercompany Indebtedness permitted under
SECTION 7.3(A)(VI) ("INTERCOMPANY INDEBTEDNESS") shall be paid or delivered
directly to the Agent for application on any of the Obligations, due or to
become due, until such Obligations shall have first been paid in full in cash
and satisfied; PROVIDED, HOWEVER, ordinary course payments or distributions made
by any Guarantor to the Borrower shall be required to be paid or delivered to
the Agent only upon the Agent's request. The Borrower irrevocably authorizes and
empowers the Agent to demand, sue for, collect and receive every such payment or
distribution and give acquittance therefor and to make and present for and on
behalf of the Borrower such proofs of claim and take such other action, in the
Agent's own name or in the name of the Borrower or otherwise, as the Agent may
deem necessary or advisable for the enforcement of this SECTION 10.15. The Agent
may vote such proofs of claim in any such proceeding, receive and collect any
and all dividends or other payments or disbursements made thereon in whatever
form the same may be paid or issued and apply the same on account of any of the
Obligations. Should any payment, distribution, security or instrument or
proceeds thereof be received by the Borrower upon or with respect to the
Intercompany Indebtedness during the continuance of a Default and prior to the
satisfaction of all of the Obligations and the termination of all financing
arrangements under this Agreement and the other Loan Documents between the
Borrower and the Agent and the Lenders, the Borrower shall receive and hold the
same in trust, as trustee, for the benefit of the Agent and the Lenders and
shall forthwith deliver the same to the Agent, for the benefit of the Agent and
the Lenders, in precisely the form received (except for the endorsement or
assignment of the Borrower where necessary), for application to any of the
Obligations, due or not due, and, until so delivered, the same shall be held in
trust by the Borrower as the property of the Agent and the Lenders; PROVIDED,
HOWEVER, ordinary course payments or distributions made by any Guarantor to the
Borrower shall be required to be paid or delivered to the Agent only upon the
Agent's request. If the Borrower fails to make any such endorsement or
assignment to the Agent, the Agent or any of its officers or employees are
irrevocably authorized to make the same. The Borrower agrees that until the
Obligations have been paid in full in cash and satisfied and all financing
arrangements under this Agreement and the other Loan Documents between the
Borrower and the Agent and the Lenders have been terminated, the Borrower will
not assign or
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transfer to any Person (other than the Agent) any claim the Borrower has or may
have against any Guarantor.
10.16.USURY NOT INTENDED. It is the intent of the Borrower and each Lender
in the execution and performance of this Agreement and the other Loan Documents
to contract in strict compliance with applicable usury laws, including conflicts
of law concepts, governing the Advances of each Lender including such applicable
laws of the State of Texas and the United States of America from time-to-time in
effect. In furtherance thereof, the Lenders and the Borrower stipulate and agree
that none of the terms and provisions contained in this Agreement or the other
Loan Documents shall ever be construed to create a contract to pay, as
consideration for the use, forbearance or detention of money, interest at a rate
in excess of the Maximum Rate and that for purposes hereof "interest" shall
include the aggregate of all charges which constitute interest under such laws
that are contracted for, charged or received under this Agreement; and in the
event that, notwithstanding the foregoing, under any circumstances the aggregate
amounts taken, reserved, charged, received or paid on the Advances, include
amounts which by applicable law are deemed interest which would exceed the
Maximum Rate, then such excess shall be deemed to be a mistake and each Lender
receiving same shall credit the same on the principal of its Notes (or if such
Notes shall have been paid in full, refund said excess to the Borrower). In the
event that the maturity of the Notes are accelerated by reason of any election
of the holder thereof resulting from any Default under this Agreement or
otherwise, or in the event of any required or permitted prepayment, then such
consideration that constitutes interest may never include more than the Maximum
Rate and excess interest, if any, provided for in this Agreement or otherwise
shall be canceled automatically as of the date of such acceleration or
prepayment and, if theretofore paid, shall be credited on the applicable Notes
(or, if the applicable Notes shall have been paid in full, refunded to the
Borrower of such interest). In determining whether or not the interest paid or
payable under any specific contingencies exceeds the Maximum Rate, the Borrower
and the Lenders shall to the maximum extent permitted under applicable law
amortize, prorate, allocate and spread in equal parts during the period of the
full stated term of the Notes all amounts considered to be interest under
applicable law at any time contracted for, charged, received or reserved in
connection with the Obligations. The provisions of this Section shall control
over all other provisions of this Agreement or the other Loan Documents which
may be in apparent conflict herewith.
10.17.BUSINESS LOANS. The Borrower warrants and represents that the Loans
evidenced by the Notes are and shall be for business, commercial, investment or
other similar purposes and not primarily for personal, family, household or
agricultural use, as such terms are used in Chapter One ("Chapter One") of the
Texas Credit Code. At all such times, if any, as Chapter One shall establish a
Maximum Rate, the Maximum Rate shall be the "indicated rate ceiling" (as such
term is defined in Chapter One) from time to time in effect.
ARTICLE XI: THE AGENT
11.1 APPOINTMENT; NATURE OF RELATIONSHIP. The First National Bank of
Chicago is appointed by the Lenders as the Agent hereunder and under each other
Loan Document, and each of the Lenders irrevocably authorizes the Agent (for so
long as the Agent remains in such capacity under this Agreement) to act as the
contractual representative of such Lender with only the rights and duties
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expressly set forth herein and in the other Loan Documents. The Agent agrees to
act as such contractual representative upon the express conditions contained in
this ARTICLE XI. Notwithstanding the use of the defined term "Agent," it is
expressly understood and agreed that the Agent shall not have any fiduciary
responsibilities to any Lender by reason of this Agreement and that the Agent is
merely acting as the representative of the Lenders with only those duties as are
expressly set forth in this Agreement and the other Loan Documents. In its
capacity as the Lenders' contractual representative, the Agent (i) does not
assume any fiduciary duties to any of the Lenders, (ii) is a "representative" of
the Lenders within the meaning of Section 9-105 of the Uniform Commercial Code
and (iii) is acting as an independent contractor, the rights and duties of which
are limited to those expressly set forth in this Agreement and the other Loan
Documents. Each of the Lenders agrees to assert no claim against the Agent on
any agency theory or any other theory of liability for breach of fiduciary duty,
all of which claims each Lender waives.
11.2 POWERS. The Agent shall have and may exercise such powers under the
Loan Documents as are specifically delegated to the Agent by the terms of each
thereof, together with such powers as are reasonably incidental thereto. The
Agent shall have no implied duties or fiduciary duties to the Lenders, or any
obligation to the Lenders to take any action hereunder or under any of the other
Loan Documents except any action specifically provided by the Loan Documents
required to be taken by the Agent.
11.3 GENERAL IMMUNITY. Neither the Agent nor any of its directors,
officers, agents or employees shall be liable to the Borrower, the Lenders or
any Lender for any action taken or omitted to be taken by it or them hereunder
or under any other Loan Document or in connection herewith or therewith except
to the extent such action or inaction is found in a final judgment by a court of
competent jurisdiction to have arisen solely from (i) the Gross Negligence or
willful misconduct of such Person or (ii) breach of contract by such Person with
respect to the Loan Documents.
11.4 NO RESPONSIBILITY FOR LOANS, CREDITWORTHINESS, RECITALS, ETC. Neither
the Agent nor any of its directors, officers, agents or employees shall be
responsible for or have any duty to ascertain, inquire into, or verify (i) any
statement, warranty or representation made in connection with any Loan Document
or any borrowing hereunder; (ii) the performance or observance of any of the
covenants or agreements of any obligor under any Loan Document; (iii) the
satisfaction of any condition specified in ARTICLE V, except receipt of items
required to be delivered solely to the Agent; (iv) the existence or possible
existence of any Default or (v) the validity, effectiveness or genuineness of
any Loan Document or any other instrument or writing furnished in connection
therewith. The Agent shall not be responsible to any Lender for any recitals,
statements, representations or warranties herein or in any of the other Loan
Documents or for the execution, effectiveness, genuineness, validity, legality,
enforceability, collectibility, or sufficiency of this Agreement or any of the
other Loan Documents or the transactions contemplated thereby, or for the
financial condition of any guarantor of any or all of the Obligations, the
Borrower or any of its Subsidiaries.
11.5 ACTION ON INSTRUCTIONS OF LENDERS. The Agent shall in all cases be
fully protected in acting, or in refraining from acting, hereunder and under any
other Loan Document in accordance with written instructions signed by the
Required Lenders (or any other percentage of Lenders specified to be the
applicable percentage in this Agreement or any other Loan Document to act on
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specified matters), and such instructions and any action taken or failure to act
pursuant thereto shall be binding on all of the Lenders and on all holders of
Notes. The Agent shall be fully justified in failing or refusing to take any
action hereunder and under any other Loan Document unless it shall first be
indemnified to its satisfaction by the Lenders pro rata against any and all
liability, cost and expense that it may incur by reason of taking or continuing
to take any such action.
11.6 EMPLOYMENT OF AGENTS AND COUNSEL. The Agent may execute any of its
duties as the Agent hereunder and under any other Loan Document by or through
employees, agents, and attorney-in-fact and shall not be answerable to the
Lenders, except as to money or securities received by it or its authorized
agents, for the default or misconduct of any such agents or attorneys-in-fact
selected by it with reasonable care. The Agent shall be entitled to advice of
counsel concerning the contractual arrangement between the Agent and the Lenders
and all matters pertaining to the Agent's duties hereunder and under any other
Loan Document.
11.7 RELIANCE ON DOCUMENTS; COUNSEL. The Agent shall be entitled to rely
upon any Note, notice, consent, certificate, affidavit, letter, telegram,
statement, paper or document believed by it to be genuine and correct and to
have been signed or sent by the proper person or persons, and, in respect to
legal matters, upon the opinion of counsel selected by the Agent, which counsel
may be employees of the Agent.
11.8 THE AGENT'S REIMBURSEMENT AND INDEMNIFICATION. The Lenders agree to
reimburse and indemnify the Agent ratably in proportion to their respective
Commitments (i) for any amounts not reimbursed by the Borrower for which the
Agent is entitled to reimbursement by the Borrower under the Loan Documents,
(ii) for any other expenses incurred by the Agent on behalf of the Lenders, in
connection with the preparation, execution, delivery, administration and
enforcement of the Loan Documents and (iii) for any liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind and nature whatsoever which may be imposed on,
incurred by or asserted against the Agent in any way relating to or arising out
of the Loan Documents or any other document delivered in connection therewith or
the transactions contemplated thereby, or the enforcement of any of the terms
thereof or of any such other documents, provided that no Lender shall be liable
for any of the foregoing to the extent any of the foregoing is found in a final
non-appealable judgment by a court of competent jurisdiction to have arisen
solely from the Gross Negligence or willful misconduct of the Agent.
11.9 RIGHTS AS A LENDER. With respect to its Commitment, Loans made by it
and the Notes issued to it, the Agent shall have the same rights and powers
hereunder and under any other Loan Document as any Lender and may exercise the
same as through it were not the Agent, and the term "Lender" or "Lenders" shall,
unless the context otherwise indicates, include the Agent in its individual
capacity. The Agent may accept deposits from, lend money to, and generally
engage in any kind of trust, debt, equity or other transaction, in addition to
those contemplated by this Agreement or any other Loan Document, with the
Borrower or any of its Subsidiaries in which such Person is not prohibited
hereby from engaging with any other Person.
11.10 LENDER CREDIT DECISION. Each Lender acknowledges that it has,
independently and without reliance upon the Agent or any other Lender and based
on the financial statements prepared
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by the Borrower and such other documents and information as it has deemed
appropriate, made its own credit analysis and decision to enter into this
Agreement and the other Loan Documents. Each Lender also acknowledges that it
will, independently and without reliance upon the Agent or any other Lender and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking action
under this Agreement and the other Loan Documents.
11.11 SUCCESSOR AGENT. The Agent may resign at any time by giving written
notice thereof to the Lenders and the Borrower, and the Agent may be removed at
any time with or without cause by written notice received by the Agent from the
Required Lenders. Upon any such resignation or removal, the Required Lenders
shall have the right to appoint, on behalf of the Borrower and the Lenders, a
successor Agent. If no successor Agent shall have been so appointed by the
Required Lenders and shall have accepted such appointment within thirty days
after the retiring Agent's giving notice of resignation, then the retiring Agent
may appoint, on behalf of the Borrower and the Lenders, a successor Agent.
Notwithstanding anything herein to the contrary, so long as no Default has
occurred and is continuing, each such successor Agent shall be subject to
approval by the Borrower, which approval shall not be unreasonably withheld.
Such successor Agent shall be a commercial bank having capital and retained
earnings of at least $50,000,000. Upon the acceptance of any appointment as the
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 and under the other Loan Documents. After any
retiring Agent's resignation hereunder as Agent, the provisions of this ARTICLE
XI 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 hereunder and under
the other Loan Documents.
ARTICLE XII: SETOFF; RATABLE PAYMENTS
12.1 SETOFF. In addition to, and without limitation of, any rights of the
Lenders under applicable law, if any Default occurs and is continuing, any
indebtedness from any Lender to the Borrower (including all account balances,
whether provisional or final and whether or not collected or available) may be
offset and applied toward the payment of the Obligations owing to such Lender,
whether or not the Obligations, or any part hereof, shall then be due.
12.2 RATABLE PAYMENTS. If any Lender, whether by setoff or otherwise, has
payment made to it upon its Loans (other than payments received pursuant to
SECTIONS 4.1, 4.2 or 4.4) in a greater proportion than that received by any
other Lender, such Lender agrees, promptly upon demand, to purchase a portion of
the Loans held by the other Lenders so that after such purchase each Lender will
hold its ratable proportion of Loans. If any Lender, whether in connection with
setoff or amounts which might be subject to setoff or otherwise, receives
collateral or other protection for its Obligation or such amounts which may be
subject to setoff, such Lender agrees, promptly upon demand, to take such action
necessary such that all Lenders share in the benefits of such collateral ratably
in proportion to the obligations owing to them. In case any such payment is
disturbed by legal process, or otherwise, appropriate further adjustments shall
be made.
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12.3 APPLICATION OF PAYMENTS. Subject to the provisions of SECTION 9.2,
(i) prior to the occurrence of a Default, the Agent shall apply all payments and
prepayments in respect of the Obligations in such order as shall be specified by
the Borrower and (ii) after the occurrence of a Default, the Agent shall, unless
otherwise specified at the direction of the Required Lenders which direction
shall be consistent with the last sentence of this SECTION 12.3, apply all
payments and prepayments in respect of any Obligations in the following order:
(A) first, to pay interest on and then principal of any portion of
the Loans which the Agent may have advanced on behalf of any Lender for
which the Agent has not then been reimbursed by such Lender or the
Borrower;
(B) second, to pay interest on and then principal of any advance
made under SECTION 10.3 for which the Agent has not then been paid by the
Borrower or reimbursed by the Lenders;
(C) third, to pay Obligations in respect of any fees, expense
reimbursements or indemnities then due to the Agent;
(D) fourth, to pay Obligations in respect of any fees, expenses,
reimbursements or indemnities then due to the Lenders and the Issuing
Banks;
(E) fifth, to pay interest due in respect of Swing Line Loans;
(F) sixth, to pay interest due in respect of Loans (other than Swing
Line Loans) and L/C Obligations;
(G) seventh, to the ratable payment or prepayment of principal
outstanding on Swing Line Loans;
(H) eighth, to the ratable payment or prepayment of principal
outstanding on Loans (other than Swing Line Loans) and Reimbursement
Obligations in such order as the Agent may determine in its sole
discretion;
(I) ninth, to provide required cash collateral, if required pursuant
to SECTION 3.10 and
(J) tenth, to the ratable payment of all other Obligations.
Unless otherwise designated (which designation shall only be applicable prior to
the occurrence of a Default) by the Borrower, all principal payments in respect
of Loans (other than Swing Line Loans) shall be applied FIRST, to repay
outstanding Floating Rate Loans, and THEN to repay outstanding Eurodollar Rate
Loans with those Eurodollar Rate Loans which have earlier expiring Interest
Periods being repaid prior to those which have later expiring Interest Periods.
The order of priority set forth in CLAUSE (II) of this SECTION 12.3 and the
related provisions of this Agreement are set forth solely to determine the
rights and priorities of the Agent, the Swing Line Bank, and the Issuing Banks
as among themselves. The order of priority set forth in CLAUSES (D) through (J)
of this SECTION 12.3 may
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at any time and from time to time be changed by the Required Lenders without
necessity of notice to or consent of or approval by the Borrower, or any other
Person; PROVIDED, that the order of priority of payments in respect of Swing
Line Loans may be changed only with the prior written consent of the Swing Line
Bank. The order of priority set forth in CLAUSES (A) through (C) of this SECTION
12.3 may be changed only with the prior written consent of the Agent.
12.4 RELATIONS AMONG LENDERS.
(a) Except with respect to the exercise of set-off rights of any Lender in
accordance with SECTION 12.1, the proceeds of which are applied in accordance
with this Agreement, and except as set forth in the following sentence, each
Lender agrees that it will not take any action, nor institute any actions or
proceedings, against the Borrower or any other obligor hereunder or with respect
to any Loan Document, without the prior written consent of the Required Lenders
or, as may be provided in this Agreement or the other Loan Documents, at the
direction of the Agent.
(b) The Lenders are not partners or co-venturers, and no Lender shall be
liable for the acts or omissions of, or (except as otherwise set forth herein in
case of the Agent) authorized to act for, any other Lender. Notwithstanding the
foregoing, and subject to SECTION 12.2, any Lender shall have the right to
enforce on an unsecured basis the payment of the principal of and interest on
any Loan made by it after the date such principal or interest has become due and
payable pursuant to the terms of this Agreement.
ARTICLE XIII: BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS
13.1 SUCCESSORS AND ASSIGNS. The terms and provisions of the Loan
Documents shall be binding upon and inure to the benefit of the Borrower and the
Lenders and their respective successors and assigns, except that (i) the
Borrower shall not have the right to assign its rights or obligations under the
Loan Documents and (ii) any assignment by any Lender must be made in compliance
with SECTION 13.3 hereof. Notwithstanding clause (ii) of this SECTION 13.1, any
Lender may at any time, without the consent of the Borrower or the Agent, assign
all or any portion of its rights under this Agreement and its Notes to a Federal
Reserve Bank; PROVIDED, HOWEVER, that no such assignment shall release the
transferor Lender from its obligations hereunder. The Agent may treat the payee
of any Note as the owner thereof for all purposes hereof unless and until such
payee complies with SECTION 13.3 hereof in the case of an assignment thereof or,
in the case of any other transfer, a written notice of the transfer is filed
with the Agent. Any assignee or transferee of a Note agrees by acceptance
thereof to be bound by all the terms and provisions of the Loan Documents. Any
request, authority or consent of any Person, who at the time of making such
request or giving such authority or consent is the holder of any Note, shall be
conclusive and binding on any subsequent holder, transferee or assignee of such
Note or of any Note or Notes issued in exchange therefor.
13.2 PARTICIPATIONS.
(A) PERMITTED PARTICIPANTS; EFFECT. Subject to the terms set forth in this
SECTION 13.2, any Lender may, in the ordinary course of its business and in
accordance with applicable law, at any time sell to one or more banks or other
entities ("PARTICIPANTS") participating interests in any Loan owing
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to such Lender, any Note held by such Lender, any Commitment of such Lender, any
L/C Interest of such Lender or any other interest of such Lender under the Loan
Documents on a pro rata or non-pro rata basis. Notice of such participation to
the Agent shall be required prior to any participation becoming effective with
respect to a Participant which is not a Lender or an Affiliate of a Lender. In
the event of any such sale by a Lender of participating interests to a
Participant, such Lender's obligations under the Loan Documents shall remain
unchanged, such Lender shall remain solely responsible to the other parties
hereto for the performance of such obligations, such Lender shall remain the
holder of any such Note for all purposes under the Loan Documents, all amounts
payable by the Borrower under this Agreement shall be determined as if such
Lender had not sold such participating interests, and the Borrower and the Agent
shall continue to deal solely and directly with such Lender in connection with
such Lender's rights and obligations under the Loan Documents except that, for
purposes of ARTICLE IV hereof, the Participants shall be entitled to the same
rights as if they were Lenders.
(B) VOTING RIGHTS. Each Lender shall retain the sole right to approve,
without the consent of any Participant, any amendment, modification or waiver of
any provision of the Loan Documents other than any amendment, modification or
waiver with respect to any Loan or Commitment in which such Participant has an
interest which requires the consent of all of the affected Lenders pursuant to
the terms of SECTION 9.3.
(C) BENEFIT OF SETOFF. The Borrower agrees that each Participant shall be
deemed to have the right of setoff provided in SECTION 12.1 hereof in respect to
its participating interest in amounts owing under the Loan Documents to the same
extent as if the amount of its participating interest were owing directly to it
as a Lender under the Loan Documents, PROVIDED that each Lender shall retain the
right of setoff provided in SECTION 12.1 hereof with respect to the amount of
participating interests sold to each Participant except to the extent such
Participant exercises its right of setoff. The Lenders agree to share with each
Participant, and each Participant, by exercising the right of setoff provided in
SECTION 12.1 hereof, agrees to share with each Lender, any amount received
pursuant to the exercise of its right of setoff, such amounts to be shared in
accordance with SECTION 12.2 as if each Participant were a Lender.
13.3 ASSIGNMENTS.
(A) PERMITTED ASSIGNMENTS. Any Lender may, in the ordinary course of its
business and in accordance with applicable law, at any time assign to one or
more banks or other entities ("PURCHASERS") all or a portion of its rights and
obligations under this Agreement (including, without limitation, its Commitment,
all Loans owing to it, all of its participation interests in existing Letters of
Credit, and its obligation to participate in additional Letters of Credit
hereunder) in accordance with the provisions of this SECTION 13.3. Each
assignment shall be of a constant, and not a varying, ratable percentage of all
of the assigning Lender's rights and obligations under this Agreement. Such
assignment shall be effected through an Assignment Agreement substantially in
the form of EXHIBIT A hereto and shall not be permitted hereunder unless such
assignment is either for all of such Lender's rights and obligations under the
Loan Documents or, without the prior written consent of the Agent, involves
Loans and Commitments in an aggregate amount of at least $5,000,000. The consent
of the Agent and, prior to the occurrence of a Default or Unmatured Default, the
Borrower (which consent,
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in each such case, shall not be unreasonably withheld), shall be required prior
to an assignment becoming effective with respect to a Purchaser which is not a
Lender or an Affiliate thereof. Notwithstanding the foregoing, any Lender may at
any time, without the consent of the Borrower or the Agent, assign all or any
portion of its rights under this Agreement and its Notes to a Federal Reserve
Bank; PROVIDED, HOWEVER, that no such assignment shall release the transferor
Lender from its obligations hereunder.
(B) EFFECT; EFFECTIVE DATE. Upon (i) delivery to the Agent of a notice of
assignment, substantially in the form attached as APPENDIX I to EXHIBIT A hereto
(a "NOTICE OF ASSIGNMENT"), together with any consent required by SECTION
13.3(A) hereof, and (ii) payment of a $3,500 fee to the Agent for processing
such assignment, such assignment shall become effective on the effective date
specified in such Notice of Assignment. The Notice of Assignment shall contain a
representation by the Purchaser to the effect that none of the consideration
used to make the purchase of the Commitment, Loans and L/C Obligations under the
applicable assignment agreement are "plan assets" as defined under ERISA and
that the rights and interests of the Purchaser in and under the Loan Documents
will not be "plan assets" under ERISA. On and after the effective date of such
assignment, such Purchaser, if not already a Lender, shall for all purposes be a
Lender party to this Agreement and any other Loan Documents executed by the
Lenders and shall have all the rights and obligations of a Lender under the Loan
Documents, to the same extent as if it were an original party hereto, and no
further consent or action by the Borrower, the Lenders or the Agent shall be
required to release the transferor Lender with respect to the percentage of the
Aggregate Commitment, Loans and Letter of Credit participations assigned to such
Purchaser. Upon the consummation of any assignment to a Purchaser pursuant to
this SECTION 13.3(B), the transferor Lender, the Agent and the Borrower shall
make appropriate arrangements so that replacement Notes are issued to such
transferor Lender and new Notes or, as appropriate, replacement Notes, are
issued to such Purchaser, in each case in principal amounts reflecting their
Commitments, as adjusted pursuant to such assignment.
(C) THE REGISTER. The Agent shall maintain at its address referred to in
SECTION 14.1 a copy of each Commitment and Acceptance delivered pursuant to
SECTION 2.4(B) and each Assignment Agreement delivered to and accepted by it
pursuant to this SECTION 13.3 and a register (the "REGISTER") for the
recordation of the names and addresses of the Lenders and the Commitment of and
principal amount of the Loans owing to, each Lender from time to time and
whether such Lender is an original Lender, became a Lender pursuant to SECTION
2.4(B) or the assignee of another Lender pursuant to an assignment under this
SECTION 13.3. The entries in the Register shall be conclusive and binding for
all purposes, absent manifest error, and the Borrower and each of its
Subsidiaries, the Agent and the Lenders may treat each Person whose name is
recorded in the Register as a Lender hereunder for all purposes of this
Agreement. The Register shall be available for inspection by the Borrower or any
Lender at any reasonable time and from time to time upon reasonable prior
notice.
13.4 CONFIDENTIALITY. Subject to SECTION 13.5, the Agent and the Lenders
shall hold all nonpublic information obtained pursuant to the requirements of
this Agreement and identified as such by the Borrower in accordance with such
Person's customary procedures for handling confidential information of this
nature and in accordance with safe and sound banking practices and in any event
may make disclosure reasonably required by a prospective Transferee in
connection with the
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contemplated participation or assignment or as required or requested by any
Governmental Authority or representative thereof or pursuant to legal process
and shall require any such Transferee to agree (and require any of its
Transferees to agree) to comply with this SECTION 13.4. In no event shall the
Agent or any Lender be obligated or required to return any materials furnished
by the Borrower; PROVIDED, HOWEVER, each prospective Transferee shall be
required to agree that if it does not become a participant or assignee it shall
return all materials furnished to it by or on behalf of the Borrower in
connection with this Agreement.
13.5 DISSEMINATION OF INFORMATION. The Borrower authorizes each Lender to
disclose to any Participant or Purchaser or any other Person acquiring an
interest in the Loan Documents by operation of law (each a "TRANSFEREE") and any
prospective Transferee any and all information in such Lender's possession
concerning the Borrower and its Subsidiaries; PROVIDED that prior to any such
disclosure, such prospective Transferee shall agree to preserve in accordance
with SECTION 13.4 the confidentiality of any confidential information described
therein.
ARTICLE XIV: NOTICES
14.1 GIVING NOTICE. Except as otherwise permitted by SECTION 2.11 with
respect to borrowing notices, all notices and other communications provided to
any party hereto under this Agreement or any other Loan Documents shall be in
writing or by telex or by facsimile and addressed or delivered to such party at
its address set forth below its signature hereto or at such other address as may
be designated by such party in a notice to the other parties. Any notice, if
mailed and properly addressed with postage prepaid, shall be deemed given when
received; any notice, if transmitted by telex or facsimile, shall be deemed
given when transmitted (answerback confirmed in the case of telexes).
14.2 CHANGE OF ADDRESS. The Borrower, the Agent and any Lender may each
change the address for service of notice upon it by a notice in writing to the
other parties hereto.
ARTICLE XV: COUNTERPARTS
This Agreement may be executed in any number of counterparts, all of which
taken together shall constitute one agreement, and any of the parties hereto may
execute this Agreement by signing any such counterpart. This Agreement shall be
effective when it has been executed by the Borrower, the Agent and the Lenders
and each party has notified the Agent by telex or telephone, that it has taken
such action.
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IN WITNESS WHEREOF, the Borrower, the Lenders and the Agent have executed
this Agreement as of the date first above written.
METALS USA, INC., as the Borrower
By:___________________________
Name:_______________________
Title:________________________
Address:
4801 Woodway Drive
Houston, TX 77056
Attention: Chief Financial Officer
Telephone No.: 713/964-2713
Facsimile No.: 713/513-4883
THE FIRST NATIONAL BANK OF
CHICAGO, as Agent and as a Lender
By:___________________________
Name: Cory M. Olson
Title: Authorized Agent
Address:
One First National Plaza
Suite 0324
Chicago, Illinois 60670-0324
Attention: Cory M. Olson
Telephone No.: 312/732-1706
Facsimile No.: 312/732-2991
Signature Page to Metals USA, Inc.
Credit Agreement dated as of July 15, 1997
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NATIONSBANK OF TEXAS, N.A., as a Lender
By:___________________________
Name: Richard L. Nichols, Jr.
Title: Vice President
Address:
700 Louisiana Street
Houston, Texas 77002
Attention: Richard L. Nichols, Jr.
Telephone No.: 713/247-6258
Facsimile No.: 713/247-6360
PNC BANK, NATIONAL ASSOCIATION, as a
Lender
By:___________________________
Name:_______________________
Title:________________________
Address:
249 Fifth Avenue
2nd Floor
One PNC Plaza
Pittsburgh, PA 15222
Attention: Lawrence W. Jacobs
Telephone No.: 412/762-2524
Facsimile No.: 412/762-6484
Signature Page to Metals USA, Inc.
Credit Agreement dated as of July 15, 1997
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EXHIBIT 21
METALS USA, INC.
SUBSIDIARY LIST
Affiliated Metals Company
Federal Bronze Alloys Inc.
Harvey Titanium, Ltd.
Interstate Steel Supply Company
Interstate Steel Supply Company of Pittsburg
Interstate Steel Supply Company of Maryland
Interstate Steel Processing Company
Jeffreys Steel Company, Inc.
Jeffreys Real Estate Corp.
Meier Metal Servicenters, Inc.
Metals USA Management Co., L.P.
MUSA GP, Inc.
MUSA LP, Inc.
Metals USA Services Corporation
Metals USA Finance Corporation
Queensboro Steel Corporation
Southern Alloy of America, Inc.
Steel Service Systems, Inc.
Texas Aluminum Industries, Inc.
Cornerstone Metals Corporation
Cornerstone Building Products, Inc.
Cornerstone Aluminum Company, Inc.
Cornerstone Patio Concepts, L.L.C.
Uni-Steel, Inc.
Williams Steel & Supply Co., Inc.
WSS Transportation, Inc.
(wholly owned subsidiary of Williams Steel & Supply Co., Inc.)
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Houston, Texas
November 7, 1997
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our Firm under the caption "Experts" and
to the use of our report dated October 4, 1996, with respect to the financial
statements of Affiliated Metals Company included in the Registration Statement
and related Prospectus of Metals USA, Inc. for the registration of 10,000,000
shares of Metals USA, Inc.'s common stock.
Ernst & Young LLP
St. Louis, Missouri
November 11, 1997
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Metals USA, Inc. on
Form S-1 of our report dated April 11, 1997 on the combined financial statements
of Interstate Steel Supply Company and Affiliates as of December 31, 1996 and
1995 and for each of the three years in the period ended December 31, 1996
appearing in the Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in
such Prospectus.
DELOITTE & TOUCHE LLP
Philadelphia, PA
November 12, 1997
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of
our report, dated February 27, 1997, relating to the financial statements of
Queensboro Steel Corporation. We also consent to the reference to our Firm under
the caption "Experts" in the Prospectus.
McGladrey & Pullen, LLP
Wilmington, North Carolina
November 7, 1997
EXHIBIT 23.5
INDEPENDENT AUDITORS' CONSENT
We hereby consent to the use in this Registration Statement on Form S-1 of
Metals USA, Inc. of our report, dated October 19, 1995 on Affiliated Metals
Company for the years ended September 3, 1994 and September 2, 1995, and to the
reference to us under the heading "Independent Auditors" in the Prospectus
which is a part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in the
Prospectus which is a part of this Registration Statement.
RUBIN, BROWN, GORNSTEIN & CO. LLP
St. Louis, Missouri
November 7, 1997
EXHIBIT 23.6
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report (and to all references to our Firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Charlotte, North Carolina
November 7, 1997
EXHIBIT 23.8
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use in this Registration Statement on Form S-1 of
our report, dated September 23, 1997, relating to the financial statements of
Harvey Titanium, Ltd. We also consent to the reference to our Firm under the
caption "Experts" in the Prospectus.
KLEIN, BOGAKOS AND ROBERTSON, CPA'S INC.
Santa Monica, California
November 7, 1997
EXHIBIT 23.9
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use in this Registration Statement on Form S-1 of
our report, dated February 28, 1997, relating to the financial statements of
Wayne Steel, Inc. We also consent to the reference to our Firm under the caption
"Experts" in the Prospectus.
MEADEN & MOORE, LTD.
Wooster, Ohio
November 7, 1997
EXHIBIT 23.10
CONSENT TO BE NAMED AS A DIRECTOR
OF
METALS USA, INC.
The undersigned hereby consents to be named as a director of Metals USA,
Inc. (the "Company") in the Registration Statement on Form S-1 to be filed by
the Company with the Securities and Exchange Commission.
Dated: November 11, 1997.
By: /s/ A. LEON JEFFREYS
Name: A. Leon Jeffreys
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF METALS USA, INC. AS OF AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 10,949
<SECURITIES> 0
<RECEIVABLES> 88,852
<ALLOWANCES> 0
<INVENTORY> 124,486
<CURRENT-ASSETS> 230,292
<PP&E> 51,420
<DEPRECIATION> 0
<TOTAL-ASSETS> 409,926
<CURRENT-LIABILITIES> 71,716
<BONDS> 0
0
0
<COMMON> 270
<OTHER-SE> 190,664
<TOTAL-LIABILITY-AND-EQUITY> 409,926
<SALES> 195,328
<TOTAL-REVENUES> 195,328
<CGS> 147,632
<TOTAL-COSTS> 192,227
<OTHER-EXPENSES> (315)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,026
<INCOME-PRETAX> 1,390
<INCOME-TAX> 3,104
<INCOME-CONTINUING> (1,714)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,714)
<EPS-PRIMARY> (.12)
<EPS-DILUTED> 0
</TABLE>
