AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 7, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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METALS USA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
DELAWARE 5051 76-0533626
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
ARTHUR L. FRENCH
CHIEF EXECUTIVE OFFICER
4801 WOODWAY DRIVE
SUITE 300E
HOUSTON, TEXAS 77056
(713) 964-2713
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES AND AGENT FOR SERVICE)
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COPIES TO:
WILLIAM D. GUTERMUTH RICHARD C. TILGHMAN, JR.
BRACEWELL & PATTERSON, L.L.P. PIPER & MARBURY, L.L.P.
SOUTH TOWER PENNZOIL PLACE 36 SOUTH CHARLES STREET
711 LOUISIANA STREET, SUITE 2900 BALTIMORE, MARYLAND 21201
HOUSTON, TEXAS 77002-2781
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
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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. [ ]
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. [ ]
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED PROPOSED AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO MAXIMUM OFFERING MAXIMUM AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED(1) PRICE PER SHARE OFFERING PRICE FEE(2)
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<S> <C> <C> <C> <C>
Common Stock, $0.01 par value........ 6,785,000 $14.00 $94,990,000 $28,785
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</TABLE>
(1) Includes 885,000 shares which may be purchased by the underwriters pursuant
to an over-allotment option.
(2) Calculated pursuant to Rule 457(o) of the rules and regulations under the
Securities Act of 1933, as amended.
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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.
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<PAGE>
******************************************************************************
* *
* 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. *
* *
******************************************************************************
SUBJECT TO COMPLETION
MAY 7, 1997
5,900,000 SHARES
[LOGO] METALS USA, INC.
COMMON STOCK
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All of the 5,900,000 shares of Common Stock offered hereby are being
offered by Metals USA, Inc. Prior to this offering, there has been no public
market for the Common Stock of the Company. It is currently estimated that the
initial public offering price for the Common Stock will be between $12.00 and
$14.00 per share. See "Underwriting" for a discussion of the factors to be
considered in determining the initial public offering price. The Common Stock
has been approved for listing on The New York Stock Exchange under the symbol
"MUI," subject to official notice of issuance.
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THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 10 HEREOF.
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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.
<TABLE>
<CAPTION>
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PRICE UNDERWRITING PROCEEDS
TO DISCOUNTS AND TO
PUBLIC COMMISSIONS COMPANY(1)
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<S> <C>
Per share............................ $ $ $
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Total(2)............................. $ $ $
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</TABLE>
(1) Before deducting expenses of the offering payable by the Company, estimated
at $4,000,000.
(2) The Company has granted the Underwriters a 30-day option to purchase up to
885,000 additional shares of Common Stock solely to cover over-allotments,
if any. To the extent that the option is exercised, the Underwriters will
offer the additional shares at the Price to Public as shown above. If such
option is exercised in full, the total Price to Public, Underwriting
Discount and Commissions and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."
------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, subject to the
right of the Underwriters to reject any order in whole or in part. It is
expected that delivery of the shares of Common Stock will be made at the offices
of Alex. Brown & Sons Incorporated, Baltimore, Maryland, on or about
, 1997.
ALEX. BROWN & SONS
INCORPORATED
BEAR, STEARNS & CO. INC.
SANDERS MORRIS MUNDY
The date of this Prospectus is , 1997.
<PAGE>
[Graphics]
[Describe map or picture]
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.
------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THIS OFFERING
AND MAY BID FOR AND PURCHASE SHARES OF THE COMMON STOCK IN THE OPEN MARKET. FOR
A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
SIMULTANEOUSLY WITH AND AS A CONDITION TO THE CONSUMMATION OF THE OFFERING
MADE BY THIS PROSPECTUS (THIS "OFFERING"), METALS USA, INC. WILL ACQUIRE, 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. UNLESS OTHERWISE INDICATED, ALL REFERENCES TO THE "COMPANY" HEREIN
INCLUDE THE FOUNDING COMPANIES, AND REFERENCES HEREIN TO "METALS USA" MEAN
METALS USA, INC. PRIOR TO THE CONSUMMATION OF THE MERGERS.
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, (I) ALL
SHARE, PER SHARE AND FINANCIAL INFORMATION SET FORTH HEREIN (A) HAVE BEEN
ADJUSTED TO GIVE EFFECT TO ALL OF THE MERGERS; (B) ASSUME AN INITIAL PUBLIC
OFFERING PRICE OF $13.00 PER SHARE; AND (C) ASSUME NO EXERCISE OF THE
UNDERWRITERS' OVER-ALLOTMENT OPTION; AND (II) 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.
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. 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 $50
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. Upon consummation of this Offering, Metals USA
will acquire the eight Founding Companies, which have been in business an
average of 40 years and had 1996 pro forma combined net sales of $387 million.
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 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 believes that its "partnering" relationships with
both suppliers and end-users will enable its customers to implement and enhance
just-in-time inventory management as well as 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 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 eight Founding Companies sell to over 10,000 customers in industries
such as the 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
3
<PAGE>
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 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 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
Founding 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 Founding 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
Founding Companies to demonstrate to the 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 Founding 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 4801 Woodway, Suite 300E,
Houston, Texas 77056, and its telephone number is (713) 964-2713.
4
<PAGE>
THE OFFERING
Common Stock offered by the
Company............................ 5,900,000 shares
Common Stock to be outstanding after
the Offering....................... 20,782,023 shares(1)(2)
Use of Proceeds...................... To pay the cash portion of the
purchase price for the Founding
Companies, to repay expenses incurred
in connection with the organization
of Metals USA and the Offering and
for general corporate purposes,
including future acquisitions. See
"Use of Proceeds."
Proposed NYSE symbol................. MUI
- ------------
(1) Includes 10,128,609 shares of Common Stock to be issued in connection with
the Mergers, but excludes 2,171,024 shares of Common Stock subject to
options to be granted in connection with this Offering at an exercise price
equal to the initial public offering price. See "Management -- 1997
Long-Term Incentive Plan" and "-- 1997 Non-Employee Directors' Stock
Plan."
(2) Includes 3,122,914 shares of Restricted Common Stock held by Notre Capital
Ventures II, L.L.C. ("Notre"). Each share of Restricted Common Stock is
entitled to two-tenths (0.2) of one vote on all matters submitted to
stockholders. Restricted Common Stock is convertible into Common Stock under
certain circumstances. See "Description of Capital Stock -- Common Stock
and Restricted Common Stock."
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 consolidater 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 the first and second quarters of 1997,
Metals USA sold an aggregate of 985,500 shares of Common Stock to management of
and consultants to the Company for $0.01 per share. As a result, the Company
will record non-recurring, non-cash compensation charges of $0.5 million and
$5.5 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.
The aggregate consideration to be paid by Metals USA in the Mergers
consists of approximately $40.2 million in cash and 10,128,609 shares of Common
Stock, plus the assumption of $79.2 million of existing debt of the Founding
Companies. Additionally, prior to the Mergers, the Founding Companies that are S
Corporations will distribute an aggregate of $20.4 million to their
stockholders, representing substantially all of the previously taxed
undistributed earnings and tax payments on current earnings of such Founding
Companies (the "S Corporation Distributions"). The consideration to be paid by
Metals USA for each Founding Company was determined by negotiations between
Metals USA and representatives of each Founding Company and was based primarily
upon the pro forma adjusted net income of each Founding Company. For a more
detailed description of these transactions, see "Certain
Transactions -- Organization of the Company."
5
<PAGE>
SUMMARY PRO FORMA COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Metals USA will acquire the Founding Companies simultaneously with and as a
condition to the consummation of this Offering. For financial statement
presentation purposes, however, Texas Aluminum/Cornerstone has been identified
as the "accounting acquiror." The following table presents summary pro forma
combined financial data for the Company, as adjusted for (i) the effects of the
Mergers, (ii) the effects of certain pro forma adjustments to the historical
financial statements described below, and (iii) the consummation of this
Offering and the application of the net proceeds therefrom. See "Selected
Financial Data," the Unaudited Pro Forma Combined Financial Statements and the
Notes thereto and the historical Financial Statements of the Founding Companies
and the Notes thereto included elsewhere in this Prospectus.
PRO FORMA COMBINED
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TWELVE MONTHS
ENDED
DECEMBER 31, 1996
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STATEMENT OF OPERATIONS DATA(1):
Net sales ............................................. $ 387,038
Cost of sales ......................................... 294,019
Operating and delivery(2) ............................. 42,667
Selling, general and administrative
expenses(2) .......................................... 23,339
Depreciation and amortization(3) ...................... 5,847
Operating income ...................................... 21,166
Interest and other expense,
net(4) ............................................... 4,137
Income before income taxes ............................ 17,029
Net income(5) ......................................... 9,336
Net income per share .................................. $ 0.48
Shares used in computing pro forma
net income per share(6) .............................. 19,458,715
DECEMBER 31, 1996
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PRO FORMA
COMBINED(7) AS ADJUSTED(8)
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BALANCE SHEET DATA:
Working capital(4)................. $ 45,595(9) $103,018
Total assets....................... 241,054 257,809
Long-term debt, net of current
maturities(4)..................... 89,506 79,150
Stockholders' equity(4)............ 67,230 134,561
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(1) The pro forma combined statement of operations data assume that the Mergers
and the Offering were closed 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 were $375.8 million.
(2) The pro forma combined statement of operations data reflect (a) in selling,
general and administrative expenses, an aggregate of approximately $3.6
million in pro forma reductions in salary, bonuses and benefits to the
owners of the Founding Companies to which they have agreed prospectively
(the "Compensation Differential"), and (b) in operating and delivery, a
$0.5 million reduction in lease expense pursuant to the renegotiation of
certain leases (the "Rent Differential").
(3) Includes $2.2 million of amortization on the $87.3 million of goodwill to be
recorded as a result of the Mergers computed on the basis described in Notes
to the Unaudited Pro Forma Combined Financial Statements.
(4) Several of the Founding Companies are S Corporations. Prior to the Mergers,
these Founding Companies will make the S Corporation Distributions to their
stockholders totaling $20.4 million. In order to fund the S Corporation
Distributions, the Founding Companies will borrow $20.4 million from
existing sources, $10.4 million of which will be repaid from the proceeds of
this Offering. Additionally, prior to the Mergers, certain of the Founding
Companies will distribute to their stockholders certain real estate and
non-operating assets and liabilities having a net book value of $4.9
million. Accordingly, pro forma interest expense has been increased by $0.8
million, pro forma working capital has been reduced by $10.4 million, pro
forma long-term debt has been increased by $10.1 million and pro forma
stockholders' equity has been reduced by $25.3 million.
(5) Assumes all income is subject to a corporate tax rate of 40% and all
goodwill is non-deductible.
(6) Includes (i) 10,128,609 shares to be issued to owners of the Founding
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) 4,576,692 of
the 5,900,000 shares sold in the Offering necessary to pay the cash portion
of the Merger consideration, retire certain indebtedness relating to the S
Corporation Distributions and pay expenses of this Offering. Excludes
options to purchase 2,171,024 shares to be granted upon consummation of this
Offering.
(7) The pro forma combined balance sheet data assumes that the Mergers were
consummated on December 31, 1996.
(8) Adjusted for the sale of 5,900,000 shares of Common Stock offered hereby and
the application of the net proceeds therefrom. See "Use of Proceeds."
(9) Includes a $40.2 million payable, representing the cash portion of the
Merger consideration to be paid from a portion of the net proceeds of this
Offering.
6
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SUMMARY UNAUDITED INDIVIDUAL FOUNDING COMPANY FINANCIAL DATA
The following table presents summary unaudited financial data for each of
the individual Founding Companies for each of their three most recent years.
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."
FISCAL YEARS(1)
---------------------------------
1994 1995 1996
------- ------- -------
(IN THOUSANDS OF DOLLARS)
TEXAS ALUMINUM/CORNERSTONE:
Net sales .......................... $26,105 $34,706 $40,651
Operating income ................... 493 1,623 3,012
INTERSTATE:
Net sales .......................... 49,299 61,375 66,806
Operating income ................... 1,149 2,751 4,720
QUEENSBORO:
Net sales .......................... 50,795 60,322 54,996
Operating income ................... 1,366 2,096 3,454
AFFILIATED:
Net sales .......................... 63,046 78,976 81,002
Operating income ................... 1,474 2,319 3,476
SOUTHERN ALLOY:
Net sales .......................... 9,463 12,018 10,815
Operating income ................... 409 533 46
UNI-STEEL:
Net sales .......................... 42,711 47,662 54,620
Operating income ................... 1,334 1,694 2,361
WILLIAMS(2):
Net sales .......................... -- -- 25,451
Operating income ................... -- -- 1,425
SERVICE SYSTEMS:
Net sales .......................... 28,214 31,062 35,750
Operating income ................... 1,392 1,017 818
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(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 -- the fiscal years ended December 31, 1994,
1995 and 1996; and Williams -- the fiscal year ended December 1996.
(2) Williams was purchased by its current owners from National Steel effective
March 1, 1996. The financial data presented does not include the results of
the predecessor for periods prior to the acquisition by Williams as it would
not be comparable.
7
<PAGE>
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. Metals USA has entered into
agreements to acquire the Founding Companies simultaneously with and as a
condition to the consummation of this Offering. In 1996, the Founding Companies,
which have been in business an average of 40 years, had pro forma combined net
sales of $387.0 million, servicing over 10,000 customers. For a description of
the transactions pursuant to which these businesses will be acquired, see
"Certain Transactions -- Organization of the Company." The following is a
description of the Founding 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 and 1996 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 36 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
construction industries. Texas Aluminum/Cornerstone had fiscal 1996 net sales of
$40.6 million and currently has 260 employees. Michael E. Christopher, the
Executive Vice President of Texas Aluminum and President of Cornerstone, has
been employed by Texas Aluminum for ten years, will sign a five-year employment
agreement with Texas Aluminum/Cornerstone to become President of Texas
Aluminum/Cornerstone following consummation of this Offering and will become 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 as well as a sales office in
Buffalo, New York, 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 revenues of $66.8 million and
currently has 180 employees. Arnold W. Bradburd, the Chairman of the Board and
Chief Executive Officer of Interstate, has been employed by Interstate for 23
years, will sign a five-year employment agreement with Interstate to continue in
those capacities following consummation of this Offering and will become
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 revenues of $55.0 million and
currently has 200 employees. Mark Alper, the President of Queensboro has been
employed by Queensboro for 26 years, will sign a five-year employment agreement
with Queensboro to continue his present position following consummation of this
Offering and will become a director of the Company.
AFFILIATED METALS, INC. -- Affiliated Metals, Inc. ("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 revenues of $81.0 million and currently has 100 employees. Patrick
A. Notestine, the President of Affiliated, has been employed by Affiliated for
nine years, will sign a five-year
8
<PAGE>
employment agreement with Affiliated to continue his present position following
consummation of this Offering and will become 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 revenues of $10.8 million and
currently has 30 employees. William B. Edge, the President of Southern Alloy,
has been employed by Southern Alloy for 16 years, will sign a five-year
employment agreement with Southern Alloy to continue his present position
following consummation of this Offering and will become 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, truck trailer manufacturing, mining and construction
industries. Uni-Steel had fiscal 1996 revenues of $54.6 million and currently
has 130 employees. Richard A. Singer, the President and Chief Executive Officer
of Uni-Steel, has been employed by Uni-Steel for 32 years, will sign a five-year
employment agreement with Uni-Steel to continue in such capacities following
consummation of this Offering and will become 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 equipiment manufacturers ("OEMs") and
fabricators. Williams had fiscal 1996 revenues of $25.5 million and currently
has 80 employees. Lester G. Peterson, the President of Williams, has been
employed by Williams for 27 years, will sign a five-year employment agreement
with Williams to continue his present position following consummation of this
Offering and will become 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 revenues of $35.8 million and
currently has 75 employees. Craig R. Doveala, the President of Service Systems,
has been employed by Service Systems since its founding, will sign a five-year
employment agreement with Service Systems to continue his present position
following consummation of this Offering and will become a director of the
Company.
9
<PAGE>
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. Metals USA was founded in 1996 but
has conducted no operations and generated no net sales to date. Metals USA has
entered into definitive agreements to acquire the Founding Companies
simultaneously with, and as a condition to, the closing of this Offering. The
Founding Companies have been operating as separate independent entities, 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 or to implement
effectively the Company's acquisition and internal growth operating strategies.
The pro forma combined historical financial results of the Founding Companies
cover periods when the Founding 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
Founding 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. 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. Although the Company believes that its market position as an
intermediary between primary metals producers and end-users provides it a
measure of insulation from market cyclicalities, 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
10
<PAGE>
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
Founding Companies or other businesses acquired in the future 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. Upon consummation of this Offering, the Company will have $17.2 million
of net proceeds remaining for future acquisitions and working capital after
payment of Merger and Offering expenses and the cash portion of the purchase
price for the Founding Companies. 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. Upon consummation of this Offering,
the Company intends to obtain a bank line of credit of at least $125.0 million
for working capital and acquisitions. However, there can be no assurance that
the Company will be able to obtain the line of credit or the additional
financing it will need for its acquisition program on terms that the Company
deems acceptable. 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 Founding
Companies and subsequently acquired businesses and to continue to expand the net
sales of the Founding Companies and any subsequently acquired businesses.
Although the Company intends to seek to improve the profitability of the
Founding 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 Founding 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 Founding 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. See "Business -- Strategy."
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 Company's operations are subject
to extensive federal, state and local laws and regulations governing waste
11
<PAGE>
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, the Company
evaluated the properties owned or leased by the Founding 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
stockholders of the Founding Companies 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. The Company will be highly dependent on the
continuing efforts of its executive officers and the senior management of the
Founding 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. Following the
consummation of the Mergers and this Offering, the Company's executive officers
and directors, former stockholders of the Founding Companies and entities
affiliated with them will beneficially own approximately 71.6% of the
outstanding shares of Common Stock (68.7% if the Underwriters' over-allotment
option is exercised in full), of which Notre, management of and consultants to
Metals USA will own 4,753,414 shares of Common Stock, representing 22.9% of all
shares of Common Stock outstanding, for which they paid $.01 per share. Of these
shares of Common Stock, 3,122,914 shares are Restricted Common Stock, which are
entitled to elect one member of the Company's Board of Directors and to
two-tenths (0.2) 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. These holders of Common Stock
will control in the aggregate 10.84% 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 OFFERING PAYABLE TO AFFILIATES OF FOUNDING
COMPANIES. Of the net proceeds of this Offering, $40.2 million, or 59.7% will
be paid as the cash portion of the purchase price for the Founding Companies.
Some of the recipients of these funds will become directors of the Company or
holders of more than 5% of the Common Stock. Additionally, Notre has agreed to
advance to Metals USA until the consummation of the Mergers and the Offering
such funds as are necessary to effect the Mergers and this Offering and will be
reimbursed approximately $1.1 million from the proceeds of this Offering in
respect of such expenses. See "Certain Transactions."
12
<PAGE>
NO PRIOR PUBLIC MARKET AND DETERMINATION OF OFFERING PRICE. Prior to this
Offering, there has been no public market for the Common Stock. Therefore, the
initial public offering price for the Common Stock will be determined by
negotiation between the Company and the Representatives of the Underwriters and
may bear no relationship to the price at which the Common Stock will trade after
the Offering. See "Underwriting" for the factors to be considered in
determining the initial public offering price. The Common Stock has been
approved for quotation on The New York Stock Exchange, subject to official
notice of issuance. However, there can be no assurance that an active trading
market will develop subsequent to this Offering or, if developed, that it will
be sustained. After this Offering, 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. Upon consummation of the Mergers and this Offering, 20,782,023 shares of
Common Stock will be outstanding. The 5,900,000 shares sold in this Offering
(other than shares that may be purchased by affiliates of the Company) will be
freely tradable. 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 this Offering. On completion
of this Offering, the Company also will have outstanding options to purchase up
to a total of 2,171,024 shares of Common Stock. The Company intends to register
all the shares subject to these options under the Securities Act for public
resale. The Company intends to register 8,000,000 additional shares of Common
Stock under the Securities Act within 90 days after completion of this Offering
for issuance in connection with future acquisitions. These shares generally will
be freely tradable after their issuance by persons not affiliated with the
Company unless the Company contractually restricts their resale. 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."
IMMEDIATE AND SUBSTANTIAL DILUTION. Purchasers of Common Stock in this
Offering will experience immediate, substantial dilution in the net tangible
book value of their stock of $10.73 per share and may experience further
dilution in that value from issuances of Common Stock in connection with future
acquisitions. See "Dilution."
13
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 5,900,000 shares of
Common Stock offered hereby, after deducting underwriting discounts and
commissions and estimated Offering and Merger expenses, are estimated to be
$67.3 million ($78.0 million if the Underwriters' over-allotment option is
exercised in full).
Of the net proceeds, $40.2 million will be used to pay the cash portion of
the purchase price for the Founding Companies, some of which will be paid to
former stockholders who will become officers, directors, or holders of more than
5% of the Common Stock.
The $27.1 million of remaining net proceeds will be used to repay
approximately $10.4 million of indebtedness of the Founding Companies and the
balance for working capital and other general corporate purposes, which are
expected to include future acquisitions. The Company currently has no binding or
non-binding agreements to effect any future acquisitions. Pending such uses, the
net proceeds will be invested in short-term, interest-bearing, investment-grade
securities.
The Company is currently negotiating with a group of banks to obtain a
credit facility of at least $125.0 million, which would be available upon the
consummation of this Offering. A portion of this credit facility will be used to
refinance approximately $79.2 million of existing indebtedness of the Founding
Companies. There can be no assurance that any line of credit will be obtained or
that, if obtained, it will be on terms that are favorable to the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations -- Combined."
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, in the event the Company is
successful in obtaining one or more lines of credit, it is likely that any such
facility will include restrictions on the ability of the Company to pay
dividends without the consent of the lender.
Prior to the Mergers, certain of the Founding Companies will make S
Corporation Distributions aggregating $20.4 million and other distributions of
non-operating assets in the amount of $4.9 million to their former stockholders.
In order to fund these distributions, the Founding Companies will borrow
approximately $20.4 million from existing sources.
14
<PAGE>
CAPITALIZATION
The following table sets forth the current maturities of long-term
obligations and capitalization at December 31, 1996 (i) of Metals USA on a pro
forma combined basis to give effect to the issuance of 985,000 shares of Common
Stock to management of and consultants to Metals USA, the Mergers and the S
Corporation Distributions, the distribution of certain real estate and
non-operating assets and liabilities and the refinancing of outstanding
indebtedness; and (ii) of Metals USA, pro forma combined, as adjusted to give
effect to the Mergers, the issuance of 985,000 shares of Common Stock to
management of and consultants to the Company, the S Corporation Distributions,
this Offering and the application of a portion of the estimated net proceeds
therefrom. This table should be read in conjunction with the Unaudited Pro Forma
Combined Financial Statements of the Company and the Notes thereto included
elsewhere in this Prospectus.
DECEMBER 31, 1996
-------------------------
PRO
FORMA
COMBINED AS ADJUSTED
-------- --------
(IN THOUSANDS OF DOLLARS)
Current maturities of long-term debt
obligations(1) ................................ $ 40,220(2) $ --
======== ========
Long-term obligations, less current
maturities(1) ................................. $ 89,506(4) $ 79,150
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;
14,882,023 issued and outstanding
pro forma combined; and
20,782,023 shares issued and
outstanding, pro forma as
adjusted(3) .............................. 149 208
Additional paid-in capital ................. 65,921 133,193
Retained earnings .......................... 1,160 1,160
Treasury stock ............................. -- --
-------- --------
Total stockholders' equity ............ 67,230 134,561
-------- --------
Total capitalization ............... $156,736 $213,711
======== ========
- ------------
(1) For a description of the Company's debt, see the Notes to Unaudited Pro
Forma Combined Financial Statements and Notes to the Founding Companies'
Financial Statements.
(2) Represent the cash portion of the Merger consideration to be paid from a
portion of the net proceeds of this Offering.
(3) Excludes 2,171,024 shares of Common Stock subject to options to be granted
upon consummation of this Offering with an exercise price equal to the
initial public offering price. See "Management -- 1997 Long-Term Incentive
Plan" and " -- 1997 Non-Employee Directors' Stock Plan."
(4) Several of the Founding Companies are S Corporations. Prior to the Mergers,
these Founding Companies will make S Corporation Distributions to their
stockholders totaling $20.4 million. In order to fund the S Corporation
Distributions, the Founding Companies will borrow $20.4 million from
existing sources, $10.4 million of which will be repaid from the proceeds of
the Offering. Additionally, prior to the Mergers, certain of the Founding
Companies will distribute to their stockholders certain real estate and
non-operating assets and liabilities having a net book value of $4.9
million. Accordingly, pro forma long-term debt has been increased by $10.1
million and pro forma stockholders' equity has been reduced by $25.3
million.
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<PAGE>
DILUTION
The deficit in pro forma net tangible book value of the Company at December
31, 1996 was approximately $20.1 million, or $1.35 per share of Common Stock.
The deficit in net tangible book value per share represents the amount of the
Company's stockholders' equity, less intangible assets, divided by the number of
shares of Common Stock issued and outstanding after giving effect to the
Mergers. Net tangible book value dilution per share represents the difference
between the amount per share paid by purchasers of shares of Common Stock in the
Offering and the pro forma net tangible book value per share of Common Stock
immediately after completion of the Offering. After giving effect to the sale of
5,900,000 shares of Common Stock by the Company in the Offering at an assumed
public offering price of $13.00 per share, and the application of the estimated
net proceeds therefrom, the pro forma net tangible book value of the Company as
of December 31, 1996 would have been $47.3 million or $2.27 per share. This
represents an immediate increase in pro forma net tangible book value of $3.62
per share to stockholders as of December 31, 1996, and an immediate dilution in
pro forma net tangible book value of $10.73 per share to purchasers of Common
Stock in the Offering. The following table illustrates the dilution per share:
Assumed initial public offering price
per share............................. $ 13.00
Pro forma deficit in net tangible
book value per share before the
Offering......................... $ (1.35)
Increase in pro forma net tangible
book value per share attributable
to new investors................. 3.62
---------
Pro forma net tangible book value per
share after the Offering.............. 2.27
---------
Dilution per share to new investors..... $ 10.73
=========
The following table sets forth, on a pro forma basis to give effect to the
Mergers as of December 31, 1996, the number of shares of Common Stock purchased
from the Company, the aggregate cash consideration paid (based on an assumed
initial public offering price of $13.00 per share) and the average price per
share paid to the Company:
TOTAL
SHARES PURCHASED CONSIDERATION(1) AVERAGE
----------------- ---------------- PRICE
NUMBER PERCENT AMOUNT PER SHARE
------ ------- ---------------- ---------
Existing stockholders..... 14,882 71.6% $(20,052) $ (1.35)
New investors............. 5,900 28.4 76,700 $ 13.00
------ ------- ----------------
Total................ 20,782 100.0% $ 56,648
====== ======= ================
- ------------
(1) Total consideration paid by existing stockholders represents the combined
stockholders' equity of the Founding Companies before this Offering, reduced
to reflect: (i) the cash portion of the consideration payable to the
stockholders of the Founding Companies in connection with the Mergers; (ii)
S Corporation Distributions of $20.4 million; and (iii) the distribution of
certain real estate and non-operating assets and liabilities having a net
book value of $4.9 million.
16
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS OF DOLLARS)
Metals USA will acquire the Founding Companies simultaneously with and as a
condition to the consummation of this Offering. For financial statement
presentation purposes, however, Texas Aluminum/Cornerstone has been identified
as the "accounting acquiror." The following selected historical financial data
for Texas Aluminum/Cornerstone as of June 30, 1995 and December 31, 1996 and for
the years ended June 30, 1994 and 1995 and the twelve months ended December 31,
1996, have been derived from audited financial statements of Texas
Aluminum/Cornerstone, and reflect all adjustments, consisting of normal
recurring adjustments, necessary for a fair presentation of such data. The
selected historical financial data as of June 30, 1992, 1993 and 1994, and the
fiscal years ended June 30, 1992 and 1993, have been derived from unaudited
financial statements of Texas Aluminum/Cornerstone, which have been prepared on
the same basis as the audited financial statements and, in the opinion of Texas
Aluminum/Cornerstone, reflect all adjustments consisting of normal recurring
adjustments necessary for a fair presentation of such data. See "Summary
Proforma Combined Financial Data" for presentation of the combined Founding
Companies financial data.
<TABLE>
<CAPTION>
TWELVE
MONTHS
YEAR ENDED JUNE 30, ENDED
----------------------------------------- DECEMBER 31,
1992 1993 1994 1995 1996
-------- -------- -------- -------- ------------
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C>
Net sales ......................... $ 25,538 $ 26,842 $ 26,105 $ 34,706 $ 40,651
Cost of sales ..................... 16,756 17,604 17,991 23,893 27,146
Operating and delivery ............ 6,095 6,262 5,621 5,863 6,386
Selling, general and administrative
expenses ........................ 1,741 1,789 1,654 2,810 3,539
Depreciation and amortization ..... 351 341 346 517 568
Operating income .................. 595 846 493 1,623 3,012
Interest and other expense, net ... 395 96 275 694 674
Income before income taxes ........ 200 750 218 929 2,338
Net income ........................ 118 434 125 652 1,882
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF
----------------------------------------- DECEMBER 31,
1992 1993 1994 1995 1996
-------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital .............. $ 4,145 $ 1,525 $ 2,881 $ 7,401 $ 8,274
Total assets ................. 12,639 12,957 13,945 18,732 22,049
Long-term debt, net of current
maturities ................. 3,992 1,343 2,354 8,247 7,423
Stockholders' equity ......... 2,459 3,378 3,363 3,981 6,335
</TABLE>
17
<PAGE>
SUMMARY PRO FORMA COMBINED FINANCIAL DATA
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
Metals USA will acquire the Founding Companies simultaneously with and as a
condition to the consummation of this Offering. The following unaudited summary
pro forma combined financial data presents data for the Company, as adjusted for
(i) the effects of the Mergers, (ii) the effects of certain pro forma
adjustments to the historical financial statements described below, and (iii)
the consummation of this Offering and the application of the net proceeds
therefrom. See the "Selected Financial Data," and the Unaudited Pro Forma
Combined Financial Statements and the Notes thereto and the historical financial
statements of the Founding Companies and the Notes thereto included elsewhere in
this Prospectus.
PRO FORMA COMBINED
-------------------
TWELVE MONTHS ENDED
DECEMBER 31, 1996
-------------------
STATEMENT OF OPERATIONS DATA(1):
Net sales ........................................... $ 387,038
Cost of sales ....................................... 294,019
Operating and delivery(2) ........................... 42,667
Selling, general and administrative
expenses(2) ........................................ 23,339
Depreciation and amortization(3) .................... 5,847
Operating income .................................... 21,166
Interest and other expense,
net(4) ............................................. 4,137
Income before income taxes .......................... 17,029
Net income(5) ....................................... 9,336
Net income per share ................................ $ 0.48
Shares used in computing pro forma
net income per share(6) ............................ 19,458,715
DECEMBER 31, 1996
--------------------------
PRO FORMA
COMBINED(7) AS ADJUSTED(8)
---------- ----------
BALANCE SHEET DATA:
Working capital(4) ....................... $ 45,595(9) $ 103,018
Total assets ............................. 241,054 257,809
Long-term debt, net of current
maturities(4) .......................... 89,506 79,150
Stockholders' equity(4) .................. 67,230 134,561
- ------------
(1) The pro forma combined statement of operations data assume that the Mergers,
the Offering and all acquisitions by the Founding Companies were closed 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 were $375.8
million.
(2) The pro forma combined statement of operations data reflect the Compensation
Differential of $3.6 million included in selling, general and administrative
expenses and the Rent Differential of $0.5 million included in operating and
delivery.
(3) Includes $2.2 million of amortization on the $87.3 million of goodwill to be
recorded as a result of the Mergers computed on the basis described in Notes
to the Unaudited Pro Forma Combined Financial Statements.
(4) Several of the Founding Companies are S Corporations. Prior to the Mergers,
these Founding Companies will make S Corporation Distributions to their
stockholders totaling $20.4 million. In order to fund the S Corporation
Distributions, the Founding Companies will borrow $20.4 million from
existing sources, $10.4 million of which will be repaid from the proceeds of
the Offering. Additionally, prior to the Mergers, certain of the Founding
Companies will distribute to their stockholders certain real estate and
non-operating assets and liabilities having a net book value of $4.9
million. Accordingly, pro forma interest expense has been increased by $0.8
million, pro forma working capital has been reduced by $10.4 million, pro
forma long-term debt has been increased by $10.1 million and pro forma
stockholders' equity has been reduced by $25.3 million.
(5) Assumes all income is subject to a corporate tax rate of 40% and all
goodwill is non-deductible.
(6) Includes (i) 10,128,609 shares to be issued to owners of the Founding
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) 4,576,692 of
the 5,900,000 shares sold in the Offering necessary to pay the cash portion
of the Merger consideration, retire certain indebtedness relating to the S
Corporation Distributions and pay expenses of this Offering. Excludes
options to purchase 2,171,024 shares to be granted upon consummation of this
Offering.
(7) The pro forma combined balance sheet data assumes that the Mergers were
consummated on December 31, 1996.
(8) Adjusted for the sale of 5,900,000 shares of Common Stock offered hereby and
the application of the net proceeds therefrom.
(9) Includes a $40.2 million payable representing the cash portion of the Merger
consideration to be paid from a portion of the net proceeds of this
Offering.
18
<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 Founding Companies' 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 Founding Companies manufacture
finished building products for commercial and residential applications and
machine certain specialty metals.
The Founding Companies have operated throughout the periods presented as
privately-owned entities and their results of operations reflect varying tax
structures ("S Corporations" or "C Corporations") which have influenced the
historical level of owners' compensation. Accordingly, selling, general and
administrative expenses as a percentage of net sales may not be comparable among
the individual Founding Companies. The owners of the Founding 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 Mergers. The Compensation Differential for 1996 of $3.6
million and the Rent Differential of $0.5 million have been reflected as pro
forma adjustments in the Unaudited Pro Forma Combined Statement of Operations
presented elsewhere in this Prospectus.
The Company anticipates that following the Mergers, 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. However, because these savings and
costs cannot be accurately quantified at this time, they have not been included
in the pro forma financial information included herein.
During the first and second quarters of 1997, the Company sold an aggregate
of 985,500 shares of Common Stock to management of and consultants to the
Company for $0.01 per share. Accordingly, the Company will record a
non-recurring, non-cash compensation charge of $0.5 million in the first quarter
of 1997 and $5.5 million in the second quarter of 1997, 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 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 operating company receiving the largest voting
position from the shares issued in connection with the Mergers must be
designated as the accounting acquiror. Accordingly, Texas Aluminum/Cornerstone
is the operating company that has been designated as the "accounting
acquiror." The excess of the fair value of the Merger consideration paid over
the fair value of the net assets acquired for the remaining Founding Companies
will be recorded as "goodwill." 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 this amortization expense, which is non-deductible for
tax purposes, is expected to be approximately $2.2 million per year. The amount
of goodwill to be recorded and the related amortization expense will depend in
part on the actual Offering price. 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
19
<PAGE>
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 the eight Founding Companies
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 -- COMBINED
The combined results of operations of the Founding Companies for the
periods presented do not represent combined results of operations presented in
accordance with generally accepted accounting principles, but are only a
summation of the net sales, cost of sales, operating and delivery expenses.
selling, general and administrative expenses and depreciation and amortization
expenses of the individual Founding Companies on a historical basis. The
combined results of operations include the results of Williams from March 1,
1996, the effective date of acquisition of the business by its current owners,
and the results of businesses acquired by Texas Aluminum/Cornerstone in 1995 and
1996 only from their respective dates of acquisition. The combined results also
exclude the effect of pro forma adjustments and, therefore, may not be
indicative of the Company's post-combination results of operations for a number
of reasons, including the following: (i) the Founding Companies were not under
common control or management during the periods presented, (ii) the Founding
Companies used different tax structures ("S Corporations" or "C
Corporations") during the periods presented, (iii) the Company will incur
incremental costs related to its new corporate management and the costs of being
a public company, (iv) the Company will use the purchase method of accounting to
record the Mergers, resulting in the recording and amortization of goodwill and
(v) the combined data do not reflect the Compensation Differential, the Rent
Differential or the potential benefits and cost savings the Company expects to
realize once Metals USA and the Founding Companies begin operating as a combined
entity.
Approximately 22% of the net sales of the Founding Companies are derived
from some aspect of the construction industry. The construction industry is
cyclical and is influenced by seasonal factors, as those activities are usually
lower during winter months than other periods. The Founding Companies have a
broad geographic product and customer mix, which in large measure has served to
mitigate cyclical and seasonal trends; however, there can be no assurance that
period-to-period differences will not occur in the future or that cyclical or
seasonal patterns will not emerge. Further, the results of operations for any
interim period (on a combined basis and for each of the Founding Companies) are
not necessarily indicative of the results
20
<PAGE>
for the full year. Inflation has not had any significant impact on the results
of operations for any of the Founding Companies during any of the periods
presented herein.
The following table sets forth the combined results of operations of the
Founding Companies on a historical basis. The results of operations for Metals
USA after its formation in July 1996 were not significant.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
-----------------------------------------------------------------
1994(1) % 1995(1) % 1996(2) %
------------------- ------------------- -------------------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Net sales............................... $ 269.6 100.0% $ 326.1 100.0% $ 375.8 100.0%
Costs and expenses:
Cost of sales...................... 210.5 78.1 254.2 78.0 286.6 76.3
Operating and delivery expenses.... 31.0 11.5 35.3 10.8 42.7 11.4
Selling, general and administrative
expenses......................... 18.2 6.8 21.8 6.7 25.0 6.7
Depreciation and amortization...... 2.3 .8 2.8 .9 3.3 .9
------- --------- ------- --------- ------- ---------
Operating income........................ 7.6 2.8 12.0 3.7 18.2 4.8
</TABLE>
- ------------
(1) The financial data are presented on a historical basis for the Founding
Companies' respective fiscal year ends. The fiscal years presented are as
follows: Texas Aluminum/Cornerstone -- June 30, 1994 and 1995;
Affiliated -- Fifty-two weeks ended September 3, 1994 and September 2, 1995;
Uni-Steel -- September 30, 1994 and 1995. All other Founding Companies'
fiscal years end December 31. Does not include results of operations of
Williams, which was acquired by its present owners in March 1996.
(2) Reflects results of operations for all of the Founding Companies (except
Williams) for the twelve months ended December 31, 1996. Results of
operations for Williams are for the ten months ended December 31, 1996.
COMBINED RESULTS FOR 1996 COMPARED TO 1995
NET SALES. Combined net sales increased approximately $49.7 million, or
15.2%, from $326.1 million in 1995 to $375.8 million in 1996. The increased net
sales were principally due to the acquisition of Williams, which was acquired by
its current owners on March 1, 1996, and accounted for $25.5 million of the
increase. The balance of the increase in combined net sales was caused by
increased volumes at five of the seven Founding Companies, particularly at Texas
Aluminum/Cornerstone and Uni-Steel, partially offset by declines at two Founding
Companies.
COST OF SALES. Combined cost of sales increased approximately $32.4
million, or 12.7%, from $254.2 million in 1995 to $286.6 million in 1996. The
increase in combined cost of sales was primarily attributable to the acquistion
of Williams, which accounted for approximately $22.1 million of the increase. As
a percentage of net sales, cost of sales decreased from 78.0% in 1995 to 76.3%
in 1996 due primarily to a decline in the cost of raw materials.
OPERATING AND DELIVERY EXPENSES. Combined operating and delivery expenses
increased approximately $7.4 million, or 21.0%, from $35.3 million in 1995 to
$42.7 million in 1996. The increase in operating and delivery expenses was
attributable to the Williams acquisition and increased shipments at most of the
Founding Companies. As a percentage of net sales, operating and delivery
expenses increased from 10.8% in 1995 to 11.4% in 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Combined selling, general
and administrative expenses increased approximately $3.2 million, or 14.7%, from
$21.8 million in 1995 to $25.0 million in 1996. The increase in combined
selling, general and administrative expenses was primarily due to the Williams
acquisition and higher net sales at most of the Founding Companies. As a
percentage of net sales, selling, general and administrative expenses were
unchanged at 6.7% for both 1995 and 1996.
OPERATING INCOME. Combined operating income increased approximately $6.2
million, or 51.7%, from $12.0 million in 1995 to $18.2 million in 1996. The
increase in combined operating income was attributable to the factors discussed
above. As a percentage of net sales, operating income increased from 3.7% in
1995 to 4.8% in 1996.
21
<PAGE>
COMBINED RESULTS FOR 1995 COMPARED TO 1994
NET SALES. Combined net sales increased approximately $56.5 million, or
21.0%, from $269.6 million in 1994 to $326.1 million in 1995. All of the
Founding Companies contributed to the increase in combined net sales. The most
significant increases were at Affiliated, Interstate, Queensboro and Uni-Steel
which were primarily due to increased shipments. The formation of Cornerstone by
Texas Aluminum effective March 31, 1995 accounted for $5.5 million of the
increase.
COST OF SALES. Combined cost of sales increased approximately $43.7
million, or 20.8%, from $210.5 million in 1994 to $254.2 million in 1995. The
increase in cost of sales was principally due to the increase in net sales. As a
percentage of net sales, cost of sales decreased from 78.1% in 1994 to 78.0% in
1995.
OPERATING AND DELIVERY EXPENSES. Combined operating and delivery expenses
increased approximately $4.3 million, or 13.9%, from $31.0 million in 1994 to
$35.3 million in 1995. The increase in combined operating and delivery expenses
was primarily due to the increase in product shipments at Interstate, Affiliated
and Queensboro. As a percentage of net sales, operating and delivery expenses
decreased from 11.5% in 1994 to 10.8% in 1995, principally due to the ability to
spread fixed operating costs over higher sales volumes.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Combined selling, general
and administrative expenses increased approximately $3.6 million, or 19.8%, from
$18.2 million in 1994 to $21.8 million in 1995. The increase in combined
selling, general and administrative expenses was primarily at Texas
Aluminum/Cornerstone, Interstate and Affiliated. The increase at Texas
Aluminum/Cornerstone was primarily attributable to the addition of distribution
centers. As a percentage of net sales, selling, general and administrative
expenses decreased from 6.8% in 1994 to 6.7% in 1995.
OPERATING INCOME. Combined operating income increased approximately $4.4
million, or 57.9%, from $7.6 million in 1994 to $12.0 million in 1995. The
increase in combined operating income was attributable to the factors discussed
above. As a percentage of net sales, operating income increased from 2.8% in
1994 to 3.7% in 1995.
COMBINED LIQUIDITY AND CAPITAL RESOURCES
On a combined basis, the Founding Companies generated $7.7 million of net
cash from operating activities during fiscal 1996. Net cash used in investing
activities was $8.0 million on a combined basis, primarily for the construction
of a new facility by Affiliated in Butler, Indiana and for equipment purchases
by the Founding Companies. Net cash used in financing activities was $0.1
million on a combined basis, the most significant component of which was
distributions to stockholders of $2.6 million. At December 31, 1996, the
combined Founding Companies had cash of $1.3 million, working capital of $35.9
million and total debt of $66.9 million ($42.7 million of which was classified
as current). On a pro forma basis, after giving effect to the S Corporation
Distributions, the Mergers, the refinancing of the Founding Companies' existing
notes payable with funds drawn from the Company's bank credit facility
(described below) and the application of the net proceeds from this Offering,
the Company and the Founding Companies would have had, on a combined basis, a
cash balance of approximately $18.4 million, working capital of approximately
$60.6 million and total debt of approximately $79.2 million, all of which would
be classified as long-term as a result of the acquisition of the Credit Facility
described below. Prior to the Mergers, the Founding Companies collectively
borrowed approximately $20.4 million to fund S Corporation Distributions.
The Company is currently negotiating with a group of commercial banks to
provide a fully-committed three-year unsecured revolving credit facility of
$125.0 million (the "Credit Facility") which is expected to be available upon
the closing of this Offering. The Credit Facility will be used to fund
acquisitions, make capital expenditures, refinance debt of the Founding
Companies and working capital requirements. It is anticipated that the Credit
Facility will require 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, and (iv) obtaining the lenders' consent with respect
to individual acquisitions involving cash consideration over a specified amount.
The ability of the Company to secure the Credit Facility is subject to
completion of negotiations with the group of
22
<PAGE>
commercial banks, together with the satisfaction of certain conditions
precedent, including the execution of customary loan documentation.
The Company intends to pursue acquisition opportunities actively. 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.
RESULTS OF OPERATIONS -- TEXAS ALUMINUM/CORNERSTONE
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 construction
industries. Texas Aluminum/Cornerstone's products are produced in four
manufacturing plants. The products are marketed and sold to construction
contractors, architects and interior designers through 36 sales and distribution
facilities across the United States, primarily in the Sunbelt. Texas
Aluminum/Cornerstone has a broad geographic and customer mix. Texas
Aluminum/Cornerstone generally experiences lower sales during the first calendar
quarter of each year, due largely to the general decline in construction-related
activity during the winter months.
The following table sets forth the historical results of operations for
Texas Aluminum/Cornerstone.
<TABLE>
<CAPTION>
YEAR ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
------------------------------------------ --------------------
1994 % 1995 % 1996 %
-------------------- -------------------- --------------------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Net sales............................... $ 26.1 100.0% $ 34.7 100.0% $ 40.6 100.0%
Costs and expenses:
Cost of sales...................... 18.0 69.0 23.9 68.9 27.1 66.7
Operating and delivery............. 5.6 21.5 5.9 17.0 6.4 15.8
Selling, general and administrative
expenses......................... 1.7 6.5 2.8 8.1 3.5 8.6
Depreciation and amortization...... 0.3 1.1 0.5 1.4 0.6 1.5
--------- --------- --------- --------- --------- ---------
Operating income........................ 0.5 1.9 1.6 4.6 3.0 7.4
</TABLE>
TEXAS ALUMINUM/CORNERSTONE RESULTS FOR THE YEAR ENDED DECEMBER 31, 1996 COMPARED
TO THE FISCAL YEAR ENDED JUNE 30, 1995
NET SALES. Net sales increased $5.9 million, or 17.0%, from $34.7 million
in 1995 to $40.6 million in 1996. This increase was primarily due to the
acquisition of Cornerstone during 1995 and the introduction of new product lines
and geographical expansion through additional distribution facilities.
COST OF SALES. Cost of sales increased $3.2 million, or 13.4%, from $23.9
million in 1995 to $27.1 million in 1996. As a percentage of net sales, cost of
sales decreased from 68.9% in 1995 to 66.7% in 1996. The decrease was primarily
due to an increase in sales of products with a higher profit margin, partially
offset by inventory write-downs attributable to discontinued product lines.
OPERATING AND DELIVERY EXPENSES. Operating and delivery expenses increased
$0.5 million, or 8.5%, from $5.9 million in 1995 to $6.4 million in 1996. As a
percentage of net sales, operating and delivery expenses decreased from 17.0% in
1995 to 15.8% in 1996. This decrease was primarily due to spreading of fixed
operating costs over a higher volume of sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.7 million, or 25.0%, from $2.8 million in
1995 to $3.5 million in 1996. This increase was primarily attributable to
increases in sales and marketing expenses necessary to support the increased
level of sales.
23
<PAGE>
As a percentage of net sales, selling, general and administrative expenses
increased from 8.1% in 1995 to 8.6% in 1996.
OPERATING INCOME. Operating income increased $1.4 million, or 87.5%, from
$1.6 million in 1995 to $3.0 million in 1996. The increase in operating income
was attributable to the factors discussed above. As a percentage of net sales,
operating income increased from 4.6% in 1995 to 7.4% in 1996.
TEXAS ALUMINUM/CORNERSTONE RESULTS FOR FISCAL YEAR ENDED JUNE 30, 1995 COMPARED
TO FISCAL YEAR ENDED JUNE 30, 1994
NET SALES. Net sales increased $8.6 million, or 33.0%, from $26.1 million
in 1994 to $34.7 million in 1995. This increase was due to the acquisition of
Cornerstone,which accounts for $5.5 million of the increase, and the
introduction of new product lines and geographical expansion through additional
distribution outlets.
COST OF SALES. Cost of sales increased $5.9 million, or 32.8%, from $18.0
million in 1994 to $23.9 million in 1995. The increase in cost of sales was a
direct result of the increase in net sales. As a percentage of net sales, cost
of sales decreased from 69.0% in 1994 to 68.9% in 1995 due to increased sales of
higher margin products.
OPERATING AND DELIVERY EXPENSES. Operating and delivery expenses increased
$0.3 million, or 5.4%, from $5.6 million in 1994 to $5.9 million in 1995 as a
result of the increase in net sales. As a percentage of net sales, operating and
delivery expenses decreased from 21.5% in 1994 to 17.0% in 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $1.1 million, or 64.7%, from $1.7 million in
1994 to $2.8 million in 1995. This increase was primarily attributable to
increases in sales and marketing expenses necessary to support the increased
level of sales. As a percentage of net sales, selling, general and
administrative expenses increased from 6.5% in 1994 to 8.1% in 1995.
OPERATING INCOME. Operating income increased $1.1 million, or 220.0%, from
$0.5 million in 1994 to $1.6 million in 1995. The increase in operating income
was attributable to the factors discussed above. As a percentage of net sales,
operating income increased from 1.9% in 1994 to 4.6% in 1995.
TEXAS ALUMINUM/CORNERSTONE LIQUIDITY AND CAPITAL RESOURCS
At December 31, 1996, Texas Aluminum/Cornerstone's working capital was $8.3
million, compared to $7.4 million at June 30, 1995. Texas Aluminum/Cornerstone's
principal capital requirements are to fund its working capital and the purchase
and improvement of facilities, machinery and equipment. Historically, these
requirements have been met by income generated from operations and borrowings
under bank credit facilities.
Net cash provided by (used for) operating activities for the fiscal years
ended June 30, 1994 and 1995 and for the year ended December 31, 1996 was $(0.2)
million, $0.6 million and $1.8 million, respectively. These changes were
principally due to funding Texas Aluminum/Cornerstone's working capital
requirements for accounts and notes receivable, inventories and accrued
liabilities.
Net cash provided by (used for) investing activities for the fiscal years
ended June 30, 1994 and 1995 and for the year ended December 31, 1996 was $(0.2)
million, $(2.9) million and $0.2 million, respectively. Investing activities
included $2.5 million used for business acquisitions, with the remaining amount
used for capital expenditures offset by collections on notes receivable.
Net cash provided by (used for) financing activities for the fiscal years
ended June 30, 1994 and 1995 and for the year ended December 31, 1996 was $0.2
million, $2.4 million and $(2.2) million, respectively. Borrowings during 1995
were made to fund business acquisitions. Credit facility repayments constituted
the majority of cash used for investing activities during 1996. Prior to the
Merger, Texas Aluminum/Cornerstone borrowed approximately $3.4 million to fund
its portion of the S Corporation Distributions.
24
<PAGE>
Texas Aluminum/Cornerstone has revolving bank credit facilities, secured by
inventories, accounts receivable, equipment and the guarantees of certain
stockholders, which expire on various dates during 1998. The amounts available
under these credit facilities were increased from $6.0 million to $10.0 million
in February 1997. At December 31, 1996, approximately $2.9 million of the $6.0
million revolving credit facilities was available. Texas Aluminum/Cornerstone
believes its cash flows from operations, the bank credit facility and other
available sources of financing, will be sufficient to fund its working capital
and capital expenditure requirements for the next several years.
RESULTS OF OPERATIONS -- INTERSTATE
Interstate is a carbon structural steel service center with operations in
Philadelphia and Pittsburgh, Pennsylvania and Baltimore, Maryland. Interstate
services customers primarily in the northeast and mid-Atlantic United States,
ranging from Virginia to Maine and west through eastern Ohio. Interstate 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. Approximately
one-half of net sales includes value-added processing services such as saw
cutting, shearing, flame cutting, cambering and tee-splitting. Interstate has a
broad geographic and customer mix and has not experienced any significant
seasonal trends.
The following table sets forth the historical results of operations for
Interstate.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1994 % 1995 % 1996 %
-------------------- -------------------- --------------------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Net sales............................... $ 49.3 100.0% $ 61.4 100.0% $ 66.8 100.0%
Costs and expenses:
Cost of sales...................... 37.3 75.7 44.9 73.1 47.9 71.7
Operating and delivery expenses.... 6.2 12.6 7.9 12.9 8.2 12.3
Selling, general and administrative
expenses......................... 4.2 8.5 5.2 8.5 5.4 8.1
Depreciation and amortization...... .5 1.0 .6 .9 .6 .9
--------- --------- --------- --------- --------- ---------
Operating income........................ 1.1 2.2 2.8 4.6 4.7 7.0
</TABLE>
INTERSTATE RESULTS FOR YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED
DECEMBER 31, 1995
NET SALES. Net sales increased $5.4 million, or 8.8%, from $61.4 million
in 1995 to $66.8 million in 1996. The increase in net sales was primarily due to
a $6.0 million contract for value-added steel products associated with the
construction of a shopping mall.
COST OF SALES. Cost of sales increased $3.0 million, or 6.7%, from $44.9
million in 1995 to $47.9 million in 1996. The increase in cost of goods sold was
primarily due to a 5.6% increase in quantity of raw material sold, partially
offset by a 2.8% decline in the average cost of purchased steel. As a percentage
of net sales, cost of sales decreased from 73.1% in 1995 to 71.7% in 1996.
OPERATING AND DELIVERY EXPENSES. Operating and delivery expenses increased
$0.3 million, or 3.8%, from $7.9 million in 1995 to $8.2 million in 1996. As a
percentage of net sales, operating and delivery expenses decreased from 12.9% in
1995 to 12.3% in 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.2 million, or 3.8%, from $5.2 million in
1995 to $5.4 million in 1996. As a percentage of net sales, selling, general and
administrative expenses decreased from 8.5% in 1995 to 8.1% in 1996. This
percentage decrease was primarily due to the increase in net sales without a
commensurate increase in overhead.
OPERATING INCOME. Operating income increased $1.9 million, or 67.9%, from
$2.8 million in 1995 to $4.7 million in 1996. The increase in operating income
was attributable to the factors discussed above. As a percentage of net sales,
operating income increased from 4.6% in 1995 to 7.0% in 1996.
25
<PAGE>
INTERSTATE RESULTS FOR YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED
DECEMBER 31, 1994
NET SALES. Net sales increased $12.1 million, or 24.5%, from $49.3 million
in 1994 to $61.4 million in 1995. Shipments increased by approximately 15.5%
from 1994 to 1995, primarily due to a $6.0 million increase in sales of
value-added products to the construction industry, principally from its recently
opened Pittsburgh facility, and an increase in sales of approximately $3.4
million of value-added products to various governmental agencies.
COST OF SALES. Cost of sales increased $7.6 million, or 20.4%, from $37.3
million in 1994 to $44.9 million in 1995, primarily as a result of the 15.5%
increase in shipments. Average purchase prices for steel were essentially
unchanged from 1994 levels. As a percentage of net sales, cost of sales
decreased from 75.7% in 1994 to 73.1% in 1995, primarily due to increased
shipments of value-added products.
OPERATING AND DELIVERY EXPENSES. Operating and delivery expenses increased
$1.7 million, or 27.4%, from $6.2 million in 1994 to $7.9 million in 1995. The
increase in operating and delivery expenses was primarily due to increased
activity at the Pittsburgh facility which produces a large portion of
value-added products that are sold to the construction industry. As a percentage
of net sales, operating and delivery expenses increased from 12.6% in 1994 to
12.9% in 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $1.0 million, or 23.8%, from $4.2 million in
1994 to $5.2 million in 1995. As a percentage of net sales, selling, general and
administrative expenses remained constant at 8.5% for both periods.
OPERATING INCOME. Operating income increased $1.7 million, or 154.5%, from
$1.1 million in 1994 to $2.8 million in 1995. The increase in operating income
was attributable to the factors discussed above. As a percentage of net sales,
operating income increased from 2.2% in 1994 to 4.6% in 1995.
INTERSTATE LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, Interstate's working capital was $5.5 million, an
increase from $3.2 million at December 31, 1995. Interstate's principal capital
requirements are to fund its working capital and the purchase and improvement of
facilities, machinery and equipment. Historically, these requirements have been
met by income generated from operations and borrowings under bank credit
facilities.
Net cash provided by (used for) operating activities for 1994, 1995 and
1996 was $(1.1) million, $0.3 million and $3.0 million, respectively. These
changes were principally due to increased earnings, partially offset by funding
Interstate's working capital requirements for accounts receivable, inventories
and accounts payable.
Net cash used for investing activities was primarily attributable to
capital expenditures and for 1994, 1995 and 1996 was $0.6 million, $0.5 million
and $0.4 million, respectively. The individual components of these capital
expenditures were not significant.
Net cash provided by (used for) financing activities for 1994, 1995 and
1996 was $1.6 million, $0.2 million and $(2.5) million, respectively. Interstate
paid dividends (including distributions to partners) in 1994, 1995 and 1996 of
$0.3 million, $0.6 million and $1.4 million, respectively. Interstate received a
capital contribution from its stockholders in 1995 of $0.3 million. Borrowings
in 1994 were primarily made to fund working capital requirements for accounts
receivable, inventories and accounts payable. During 1996, Interstate repaid a
portion of the borrowings outstanding under its revolving bank credit facility.
Prior to the Merger, Interstate has funded $1.5 million and will borrow $5.2
million to fund its portion of the S Corporation Distributions.
Interstate has two unsecured bank credit facilities. One facility provides
for borrowings of up to $12.5 million and expires on May 31, 1997. The second
facility provides for borrowings of up to $10.0 million and expires July 31,
1997. Interstate has agreed to limit its aggregate borrowings from the two
credit facilities to a maximum amount outstanding at any time of $14.5 million.
At December 31, 1996, approximately $4.4 million was available for borrowings
from the two credit facilities. Interstate anticipates that its cash flows from
operations will be sufficient to meet its working capital and debt service
26
<PAGE>
requirements for the next several years. Capital expenditure requirements are
expected to be funded from cash provided by operations and supplemented as
necessary with borrowings from banks or other lenders.
RESULTS OF OPERATIONS -- QUEENSBORO
Queensboro is a carbon steel service center and structural fabricator, with
operations in Wilmington and Greensboro, North Carolina and Norfolk, Virginia,
and markets its products primarily in the southeast region of the United States.
Queensboro is a value-added metals processor/service center, providing products
and services primarily to the shipbuilding, transportation, construction, pulp
and paper and chemical industries. Queensboro has a broad geographic and
customer mix, and has not experienced any significant seasonal trends.
The following table sets forth the historical results of operations for
Queensboro.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1994 % 1995 % 1996 %
-------------------- -------------------- --------------------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Net sales............................... $ 50.8 100.0% $ 60.3 100.0% $ 55.0 100.0%
Costs and expenses:
Cost of sales...................... 38.0 74.8 45.9 76.1 38.9 70.7
Operating and delivery expenses.... 7.4 14.6 8.1 13.4 8.3 15.1
Selling, general and administrative
expenses......................... 3.6 7.1 3.8 6.3 3.9 7.1
Depreciation and amortization...... .4 .7 .4 .7 .4 .7
--------- --------- --------- --------- --------- ---------
Operating income........................ 1.4 2.8 2.1 3.5 3.5 6.4
</TABLE>
QUEENSBORO RESULTS FOR YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED
DECEMBER 31, 1995
NET SALES. Net sales declined $5.3 million, or 8.8%, from $60.3 million in
1995 to $55.0 million in 1996 primarily due to a 7% decrease in tons shipped and
lower average realized prices. Lower shipments to one of Queensboro's larger
manufacturing customers contributed to the decline in net sales.
COST OF SALES. Cost of sales decreased $7.0 million, or 15.3%, from $45.9
million in 1995 to $38.9 million in 1996. This decrease was primarily due to the
decrease in net sales. As a percentage of net sales, cost of sales decreased
from 76.1% in 1995 to 70.7% in 1996, primarily due to lower raw material costs.
OPERATING AND DELIVERY EXPENSES. Operating and delivery expenses increased
$0.2 million, or 2.5%, from $8.1 million in 1995 to $8.3 million in 1996. As a
percentage of net sales, operating and delivery expenses increased from 13.4% in
1995 to 15.1% in 1996, primarily due to the decline in net sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.1 million, or 2.6%, from $3.8 million in
1995 to $3.9 million in 1996. As a percentage of net sales, selling, general and
administrative expenses increased from 6.3% in 1995 to 7.1% in 1996. This
percentage increase was the result of lower net sales in 1996.
OPERATING INCOME. Operating income increased $1.4 million, or 66.7%, from
$2.1 million in 1995 to $3.5 million in 1996. The increase in operating income
was attributable to the factors discussed above. As a percentage of net sales,
operating income increased from 3.5% in 1995 to 6.4% in 1996.
QUEENSBORO RESULTS FOR YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED
DECEMBER 31, 1994
NET SALES. Net sales increased $9.5 million, or 18.7%, from $50.8 million
in 1994 to $60.3 million in 1995. This increase was primarily due to a 7%
increase in tonnage shipped and higher average realized prices. Higher shipments
to one of Queensboro's manufacturing customers also contributed to the increase
in net sales.
COST OF SALES. Cost of sales increased $7.9 million, or 20.8%, from $38.0
million in 1994 to $45.9 million in 1995. The increase in cost of sales was a
result of the increase in net sales. As a percentage of net sales, cost of sales
increased from 74.8% in 1994 to 76.1% in 1995, primarily due to higher raw
material costs.
27
<PAGE>
OPERATING AND DELIVERY EXPENSES. Operating and delivery expenses increased
$0.7 million, or 9.5%, from $7.4 million in 1994 to $8.1 million in 1995. The
increase in operating and delivery expenses was a result of the increase in
shipments. As a percentage of net sales, operating and delivery expenses
decreased from 14.6% in 1994 to 13.4% in 1995, principally due to the ability to
spread fixed operating costs over higher sales volumes.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.2 million, or 5.6%, from $3.6 million in
1994 to $3.8 million in 1995. As a percentage of net sales, selling, general and
administrative expenses decreased from 7.1% in 1994 to 6.3% in 1995. This
percentage decrease was a result of the increase in net sales without a
commensurate increase in administrative costs.
OPERATING INCOME. Operating income increased $0.7 million, or 50.0%, from
$1.4 million in 1994 to $2.1 million in 1995. The increase in operating income
was attributable to the factors discussed above. As a percentage of net sales,
operating income increased from 2.8% in 1994 to 3.5% in 1995.
QUEENSBORO LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, Queensboro's working capital was $13.8 million,
compared to $13.6 million at December 31, 1995. Queensboro's principal capital
requirements are to fund its working capital and the purchase and improvement of
facilities, machinery and equipment. Historically, these requirements have been
met by income generated from operations and borrowings under bank credit
facilities.
Net cash provided by (used for) operating activities in 1994, 1995 and 1996
was $(0.5) million, $0.6 million and $3.2 million, respectively. These changes
were principally due to increased earnings, partially offset by Queensboro's
increased working capital requirements for accounts receivable, inventories and
accounts payable.
Net cash used for investing activities was primarily attributable to
capital expenditures and for 1994, 1995 and 1996 was $0.9 million, $1.5 million
and $2.0 million, respectively. The individual components of these capital
expenditures were not significant.
Net cash provided by (used for) financing activities for 1994, 1995 and
1996 was $1.4 million, $1.0 million and $(1.2) million, respectively. Queensboro
paid dividends in 1994, 1995 and 1996 of $0.1 million, $0.9 million and $0.8
million, respectively. Borrowings in 1994 and 1995 were primarily made to fund
the capital expenditure and working capital requirements for accounts
receivable, inventories and accounts payable. During 1996, Queensboro repaid a
portion of the borrowings outstanding under its revolving bank credit facility.
Prior to the Merger, Queensboro borrowed approximately $6.3 million to fund its
portion of the S Corporation Distributions.
Queensboro has a $10.0 million bank credit facility, secured by inventories
and accounts receivable, which expires on June 30, 1998. At December 31, 1996,
approximately $4.4 million of this revolving credit facility was available.
Queensboro anticipates that its cash flows from operations will be sufficient to
meet its working capital and debt service requirements for the next several
years. Capital expenditure requirements are expected to be funded from cash
provided by operations and supplemented as necessary with borrowings from banks
or other lenders.
RESULTS OF OPERATIONS -- AFFILIATED
Affiliated is a high-volume flat rolled steel processor, with operations in
Granite City, Illinois and a newly-constructed facility in Butler, Indiana.
These facilities 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 manufacturers of consumer durables,
commercial transportation equipment, appliances and furniture. Service areas
include Missouri, Kansas, Texas, Oklahoma, Tennessee, Kentucky, Indiana,
Mississippi, Alabama, Georgia, Iowa, Illinois and Nebraska. Affiliated has a
broad geographic and customer mix, and has not experienced any significant
seasonal trends.
28
<PAGE>
The following table sets forth the historical results of operations for
Affiliated.
<TABLE>
<CAPTION>
FIFTY-TWO WEEKS ENDED
--------------------------------------------------------------------------
SEPTEMBER 3, SEPTEMBER 2, AUGUST 31,
1994 % 1995 % 1996 %
------------------------ ------------------------ ----------------------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Net sales............................ $ 63.0 100.0% $ 79.0 100.0% $ 81.0 100.0%
Costs and expenses:
Cost of sales.................... 54.6 86.7 68.5 86.7 67.9 83.8
Operating and delivery expenses.. 4.3 6.8 5.1 6.5 5.9 7.3
Selling, general and adminis-
trative expenses............... 2.3 3.7 2.8 3.5 3.4 4.2
Depreciation and amortization.... .3 .4 .3 .4 .3 .4
------------ --------- ------------ --------- ---------- ---------
Operating income..................... 1.5 2.4 2.3 2.9 3.5 4.3
</TABLE>
TWENTY-SIX WEEKS ENDED
----------------------------------------
MARCH 2, MARCH 1,
1996 % 1997 %
------------------- -------------------
Net sales............................ $ 39.8 100.0% $ 46.8 100.0%
Costs and expenses:
Cost of sales.................... 32.4 81.4 40.0 85.5
Operating and delivery expenses.. 3.3 8.3 4.4 9.4
Selling, general and adminis-
trative expenses............... 1.5 3.8 1.5 3.2
Depreciation and amortization.... .2 .5 .3 .6
-------- --------- -------- ---------
Operating income..................... 2.4 6.0 .6 1.3
The results of operations for the interim periods are unaudited and are not
necessarily indicative of the results for the full year.
AFFILIATED RESULTS FOR THE TWENTY-SIX WEEKS ENDED MARCH 1, 1997 COMPARED TO THE
TWENTY-SIX WEEKS ENDED MARCH 2, 1996
NET SALES. Net sales increased $7.0 million, or 17.6%, from $39.8 million
for the twenty-six weeks ended March 2, 1996 to $46.8 million for the twenty-six
weeks ended March 1, 1997. This increase was primarily attributable to increased
shipments from the new Butler facility, partially offset by a 2.7% decrease in
average realized prices.
COST OF SALES. Cost of sales increased $7.6 million, or 23.5%, from $32.4
million for the twenty-six weeks ended March 2, 1996 to $40.0 million for the
twenty-six weeks ended March 1, 1997. As a percentage of net sales, cost of
sales increased from 81.4% for the twenty-six weeks ended March 2, 1996 to 85.5%
for the twenty-six weeks ended March 1, 1997. Cost of sales increased primarily
because of the increased shipments as described above and to a lesser extent
because of a 2.7% increase in average purchase prices.
OPERATING AND DELIVERY EXPENSES. Operating and delivery expenses increased
$1.1 million, or 33.3%, from $3.3 million for the twenty-six weeks ended March
2, 1996 to $4.4 million for the twenty-six weeks ended March 1, 1997. As a
percentage of net sales, operating and delivery expenses increased from 8.3% for
the twenty-six weeks ended March 2, 1996 to 9.4% for the twenty-six weeks ended
March 1, 1997. These increases on a dollar and percentage basis were principally
due to the start-up and additional costs attributable to the new Butler
facility.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were essentially unchanged from the twenty-six weeks
ended March 2, 1996 to the twenty-six weeks ended March 1, 1997. As a percentage
of net sales, selling, general and administrative expenses decreased from 3.8%
for the twenty-six weeks ended March 2, 1996 to 3.2% for the twenty-six weeks
ended March 1, 1997. This decrease was primarily attributable to the ability to
generate additional net sales by the Butler facility without a commensurate
increase in administrative costs.
29
<PAGE>
OPERATING INCOME. Operating income decreased $1.8 million, or 75.0%, from
$2.4 million for the twenty-six weeks ended March 2, 1996 to $0.6 million for
the twenty-six weeks ended March 1, 1997. As a percentage of net sales,
operating income decreased from 6.0% for the twenty-six weeks ended March 2,
1996 to 1.3% for the twenty-six weeks ended March 1, 1997. The decrease in
operating income was attributable to the start-up expenses associated with the
Butler facility.
AFFILIATED RESULTS FOR THE FIFTY-TWO WEEKS ENDED AUGUST 31, 1996 COMPARED TO THE
FIFTY-TWO WEEKS
ENDED SEPTEMBER 2, 1995
NET SALES. Net sales increased $2.0 million, or 2.5%, from $79.0 million
in 1995 to $81.0 million in 1996. Shipments increased 11% from 1995 to 1996,
primarily due to the addition of a significant new customer in 1996.
COST OF SALES. Cost of sales decreased $0.6 million, or 0.9%, from $68.5
million in 1995 to $67.9 million in 1996. Cost of sales decreased primarily due
to an 11% decrease in average cost of raw materials, partially offset by the
increased shipments. As a percentage of net sales, cost of sales decreased from
86.7% in 1995 to 83.8% in 1996.
OPERATING AND DELIVERY EXPENSES. Operating and delivery expenses increased
$0.8 million, or 15.7%, from $5.1 million in 1995 to $5.9 million in 1996. As a
percentage of net sales, operating and delivery expenses increased from 6.5% in
1995 to 7.3% in 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.6 million, or 21.4%, from $2.8 million in
1995 to $3.4 million in 1996. As a percentage of net sales, selling, general and
administrative expenses increased from 3.5% for 1995 to 4.2% 1996. This increase
was primarily attributable to higher incentive compensation paid to management
and certain key employees.
OPERATING INCOME. Operating income increased $1.2 million, or 52.2%, from
$2.3 million in 1995 to $3.5 million in 1996. The increase in operating income
was attributable to the factors discussed above. As a percentage of net sales,
operating income increased from 2.9% in 1995 to 4.3% in 1996.
AFFILIATED RESULTS FOR THE FIFTY-TWO WEEKS ENDED SEPTEMBER 2, 1995 COMPARED TO
THE FIFTY-TWO WEEKS ENDED SEPTEMBER 3, 1994
NET SALES. Net sales increased $16.0 million, or 25.4%, from $63.0 million
in 1994 to $79.0 million in 1995. Shipments increased by 20.2% and average
realized sales prices increased by 4.6%. Increased shipments to two customers
accounted for approximately one-half of the increased shipment volumes.
COST OF SALES. Cost of sales increased $13.9 million, or 25.5%, from $54.6
million in 1994 to $68.5 million in 1995. The increase in cost of sales was a
direct result of the increase in product shipments. Average cost of raw
materials decreased by 0.5% compared to 1994 costs. As a percentage of net
sales, cost of sales remained constant at 86.7% for both periods.
OPERATING AND DELIVERY EXPENSES. Operating and delivery expenses increased
$0.8 million, or 18.6%, from $4.3 million in 1994 to $5.1 million in 1995. The
increase in operating and delivery expenses was a direct result of the increase
in product shipments. As a percentage of net sales, operating and delivery
expenses declined from 6.8% in 1994 to 6.5% in 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.5 million, or 21.7%, from $2.3 million in
1994 to $2.8 million in 1995. This increase was primarily attributable to higher
incentive compensation paid to management and certain key employees. As a
percentage of net sales, selling, general and administrative expenses decreased
from 3.7% in 1994 to 3.5% in 1995.
OPERATING INCOME. Operating income increased $0.8 million, or 53.3%, from
$1.5 million in 1994 to $2.3 million in 1995. The increase in operating income
was attributable to the factors discussed above. As a percentage of net sales,
operating income increased from 2.4% in 1994 to 2.9% in 1995.
30
<PAGE>
AFFILIATED LIQUIDITY AND CAPITAL RESOURCES
At March 1, 1997, Affiliated's working capital was $15.3 million, compared
to a deficit of $0.3 million at August 31, 1996. The increase in working capital
is principally due to the reclassification of Affiliated's revolving credit
facility from current to long-term. Absent such reclassification, the working
capital deficit would have been $0.2 million. Affiliated operated with minimal
levels of working capital during 1996. Affiliated's principal capital
requirements are to fund its working capital and the purchase and improvement of
facilities, machinery and equipment. Historically, these requirements have been
met by cash flow generated from operations and borrowings under bank credit
facilities. During the year ended August 31, 1996, Affiliated incurred capital
expenditures of $5.6 million, primarily associated with the construction of its
new facility at Butler, Indiana. Construction financing for the facility was
provided by a bank loan bearing interest at 1/4% over the bank's prime rate and
is secured by the facility.
Net cash provided by (used for) operating activities for the fifty-two
weeks ended September 3, 1994, September 2, 1995 and August 31, 1996 was $(1.1)
million, $2.1 million and $(0.9) million, respectively. Net cash provided by
(used for) operating activities for the twenty-six weeks ended March 2, 1996 and
March 1, 1997 was $(3.4) million and $(7.7) million, respectively. These changes
were principally due to funding Affiliated's working capital requirements for
accounts receivable, inventories and accounts payable.
Net cash used for investing activities was primarily attributable to
capital expenditures and for the fifty-two weeks ended September 3, 1994,
September 2, 1995 and August 31, 1996 was $0.3 million, $0.6 million and $5.5
million, respectively. Net cash used for investing activities was primarily
attributable to capital expenditures and for the twenty-six weeks ended March 2,
1996 and March 1, 1997 was $2.5 million and $0.2 million, respectively. Capital
expenditures during the 1996 periods were primarily due to the construction of
the Butler facility.
Net cash provided by (used for) financing activities for the fifty-two
weeks ended September 3, 1994, September 2, 1995 and August 31, 1996 was $1.4
million, $(1.5) million and $6.4 million, respectively. Net cash provided by
financing activities for the twenty-six weeks ended March 2, and March 1, 1997
was $5.9 million and $7.9 million, respectively. Affiliated redeemed $0.5
million of its redeemable preferred stock during the fifty-two weeks ended
September 3, 1994. Borrowings during the 1996 periods were to fund the capital
expenditure requirements attributable to the construction of the Butler
facility. Affiliated funds its working capital requirements for accounts
receivable, inventories and accounts payable primarily through borrowings
(repayments) under existing revolving bank credit facilities.
Affiliated has a $16.0 million bank credit facility, secured by
inventories, accounts receivable, equipment and the guarantees of certain
stockholders, which expires August 1, 1997. At March 1, 1997, approximately $0.5
million was available for borrowings. Affiliated anticipates that its cash flows
from operations will be sufficient to meet its working capital and debt service
requirements for the next several years. Capital expenditure requirements are
expected to be funded from cash provided by operations and supplemented as
necessary with borrowings from banks or other lenders.
RESULTS OF OPERATIONS -- SOUTHERN ALLOY
Southern Alloy is a specialty metal processor 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 provides products and
services primarily to the fluid power, machine tools, pump and valve, power
transmission and textile machinery industries. The market for Southern Alloy's
products and services is principally the southeastern United States. Southern
Alloy has a broad customer mix, and has not experienced any significant seasonal
trends.
31
<PAGE>
The following table sets forth the historical results of operations for
Southern Alloy.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1995 % 1996 %
-------------------- --------------------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C>
Net sales............................... $ 12.0 100.0% $ 10.8 100.0%
Costs and expenses:
Cost of sales...................... 7.7 64.2 7.1 65.7
Operating and delivery............. 0.9 7.5 0.7 6.5
Selling, general and administrative
expenses......................... 2.8 23.3 2.9 26.9
Depreciation and Amortization...... 0.1 .8 0.1 .9
--------- --------- --------- ---------
Operating income........................ 0.5 4.2 -- --
</TABLE>
SOUTHERN ALLOY RESULTS FOR YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED
DECEMBER 31, 1995
NET SALES. Net sales declined $1.2 million, or 10.0%, from $12.0 million
in 1995 to $10.8 million in 1996. This decrease was expected as a significant
portion of 1995 net sales was the result of temporary outsourcing of value-added
processing by certain customers with short-term capacity constraints. In 1996,
these customers returned this processing to their respective internal
operations. Additionally, average realized sales prices for copper-based metals
declined 8% from 1995 to 1996 due to significant competitive pressure.
COST OF SALES. Cost of sales decreased $0.6 million, or 7.8%, from $7.7
million in 1995 to $7.1 million in 1996. This decrease was primarily due to the
decrease in sales as described above. As a percentage of net sales, cost of
sales increased from 64.2% in 1995 to 65.7% in 1996.
OPERATING AND DELIVERY EXPENSES. Operating and delivery expenses decreased
$0.2 million, or 22.2%, from $0.9 million in 1995 to $0.7 million in 1996. This
decrease was primarily due to a reduction in the workforce to meet expected
sales levels.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.1 million, or 3.6%, from $2.8 million in
1995 to $2.9 million in 1996. Reductions in incentive compensation of $0.2
million in 1996 were offset by a $0.2 million non-cash charge attributable to
stock options granted during the third quarter of 1996. As a percentage of net
sales, selling, general and administrative expenses increased from 23.3% in 1995
to 26.9% in 1996. This percentage increase was due to the decline in net sales.
OPERATING INCOME. Operating income declined $0.5 million, or 100%, from
$0.5 million in 1995 to break-even in 1996. The decrease in operating income was
attributable to the factors discussed above.
SOUTHERN ALLOY LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, Southern Alloy's working capital was $0.3 million
versus $0.4 million at December 31, 1995. Southern Alloy's principal capital
requirements are to fund its working capital and the purchase and improvement of
facilities, machinery and equipment. Historically, these requirements have been
met by income generated from operations and borrowings under bank credit
facilities.
Net cash provided by operating activities for 1995 and 1996 was $0.8
million and $0.3 million, respectively. These changes were principally due to
increased earnings, partially offset by funding Southern Alloy's working capital
requirements for accounts receivable, inventories and accounts payable.
Net cash used for financing activities for 1995 and 1996 was $0.7 million
and $0.4 million, respectively. Southern Alloy paid dividends in 1995 and 1996
of $0.2 million and $0.1 million, respectively. Additionally, during 1996
Southern Alloy repurchased $0.2 million of its common stock. During 1995
Southern Alloy repaid $0.5 million of borrowings outstanding to affiliates.
Prior to the Merger, Southern Alloy borrowed approximately $0.1 million to fund
its portion of the S Corporation Distributions.
Southern Alloy has a $2.0 million bank credit facility, secured by
inventories, accounts receivable, equipment and the guarantees of certain
stockholders, which expires on June 1, 1997. At December 31,
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1996, approximately $0.1 million of this revolving credit facility was available
for borrowing. Southern Alloy anticipates that its cash flows from operations
will be sufficient to meet its working capital and debt service requirements for
the next several years. Capital expenditure requirements are expected to be
funded from cash provided by operations and supplemented as necessary with
borrowings from banks or other lenders.
RESULTS OF OPERATIONS -- UNI-STEEL
Uni-Steel is a value-added metals processor/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. Uni-Steel
provides value-added metals processing products, and services including
cutting-to-length, leveling, flame cutting, plasma cutting, shearing and sawing.
Uni-Steel services customers in a wide variety of industries, including oil and
gas, truck trailer, mining and construction industries. Uni-Steel has a broad
geographic and customer mix, and has not experienced any significant seasonal
trends.
The following table sets forth the historical results of operations for
Uni-Steel.
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
SEPTEMBER 30, DECEMBER 31,
------------------------------------------ ------------------------------------------
1995 % 1996 % 1995 % 1996 %
-------------------- -------------------- -------------------- --------------------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............................... $ 47.7 100.0% $ 54.6 100.0% $ 12.2 100.0% $ 14.3 100.0%
Costs and expenses:
Cost of sales...................... 38.0 79.7 43.4 79.5 9.7 79.5 11.4 79.7
Operating and delivery............. 4.7 9.9 5.4 9.9 1.2 9.8 1.5 10.5
Selling, general and administrative
expenses......................... 2.8 5.9 2.9 5.3 0.7 5.7 0.8 5.6
Depreciation and amortization...... 0.5 .9 0.5 .9 0.1 .9 0.1 .7
--------- --------- --------- --------- --------- --------- --------- ---------
Operating income........................ 1.7 3.6 2.4 4.4 0.5 4.1 0.5 3.5
</TABLE>
The results of operations for 1995 and the interim periods are unaudited.
The results of operations for the interim periods are not necessarily indicative
of the results for the full year.
UNI-STEEL RESULTS FOR THREE MONTHS ENDED DECEMBER 31, 1996 COMPARED TO THE THREE
MONTHS ENDED DECEMBER 31, 1995
NET SALES. Net sales increased $2.1 million, or 17.2%, from $12.2 million
for the three months ended December 31, 1995 to $14.3 million for the three
months ended December 31, 1996. This increase was primarily the result of
expanding the plate steel product line in response to customer demand.
COST OF SALES. Cost of sales increased $1.7 million, or 17.5%, from $9.7
million for the three months ended December 31, 1995 to $11.4 million for the
three months ended December 31, 1996. This increase was primarily the result of
the increased sales level. As a percentage of net sales, cost of sales increased
from 79.5% for the three months ended December 31, 1995 to 79.7% for the three
months ended December 31, 1996.
OPERATING AND DELIVERY EXPENSES. Operating and delivery expenses increased
$0.3 million, or 25.0%, from $1.2 million for the three months ended December
31, 1995 to $1.5 million for the three months ended December 31, 1996. This
increase was primarily attributable to the increased sales level. As a
percentage of net sales, operating and delivery expenses increased from 9.8% for
the three months ended December 31, 1995 to 10.5% for the three months ended
December 31, 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.1 million, or 14.3%, from $0.7 million for
the three months ended December 31, 1995 to $0.8 million for the three months
ended December 31, 1996. This increase was primarily attributable to increases
in sales and marketing expenses necessary to support the increased level of
sales. As a percentage of net sales, selling, general and administrative
expenses decreased from 5.7% for the three months ended December 31, 1995 to
5.6% for the three months ended December 31, 1996.
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<PAGE>
OPERATING INCOME. Operating income remained constant at $0.5 million for
both periods as a result of the factors discussed above. As a percentage of net
sales, operating income decreased from 4.1% for the three months ended December
31, 1995 to 3.5% for the three months ended December 31, 1996.
UNI-STEEL RESULTS FOR YEAR ENDED SEPTEMBER 30, 1996 COMPARED TO THE YEAR ENDED
SEPTEMBER 30, 1995
NET SALES. Net sales increased $6.9 million, or 14.5%, from $47.7 million
in 1995 to $54.6 million in 1996. This increase was primarily the result of
expanding the plate steel product line in response to customer demand.
COST OF SALES. Cost of sales increased $5.4 million, or 14.2%, from $38.0
million in 1995 to $43.4 million in 1996. This increase was due to the increase
in net sales. As a percentage of net sales, cost of sales decreased from 79.7%
in 1995 to 79.5% in 1996.
OPERATING AND DELIVERY EXPENSES. Operating and delivery expenses increased
$0.7 million, or 14.9%, from $4.7 million for the year ended September 30, 1995
to $5.4 million for the year ended September 30, 1996. This increase was
primarily attributable to the increase in net sales. As a percentage of net
sales, operating and delivery expenses remained constant at 9.9% for both
periods.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.1 million, or 3.6%, from $2.8 million in
1995 to $2.9 million in 1996. As a percentage of net sales, selling, general and
administrative expenses decreased from 5.9% in 1995 to 5.3% in 1996. This
percentage decrease was primarily due to the increase in net sales without a
commensurate increase in administrative costs.
OPERATING INCOME. Operating income increased $0.7 million, or 41.2%, from
$1.7 million in 1995 to $2.4 million in 1996. The increase in operating income
was attributable to the factors discussed above. As a percentage of net sales,
operating income increased from 3.6% in 1995 to 4.4% in 1996.
UNI-STEEL LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, Uni-Steel's working capital was $6.4 million,
compared to $6.1 million at September 30, 1996. Uni-Steel's principal capital
requirements are to fund its working capital and the purchase and improvement of
facilities, machinery and equipment. Historically, these requirements have been
met by income generated from operations and borrowings under bank credit
facilities.
Net cash provided by operating activities for the year ended September 30,
1996 and for the three months ended December 31, 1995 and 1996 was $0.2 million,
$1.2 million and $1.0 million, respectively. These changes were principally due
to increased earnings, partially offset by funding Uni-Steel's working capital
requirements for accounts receivable, inventories and accounts payable.
Net cash used for investing activities for the year ended September 30,
1996 was $0.3 million. Investing activities for the three months ended December
31, 1995 and 1996 were not significant.
Net cash provided by (used for) financing activities for the year ended
September 30, 1996 and for the three months ended December 31, 1995 and 1996 was
$0.1 million, $(1.2) million and $(1.1) million, respectively. During the year
ended September 30, 1996, Uni-Steel repurchased $0.2 million of its capital
stock, borrowed an additional $0.8 million under its revolving credit facility
and repaid $0.4 million of long-term debt. During each of the three months ended
December 31, 1995 and 1996, Uni-Steel repaid $1.1 million of borrowings
outstanding under its revolving credit facility.
Uni-Steel has a $10.0 million revolving bank credit facility, secured by
inventories and accounts receivable, which expires April 30, 1999. At December
31, 1996, $4.0 million was available for borrowings. Uni-Steel anticipates that
its cash flows from operations will be sufficient to meet its working capital
and debt service requirements for the next several years. Capital expenditure
requirements are expected to be funded from cash provided by operations and
supplemented as necessary with borrowings from banks or other lenders.
34
<PAGE>
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 $50
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. Upon consummation of this Offering, Metals USA
will acquire the eight Founding Companies, which have been in business an
average of 40 years and had 1996 pro forma combined net sales of $387.0 million.
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 eight Founding Companies sell to over 10,000 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
35
<PAGE>
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 Founding 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 $50 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
36
<PAGE>
and eliminates 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 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 $50 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 Founding 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
Founding 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 Founding
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 Founding 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 Founding 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 Founding 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.
37
<PAGE>
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 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 Founding 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 Founding 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 Founding 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 Founding Companies will be
instrumental in identifying and completing future acquisitions. Some of the
Founding Companies have recently completed acquisitions, which have given them
valuable acquisition experience. Moreover, several of the principals of the
Founding 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. The Company currently has no agreements to effect any
acquisitions other than the Founding Companies.
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
38
<PAGE>
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. Within 90 days
following the completion of this Offering, the Company intends to register
8,000,000 additional shares of Common Stock under the Securities Act for its use
in connection with future acquisitions. The Company believes that it can
structure acquisitions as tax-free reorganizations by using its Common Stock 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
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<PAGE>
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 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 table sets forth information on processing and other services
offered by each Founding Company:
<TABLE>
<CAPTION>
TEXAS SOUTHERN
ALUM. INTERSTATE QUEENSBORO AFFILIATED ALLOY UNI-STEEL WILLIAMS
----- ---------- ---------- ---------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Shearing and cutting to length.......... X X X X X X X
Metallurgy and traceability............. X X X X X X X
Blanking................................ X X X X
Shearing/sawing......................... X X X X X
Flame/plasma cutting.................... X X X X
Leveling................................ X X
Slitting................................ X X
Pickling................................ X
Tee-splitting........................... X X X X
Edge trimming........................... X X
Cambering............................... X X X X
Bar coding.............................. X
EDI..................................... X X X
Just-in-time............................ X X X X X X X
</TABLE>
SERVICE
SYSTEMS
-------
Shearing and cutting to length.......... X
Metallurgy and traceability............. X
Blanking................................ X
Shearing/sawing.........................
Flame/plasma cutting....................
Leveling................................ X
Slitting................................ X
Pickling................................
Tee-splitting...........................
Edge trimming........................... X
Cambering...............................
Bar coding.............................. X
EDI..................................... X
Just-in-time............................ X
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.
40
<PAGE>
The following table sets forth information with respect to the Founding
Companies' 1996 combined net sales by metals type:
TWELVE MONTHS ENDED
DECEMBER 31, 1996
-------------------
NET SALES %
-------- --------
(IN MILLIONS OF DOLLARS)
Steel:
Structural ......................................... $ 73.7 19.6%
Plate .............................................. 54.1 14.4
Bar ................................................ 30.4 8.1
Hot-rolled sheet/coil .............................. 85.7 22.8
Cold-rolled sheet/coil ............................. 30.1 8.0
Galvanized sheet/coil .............................. 7.9 2.1
Tubing ............................................. 16.9 4.5
Fabricated products ................................ 15.0 4.0
Other .............................................. 6.4 1.7
-------- --------
Total ......................................... 320.2 85.2
Stainless steel, alloys and specialty
metals ................................................ 15.4 4.1
Metal building products ................................. 40.2 10.7
-------- --------
Total ......................................... $ 375.8 100.0%
======== ========
The Founding 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. Three of the Founding Companies'
facilities are currently seeking ISO (International Standards Organization) 9002
certification. 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 distant mill has a significantly lower price. The
Company believes that, following the Mergers, it will 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.
41
<PAGE>
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 10,000 customers, with
no single customer accounting for more than 4% of the Company's pro forma
combined revenues in 1996. The Company believes that its long-term relationships
with many of its customers contribute significantly to its success.
42
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The following table sets forth information with respect to the Founding
Companies' 1996 combined net sales by end-user industry base:
TWELVE MONTHS ENDED
DECEMBER 31, 1996
-------------------
NET SALES %
-------- --------
(IN MILLIONS OF DOLLARS)
Machinists and fabricators .............................. $ 83.8 22.3%
Industrial/commercial contractors ....................... 83.4 22.2
Machinery and equipment manufacturers ................... 78.5 20.9
Transportation equipment
manufacturers ......................................... 31.9 8.5
Furniture manufacturers ................................. 27.4 7.3
Wholesale distributors .................................. 21.4 5.7
Power and process equipment
manufacturers ......................................... 12.8 3.4
Consumer durables and electrical
equipment manufacturers ............................... 12.4 3.3
Other ................................................... 24.2 6.4
-------- --------
Total .............................................. $ 375.8 100.0%
======== ========
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.
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 two
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, the Company
evaluated the properties owned or leased by the Founding 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
43
<PAGE>
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 a limited indemnities from the stockholders of
the Founding Companies 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 Founding 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. Four of the Founding 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 Founding Companies have computer-aided drafting systems
that control equipment used to perform some metals processing functions.
EMPLOYEES
As of December 31, 1996, the Founding Companies employed a total of 1,071
persons. Of these employees, 176 were in administration, 238 were in sales and
distribution and 657 were in processing and warehousing. Approximately 175
employees at three sites were members of one of four unions: the United
Steelworkers of America; the International Association of Bridge, Structural,
and Ornamental Ironworkers of America; the International Brotherhood of
Teamsters; 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 Founding 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 13 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 36 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.
44
<PAGE>
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 Founding Companies' focus and
emphasis on safety in the workplace. The Founding 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 Founding Companies' emphasis on an
accident-free workplace.
45
<PAGE>
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.................... 56 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.................. 41 Senior Vice President, Chief
Financial Officer and Director
Michael E. Christopher.............. 36 Senior Vice President`, President of
Texas Aluminum/Cornerstone, Director*
Stephen R. Baur..................... 31 Senior Vice President and Chief
Development Officer`
John A. Hageman..................... 43 Senior Vice President, General
Counsel and Secretary
Terry L. Freeman.................... 46 Vice President and Corporate
Controller
Keith E. St. Clair.................. 40 Vice President and Treasurer
Mark Alper.......................... 52 President of Queensboro, Director*
Craig R. Doveala.................... 45 President of Service Systems,
Director*
William B. Edge..................... 38 President of Southern Alloy,
Director*
Patrick A. Notestine................ 49 President of Affiliated, Director*
Lester G. Peterson.................. 55 President of Williams, Director*
Richard A. Singer................... 51 President and Chief Executive Officer
of Uni-Steel, Director*
Steven S. Harter.................... 34 Director
Tommy E. Knight..................... 58 Director*
Richard H. Kristinik................ 57 Director*
T. William Porter................... 55 Director*
- ------------
* Election as a director of the Company effective as of the consummation of this
Offering.
` Effective as of the consummation of this Offering.
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.
Arnold W. Bradburd will become Vice-Chairman of the Board of the Company
upon consummation of this Offering. He has been employed by Interstate since
1974, serving as Chairman of the Board and Chief Executive Officer since 1979,
and will continue in that capacity after consummation of this Offering. 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 and 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
46
<PAGE>
Vice President and Controller of Keystone. From 1976 to 1989, Mr. Kirksey was a
certified public accountant with Arthur Andersen LLP.
Michael E. Christopher will become a Senior Vice President and a director
of the Company upon consummation of this Offering. He has been Executive Vice
President of Texas Aluminum since 1987 and President of Cornerstone since 1995,
and will become President of Texas Aluminum/Cornerstone after consummation of
this Offering. Mr. Christopher currently serves as Vice President of the Board
of Directors of the National Patio Enclosure Association.
Stephen R. Baur will become Senior Vice President and Chief Development
Officer of the Company upon consummation of this Offering. Since July 1996, Mr.
Baur has been 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 will become a director of the Company upon consummation of this
Offering. He has been President of Queensboro since 1971, and will continue in
that capacity after consummation of this Offering.
Craig R. Doveala will become a director of the Company upon consummation of
this Offering. He has been President of Service Systems since 1990, and will
continue in that capacity after consummation of this Offering.
William B. Edge will become a director of the Company upon consummation of
this Offering. He has been President of Southern Alloy since 1990, and will
continue in that capacity after consummation of this Offering.
Patrick A. Notestine will become a director of the Company upon
consummation of this Offering. He has been President of Affiliated since 1988,
and will continue in that capacity after consummation of this Offering.
Lester G. Peterson will become a director of the Company upon consummation
of this Offering. He has been President of Williams since 1981, and will
continue in that capacity after consummation of this Offering. Mr. Peterson is a
member of the Wisconsin Board of the SSCI.
Richard A. Singer will become a director of the Company upon consummation
of this Offering. He has been President and Chief Executive Officer of Uni-Steel
since 1965, and will continue in those capacities after consummation of this
Offering.
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,
47
<PAGE>
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 will become a director of the Company upon consummation of
this Offering. 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 served in a variety of other
capacities with Brown and Root, Inc. since joining Brown and Root, Inc. in 1964.
Richard H. Kristinik will become a director upon consummation of this
Offering. 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 will become a director of the Company upon consummation
of this Offering. 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.
Effective upon consummation of this Offering, the Board of Directors will
be 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 Audit Committee, a Compensation
Committee, a Nominating Committee and an Executive Committee. Effective upon
consummation of this Offering, the members of the Audit Committee will be
Messrs. Harter, Kristinik and Porter and the members of the Compensation
Committee will be Messrs. Knight, Harter and Porter. The members of the
Executive Committee and the Nominating Committee will be selected following the
consummation of this Offering. The Executive Committee will include at least one
outside director and the Nominating Committee will include three members, two of
whom will be directors from the Founding Companies.
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, has conducted limited operations
and generated no net sales to date and did not pay any of its executive officers
any compensation during 1996. The Company anticipates that during 1997 its most
highly compensated executive officers will be Messrs. French, Kirksey, Baur and
Hageman.
48
<PAGE>
Each of Messrs. French and Kirksey will enter into an employment agreement
with the Company upon consummation of this Offering providing for an annual base
salary of $150,000. Messrs. Hageman and Baur will enter into employment
agreements with the Company upon consummation of this Offering providing for an
annual base salary of $130,000 and $100,000, respectively. Each employment
agreement will be 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 will 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 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 three 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, Notestine,
Peterson and Singer will enter into an employment agreement with his Founding
Company providing for an annual base salary of $150,000. Each employment
agreement will be for a term of five years, and unless terminated or not renewed
by the Founding 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 will provide that, in the event of
a termination of employment by the Founding Company without cause during the
first three years of the employment term (the "Initial Term"), the employee
will be entitled to receive from the Founding 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
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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 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 this Offering, NQSOs to purchase a total of 705,000
shares of Common Stock will be 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, at the
consummation of this Offering, options to purchase 1,426,024 shares will be
granted to the employees of the Founding Companies. Each of the foregoing
options will have an exercise price equal to the initial public offering price
per share. These options will vest at the rate of 20% per year, commencing on
the first anniversary of this Offering 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 this Offering 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
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." Notre
has agreed to advance whatever funds are necessary to effect the Mergers and
this Offering. As of April 30, 1997, Notre had incurred expenses on behalf of
the Company in the aggregate amount of $1.1 million, all of which is on a
non-interest-bearing basis. All of Notre's advances will be repaid from the net
proceeds of this Offering.
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, who will
become directors of the Company upon the closing of this Offering.
Simultaneously with the closing of this Offering, Metals USA will acquire
by merger all of the issued and outstanding stock of the Founding Companies, at
which time each Founding Company will become a wholly-owned subsidiary of the
Company. The aggregate consideration to be paid by Metals USA in the Mergers
consists of $40.2 million in cash and 10,128,609 shares of Common Stock. In
addition, prior to the Mergers certain of the Founding Companies will make the S
Corporation Distributions of $20.4 million and distribute certain real estate
and non-operating assets and liabilities having a net book value of $4.9
million.
The consummation of each Merger is subject to customary conditions. These
conditions include, among others, the continuing accuracy on the closing date of
the Mergers of the representations and warranties of the Founding Companies and
the principal stockholders thereof and of Metals USA, the performance by each of
them of all covenants included in the agreements relating to the Mergers and the
nonexistence of a material adverse change in the results of operations,
financial condition or business of each Founding Company.
There can be no assurance that the conditions to closing of the Mergers
will be satisfied or waived or that the acquisition agreements will not be
terminated prior to consummation. If any of the Mergers is terminated for any
reason, the Company does not intend to consummate this Offering on the terms
described herein.
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The following table sets forth the consideration to be paid by Metals USA
for each of the Founding Companies. These amounts do not include any S
Corporation Distributions or other distributions of real estate and
non-operating assets and liabilities. (In thousands of dollars, except share
amounts.)
SHARES OF
CASH COMMON STOCK
--------- ------------
Texas Aluminum/Cornerstone...... $ 11,264 2,383,874
Interstate...................... 3,060 1,917,814
Queensboro...................... 3,806 1,587,810
Affiliated...................... 5,695 1,022,230
Uni-Steel....................... 7,601 1,112,988
Southern Alloy.................. 3,286 648,525
Williams........................ 2,900 712,574
Service Systems................. 2,608 742,794
--------- ------------
Total...................... $ 40,220 10,128,609
========= ============
In connection with the Mergers, and as consideration for their interests in
the Founding Companies, certain officers, directors and holders of more than 5%
of the outstanding shares of the Company, together with trusts for which they
act as trustees, will receive cash and shares of Common Stock of the Company as
follows. These amounts do not include any S Corporation Distributions or other
distributions of real estate and non-operating assets and liabilities. (In
thousands of dollars, except share amounts.)
SHARES OF
NAME CASH COMMON STOCK
-------------------------------- --------- ------------
Michael E. Christopher.......... $ 2,707 598,837
Arnold W. Bradburd.............. 3,060 1,917,814
Mark Alper...................... 878 366,137
Patrick A. Notestine............ 1,943 348,703
Richard A. Singer............... 2,989 437,706
William B. Edge................. 46 66,997
Lester G. Peterson.............. 1,740 427,544
Craig R. Doveala................ 1,087 309,497
--------- ------------
Total...................... $ 14,450 4,473,235
========= ============
Pursuant to the agreements to be entered into in connection with the
Mergers, the stockholders of the Founding Companies have agreed not to compete
with the Company for five years, commencing on the date of consummation of this
Offering.
Certain of the Founding Companies have incurred indebtedness which has been
personally guaranteed by their stockholders or by entities controlled by its
stockholders. At December 31, 1996, the aggregate amount of indebtedness of
these Founding Companies that was subject to personal guarantees was
approximately $36.0 million. The Company intends to use its best efforts to have
the personal guarantees of this indebtedness released within 60 days after the
closing of this Offering and, in the event that any guarantee cannot be
released, to repay such indebtedness.
LEASES OF REAL PROPERTY BY FOUNDING COMPANIES
Following the Mergers, Interstate will lease its facilities located in
Philadelphia and Pittsburgh, Pennsylvania and Baltimore, Maryland from Warehouse
Real Estate Associates ("WREA"), a partnership controlled by Mr. Bradburd, who
will become Vice-Chairman of the Company upon consummation of this Offering, and
his wife. The lease provides for a total annual rental of $233,000 with an
initial term of five years beginning upon the consummation of this Offering.
Interstate has an option to renew the lease for an additional five-year term at
the then applicable current market rate. At the conclusion of the second five-
year lease term, Interstate has agreed to purchase the real estate from WREA for
an amount equal to the
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average of three independent appraisals. Additionally, Interstate will pay 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.
Following the Mergers, Queensboro will lease certain real property located
in Wilmington, North Carolina from The Alper Company, a partnership of which Mr.
Alper, who will become a director of the Company upon the consummation of the
Offering, is a controlling person. The lease for the real property expires in
2012 and provides for an annual rental of $117,204. The rent will be adjusted
every five years in accordance with the Consumer Price Index ("CPI").
Queensboro will pay for all utilities, taxes and insurance on each of the leased
properties. The Company believes that the rent for the properties does not
exceed fair market value.
Following the Mergers, Service Systems will lease certain real property
located in Horicon, Wisconsin from an entity owned in part by Mr. Doveala, who
will become a director of the Company upon consummation of this Offering. 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 five years in accordance with
the CPI. Additionally, Service Systems will pay 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 entity financed the purchase and
construction of the real property using industrial revenue bonds. These bonds,
amounting to $2.5 million, were guaranteed by Service Systems and because of
certain favorable financing terms, these guarantees will continue.
Following the Mergers, Texas Aluminum will lease certain real property
located in Jackson, Mississippi from an entity controlled by Mr. Christopher,
who will become a Senior Vice President and director of the Company upon
consummation of this Offering. 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 will pay
for all utilities, taxes and insurance on the leased premises. Texas Aluminum
will also continue 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 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 Dallas, Texas for $5,500 per month for a term of 15
years, (vii) a building in Weslaco, Texas for $2,500 per month for a term of 15
years, and (viii) 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.
Following the Mergers, Uni-Steel will lease certain real property located
in Enid, Oklahoma from Garfield Development, LLC, an entity owned in part by Mr.
Singer, who will become a director of the Company upon consummation of this
Offering. The lease for the real property has a five-year term with two
five-year renewal options 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.
Following the Mergers, Williams will continue to lease certain real
property located in Milwaukee, Wisconsin from PP&W, L.L.P., an entity owned in
part by Mr. Peterson, who will become a director of the Company upon the
consummation of the Offering. 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 will pay 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.
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OTHER TRANSACTIONS
Upon consummation of this Offering, Interstate will purchase certain
equipment from WREA for $530,000. WREA is controlled by Mr. Bradburd, who will
become Vice-Chairman of the Company upon consummation of this Offering. 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 will be released prior to the
consummation of this Offering.
Queensboro provides administrative services to Southern Metals Recycling,
Inc. ("Southern"), an entity owned in part by Mr. Alper, who is to become a
director of the Company upon the consummation of the Offering. 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. Queensboro will continue to charge
market-based fees for providing administrative services to Southern following
the Offering.
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 will become a director of the Company
upon the consummation of this Offering.
Texas Aluminum/Cornerstone holds two promissory notes from EmC Industries,
LLC ("EmC") having balances as of December 31, 1996, in the amounts of
$128,884 and $330,000, 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, who will become
a director and officer of the Company upon consummation of this Offering. The
indebtedness was in each case incurred in connection with the sale of equipment
to EmC. The largest aggregate amount of 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 $10,000 and $4,000, respectively.
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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PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of the Common Stock, after giving effect to the Mergers and this
Offering, by (i) each person known to own beneficially more than 5% of the
outstanding shares of Common Stock; (ii) each Company director and person who
has consented to be named as a director ("named directors"); (iii) each named
executive officer; and (iv) all executive officers, directors and named
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 AFTER OFFERING
---------------------
NUMBER PERCENT
----------- -------
Notre Capital Ventures II, L.L.C..... 3,367,914 16.2%
Steven S. Harter(1).................. 3,377,914 16.3
Arnold W. Bradburd................... 1,917,814 9.2
Michael E. Christopher............... 598,837 2.9
Mark Alper........................... 366,137 1.8
Patrick A. Notestine................. 348,703 1.7
Richard A. Singer.................... 437,706 2.1
Lester G. Peterson................... 427,544 2.1
Craig R. Doveala..................... 309,497 1.5
Arthur L. French(2).................. 263,846 1.3
J. Michael Kirksey................... 120,000 *
Stephen R. Baur...................... 120,000 *
John A. Hageman...................... 75,000 *
William B. Edge...................... 66,997 *
Terry L. Freeman..................... 60,000 *
Keith E. St. Clair................... 60,000 *
Richard H. Kristinik(3)(4)........... 27,692 *
T. William Porter(2)(3).............. 23,846 *
Tommy E. Knight(3)................... 20,000 *
All executive officers, directors and
named directors as a group
(18 persons)....................... 8,621,533 41.5%
- ------------
* Less than 1%
(1) Includes 10,000 shares of Common Stock issuable upon the exercise of options
granted under the Directors' Plan and 3,367,914 shares of Common Stock
issued to Notre. Mr. Harter is the President of Notre.
(2) Includes 3,846 shares of Common Stock issuable on conversion of a
convertible note issued by Notre which is convertible into Common Stock of
the Company owned by Notre.
(3) Includes 10,000 shares of Common Stock issuable upon the exercise of options
granted under the Directors' Plan.
(4) Includes 7,692 shares of Common Stock issuable on conversion of a
convertible note issued by Notre which is convertible into Common Stock of
the Company owned by Notre.
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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"). Upon completion of the Mergers and this Offering, the
Company will have outstanding 20,782,023 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 two-tenths (0.2) 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, and the shares of Common Stock to be issued
pursuant to this Offering and the Mergers will be upon payment therefor, 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)), (ii) in the event any person
acquires beneficial ownership of 15% or more of the outstanding shares of Common
Stock of the Company, (iii) in the event any person offers to acquire 15% or
more of the outstanding shares of Common Stock of the Company, (iv) in the event
the holder of Restricted Common Stock elects to convert it into Common Stock at
any time after the second anniversary of the date of this Prospectus, (v) on the
fifth anniversary of the date of this Prospectus or (vi) earlier, upon the
affirmative vote of 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. After July 1, 1998, the Board of Directors may elect to convert any
outstanding shares of Restricted Common Stock into shares of Common
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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 has been approved for listing on The New York Stock
Exchange under the symbol "MUI," subject to official notice of issuance. The
Restricted Common Stock will not be listed on any exchange.
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
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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 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
.
58
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Mergers and completion of this Offering, the
Company will have outstanding 20,782,023 shares of Common Stock. The 5,900,000
shares sold in this Offering (plus any additional shares sold upon exercise of
the Underwriters' over-allotment option) will be freely tradeable without
restriction unless acquired by affiliates of the Company. None of the remaining
outstanding shares of Common Stock or Restricted Common Stock have 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 207,820 shares upon completion of this Offering) 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
the date of this Prospectus 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 the
closing of this Offering. 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 the second anniversary of the
closing of this Offering.
Within 90 days after the closing of this Offering, the Company intends to
register 8,000,000 shares of its Common Stock under the Securities Act for use
by the Company in connection with future acquisitions. Upon such registration,
these shares will generally be freely tradeable after their issuance. 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
8,000,000 shares.
Prior to this Offering, there has been no public market for the Common
Stock, and 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.
59
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below (the "Underwriters"), through their representatives,
Alex. Brown & Sons Incorporated, Bear, Stearns & Co. Inc. and Sanders Morris
Mundy Inc. (together, the "Representatives"), have severally agreed to
purchase from the Company the following respective number of shares of Common
Stock at the initial public offering price less the underwriting discounts and
commissions set forth on the cover page of this Prospectus:
NUMBER OF
UNDERWRITERS SHARES
- ------------------------------------- ----------
Alex. Brown & Sons Incorporated......
Bear, Stearns & Co. Inc. ............
Sanders Morris Mundy Inc.............
----------
Total........................... 5,900,000
==========
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all of the shares of Common Stock offered hereby if
any of such shares are purchased.
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock to the public at the initial public
offering price set forth on the cover page of this Prospectus and to certain
dealers at such price less a concession not in excess of $ per share. The
Underwriters may allow, and such dealers may re-allow, a concession not in
excess of $ per share to certain other dealers. After commencement of the
initial public offering, the offering price and other selling terms may be
changed by the Representatives.
The Company has granted the Underwriters an option, exercisable not later
than 30 days after the date of this Prospectus, to purchase up to 885,000
additional shares of Common Stock at the initial public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the same
percentage thereof that the number of shares of Common Stock to be purchased by
it in the above table bears to 5,900,000, and the Company will be obligated,
pursuant to the option, to sell such shares to the Underwriters. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of the Common Stock offered hereby. If purchased, the
Underwriters will offer such additional shares on the same terms as those on
which the 5,900,000 shares are being offered.
The Underwriting Agreement contains covenants of indemnity and contribution
between the Underwriters and the Company regarding certain liabilities,
including liabilities under the Securities Act.
60
<PAGE>
To facilitate the Offering of the Common Stock, the Underwriters may engage
in transactions that stabilize, maintain or otherwise affect the market price of
the Common Stock. Specifically, the Underwriters may over-allot shares of the
Common Stock in connection with this Offering, thereby creating a short position
in the Underwriters' syndicate account. Additionally, to cover such
over-allotments or to stabilize the market price of the Common Stock, the
Underwriters may bid for, and purchase, shares of the Common Stock in the open
market. Any of these activities may maintain the market price of the Common
Stock at a level above that which might otherwise prevail in the open market.
The Underwriters are not required to engage in these activities, and, if
commenced, any such activities may be discontinued at any time. The
Representatives, on behalf of the Underwriters, also may reclaim selling
concessions allowed to an Underwriter or dealer, if the syndicate repurchases
shares distributed by that Underwriter or dealer.
The Company has agreed that it will not sell or offer any shares of Common
Stock or options, rights or warrants to acquire any Common Stock for a period of
180 days after the date of this Prospectus without the prior written consent of
Alex. Brown & Sons Incorporated, except for shares issued (i) in connection with
acquisitions, (ii) pursuant to the exercise of options granted under the Plans,
and (iii) upon conversion of shares of Restricted Common Stock. Further, the
Company's directors, officers and certain stockholders who beneficially own
14,882,023 shares in the aggregate have agreed not to directly or indirectly
sell or offer for sale or otherwise dispose of any Common Stock for a period of
180 days after the date of this Prospectus without the prior written consent of
Alex. Brown & Sons Incorporated.
The Representatives have advised the Company that the Underwriters do not
intend to confirm sales to any account over which they exercise discretionary
authority.
A principal of Sanders Morris Mundy Inc., one of the Representatives, is an
investor in Notre. In April 1997, that principal purchased a note from Notre
which is convertible into shares of Common Stock upon consummation of this
Offering. The shares of Common Stock beneficially owned by that principal
represent less than 1% of the Common Stock to be outstanding after the
consummation of this Offering.
Prior to this Offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price for the Common Stock has
been determined by negotiations between the Company and the Representatives.
Among the factors considered in such negotiations were prevailing market
conditions, the results of operations of the Founding Companies in recent
periods, the market capitalization and stages of development of other companies
which the Company and the Representatives believed to be comparable to the
Company, estimates of the business potential of the Company, the present state
of the Company's development and other factors deemed relevant by the Company
and the Representatives.
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. Certain legal matters
related to this Offering will be passed on for the Underwriters by Piper &
Marbury, L.L.P., Baltimore, Maryland.
EXPERTS
The financial statements of Metals USA, Texas Aluminum/Cornerstone,
Uni-Steel, and Southern Alloy included elsewhere in this Prospectus 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
financial statements of Interstate as of December 31, 1996 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
61
<PAGE>
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.
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.
62
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
-----
METALS USA, INC. PRO FORMA
Introduction to Unaudited Pro Forma Combined Financial Statements .. F-2
Unaudited Pro Forma Combined Balance Sheet ......................... F-3
Unaudited Pro Forma Combined Statement of Operations ............... F-4
Notes to Unaudited Pro Forma Combined Financial Statements ......... F-5
METALS USA, INC
Report of Independent Public Accountants ........................... F-9
Balance Sheet ...................................................... F-10
Notes to Financial Statement ....................................... F-11
FOUNDING COMPANIES
TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
Report of Independent Public Accountants ........................... F-14
Combined Balance Sheets ............................................ F-15
Combined Statements of Income ...................................... F-16
Combined Statements of Stockholders' Equity and Members' Equity .... F-17
Combined Statements of Cash Flows .................................. F-18
Notes to Combined Financial Statements ............................. F-19
INTERSTATE STEEL SUPPLY CO. AND AFFILIATES
Independent Auditors' Report ....................................... F-29
Combined Balance Sheets ............................................ F-30
Combined Statements of Income ...................................... F-31
Combined Statements of Stockholders' Equity and Partners' Capital .. F-32
Combined Statements of Cash Flows .................................. F-33
Notes to Combined Financial Statements ............................. F-34
QUEENSBORO STEEL CORPORATION
Independent Auditors' Report ....................................... F-38
Balance Sheets ..................................................... F-39
Statements of Income ............................................... F-40
Statements of Stockholders' Equity ................................. F-41
Statements of Cash Flows ........................................... F-42
Notes to Financial Statements ...................................... F-43
AFFILIATED METALS COMPANY
Report of Independent Auditors ..................................... F-49
Report of Independent Auditors ..................................... F-50
Balance Sheets ..................................................... F-51
Statements of Operations ........................................... F-52
Statements of Stockholders' Equity ................................. F-53
Statements of Cash Flows ........................................... F-54
Notes to Financial Statements ...................................... F-55
F-1
<PAGE>
PAGE
-----
SOUTHERN ALLOY OF AMERICA, INC
Report of Independent Public Accountants ............................. F-61
Balance Sheets ....................................................... F-62
Statements of Operations ............................................. F-63
Statements of Stockholders' Equity ................................... F-64
Statements of Cash Flows ............................................. F-65
Notes to Financial Statements ........................................ F-66
UNI-STEEL, INC
Report of Independent Public Accountants ............................. F-71
Balance Sheets ....................................................... F-72
Statements of Income ................................................. F-73
Statements of Stockholders' Equity ................................... F-74
Statements of Cash Flows ............................................. F-75
Notes to Financial Statements ........................................ F-76
F-1(a)
<PAGE>
METALS USA, INC. AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The following unaudited pro forma combined 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"). These acquisitions (the "Mergers") will occur
simultaneously with and as a condition to the consummation of Metals USA's
initial public offering (the "Offering") and will be accounted for using the
purchase method of accounting. Texas Aluminum/Cornerstone, one of the Founding
Companies, has been identified as the accounting acquiror for financial
statement presentation purposes.
The unaudited pro forma combined balance sheet gives effect to the Mergers
and the Offering as if they had occurred on December 31, 1996. The unaudited pro
forma combined statement of operations gives effect to the Mergers and the
Offering 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 Founding 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 combined statement of operations. In addition, the Company is
negotiating with a group of banks to obtain a three-year revolving credit
facility of $125.0 million which is expected to be available upon the closing of
the Offering. Based on these negotiations, the Company believes that its
interest expense will be reduced by approximately $1.0 million. This reduction
in interest expense has been reflected in the pro forma combined statement of
operations. The refinancing of outstanding indebtedness with the new credit
facility has been reflected in the pro forma combined balance sheet. With
respect to other potential cost savings, Metals USA has not and cannot quantify
these savings until completion of the combination of the Founding Companies. It
is anticipated that these savings 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 costs 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 Founding 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 combined
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 COMBINED BALANCE SHEET
DECEMBER 31, 1996
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
TEXAS OTHER
AIUMINUM/ SOUTHERN FOUNDING
AFFILIATED INTERSTATE CORNERSTONE QUEENSBORO ALLOY UNI-STEEL COMPANIES
---------- ---------- ------------ ---------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash................................. $ -- $ 168 $ 156 $ 5 $ -- $ 33 $ 913
Accounts receivable.................. 8,706 6,821 4,302 8,563 2,207 5,714 5,382
Inventory............................ 14,393 11,403 10,878 8,574 1,063 12,303 12,068
Prepaid expenses..................... 71 191 38 165 63 -- 18
Deferred income taxes................ 22 -- 754 -- -- 151 --
Other................................ 114 -- -- 971 -- 102 40
---------- ---------- ------------ ---------- -------- --------- ---------
Total current assets.............. 23,306 18,583 16,128 18,278 3,333 18,303 18,421
Property & equipment, net............ 7,928 3,325 4,058 4,638 353 3,106 4,191
Goodwill............................. -- -- 822 -- -- 341 --
Other................................ 87 1,116 1,041 307 68 1,589 103
---------- ---------- ------------ ---------- -------- --------- ---------
Total assets...................... $ 31,321 $ 23,024 $ 22,049 $ 23,223 $3,754 $23,339 $22,715
========== ========== ============ ========== ======== ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable..................... $ 8,922 $ 1,866 $ 5,540 $ 3,007 $1,450 $ 5,155 $ 5,905
Accrued liabilities.................. 111 1,051 1,158 625 68 366 1,095
Income taxes payable................. -- -- 396 -- -- 231 --
Notes payable........................ 13,927 10,100 -- -- 1,424 6,036 9,625
Current portion of long-term debt.... 371 94 760 -- 49 165 105
Payable to stockholders.............. -- -- -- -- -- -- --
Other................................ -- -- -- 842 -- -- --
---------- ---------- ------------ ---------- -------- --------- ---------
Total current liabilities......... 23,331 13,111 7,854 4,474 2,991 11,953 16,730
Long-term debt....................... 4,835 723 7,423 8,551 44 374 2,295
Deferred income taxes................ -- -- 163 -- -- 783 --
Other................................ -- -- 274 410 -- -- 339
---------- ---------- ------------ ---------- -------- --------- ---------
Total liabilities................. 28,166 13,834 15,714 13,435 3,035 13,110 19,364
Stockholders' equity:
Preferred stock..................... 179 -- 369 -- -- -- --
Common stock........................ -- 20 1,502 974 17 100 362
Additional paid-in capital.......... 50 90 188 870 608 5,268 845
Retained earnings................... 3,064 10,578 4,560 7,944 94 6,022 2,144
Treasury stock...................... (138) (1,498) (284) -- -- (1,161) --
---------- ---------- ------------ ---------- -------- --------- ---------
Total stockholders' equity........ 3,155 9,190 6,335 9,788 719 10,229 3,351
---------- ---------- ------------ ---------- -------- --------- ---------
Total liabilities and stockholders'
equity.............................. $ 31,321 $ 23,024 $ 22,049 $ 23,223 $3,754 $23,339 $22,715
========== ========== ============ ========== ======== ========= =========
</TABLE>
<TABLE>
<CAPTION>
POST
METALS PRO FORMA PRO FORMA MERGER AS
USA ADJUSTMENTS 1996 ADJUSTMENTS ADJUSTED
------- ----------- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash................................. $ 5 $ (106) $ 1,174 $ 17,203 $18,377
Accounts receivable.................. -- (431) 41,264 -- 41,264
Inventory............................ -- 7,532 78,214 -- 78,214
Prepaid expenses..................... -- -- 546 -- 546
Deferred income taxes................ -- -- 927 -- 927
Other................................ 83 -- 1,310 -- 1,310
------- ----------- --------- ----------- --------
Total current assets.............. 88 6,995 123,435 17,203 140,638
Property & equipment, net............ -- (1,071) 26,528 -- 26,528
Goodwill............................. -- 86,119 87,282 -- 87,282
Other................................ -- (502) 3,809 (448) 3,361
------- ----------- --------- ----------- --------
Total assets...................... $ 88 $ 91,541 $241,054 $ 16,755 $257,809
======= =========== ========= =========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable..................... $ -- $ (156) $ 31,689 $ -- $31,689
Accrued liabilities.................. 50 (62) 4,462 -- 4,462
Income taxes payable................. -- -- 627 -- 627
Notes payable........................ -- (41,112) -- -- --
Current portion of long-term debt.... -- (1,544) -- -- --
Payable to stockholders.............. -- 40,220 40,220 (40,220) --
Other................................ -- -- 842 -- 842
------- ----------- --------- ----------- --------
Total current liabilities......... 50 (2,654) 77,840 (40,220) 37,620
Long-term debt....................... -- 65,261 89,506 (10,356) 79,150
Deferred income taxes................ -- 4,509 5,455 -- 5,455
Other................................ -- -- 1,023 -- 1,023
------- ----------- --------- ----------- --------
Total liabilities................. 50 67,116 173,824 (50,576) 123,248
Stockholders' equity:
Preferred stock..................... -- (548) -- -- --
Common stock........................ 38 (2,864) 149 59 208
Additional paid-in capital.......... -- 58,002 65,921 67,272 133,193
Retained earnings................... -- (33,246) 1,160 -- 1,160
Treasury stock...................... -- 3,081 -- -- --
------- ----------- --------- ----------- --------
Total stockholders' equity........ 38 24,425 67,230 67,331 134,561
------- ----------- --------- ----------- --------
Total liabilities and stockholders'
equity.............................. $ 88 $ 91,541 $241,054 $ 16,755 $257,809
======= =========== ========= =========== ========
</TABLE>
F-3
<PAGE>
METALS USA, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
TWELVE MONTHS ENDED DECEMBER 31, 1996
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
TEXAS OTHER
ALUMINUM/ SOUTHERN FOUNDING
AFFILIATED INTERSTATE CORNERSTONE QUEENSBORO ALLOY UNI-STEEL COMPANIES
---------- ---------- ------------ ---------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
NET SALES............................ $ 84,587 $ 66,806 $ 40,651 $ 54,996 $10,815 $56,726 $61,201
COSTS AND EXPENSES:
COST OF SALES..................... 71,470 47,902 27,146 38,912 7,084 45,069 48,999
OPERATING AND DELIVERY............ 7,114 8,243 6,386 8,355 709 5,696 6,178
SELLING, GENERAL & ADMINISTRATIVE
EXPENSES........................ 2,993 5,391 3,539 3,870 2,850 3,018 3,361
DEPRECIATION AND AMORTIZATION..... 692 550 568 405 126 535 421
---------- ---------- ------------ ---------- -------- --------- ---------
OPERATING INCOME..................... 2,318 4,720 3,012 3,454 46 2,408 2,242
INTEREST EXPENSE..................... 1,164 936 682 587 168 561 753
OTHER................................ (11) 10 (8) (77) (108 ) (193) (15)
---------- ---------- ------------ ---------- -------- --------- ---------
INCOME BEFORE TAX.................... 1,165 3,774 2,338 2,944 (14 ) 2,040 1,504
TAXES................................ 466 -- 456 -- -- 770 --
---------- ---------- ------------ ---------- -------- --------- ---------
NET INCOME........................... $ 699 $ 3,774 $ 1,882 $ 2,944 $ (14 ) $ 1,270 $ 1,504
========== ========== ============ ========== ======== ========= =========
EARNINGS PER SHARE...................
SHARES USED IN COMPUTING PRO FORMA
EARNINGS PER SHARE(1)...............
</TABLE>
METALS PRO FORMA PRO FORMA
USA ADJUSTMENTS 1996
--------- ------------ ----------
NET SALES............................ $ -- $ 11,256 $ 387,038
COSTS AND EXPENSES:
COST OF SALES..................... -- 7,437 294,019
OPERATING AND DELIVERY............ -- (14) 42,667
SELLING, GENERAL & ADMINISTRATIVE
EXPENSES........................ -- (1,683) 23,339
DEPRECIATION AND AMORTIZATION..... -- 2,550 5,847
--------- ------------ ----------
OPERATING INCOME..................... -- 2,966 21,166
INTEREST EXPENSE..................... -- (187) 4,664
OTHER................................ -- (125) (527)
--------- ------------ ----------
INCOME BEFORE TAX.................... -- 3,278 17,029
TAXES................................ -- 6,001 7,693
--------- ------------ ----------
NET INCOME........................... $ -- $ (2,723) $ 9,336
========= ============ ==========
EARNINGS PER SHARE................... .48
==========
SHARES USED IN COMPUTING PRO FORMA
EARNINGS PER SHARE(1)............... 19,458,715
==========
(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)
10,128,609 shares issued to owners of the Founding Companies and (iv)
4,576,692 of the 5,900,000 shares sold in the Offering necessary to
pay the $40,200 cash portion of the Merger consideration, retire
$10,300 of outstanding indebtedness and pay the $4,000 of estimated
Offering expenses. The 1,323,308 shares excluded reflects the net cash
proceeds to Metals USA.
F-4
<PAGE>
METALS USA, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED 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. Metals USA has conducted no
operations to date and will acquire the Founding Companies concurrently with and
as a condition to consummation of this Offering.
The historical financial statements reflect the financial position and
results of operations of the Founding Companies and were derived from the
respective Founding Companies' financial statements where indicated. The periods
included in these financial statements for the individual Founding Companies are
as of and for the twelve months ended December 31, 1996. The audited historical
financial statements included elsewhere herein have been included in accordance
with Securities and Exchange Commission ("SEC") Staff Accounting Bulletin No.
80.
2. ACQUISITION OF FOUNDING COMPANIES:
Concurrently with and as a condition to the consummation of this Offering,
Metals USA will acquire all of the outstanding capital stock of the Founding
Companies. The acquisitions will be accounted for using the purchase method of
accounting with Texas Aluminum/Cornerstone being treated as the accounting
acquiror.
The following table sets forth the consideration to be paid (a) in cash and
(b) in shares of Common Stock to the common stockholders of each of the Founding
Companies. For purposes of computing the estimated purchase price for accounting
purposes, the value of the shares is determined using an estimate of the fair
value. The estimated purchase price for the acquisitions and related allocations
of the excess purchase price are based upon preliminary estimates and are
subject to certain purchase price adjustments at and following closing. The
table does not reflect the distributions totaling $20,446 from the Founding
Companies that are S Corporations that represent substantially all of the
previously taxed undistributed earnings and tax payments on current earnings of
such Founding Companies ("S Corporation Distributions") or $4,871 of other
distributions of real estate and non-operating assets and liabilities. However,
these amounts are reflected in the pro forma adjustments as further described in
Note 3.
SHARES
CASH OF COMMON STOCK
------- ----------
Texas Aluminum/Cornerstone ............. $11,264 2,383,874
Interstate ............................. 3,060 1,917,814
Queensboro ............................. 3,806 1,587,810
Affiliated ............................. 5,695 1,022,230
Uni-Steel .............................. 7,601 1,112,988
Southern Alloy ......................... 3,286 648,525
Williams ............................... 2,900 712,574
Service Systems ........................ 2,608 742,794
------- ----------
Total ............................. $40,220 10,128,609
======= ==========
F-5
<PAGE>
METALS USA, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
3. UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS:
(a) Records the borrowings assumed to be required to fund the S
Corporation Distributions of $20,446.
(b) Records the distribution of real estate and nonoperating assets
and liabilities in connection with the Mergers.
(c) Records the purchase of the Founding Companies by Metals USA as
described in Note 2, the liability for the cash portion of the
consideration to be paid to the stockholders of the Founding
Companies in connection with the Mergers, the issuance of 985,500
shares of Common Stock to management and consultants and the
refinancing of the outstanding indebtedness.
(d) Records the acquisition of Cornerstone Aluminum, acquired in
February 1997 as if it had occurred as of December 31, 1996.
(e) Records the deferred income tax liability attributable to the
temporary differences between the financial reporting and tax
basis of assets and liabilities held in S Corporations.
(f) Records the cash proceeds from the issuance of shares of Common
Stock net of estimated offering costs (based on an assumed initial
public offering price of $13 per share). Offering costs primarily
consist of underwriting discounts and commissions, accounting
fees, legal fees and printing expenses.
(g) Records the cash portion of the consideration to be paid to the
stockholders of the Founding Companies in connection with the
Mergers and the reduction of certain debt obligations with the
proceeds from this Offering.
The following table summarizes unaudited pro forma combined balance sheet
adjustments:
<TABLE>
<CAPTION>
ADJUSTMENT
----------------------------------------------------- PRO FORMA
(A) (B) (C) (D) (E) ADJUSTMENTS
--------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents............... $ -- $ (116) $ 10 $ -- $ -- $ (106)
Accounts receivable..................... -- (542) -- 111 -- (431)
Inventory............................... -- (4) 6,700 836 -- 7,532
--------- --------- --------- --------- --------- -----------
Total current assets................ -- (662) 6,710 947 -- 6,995
Property & equipment, net............... -- (3,983) 2,500 412 -- (1,071)
Goodwill, net........................... -- -- 84,432 858 829 86,119
Other................................... -- (1,105) 603 -- (502)
--------- --------- --------- --------- --------- -----------
Total assets............................ $ -- $ (5,750) $ 93,642 $ 2,820 $ 829 $ 91,541
========= ========= ========= ========= ========= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable........................ $ -- $ -- $ -- $ (156) $ -- $ (156)
Accrued liabilities..................... -- (62) -- -- -- (62)
Notes payable........................... -- (817) (40,295) -- -- (41,112)
Current maturities of long-term debt.... -- -- (2,044) 500 -- (1,544)
Payable to stockholder.................. -- -- 40,220 -- -- 40,220
--------- --------- --------- --------- --------- -----------
Total current liabilities........... -- (879) (2,119) 344 -- (2,654)
Long-term debt, net of current
maturities............................ 20,446 -- 42,339 2,476 -- 65,261
Deferred income taxes................... -- -- 3,680 -- 829 4,509
--------- --------- --------- --------- --------- -----------
Total liabilities................... 20,446 (879) 43,900 2,820 829 67,116
Stockholders' equity:
Preferred Stock..................... -- (548) -- -- (548)
Common stock........................ -- (1,657) (1,207) -- -- (2,864)
Additional paid-in capital.......... -- -- 58,002 -- -- 58,002
Retained earnings................... (20,446) (3,369) (9,431) -- -- (33,246)
Treasury stock...................... -- 155 2,926 -- -- 3,081
--------- --------- --------- --------- --------- -----------
Total stockholders' equity...... (20,446) (4,871) 49,742 -- -- 24,425
--------- --------- --------- --------- --------- -----------
Total liabilities and stockholders'
equity................................ $ -- $ (5,750) $ 93,642 $ 2,820 $ 829 $ 91,541
========= ========= ========= ========= ========= ===========
</TABLE>
<TABLE>
<CAPTION>
POST MERGER
(F) (G) ADJUSTMENTS
--------- --------- -----------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents............... $ 67,331 $ (50,128) $ 17,203
--------- --------- -----------
Total current assets................ 67,331 (50,128) 17,203
Property & equipment, net............... -- -- --
Other................................... -- (448) (448)
--------- --------- -----------
Total assets............................ $ 67,331 $ (50,576) $ 16,755
========= ========= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Payable to stockholder.................. $ -- $ (40,220) $ (40,220)
--------- --------- -----------
Total current liabilities........... -- (40,220) (40,220)
Long-term debt, net of current
maturities............................ -- (10,356) (10,356)
--------- --------- -----------
Total liabilities................... -- (50,576) (50,576)
Stockholders' equity:
Common stock........................ 59 -- 59
Additional paid-in capital.......... 67,272 -- 67,272
Retained earnings................... -- -- --
Treasury stock...................... -- -- --
--------- --------- -----------
Total stockholders' equity...... 67,331 -- 67,331
--------- --------- -----------
Total liabilities and stockholders'
equity................................ $ 67,331 $ (50,576) $ 16,755
========= ========= ===========
</TABLE>
F-6
<PAGE>
METALS USA, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
4. UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS ADJUSTMENTS:
(a) Reflects the reduction in certain related party rental and lease
expenses which has been agreed prospectively.
(b) Reflects the reduction in salaries, bonuses and benefits to the
owners of the Founding Companies to which they have agreed
prospectively.
(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 anticipated reduction in interest expense of $1,047
due to refinancing of the outstanding indebtedness in conjunction
with the Mergers, net of the additional interest expense of $849
on the borrowings required to fund the S Corporation Distributions
and the borrowings required to fund the Cornerstone Aluminum
acquisition.
(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 the incremental provision for federal and state income
taxes relating to the other statements of operations adjustments
and for income taxes on S Corporation income.
The following table summarizes unaudited pro forma combined statements of
operations adjustments:
<TABLE>
<CAPTION>
PRO FORMA
(A) (B) (C) (D) (E) (F) ADJUSTMENTS
--------- --------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............................ $ -- $ -- $ -- $ -- $ 11,256 $ -- $ 11,256
Costs and expenses:
Cost of sales........................ -- -- -- -- 7,437 -- 7,437
Operating and delivery............... (514) -- 500 -- (14)
Selling, general and
administrative..................... -- (3,558) -- -- 1,875 -- (1,683)
Depreciation and amortization........ -- -- 2,353 -- 197 -- 2,550
--------- --------- --------- --------- --------- --------- -----------
Income from operations............... 514 3,558 (2,353) -- 1,247 -- 2,966
Other (income) expense:
Interest (income) expense........ -- -- -- (198) 11 -- (187)
Other (income) expense........... -- -- -- -- (125) -- (125)
--------- --------- --------- --------- --------- --------- -----------
Income before income taxes........... 514 3,558 (2,353) 198 1,361 -- 3,278
Provision for income taxes........... -- -- -- -- 459 5,542 6,001
--------- --------- --------- --------- --------- --------- -----------
Net income........................... $ 514 $ 3,558 $ (2,353) $ 198 $ 902 $ (5,542) $ (2,723)
========= ========= ========= ========= ========= ========= ===========
</TABLE>
F-7
<PAGE>
METALS USA, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
5. SUBSEQUENT EVENTS:
COMMON STOCK
During the first and second quarters of 1997, the Company issued a total of
985,500 shares of Common Stock to management of and consultants to the Company
at a price of $.01 per share. As a result, the Company will record a
non-recurring, non-cash compensation charge of $500 in the first quarter of 1997
and $5,500 in the second quarter of 1997, 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. Due to the non-recurring nature
of these charges, these amounts have been excluded from the pro forma combined
statement of operations.
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-8
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Board of Directors of
Metals USA, Inc.
We have audited the accompanying balance sheet of Metals USA, Inc. as of
December 31, 1996. This financial statement is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
financial statement 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 statement is 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 statement referred to above presents fairly,
in all material respects, the financial position of Metals USA, Inc. as of
December 31, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
May 2, 1997
F-9
<PAGE>
METALS USA, INC.
BALANCE SHEET
DECEMBER 31, 1996
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
ASSETS
CASH AND CASH EQUIVALENTS ......................................... $ 5
DEFERRED OFFERING COSTS ........................................... 83
----------
Total assets ............................................ $ 88
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
ACCRUED LIABILITIES AND AMOUNTS DUE TO
STOCKHOLDER ..................................................... $ 50
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par,
5,000,000 authorized, none issued
and outstanding ............................................. --
Common Stock, $.01 par, 53,122,914
shares authorized, 3,767,914
shares issued and outstanding ............................... 38
----------
Total stockholders' equity .............................. 38
----------
Total liabilities and
stockholders' equity .................................... $ 88
==========
Reflects a 135.81-for-one stock split effective on April 21, 1997.
The accompanying notes are an integral part of this financial statement.
F-10
<PAGE>
METALS USA, INC.
NOTES TO FINANCIAL STATEMENT
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1. BUSINESS AND ORGANIZATION
Metals USA, Inc., a Delaware corporation, ("Metals" or the "Company")
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. Metals intends to acquire eight businesses (the
"Mergers"), complete an initial public offering (the "Offering") of its
common stock and, subsequent to the Offering, continue to acquire through merger
or purchase, similar companies to expand its national operations.
Metals has not conducted any operations, and all activities to date have
related to the Offering and the Mergers. Cash of $5 was generated from the
initial capitalization of the Company and subsequent sales of common stock to
certain members of management (see Note 2). All expenditures to date have been
funded by Notre Capital Ventures II, L.L.C. ("Notre") on behalf of the
Company. Accordingly, statements of income, changes in stockholders' equity and
cash flows would not provide meaningful information and have been omitted. As of
December 31, 1996, costs of approximately $83 have been incurred by Notre in
connection with the Offering. Through April 30, 1997, Notre had incurred
approximately $1,100 in connection with the Offering. Metals has treated these
costs as deferred offering costs. Metals is dependent upon the Offering to
execute the pending Mergers and to repay Notre. There is no assurance that the
pending Mergers discussed below will be completed or that Metals will be able to
generate future operating revenues.
2. STOCKHOLDERS' EQUITY
Common Stock and Preferred Stock
Metals effected a 135.81-for-one stock split on April 21, 1997 for each
share of common stock ("Common Stock") then outstanding. In addition, the
Company 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. The Company
also 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 on
the balance sheet and in the accompanying notes.
In connection with the organization and initial capitalization of Metals,
the Company issued 135,810 shares of Common Stock at $.01 per share to Notre.
Notre incurred $34 of expenses on behalf of the Company for which the Company
issued 3,232,104 additional shares to Notre in December 1996.
In December 1996, 400,000 shares of Common Stock were sold to management at
$.01 per share, which approximated their fair value. During the first and second
quarters of 1997, the Company issued a total of 985,500 shares of Common Stock
to management and consultants to the Company at a price of $.01 per share. As a
result, the Company will record a non-recurring, non-cash compensation charge of
$500 in the first quarter of 1997 and $5,500 in the second quarter of 1997,
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.
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 the Company's Board of Directors and to two-tenths 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
F-11
<PAGE>
METALS USA, INC.
NOTES TO FINANCIAL STATEMENT -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
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 the Company, (c) in the
event any person offers to acquire 15% or more of the outstanding shares of
Common Stock of the Company, (d) in the event the holder of Restricted Common
Stock elects to convert it into Common Stock at any time after the second
anniversary of the consummation of the Offering, (e) on the third anniversary of
the date of the consummation of the Offering, or (f) in the event 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 approve such
conversion.
After July 1, 1998, the Corporation 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, the Company'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 the Company. 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 the Company's Board of Directors. The Company intends
to file a registration statement on Form S-8 under the Securities Act
registering the issuance of shares upon exercise of options granted under this
Plan. The Company expects to grant non-qualified stock options to purchase a
total of 705,000 shares of Common Stock to key employees of the Company at the
initial public offering price upon consummation of the Offering. In addition,
the Company expects to grant options to purchase a total of 1,427,674 shares of
Common Stock to certain employees of the Founding Companies at the initial
Offering price per share. These options will vest at the rate of 20% per year,
commencing on the first anniversary of the Offering and will expire ten years
from the date of grant or three months following termination of employment.
Non-Employee Directors Stock Plan
The Company's 1997 Non-Employee Directors' Stock Plan (the "Director's
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 this Offering 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.
F-12
<PAGE>
METALS USA, INC.
NOTES TO FINANCIAL STATEMENT -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
3. NEW 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 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.
4. EVENTS SUBSEQUENT TO DATE OF AUDITORS' REPORT (UNAUDITED)
Wholly-owned subsidiaries of Metals USA have signed definitive agreements
to acquire by merger eight companies ("Founding Companies") to be effective
with the Offering. The companies to be acquired are 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 that will be paid by Metals to acquire the Founding
Companies is approximately $40,200 in cash and 10,128,609 shares of Common
Stock.
The Company is negotiating with a group of banks to obtain a credit
facility which would be available upon the closing of the Offering. The Company
expects this facility to be a revolving line of credit of at least $125,000. The
facility is intended to be used for acquisitions, capital expenditures,
refinancing of debt not paid out of the proceeds of this Offering and for
general corporate purposes. There can be no assurance that any line of credit
will be obtained or that, if obtained, it will be on terms that are favorable to
the Company.
On May 7, 1997, Metals filed a registration statement on Form S-1 for the
sale of its Common Stock. An investment in shares of Common Stock offered by
this Prospectus involves a high degree of risk, including, among others, absence
of a combined operating history, risks relating to the Company's acquisition
strategy, risks relating to acquisition financing, reliance on key personnel and
a substantial portion of the proceeds from the offering payable to affiliates of
the Founding Companies. For a more thorough discussion of risk factors, see
"Risk Factors" included elsewhere in this Prospectus.
F-13
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of 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-14
<PAGE>
TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
COMBINED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
JUNE 30, DECEMBER 31,
1995 1996
-------- -------------
ASSETS
Current assets:
Cash............................ $ 359 $ 156
Accounts and notes receivable,
net of allowance of $519 and
$677........................... 3,432 4,221
Accounts and notes receivable
from affiliates................ 993 81
Inventory....................... 8,193 10,878
Prepaid expenses................ 47 38
Deferred income taxes........... 591 754
-------- -------------
Total current assets....... 13,615 16,128
Property and equipment, net.......... 3,712 4,058
Notes receivable from affiliates..... -- 465
Other assets......................... 715 576
Goodwill............................. 690 822
-------- -------------
Total assets.......... $ 18,732 $22,049
======== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of notes
payable........................ $ 593 $ 683
Current portion of notes payable
and capital lease obligations
to affiliates.................. 54 77
Accounts payable................ 3,882 5540
Income taxes payable............ 269 396
Accrued liabilities............. 1,416 1,158
-------- -------------
Total current
liabilities............. 6,214 7,854
Notes payable, less current
portion............................ 7,879 6,004
Notes payable and capital lease
obligations payable to affiliates,
less current portion............... 368 1,419
Deferred income taxes................ 249 163
Other long-term liabilities.......... 41 274
-------- -------------
Total liabilities..... 14,751 15,714
-------- -------------
Commitments and contingencies
Stockholders' equity:
Preferred stock................. 379 369
Common stock.................... 1,517 1,501
Members' equity................. -- 1
Additional paid-in capital...... 198 188
Retained earnings............... 2,199 4,560
Less: treasury stock, at
cost.................... (312) (284)
-------- -------------
Total stockholders'
equity.................. 3,981 6,335
-------- -------------
Total liabilities and
stockholders'
equity............ $ 18,732 $22,049
======== =============
The accompanying notes are an integral part of these combined financial
statements.
F-15
<PAGE>
TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
COMBINED STATEMENTS OF INCOME
(IN THOUSANDS OF DOLLARS)
YEAR ENDED JUNE 30, YEAR ENDED
-------------------- DECEMBER 31,
1994 1995 1996
--------- --------- ------------
Net sales............................ $ 26,105 $ 34,706 $ 40,651
Costs and expenses:
Cost of sales................... 17,991 23,893 27,146
Operating and delivery.......... 5,621 5,863 6,386
Selling, general and
administrative................ 1,654 2,810 3,539
Depreciation and amortization... 346 517 568
--------- --------- ------------
Operating income..................... 493 1,623 3,012
Other (income) expense:
Interest expense................ 444 837 682
Other income.................... (169) (143) (8)
--------- --------- ------------
Income before income taxes........... 218 929 2,338
Provision for income taxes........... 93 277 456
--------- --------- ------------
Net income........................... $ 125 $ 652 $ 1,882
========= ========= ============
The accompanying notes are an integral part of these combined financial
statements.
F-16
<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)
======== ======== =========== ======== ========== ======== ========= =========
</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
=========
The accompanying notes are an integral part of these combined financial
statements.
F-17
<PAGE>
TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
YEAR ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
-------------------- ------------
1994 1995 1996
--------- --------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................... $ 125 $ 652 $ 1,882
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
Depreciation and amortization.... 346 517 763
(Gain) loss on sale of property
and equipment.................. (11) 11 (266)
Deferred income taxes............ (95) (111) (249)
Changes in operating assets and
liabilities, net of business
acquisitions --
Accounts and notes
receivable.................. (1,196) (100) (783)
Accounts and notes receivable
from affiliates............. 124 (654) (167)
Inventory...................... (341) (1,166) (1,970)
Other assets................... (17) (82) (29)
Accounts payable............... 39 393 1,476
Accounts payable to
affiliates.................. 11 161 --
Income taxes payable........... (18) 171 127
Accrued liabilities............ 373 309 (269)
--------- --------- ------------
Net cash provided by (used
in) operating
activities................ (204) 602 1,812
--------- --------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets....... 104 71 611
Purchases of property.............. (438) (606) (739)
Collections on notes receivable.... 129 109 445
Purchase of businesses, net of
acquired cash.................... -- (2,500) (150)
--------- --------- ------------
Net cash provided by (used
in) investing
activities................ (205) (2,926) 167
--------- --------- ------------
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)
Borrowings on revolving credit
facility......................... 5,498 1,403 3,692
Payments on revolving credit
facility......................... (6,005) (1,299) (5,160)
Payments made to former ESOP
members.......................... (92) (63) (89)
Borrowings on notes payable to
affiliates....................... -- 650 1,020
Principal payments on notes payable
to affiliates.................... -- (452) (800)
Issuance of common stock and
members' equity.................. -- 10 1
Distribution to shareholders....... -- -- (100)
--------- --------- ------------
Net cash provided by (used
in) financing
activities................ 222 2,445 (2,182)
--------- --------- ------------
NET INCREASE (DECREASE) IN CASH...... (187) 121 (203)
CASH, BEGINNING OF YEAR.............. 425 238 359
--------- --------- ------------
CASH, END OF YEAR.................... $ 238 $ 359 $ 156
========= ========= ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for:
Interest........................... $ 441 $ 526 $ 699
Income taxes....................... 207 217 584
Non-cash investing and financing
activities:
Purchase of assets through
assumption of debt............... $ -- $ 19 $ 820
Purchase of treasury stock through
assumption of debt............... 102 35 32
Sale of assets by issuing note
receivable....................... -- -- 330
The accompanying notes are an integral part of these combined financial
statements.
F-18
<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 construction contractors, architects and metal products 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 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-19
<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.
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.
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
F-20
<PAGE>
TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
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.
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
F-21
<PAGE>
TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
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
======== ============
3. SUMMARY OF LONG-TERM FINANCING ARRANGEMENTS
Notes payable to non-affiliates consist of the following:
JUNE 30, DECEMBER 31,
1995 1996
-------- ------------
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
Revolving credit facility with
interest at prime plus .5%,
maturing on May 15, 1998, secured
by inventory, trade accounts
receivable and equipment, and
personally guaranteed by
stockholders....................... 1,405 311
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
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 receivable and equipment,
and personally guaranteed by
stockholders....................... 900 700
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
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
Note payable to individuals in annual
installments of $25 including
interest, beginning August 5, 1997
and maturing on August 5, 2000,
unsecured.......................... -- 100
Other long-term debt................. 69 8
-------- ------------
8,472 6,687
Less: current portion................ (593) (683)
-------- ------------
$7,879 $6,004
======== ============
F-22
<PAGE>
TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
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 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,
1995 1996
-------- ------------
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
Note payable to an affiliated company
in monthly installments of interest
only at 8%, maturing on July 31,
2000, unsecured.................... 100 --
Note payable to stockholders,
accruing interest at prime, due
October 31, 1998 and February 25,
1999, unsecured.................... 150 250
Note payable to an affiliated
corporation in monthly installments
of interest only at 8.5%, maturing
on May 10, 2001, unsecured......... -- 350
-------- ------------
422 1,496
Less: current portion................ (54) (77)
-------- ------------
$ 368 $1,419
======== ============
Texas Aluminum/Cornerstone's long-term notes payable and capital lease
obligations are subject to mandatory redemption as follows:
<TABLE>
<CAPTION>
AFFILIATES
YEAR ENDING NON- --------------------------------
DECEMBER 31, AFFILIATES NOTES PAYABLE CAPITAL LEASE
------------- ----------- -------------- -------------
<S> <C> <C> <C>
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
=============
</TABLE>
F-23
<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-24
<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-25
<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 ESOP 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.
F-26
<PAGE>
TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
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.
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.
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-27
<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)
In May 1997, Texas Aluminum/Cornerstone and its shareholders entered into a
definitive agreement with a wholly-owned subsidiary of Metals USA, which, among
other things, calls for the merger of Texas Aluminum/Cornerstone with the Metals
USA subsidiary.
In connection with the merger, Cornerstone will make cash distributions of
approximately $2,000 prior to the merger which represents Cornerstone's
estimated S Corporation accumulated adjustment account. Cornerstone expects to
fund this $2,000 distribution through short-term borrowings.
Certain transactions occurred subsequent to year end as follows:
i) 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.
ii) Discretionary bonuses totalling $1,600 were made to stockholders.
iii) 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).
iv) Two stockholders made loans to the Company totalling $1,400 to
help fund potential future acquisitions.
F-28
<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-29
<PAGE>
INTERSTATE STEEL SUPPLY CO. AND AFFILIATES
COMBINED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
DECEMBER 31,
--------------------
1995 1996
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents....... $ 83 $ 168
Accounts receivable -- trade,
less allowance of $225 and
$300........................... 7,864 6,821
Inventories..................... 8,755 11,403
Prepaid expenses and other
current assets................. 69 191
--------- ---------
Total current assets....... 16,771 18,583
Property and equipment, net.......... 3,447 3,325
Other assets......................... 987 1,116
--------- ---------
Total assets............... $ 21,205 $ 23,024
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................ $ 1,401 $ 1,866
Accrued liabilities............. 941 1,051
Lines of credit................. 11,100 10,100
Current portion of long-term
debt........................... 93 94
--------- ---------
Total current
liabilities............. 13,535 13,111
Long-term debt....................... 817 723
--------- ---------
Total liabilities.......... 14,352 13,834
--------- ---------
Stockholders' equity:
Common stock; 200,000 shares,
$1.00 par value authorized,
35,500 issued and
outstanding.................... 36 36
Common stock; 2,000 shares, no
par value authorized, 2,000
issued and outstanding......... 2 2
Additional paid-in capital...... 72 72
Retained earnings............... 6,739 9,072
Partners' capital............... 1,502 1,506
Treasury stock.................. (1,498) (1,498)
--------- ---------
Total stockholders'
equity.................. 6,853 9,190
--------- ---------
Total liabilities and
stockholders' equity.... $ 21,205 $ 23,024
========= =========
The accompanying notes are an integral part of these combined financial
statements.
F-30
<PAGE>
INTERSTATE STEEL SUPPLY CO. AND AFFILIATES
COMBINED STATEMENTS OF INCOME
(IN THOUSANDS OF DOLLARS)
YEARS ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
Net sales............................ $ 49,299 $ 61,375 $ 66,806
Costs and expenses:
Cost of sales................... 37,283 44,868 47,902
Operating and delivery.......... 6,197 7,916 8,243
Selling, general and
administrative expenses....... 4,187 5,279 5,391
Depreciation and amortization... 483 561 550
--------- --------- ---------
Operating income................ 1,149 2,751 4,720
Other (income) expense:
Interest expense, net........... 792 908 936
Other, net...................... (1) 1 10
--------- --------- ---------
Income before income taxes........... 358 1,842 3,774
Provision for income taxes........... -- -- --
--------- --------- ---------
Net income........................... $ 358 $ 1,842 $ 3,774
========= ========= =========
The accompanying notes are an integral part of these combined financial
statements.
F-31
<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
======= ======= =========== ========= ========= ======== ======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-32
<PAGE>
INTERSTATE STEEL SUPPLY CO. AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
YEARS ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................... $ 358 $ 1,842 $ 3,774
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and
amortization............ 483 561 550
Gain (loss) on sale of
assets.................. 2 10 --
Changes in operating assets
and liabilities:
Accounts receivable,
net................ (695) (768) 1,041
Inventories........... (1,272) (1,315) (2,648)
Prepaid expenses and
other assets....... 112 6 (121)
Accounts payable and
accrued
liabilities........ (3) 158 575
Other assets.......... (119) (178) (129)
--------- --------- ---------
Net cash provided by
(used in) operating
activities......... (1,134) 316 3,042
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and
equipment..................... (571) (533) (428)
Proceeds from sales of property
and equipment................. 10 6 --
Other, net...................... 11 -- --
--------- --------- ---------
Net cash used in
investing
activities......... (550) (527) (428)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) on
line-of-credit................ 1,225 750 (1,000)
Principal payments on long-term
obligations................... (239) (259) (93)
Proceeds from issuance of
long-term obligations......... 900 -- --
Distributions to shareholders
and partners.................. (308) (564) (1,436)
Capital contributions........... -- 250 --
--------- --------- ---------
Net cash provided by
(used in) financing
activities......... 1,578 177 (2,529)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................... (106) (34) 85
CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR............................ 223 117 83
--------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF
YEAR............................... $ 117 $ 83 $ 168
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest.......... $ 847 $ 964 $ 930
The accompanying notes are an integral part of these combined financial
statements.
F-33
<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.
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 for buildings and equipment are
based upon the estimated useful lives of the various classes of assets, using
the straight-line and the declining balance method, respectively. Leasehold
F-34
<PAGE>
INTERSTATE STEEL SUPPLY CO. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
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-35
<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
============
F-36
<PAGE>
INTERSTATE STEEL SUPPLY CO. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
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.
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)
In May 1997, Interstate and its shareholders entered into a definitive
agreement with a wholly-owned subsidiary of Metals USA., which among other
things calls for the merger of Interstate with the Metals USA subsidiary.
In connection with the merger, Interstate will make a cash distribution of
approximately $5,250 prior to the merger which represents Interstate's estimated
S Corporation accumulated adjustment account. Had these distributions been made
at December 31, 1996, 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 anticipates funding this distribution by using its existing credit
facilities or issuing a note payable to the stockholder.
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 will enter 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, Interstate will enter into a 10 year lease with
Warehouse Real Estate Associates where Interstate will lease certain real
property 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. Interstate has agreed to purchase the real estate at the end of
year ten for the then appraised fair market value of such property.
Interstate Steel Supply Company will dividend a life insurance policy to
its sole stockholder, which had a book value at December 31, 1996 of
approximately $1,060.
F-37
<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-38
<PAGE>
QUEENSBORO STEEL CORPORATION
BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
DECEMBER 31,
--------------------
1995 1996
--------- ---------
ASSETS
Current assets:
Cash............................ $ 5 $ 5
Accounts receivable:
Trade, less allowance of
$20 and $20............. 10,249 8,390
Other...................... 108 173
Inventories..................... 6,217 8,574
Costs and estimated earnings in
excess of billings on
uncompleted contracts.......... 406 971
Prepaid expenses and other
current assets................. 184 165
--------- ---------
Total current assets....... 17,169 18,278
Property and equipment, net.......... 3,085 4,638
Other assets......................... 281 307
--------- ---------
Total assets............... $ 20,535 $ 23,223
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................ $ 2,857 $ 3,007
Accrued liabilities............. 517 625
Billings in excess of costs and
estimated earnings on
uncompleted contracts.......... 228 842
Current portion of long-term
debt........................... 10 --
--------- ---------
Total current
liabilities............. 3,612 4,474
Long-term debt....................... 8,884 8,551
Deferred compensation................ 359 410
--------- ---------
Total liabilities.......... 12,855 13,435
--------- ---------
Stockholders' equity:
Capital stock, 200,000 shares
authorized:
Class A voting, $10 par value,
18,666 shares issued and
outstanding.................. 187 187
Class B non-voting, $10 par
value, 78,666 shares issued
and outstanding.............. 787 787
Additional paid-in capital...... 870 870
Retained earnings............... 5,758 7,944
Unrealized gain on securities... 78 --
--------- ---------
Total stockholders'
equity.................. 7,680 9,788
--------- ---------
Total liabilities and
stockholders' equity.... $ 20,535 $ 23,223
========= =========
The accompanying notes are an integral part of these financial statements.
F-39
<PAGE>
QUEENSBORO STEEL CORPORATION
STATEMENTS OF INCOME
(IN THOUSANDS OF DOLLARS)
YEARS ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
Net sales............................ $ 50,795 $ 60,322 $ 54,996
Costs and expenses:
Cost of sales................... 37,996 45,945 38,912
Operating and delivery.......... 7,408 8,080 8,355
Selling, general and
administrative expenses....... 3,656 3,839 3,870
Depreciation and amortization... 369 362 405
--------- --------- ---------
Operating income................ 1,366 2,096 3,454
Other (income) expense:
Interest expense................ 465 612 587
Other income.................... (63) (67) (77)
--------- --------- ---------
Net income........................... $ 964 $ 1,551 $ 2,944
========= ========= =========
The accompanying notes are an integral part of these financial statements.
F-40
<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
======== ======== =========== ========= =========== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-41
<PAGE>
QUEENSBORO STEEL CORPORATION
STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
YEARS ENDED DECEMBER 31,
----------------------------------
1994 1995 1996
---------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................... $ 964 $ 1,551 $ 2,944
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization... 369 362 405
Loss (gain) on sale of assets... (1) 2 4
Increase in deferred
compensation.................. 54 40 51
Changes in operating assets and
liabilities:
Accounts receivable, net...... (1,225) (2,930) 1,702
Inventories................... (2,241) 1,552 (2,358)
Prepaid expenses and other
assets..................... (69) (63) 99
Accounts payable and accrued
liabilities................ 925 (173) 258
Billings related to cost and
estimated earnings on
uncompleted contracts...... 721 212 49
---------- ---------- ----------
Net cash provided by (used
in) operating
activities.............. (503) 553 3,154
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and
equipment..................... (896) (1,519) (1,962)
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)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on revolving
line-of-credit................ (61,087) (40,844) (43,543)
Borrowings on revolving
line-of-credit................ 62,755 42,829 40,210
Borrowings on long-term debt.... -- -- 3,000
Financing costs................. -- -- (100)
Principal payments on long-term
debt.......................... (125) (125) (10)
Dividends paid.................. (138) (909) (758)
---------- ---------- ----------
Net cash provided by (used
in) financing
activities.............. 1,405 951 (1,201)
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH...... 1 -- --
CASH BEGINNING OF YEAR............... 4 5 5
---------- ---------- ----------
CASH END OF YEAR..................... $ 5 $ 5 $ 5
========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest.......... $ 466 $ 601 $ 559
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Investment securities received
(donated)..................... $ -- $ (78) $ 78
Note received in settlement of
an account receivable......... -- -- 156
The accompanying notes are an integral part of these financial statements.
F-42
<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.
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, 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.
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
F-43
<PAGE>
QUEENSBORO STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
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-44
<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-45
<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-46
<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-47
<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)
In May 1997, Queensboro and its shareholders entered into a definitive
agreement with a wholly-owned subsidiary of Metals USA., which among other
things calls for the merger of Queensboro with the Metals USA subsidiary.
Queensboro will dividend its Wilmington facility to its stockholders
concurrently with the Merger, and enter 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 will transfer the salary continuation agreement described
in the last paragraph of Note 8 to an entity that will not be a party to the
Merger.
F-48
<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-49
<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.
St. Louis, Missouri
October 19, 1995
F-50
<PAGE>
AFFILIATED METALS COMPANY
BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
SEPTEMBER 2, AUGUST 31, MARCH 1,
1995 1996 1997
------------ ---------- ------------
(UNAUDITED)
ASSETS
Current assets:
Cash............................ $ 2 $ 10 $ --
Accounts receivable, less
allowances for doubtful
accounts of $30 at September
2, 1995, August 31, 1996 and
March 1, 1997................. 7,013 7,074 10,644
Inventories..................... 6,810 10,658 15,302
Prepaid expenses and other
current assets................ 125 130 525
------------ ---------- ------------
Total current assets....... 13,950 17,872 26,471
Property and equipment, net.......... 2,699 7,940 7,715
Other assets......................... 705 649 668
------------ ---------- ------------
Total assets............... $ 17,354 $ 26,461 $ 34,854
============ ========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank overdraft.................. $ 23 $ 143 $ 2,161
Accounts payable................ 5,860 7,154 7,959
Accrued liabilities............. 494 529 364
Current portion of long-term
debt.......................... 407 10,358 729
------------ ---------- ------------
Total current
liabilities............. 6,784 18,184 11,213
Long-term debt....................... 8,018 4,337 19,879
Deferred income taxes................ 622 599 587
Redeemable preferred stock, $119.048
par value; 1,680 shares authorized;
840, 600 and 480 shares issued and
outstanding at September 2, 1995,
August 31, 1996 and March 1, 1997,
respectively....................... 100 71 57
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 3,068
------------ ---------- ------------
Total stockholders'
equity.................. 1,830 3,270 3,118
------------ ---------- ------------
Total liabilities and
stockholders'
equity............. $ 17,354 $ 26,461 $ 34,854
============ ========== ============
The accompanying notes are an integral part of these financial statements.
F-51
<PAGE>
AFFILIATED METALS COMPANY
STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS
FIFTY-TWO WEEKS ENDED ENDED
------------------------------------------ --------------------
SEPTEMBER 3, SEPTEMBER 2, AUGUST 31, MARCH 2, MARCH 1,
1994 1995 1996 1996 1997
------------ ------------ ---------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............................ $ 63,046 $ 78,976 $ 81,002 $ 39,782 $ 46,805
Costs and expenses:
Cost of sales................... 54,600 68,481 67,924 32,402 40,001
Operating and delivery
expenses...................... 4,316 5,060 5,871 3,346 4,419
Selling, general and
administrative expenses....... 2,352 2,803 3,431 1,479 1,439
Depreciation and amortization... 304 313 300 171 346
------------ ------------ ---------- -------- --------
Operating income..................... 1,474 2,319 3,476 2,384 600
Other expense:
Interest expense................ 735 1,058 1,011 501 766
Other, net...................... 37 22 38 51 95
------------ ------------ ---------- -------- --------
Income (loss) before income taxes.... 702 1,239 2,427 1,832 (261)
Credit (provision) for income
taxes.............................. (297) (497) (979) (726) 112
------------ ------------ ---------- -------- --------
Net income (loss).................... $ 405 $ 742 $ 1,448 $ 1,106 $ (149)
============ ============ ========== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-52
<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 loss (unaudited)............ -- -- -- (149) (149)
------ ------ --- --------- -------------
Balance, March 1, 1997 (unaudited)... 6,000 $ -- $ 50 $ 3,068 $ 3,118
====== ====== === ========= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-53
<PAGE>
AFFILIATED METALS COMPANY
STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS
FIFTY-TWO WEEKS ENDED ENDED
-------------------------------------------- --------------------
SEPTEMBER 3, SEPTEMBER 2, AUGUST 31, MARCH 2, MARCH 1,
1994 1995 1996 1996 1997
------------- ------------- ---------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................. $ 405 $ 742 $ 1,448 $ 1,106 $ (149)
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and
amortization................ 304 313 300 171 346
Loss on sale of assets......... 3 -- 10 -- 87
Deferred tax provision
(benefit)................... (20) (45) (1) (12) (12)
Changes in operating assets and
liabilities:
Accounts receivable,
net..................... (890) (2,020) (61) (327) (3,570)
Inventories............... (190) 61 (3,848) (2,598) (4,644)
Prepaid expenses and other
assets.................. (116) 54 (27) (81) (414)
Accounts payable.......... (525) 2,786 1,293 (1,852) 805
Accrued liabilities....... (70) 245 35 181 (165)
Other..................... (7) (22) -- -- --
------------- ------------- ---------- -------- --------
Net cash provided by
(used in) operating
activities............ (1,106) 2,114 (851) (3,412) (7,716)
------------- ------------- ---------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and
equipment........................ (310) (615) (5,553) (2,476) (498)
Proceeds from sales of property and
equipment........................ 5 -- 58 -- 290
Other, net......................... (36) -- -- -- --
------------- ------------- ---------- -------- --------
Net cash used in
investing
activities............ (341) (615) (5,495) (2,476) (208)
------------- ------------- ---------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) on bank
overdraft........................ 783 (1,259) 120 865 2,018
Principal payments on long-term
debt............................. (198) (523) (668) (317) (335)
Proceeds from issuance of long-term
debt............................. 1,412 325 6,939 5,378 6,248
Purchase of redeemable preferred
stock............................ (529) (29) (29) (29) (14)
Dividends paid on redeemable
preferred stock.................. (21) (11) (8) (11) (3)
------------- ------------- ---------- -------- --------
Net cash provided by
(used in) financing
activities............ 1,447 (1,497) 6,354 5,886 7,914
------------- ------------- ---------- -------- --------
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 $ 497 $ 724
Cash paid for income taxes......... 389 370 1,083 579 --
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-54
<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 March 1, 1997, the results of its operations and cash flows for
the twenty-six weeks ended March 2, 1996 and March 1, 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-55
<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. Transactions with
four customers accounted for approximately 54% of sales for the fifty-two weeks
ended September 3, 1994, September 2, 1995 and August 31, 1996. 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> <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-56
<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-57
<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-58
<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:
FIFTY-TWO WEEKS ENDED
------------------------------------------
SEPTEMBER 3, SEPTEMBER 2, AUGUST 31,
1994 1995 1996
------------ ------------ ----------
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
============ ============ ==========
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:
FIFTY-TWO WEEKS ENDED
------------------------------------------
SEPTEMBER 2, SEPTEMBER 3, AUGUST 31,
1994 1995 1996
------------ ------------ ----------
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%
============ ============ ==========
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
F-59
<PAGE>
AFFILIATED METALS COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
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)
In May 1997, Affiliated and its stockholders entered into a definitive
agreement with a wholly-owned subsidiary of Metals USA, which among other things
calls for the merger of Affiliated with the Metals USA subsidiary.
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-60
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
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-61
<PAGE>
SOUTHERN ALLOY OF AMERICA, INC.
BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
DECEMBER 31,
--------------------
1995 1996
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents....... $ 57 $ --
Accounts receivable:
Trade, less allowances of
$13 and $18.............. 1,483 1,262
Affiliates................. 1,020 945
Inventories..................... 1,050 1,063
Prepaid expenses and other
current assets................ 22 63
--------- ---------
Total current assets....... 3,632 3,333
Property and equipment, net.......... 456 353
Other assets......................... 84 68
--------- ---------
Total assets............... $ 4,172 $ 3,754
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................ $ 1,602 $ 1,450
Accrued liabilities............. 97 68
Revolving line-of-credit........ 1,424 1,424
Current portion of obligations
under capital lease........... 68 25
Current portion of long-term
debt.......................... 38 24
--------- ---------
Total current
liabilities.................. 3,229 2,991
Obligations under capital lease, less
current portion.................... 69 44
Long-term debt, less current
portion............................ 24 --
--------- ---------
Total liabilities.......... 3,322 3,035
--------- ---------
Stockholders' equity:
Common stock 100,000 shares
authorized; 19,500 and 17,200
shares issued and outstanding
at December 31, 1995 and 1996,
respectively................... 20 17
Additional paid-in capital...... 410 608
Retained earnings............... 420 94
--------- ---------
Total stockholders'
equity....................... 850 719
--------- ---------
Total liabilities and
stockholders'
equity.............. $ 4,172 $ 3,754
========= =========
The accompanying notes are an integral part of these financial statements.
F-62
<PAGE>
SOUTHERN ALLOY OF AMERICA, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS)
YEAR ENDED DECEMBER 31,
--------------------
1995 1996
--------- ---------
Net sales............................ $ 12,018 $ 10,815
Costs and expenses:
Cost of sales................... 7,669 7,084
Operating and delivery.......... 902 709
Selling, general and
administrative expenses........ 2,806 2,850
Depreciation and amortization... 108 126
--------- ---------
Operating income..................... 533 46
Other (income) expense:
Interest expense................ 252 168
Interest income................. (146) (108)
--------- ---------
Income (loss) before income taxes.... 427 (14)
Provision (benefit) for income
taxes.............................. -- --
--------- ---------
Net income (loss).................... $ 427 $ (14)
========= =========
The accompanying notes are an integral part of these financial statements.
F-63
<PAGE>
SOUTHERN ALLOY OF AMERICA, INC.
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, 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
======= ====== =========== ========= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-64
<PAGE>
SOUTHERN ALLOY OF AMERICA, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
YEAR ENDED
DECEMBER 31,
--------------------
1995 1996
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................. $ 427 $ (14)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation.................... 108 125
Grant of stock option........... -- 246
Gain on sale of assets.......... (9) (71)
Changes in operating assets and
liabilities:
Accounts receivable, net...... (113) 221
Inventories................... (90) (13)
Prepaid expenses and other
assets....................... (10) (41)
Other long-term assets........ 25 17
Accounts payable.............. 529 (152)
Accrued liabilities........... (57) (29)
--------- ---------
Net cash provided by
operating activities.... 810 289
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and
equipment...................... (99) (23)
Proceeds from sales of property
and equipment.................. 8 71
--------- ---------
Net cash provided by (used
in) investing
activities.............. (91) 48
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase on revolving
line-of-credit................. 156 --
Net (loans) repayments from
officers and affiliates........ (535) 75
Payments on capital lease
obligations.................... (63) (68)
Principal payments on long-term
obligations.................... (30) (38)
Redemption of common stock...... -- (248)
Dividends paid.................. (190) (115)
--------- ---------
Net cash used in financing
activities.............. (662) (394)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................... 57 (57)
CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR............................ -- 57
--------- ---------
CASH AND CASH EQUIVALENTS, END OF
YEAR............................... $ 57 $ --
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest.......... $ 26 $ 159
The accompanying notes are an integral part of these combined financial
statements.
F-65
<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.
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 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
F-66
<PAGE>
SOUTHERN ALLOY OF AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
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
========= =========
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. On September 6, 1996, the original agreement was terminated and Southern
Alloy entered into a new line-of-credit agreement with NationsBank N.A.
("NationsBank"), which expires on June 1, 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
F-67
<PAGE>
SOUTHERN ALLOY OF AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
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, is 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.
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.
F-68
<PAGE>
SOUTHERN ALLOY OF AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
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
========= =========
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 50
--------- ---------
$ 146 $ 107
========= =========
F-69
<PAGE>
SOUTHERN ALLOY OF AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
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)
In May 1997, Southern Alloy and its shareholders entered into a definitive
agreement with a wholly-owned subsidiary of Metals USA, which among other
things, calls for the merger of Southern Alloy with the Metals USA subsidiary.
In connection with the merger, Southern Alloy will make a cash distribution
of $143 and a non-cash distribution of a receivable from an affiliate with a
carrying value of approximately $842 prior to the merger. These distributions
exceeded Southern Alloy's estimated S Corporation accumulated adjustment
account. Southern Alloy expects to fund the $143 cash distribution with
short-term borrowings.
Concurrent with the Merger, Southern Alloy will enter into an agreement
with a related party to lease certain real property for an annual lease payment
of $48. 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. Additionally, Southern Alloy will lease 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-70
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of 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-71
<PAGE>
UNI-STEEL, INC.
BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
SEPTEMBER 30, DECEMBER 31,
1996 1996
------------- ------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents....... $ 203 $ 33
Accounts receivable, less
allowance of $122 and $165..... 6,586 5,469
Accounts receivable --
affiliates.................... 261 245
Inventories..................... 9,947 12,303
Current portion of note
receivable..................... 25 25
Deferred income taxes........... 127 151
Prepaid expenses and other
current assets................. 22 77
------------- ------------
Total current assets....... 17,171 18,303
Property and equipment, net.......... 3,176 3,106
Notes receivable, net of current
portion............................ 1,212 1,233
Other assets......................... 355 356
Goodwill............................. 344 341
------------- ------------
Total assets............... $22,258 $ 23,339
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................ $ 3,165 $ 5,007
Accounts payable --
affiliates.................... 121 148
Accrued liabilities............. 419 366
Note payable to shareholders.... 36 36
Line of credit.................. 7,100 6,000
Current portion of long-term
debt........................... 174 165
Income taxes payable............ 92 231
------------- ------------
Total current
liabilities............ 11,107 11,953
Long-term debt, net of current
portion............................ 413 374
Deferred income taxes................ 788 783
------------- ------------
Total liabilities.......... 12,308 13,110
------------- ------------
Commitments and contingencies
Stockholders' equity:
Common stock $1.00 par value,
500,000 shares authorized,
100,000 shares issued.......... 100 100
Additional paid-in capital...... 5,268 5,268
Retained earnings............... 5,743 6,022
Less: treasury stock, at cost... (1,161) (1,161)
------------- ------------
Total stockholders' equity...... 9,950 10,229
------------- ------------
Total liabilities and
stockholders' equity... $22,258 $ 23,339
============= ============
The accompanying notes are an integral part of these financial statements.
F-72
<PAGE>
UNI-STEEL, INC.
STATEMENTS OF INCOME
(IN THOUSANDS OF DOLLARS)
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31,
SEPTEMBER 30, --------------------
1996 1995 1996
------------- --------- ---------
(UNAUDITED)
Net sales............................ $54,620 $ 12,230 $ 14,336
Operating costs and expenses:
Cost of sales................... 43,445 9,718 11,342
Operating and delivery.......... 5,355 1,185 1,526
Selling, general and
administrative................ 2,917 701 802
Depreciation and amortization... 542 129 122
------------- --------- ---------
Operating income..................... 2,361 497 544
Other (income) expense:
Interest expense................ 575 150 136
Interest income................. (179) (37) (41)
Other, net...................... (4) 3 (3)
------------- --------- ---------
392 116 92
------------- --------- ---------
Income before income taxes........... 1,969 381 452
Provision for income taxes........... 741 144 173
------------- --------- ---------
Net income........................... $ 1,228 $ 237 $ 279
============= ========= =========
The accompanying notes are an integral part of these financial statements.
F-73
<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.......... 100,000 $ 100 $ (969) $ 5,268 $ 4,515 $ 8,914
Purchase of 1,901 shares of
common stock.................. -- -- (192) -- -- (192)
Net income...................... -- -- -- -- 1,228 1,228
------- ------- --------- ----------- --------- -------------
Balance, September 30, 1996.......... 100,000 100 (1,161) 5,268 5,743 9,950
Net income (unaudited)............... -- -- -- -- 279 279
------- ------- --------- ----------- --------- -------------
Balance, December 31, 1996
(unaudited)........................ 100,000 $ 100 $ (1,161) $ 5,268 $ 6,022 $10,229
======= ======= ========= =========== ========= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-74
<PAGE>
UNI-STEEL, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31,
SEPTEMBER 30, --------------------
1996 1995 1996
------------- --------- ---------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................... $ 1,228 $ 237 $ 279
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and
amortization............... 542 129 122
Deferred tax provision
(benefit).................. (36) (9) (27)
Increases in cash surrender
values of life insurance... (56) (11) (11)
Changes in operating assets
and liabilities:
Accounts receivable, net... 181 1,168 1,131
Inventories................ (1,748) (1,306) (2,356)
Prepaid expenses and other
assets.................. (4) (31) (69)
Accounts payable and
accrued liabilities..... 233 975 1,816
Income tax payable......... (131) 21 139
------------- --------- ---------
Net cash provided by
operating
activities............ 209 1,173 1,024
------------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and
equipment....................... (362) (43) (49)
Principal collected on notes....... 13 3 4
------------- --------- ---------
Net cash used in
investing
activities............ (349) (40) (45)
------------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) on
revolving line-of-credit........ 800 (1,100) (1,100)
Principal payments on shareholder
debt............................ (95) -- --
Principal payments on long-term
obligations..................... (445) (111) (49)
Purchase of treasury stock......... (192) -- --
------------- --------- ---------
Net cash provided by
(used in) financing
activities............ 68 (1,211) (1,149)
------------- --------- ---------
NET DECREASE IN CASH AND CASH
EQUIVALENTS........................ (72) (78) (170)
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD.......................... 275 275 203
------------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF
PERIOD............................. $ 203 $ 197 $ 33
============= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest.......... $ 568 156 131
Cash paid for income taxes...... 909 207 60
The accompanying notes are an integral part of these financial statements.
F-75
<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 December 31, 1996, and the results of its operations and cash flows
for the three months ended December 31, 1995 and 1996. 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-76
<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-77
<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 $1,291.
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-78
<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-79
<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 any stockholder who is terminated from
employment, becomes totally disabled, or dies. 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 2,504 (2.5%) 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.
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-80
<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)
In May 1997, Uni-Steel and its shareholders entered into a definitive
agreement with a wholly-owned subsidiary of Metals USA, which among other things
calls for the merger of Uni-Steel with the Metals USA subsidiary.
Concurrent with the merger Uni-Steel will enter into an agreement with a
related party to lease certain 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 intend for
such agreements to be waived if the Merger is undertaken.
F-81
<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 ............................................................... 8
Risk Factors .............................................................. 10
Use of Proceeds ........................................................... 14
Dividend Policy ........................................................... 14
Capitalization ............................................................ 15
Dilution .................................................................. 16
Selected Financial Data ................................................... 17
Summary Pro Forma Combined Financial Data ................................. 18
Management's Discussion and Analysis of Financial Condition and Results of
Operations .............................................................. 19
Business .................................................................. 35
Management ................................................................ 46
Certain Transactions ...................................................... 51
Principal Stockholders .................................................... 55
Description of Capital Stock .............................................. 56
Shares Eligible for Future Sale ........................................... 59
Underwriting .............................................................. 60
Legal Matters ............................................................. 61
Experts ................................................................... 61
Additional Information .................................................... 62
Index to Financial Statements ............................................. F-1
------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE HEREOF), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
5,900,000 SHARES
[LOGO]
METALS USA, INC.
COMMON STOCK
-----------------
PROSPECTUS
-----------------
ALEX. BROWN & SONS
INCORPORATED
BEAR, STEARNS & CO. INC.
SANDERS MORRIS MUNDY
, 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.
AMOUNT TO BE
PAID
-------------
SEC registration fee................. $ 28,785
Printing expenses.................... $ 300,000
Legal fees and expenses.............. $ 875,000
Accounting fees and expenses......... $ 800,000
Blue sky fees and expenses........... $ 10,000
Transfer Agent's and Registrar's
fees................................. $ 4,000
Miscellaneous........................ $ 1,982,215
-------------
Total........................... $ 4,000,000
=============
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 intends to enter 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.
II-1
<PAGE>
The Company intends to purchase liability insurance policies covering
directors and officers in certain circumstances.
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.
Wiggings -- 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 -- 72.632 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.
II-2
<PAGE>
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.
Effective April 21, 1997, Metals USA issued and sold 3,122,914 shares of
Restricted Common Stock to Notre in exchange for 3,122,911 shares of Common
Stock. This sale was exempt from registration under Section 4(2) of the
Securities Act, no public offering being involved.
Simultaneously with the consummation of this Offering, the Company will
issue 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.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ----------------------------------------------------------------
1.1 -- Form of Underwriting Agreement
3.1* -- Amended and Restated Certificate of
Incorporation of Metals USA, Inc.
3.2* -- Bylaws of Metals USA, Inc., as amended
4.1 -- Form of certificate evidencing ownership
of Common Stock of Metals USA, Inc.
5.1 -- Opinion of Bracewell & Patterson, L.L.P.
10.1* -- Metals USA, Inc. 1997 Long-Term
Incentive Plan
10.2* -- Metals USA, Inc. 1997 Non-Employee
Directors' Stock Plan
10.3* -- Agreement and Plan of Organization dated
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
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 P
Supply Company of Maryland, Interstate
Steel Processing Company and the
Stockholders named therein
10.5* -- Agreement and Plan of Organization dated
as of April 30, 1997 by and among Metalsh
USA, Inc., Queensboro Steel I
Acquisition Corp., Queensboro Steel
Corporation and the Stockholders named
therein
10.6* -- Agreement and Plan of Organization dated
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
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
10.8* -- Agreement and Plan of Organization dated
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
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
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
21.1* -- List of subsidiaries of Metals USA, Inc.
23.1* -- Consent of Arthur Andersen LLP
23.2* -- Consent of Ernst & Young LLP
II-3
<PAGE>
23.3* -- Consent of Deloitte & Touche LLP
23.4* -- Consent of McGladrey & Pullen, LLP
23.5* -- Consent of Ruben, 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 Arnold W. Bradburd to be
named as a director
23.9* -- Consent of Michael E. Christopher to be
named as a director
23.10* -- Consent of Mark Alper to be named as a
director
23.11* -- Consent of Craig R. Doveala to be named
as a director
23.12* -- Consent of William B. Edge to be named
as a director
23.13* -- Consent of Patrick A. Notestine to be
named as a director
23.14* -- Consent of Lester G. Peterson to be
named as a director
23.15* -- Consent of Richard A. Singer to be named
as a director
23.16* -- Consent of Tommy E. Knight to be named
as a director
23.17* -- Consent of Richard H. Kristinik to be
named as a director
23.18* -- Consent of T. William Porter to be named
as a director
- ------------
* Filed herewith
(b) Financial Statement Schedules
The following financial statement schedules are included herein.
Schedule I
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 to provide to the
underwriter at the closing specified in the underwriting agreement certificates
in such denominations and registered in such names as required by the
underwriter to permit prompt delivery to each purchaser.
(c) 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.
II-4
<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 May 6, 1997.
METALS USA, INC.
By: /s/ARTHUR L. FRENCH
ARTHUR L. FRENCH
CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
each of Arthur L. French and J. Michael Kirksey with full power to act without
the other, his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities (until revoked in writing) to sign any and all amendments
(including post-effective amendments) to this Registration Statement, to file
the same, together with all exhibits thereto and other documents in connection
therewith, with the SEC, to sign any and all applications, registration
statements, notices and other documents necessary or advisable to comply with
the applicable state securities laws, and to file the same, together with all
other documents in connection therewith, with the appropriate state securities
authorities, granting unto said attorneys-in-fact and agents or any of them or
their or his substitutes or substitute, full power and authority to perform and
do each and every act and thing necessary and advisable as fully to all intents
and purposes as he might or could perform and do in person, thereby ratifying
and confirming all that said attorneys-in-fact and agents or any of them, or
their or his substitutes or substitute, may lawfully do or cause to be done by
virtue hereof.
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
MAY 6, 1997.
SIGNATURE TITLE DATE
- -------------------------------------------------------------------------------
/s/ARTHUR L. FRENCH Chairman of the Board; Chief May 6, 1997
ARTHUR L. FRENCH Executive Officer and President
/s/J. MICHAEL KIRKSEY Senior Vice President; Chief May 6, 1997
J. MICHAEL KIRKSEY Financial Officer and Director
(Chief Accounting Officer)
/s/STEVEN S. HARTER Director May 6, 1997
STEVEN S. HARTER
II-5
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
METALS USA, INC.
The undersigned, Arthur L. French, President, and J. Michael Kirksey,
Secretary of Metals USA, Inc., a corporation organized and existing under the
laws of the State of Delaware (the "Corporation"), do hereby certify as follows:
FIRST: The name of the Corporation is
Metals USA, Inc.
SECOND: The Certificate of Incorporation of Mollie Marie Acquisiton Corp.
was filed in the Office of the Secretary of State of the State of Delaware on
July 3, 1996. The Corporation changed its name to "Metals USA, Inc." and filed a
Certificate of Amendment of Certificate of Incorporation in the Office of the
Secretary of State of the State of Delaware on March 14, 1997.
THIRD: This Amended and Restated Certificate of Incorporation was duly
adopted in accordance with the provisions of Sections 242 and 245 of the
Delaware General Corporation Law, the Board of Directors having duly adopted
resolutions setting forth and declaring advisable this Amended and Restated
Certificate of Incorporation, and in lieu of a meeting of the stockholders,
written consent to this Amended and Restated Certificate of Incorporation having
been given by the holders of a majority of the outstanding stock of the
Corporation in accordance with Section 228 of the General Corporation Law of the
state of Delaware.
FOURTH: This Amended and Restated Certificate of Incorporation is being
filed pursuant to Sections 242 and 245 of the Delaware General Corporation Law
in order to restate the Certificate of Incorporation of the Corporation as
amended to date, and also to amend further the Certificate of Incorporation to
(i) increase the authorized capital stock of the Corporation, (ii) authorize the
issuance of preferred stock and restricted voting common stock and (iii) to
provide for the classification of the Board of Directors of the Corporation.
<PAGE>
FIFTH: The Certificate of Incorporation of the Corporation is hereby
amended and restated in its entirety as follows:
ARTICLE ONE
The name of the corporation is:
Metals USA, Inc.
ARTICLE TWO
The address of the Corporation's registered office in the State of
Delaware is 1209 Orange Street, Wilmington, County of New Castle. The name of
its registered agent at such address is The Corporation Trust Company.
ARTICLE THREE
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.
ARTICLE FOUR
The total number of shares of all classes of stock which the Corporation
shall have authority to issue is Fifty Eight Million, One Hundred Twenty-Two
Thousand, Nine Hundred Fourteen (58,122,914) shares, of which Five Million
(5,000,000) shares, designated as Preferred Stock, shall have a par value of One
Cent ($.01) per share (the "Preferred Stock"), Fifty Million (50,000,000)
shares, designated as Common Stock, shall have a par value of One Cent ($.01)
per share (the "Common Stock"), and Three Million, One Hundred Twenty-Two
Thousand, Nine Hundred Fourteen (3,122,914) shares, designated as Restricted
Voting Common Stock, shall have a par value of One Cent ($.01) per share (the
"Restricted Voting Common Stock").
A statement of the powers, preferences and rights, and the qualifications,
limitations or restrictions thereof, in respect of each class of stock of the
Corporation is as follows:
PREFERRED STOCK
The Preferred Stock may be issued from time to time by the Board of
Directors as shares of one or more classes or series. Subject to the provisions
of this Certificate of Incorporation and the limitations prescribed by law, the
Board of Directors is expressly authorized by adopting resolutions to issue the
shares, fix the number of shares and change the number of shares constituting
any series,
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<PAGE>
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 (and whether
dividends are cumulative), dividend rates, terms of redemption (including
sinking fund provisions), a redemption price or prices, conversion rights and
liquidation preferences of the shares constituting any class or series of the
Preferred Stock, without any further action or vote by the stockholders.
COMMON STOCK
1. DIVIDENDS.
Subject to the preferred rights of the holders of shares of any class or
series of Preferred Stock as provided by the Board of Directors with respect to
any such class or series of Preferred Stock, the holders of the Common Stock
shall be entitled to receive, as and when declared by the Board of Directors out
of the funds of the Corporation legally available therefor, such dividends
(payable in cash, stock or otherwise) as the Board of Directors may from time to
time determine, payable to stockholders of record on such dates, not exceeding
60 days preceding the dividend payment dates, as shall be fixed for such purpose
by the Board of Directors in advance of payment of each particular dividend. All
dividends on Common Stock shall be paid PARI PASSU with dividends on Restricted
Voting Common Stock.
2. LIQUIDATION.
In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, after the distribution or payment
to the holders of shares of any class or series of Preferred Stock as provided
by the Board of Directors with respect to any such class or series of Preferred
Stock, the remaining assets of the Corporation available for distribution to
stockholders shall be distributed among and paid to the holders of Common Stock
and Restricted Voting Common Stock ratably in proportion to the number of shares
of Common Stock and Restricted Voting Common Stock held by them respectively.
3. VOTING RIGHTS.
Except as otherwise required by law, each holder of shares of Common Stock
shall be entitled to one vote for each share of Common Stock standing in such
holder's name of the books of the Corporation.
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<PAGE>
RESTRICTED VOTING COMMON STOCK
1. DIVIDENDS.
Subject to the preferred rights of the holders of shares of any class or
series of Preferred Stock as provided by the Board of Directors with respect to
any such class or series of Preferred Stock, the holders of the Restricted
Voting Common Stock shall be entitled to receive, as and when declared by the
Board of Directors out of the funds of the Corporation legally available
therefor, such dividends (payable in cash, stock or otherwise) as the Board of
Directors may from time to time determine, payable to stockholders of record on
such dates, not exceeding 60 days preceding the dividend payment dates, as shall
be fixed for such purpose by the Board of Directors in advance of payment of
each particular dividend. All dividends on Restricted Voting Common Stock shall
be paid PARI PASSU with dividends on Common Stock.
2 LIQUIDATION.
In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, after the distribution or payment
to the holders of shares of any class or series of Preferred Stock as provided
by the Board of Directors with respect to any such class or series of Preferred
Stock, the remaining assets of the Corporation available for distribution to
stockholders shall be distributed among and paid to the holders of Restricted
Voting Common Stock and Common Stock ratably in proportion to the number of
shares of Restricted Voting Common Stock and Common Stock held by them
respectively.
3. VOTING RIGHTS.
Holders of Restricted Voting Common Stock voting as a class shall be
entitled to elect one member of the Board of Directors, but shall not otherwise
be entitled to vote in the election of directors of the Corporation. Subject to
the foregoing, and except as otherwise required by law, each holder of shares of
Restricted Voting Common Stock shall be entitled to two-tenths (0.2) of one vote
for each share of Restricted Voting Common Stock standing in such holder's name
of the books of the Corporation.
4. CONVERSION OF THE RESTRICTED VOTING COMMON STOCK.
Each share of Restricted Voting 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 Voting 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 in
Sections 267, 707, 318 and/or 4946 of the Internal Revenue Code of 1986)), (b)
in the event any person
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<PAGE>
acquires beneficial ownership of 15% or more of the outstanding shares of Common
Stock of the Corporation, (c) in the event any person offers to acquire 15% or
more of the outstanding shares of Common Stock of the Corporation, (d) in the
event the holder of Restricted Voting Common Stock elects to convert it into
Common Stock at any time after the second anniversary of the consummation of the
Corporation's initial public offering of its Common Stock (the "Public
Offering"), (e) on the third anniversary of the date of the consummation of the
Corporation's Public Offering, or (f) in the event a majority of the aggregate
number of votes which may be cast by the holders of outstanding shares of Common
Stock and Restricted Voting Common Stock entitled to vote approve such
conversion.
After July 1, 1998, the Corporation may elect to convert any outstanding
shares of Restricted Voting Common Stock into shares of Common Stock in the
event 80% or more of the outstanding shares of Restricted Voting Common Stock
have been converted into shares of Common Stock.
ARTICLE FIVE
1. BOARD OF DIRECTORS.
The Directors shall be classified with respect to the time for which they
shall severally hold office into three classes as nearly equal in number as
possible. The Class I directors shall be elected to hold office for an initial
term expiring at the 1998 annual meeting of stockholders, the Class II Directors
shall be elected to hold office for an initial term expiring at the 1999 annual
meeting of stockholders and the Class III Directors shall be elected to hold
office for an initial term expiring at the 2000 annual meeting of stockholders,
with the members of each class of directors to hold office until their
successors have been duly elected and qualified. At each annual meeting of
stockholders, the successors to the class of directors whose term expires at
that meeting shall be elected to hold office for a term expiring at the annual
meeting of stockholders held in the third year following the year of their
election and until their successors have been duly elected and qualified. At
each annual meeting of stockholders at which a quorum is present, the persons
receiving a plurality of the votes cast shall be directors. No director or class
of directors may be removed from office by a vote of the stockholders at any
time except for cause. Election of directors need not be by written ballot
unless the Bylaws of the Corporation so provide.
Notwithstanding the foregoing, the holders of Restricted Voting Common
Stock voting as a class shall be entitled to elect one member of the Board of
Directors, and only the holders of the Restricted Voting Common Stock shall be
entitled to remove such member from the Board of Directors.
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<PAGE>
2. VACANCIES.
Any vacancy on the Board of Directors resulting from death, retirement,
resignation, disqualification or removal from office or other cause, as well as
any vacancy resulting from an increase in the number of directors which occurs
between annual meetings of the stockholders at which directors are elected,
shall be filled only by a majority vote of the remaining directors then in
office, though less than a quorum, except that those vacancies resulting from
removal from office by a vote of the stockholders may be filled by a vote of the
stockholders at the same meeting at which such removal occurs. The directors
chosen to fill vacancies shall hold office for a term expiring at the end of the
next annual meeting of stockholders at which the term of the class to which they
have been elected expires. No decrease in the number of directors constituting
the Board of Directors shall shorten the term of any incumbent director. If the
vacancy on the Board of Directors results from the death, retirement,
resignation, disqualification or removal from office of the director elected by
the holders of the Restricted Voting Common Stock, only the holders of the
Restricted Voting Common Stock shall be entitled to fill such vacancy.
Notwithstanding the foregoing, whenever the holders of one or more classes
or series of Preferred Stock shall have the right, voting separately, as a class
or series, to elect directors, the election, term of office, filling of
vacancies, removal and other features of such directorships shall be governed by
the terms of the resolution or resolutions adopted by the Board of Directors
pursuant to ARTICLE FOUR applicable thereto, and each director so elected shall
not be subject to the provisions of this ARTICLE FIVE unless otherwise provided
therein.
3. POWER TO MAKE, ALTER AND REPEAL BYLAWS.
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to make, alter and repeal the
Bylaws of the Corporation.
4. AMENDMENT AND REPEAL OF ARTICLE FIVE.
Notwithstanding any provision of this Certificate of Incorporation and of
the Bylaws, and notwithstanding the fact that a lesser percentage may be
specified by Delaware law, unless such action has been approved by a majority
vote of the full Board of Directors, the affirmative vote of 66 2/3 percent of
the votes which all stockholders of the then outstanding shares of capital stock
of the Corporation would be entitled to cast thereon, voting together as a
single class, shall be required to amend or repeal any provisions of this
ARTICLE FIVE or to adopt any provision inconsistent with this ARTICLE FIVE. In
the event such action has been previously approved by a majority vote of the
full Board of Directors, the affirmative vote of a majority of the outstanding
stock entitled to vote thereon shall be sufficient to amend or repeal any
provision of this ARTICLE FIVE or adopt any provision inconsistent with this
ARTICLE FIVE.
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<PAGE>
ARTICLE SIX
The Corporation reserves the right to amend, alter, change or repeal any
provision in this Certificate of Incorporation, in the manner now or hereafter
prescribed by statute.
ARTICLE SEVEN
No director of the Corporation shall be liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation Law or (iv) for any transaction
from which the director derived an improper personal benefit.
ARTICLE EIGHT
The Corporation shall, to the fullest extent permitted by Section 145 of
the Delaware General Corporation Law, as the same may be amended and
supplemented, indemnify each director and officer of the Corporation from and
against any and all of the expenses, liabilities or other matters referred to in
or covered by said section and the indemnification provided for herein shall not
be deemed exclusive of any other rights to which those indemnified may be
entitled under any Bylaw, agreement, vote of stockholders, vote of disinterested
directors or otherwise, and shall continue as to a person who has ceased to be a
director or officer and shall inure to the benefit of the heirs, executors and
administrators of such persons and the Corporation may purchase and maintain
insurance on behalf of any director or officer to the extent permitted by
Section 145 of the Delaware General Corporation Law.
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<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Amended and
Restated Certificate of Incorporation on behalf of the Corporation and have
attested such execution and do verify and affirm, under penalty of perjury, that
this Amended and Restated Certificate of Incorporation is the act and deed of
the Corporation and that the facts stated herein are true as of this 1st day of
May, 1997.
METALS USA, INC.
By:/s/ ARTHUR L. FRENCH
Arthur L. French
President
Attest:
/s/ J. MICHAEL KIRKSEY
J. Michael Kirksey
Secretary
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EXHIBIT 3.2
BYLAWS
OF
METALS USA, INC.
ARTICLE I
STOCKHOLDERS
SECTION 1. ANNUAL MEETING. The annual meeting of the stockholders of the
Corporation shall be held on such date, at such time and at such place within or
without the State of Delaware as may be designated by the Board of Directors,
for the purpose of' electing Directors and for the transaction of such other
business as may be properly brought before the meeting, which date shall be
within thirteen (13) months subsequent to the last annual meeting of
stockholders.
SECTION 2. SPECIAL MEETINGS. Unless otherwise provided in the Certificate
of Incorporation of the Corporation, special meetings of the stockholders for
any purpose or purposes may be called at any time by the Chief Executive
Officer, by a majority of the Board of Directors, or by a majority of the
executive committee (if any), at such time and at such place as may be stated in
the notice of the meeting. Business transacted at such meeting shall be confined
to the purpose(s) stated in the notice of such meeting.
SECTION 3. NOTICE OF STOCKHOLDER BUSINESS AND NOMINATIONS.
(a) ANNUAL MEETINGS OF STOCKHOLDERS.
(i) Nominations of persons for election to the Board of
Directors and the proposal of business to be considered by the
Stockholders may be made at an annual meeting of Stockholders
(A) pursuant to the Corporation's notice of meeting, (B) by or
at the direction of the Board of Directors or (C) by any
Stockholder who was a Stockholder of record at the time of
giving of notice provided for in this Section, who is entitled
to vote at the meeting and who complies with the notice
procedures set forth in this Section.
(ii) For nominations or other business to be properly brought
before an annual meeting by a Stockholder pursuant to section
3(a)(i) of this ARTICLE I, the Stockholder must have given
timely notice thereof in writing to the
<PAGE>
Secretary of the Corporation and such other business must
otherwise be a proper matter for Stockholder action. To be
timely, a Stockholder's notice shall be delivered to the
Secretary at the principal executive offices of the
Corporation not later than the close of business on the
sixtieth (60th) day nor earlier than the close of business on
the ninetieth (90th) day prior to the first (1st) anniversary
of the preceding year's annual meeting; PROVIDED, HOWEVER,
that in the event that the date of the annual meeting is more
than thirty (30) days before or more than sixty (60) days
after such anniversary date, notice by the Stockholder to be
timely must be so delivered not earlier than the close of
business on the ninetieth (90th) day prior to such annual
meeting and not later than the close of business on the later
of the sixtieth (60th) day prior to such annual meeting or the
tenth (10th) day following the day on which public
announcement of the date of such meeting is first made by the
Corporation. In no event shall the public announcement of an
adjournment of an annual meeting commence a new time period
for the giving of a Stockholders's notice as described above.
Such Stockholder's notice shall set forth:
(A) as to each person whom the Stockholder proposes to
nominate for election or reelection as a Director all
information relating to such person that is required to
be disclosed in solicitations of proxies for election of
Directors in an election contest, or is otherwise
required, in each case pursuant to Regulation 14A under
the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT") and Rule 14a-11 thereunder (including
such person's written consent to being named in the
proxy statement as a nominee and to serving as a
Director if elected);
(B) as to any other business that the Stockholder
proposes to bring before the meeting, a brief
description of the business desired to be brought before
the meeting, the reasons for conducting such business at
the meeting and any material interest in such business
of such Stockholder and the beneficial owner, if any, on
whose behalf the proposal is made; and
(C) as to the Stockholder giving the notice and the
beneficial owner, if any, on whose behalf the nomination
or proposal is made (1) the name and address of such
Stockholder, as they appear on the
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<PAGE>
Corporations's books, and of such beneficial owner and
(2) the class and number of shares of the Corporation
which are owned beneficially and of record by such
Stockholder and such beneficial owner.
(iii) Notwithstanding anything in the second sentence of
Section 3(a)(ii) of this ARTICLE I to the contrary, in the
event that the number of Directors to be elected to the Board
of Directors is increased and there is no public announcement
by the Corporation naming all of the nominees for Director or
specifying the size of the increased Board of Directors at
least seventy (70) days prior to the first (1st) anniversary
of the preceding year's annual meeting, a Stockholder's notice
required by this Section shall also be considered timely, but
only with respect to nominees for any new positions created by
such increase, if it shall be delivered to the Secretary at
the principal executive offices of the Corporation not later
than the close of business on the tenth (10th) day following
the day on which such public announcement is first made by the
Corporation.
(b) SPECIAL MEETINGS OF STOCKHOLDERS. Only such business shall be
conducted at a special meeting of Stockholders as shall have been
brought before the meeting pursuant to the Corporation's notice of
meeting. Nominations of persons for election to the Board of
Directors may be made at a special meeting of Stockholders at which
Directors are to be elected pursuant to the Corporation's notice of
meeting (a) by or at the direction of the Board of Directors or (b)
provided that the Board of Directors has determined that Directors
shall be elected at such meeting, by any Stockholder who is a
Stockholder of record at the time of giving of notice provided for
in this Section 3, who shall be entitled to vote at the meeting and
who complies with the notice procedures set forth in this Section 3.
In the event the Corporation calls a special meeting of Stockholders
for the purpose of electing one or more Directors to the Board of
Directors, any such Stockholder may nominate a person or persons (as
the case may be), for election to such positions(s) as specified in
the Corporation's notice of meeting, if the Stockholder's notice
required by Section 3(a)(ii) of this ARTICLE I shall be delivered to
the Secretary at the principal executive offices of the Corporation
not earlier than the close of business on the ninetieth (90th) day
prior to such special meeting and not later than the close of
business on the later of the sixtieth (60th) day prior to such
special meeting or the tenth (10th) day following the day on which
public announcement is first made of the date of the special meeting
and of the nominees proposed by the Board of Directors to be elected
at such
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<PAGE>
meeting. In no event shall the public announcement of an adjournment
of a special meeting commence a new time period for the giving of a
Stockholder's notice as described above.
(c) GENERAL.
(i) Only such persons who are nominated in accordance with the
procedures set forth in this Section 3 shall be eligible to
serve as Directors and only such business shall be conducted
at a meeting of Stockholders as shall have been brought before
the meeting in accordance with the procedures set forth in
this Section 3. Except as otherwise provided by applicable
law, the Chairman of the meeting shall have the power and duty
to determine whether a nomination or any business proposed to
be brought before the meeting was made or proposed, as the
case may be, in accordance with the procedures set forth in
this Section 3 and, if any proposed nomination or business is
not in compliance with this Section 3, to declare that such
defective proposal or nomination shall be disregarded.
(ii) For purposes of this Section 3, "public announcement"
shall mean disclosure in a press release reported by the Dow
Jones News Service, Associate Press or comparable national
news service or in a document publicly filed by the
Corporation with the Securities and Exchange Commission
pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(iii) Notwithstanding the foregoing provisions of this Section
3, a Stockholder shall also comply with all applicable
requirements of the Exchange Act and the rules and regulations
thereunder with respect to the matters set forth in this
Section 3. Nothing in this Section 3 shall be deemed to affect
any rights (A) of Stockholders to request inclusion of
proposals in the Corporation's proxy statement pursuant to
Rule 14a-8 under the Exchange Act; or (B) of the holders of
any series of Common Stock or Preferred Stock or any
outstanding voting indebtedness to elect Directors under
specified circumstances.
Notwithstanding any other provisions of the Certificate of Incorporation
of the Corporation, and notwithstanding that a lesser percentage may be
permitted from time to time by applicable law, no provision of this Section 3 of
ARTICLE I may be altered, amended or repealed in any respect, nor may any
provision inconsistent therewith be adopted, unless such alteration, amendment,
repeal
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or adoption is approved by the affirmative vote of the holders of at least 80
percent of the combined voting power of the then outstanding shares of the
Corporation's stock entitled to vote generally at elections of Directors voting
together as a single class, and at least 80 percent of each class, series and
issuance of combined voting power of the then outstanding shares of the
Corporation's stock entitled to vote generally at elections of Directors voting
separately as a class, series and issuance.
SECTION 4. QUORUM. At any meeting of the stockholders, the holders of a
majority in number of the total outstanding shares of stock of the Corporation
entitled to vote at such meeting, present in person or represented by proxy,
shall constitute a quorum of the stockholders for all purposes, unless the
representation of a larger number of shares shall be required by law, by the
Certificate of Incorporation or by these Bylaws, in which case the
representation of the number of shares so required shall constitute a quorum;
provided that at any meeting of the stockholders at which the holders of any
class of stock of the Corporation shall be entitled to vote separately as a
class, the holders of a majority in number of the total outstanding shares of
such class, present in person or represented by proxy, shall constitute a quorum
for purposes of such class vote unless the representation of a larger number of
shares of such class shall be required by law, by the Certificate of
Incorporation or by these Bylaws.
SECTION 5. ADJOURNED MEETINGS. Whether or not a quorum shall be present in
person or represented at any meeting of the stockholders, the holders of a
majority in number of the shares of stock of the Corporation present in person
or represented by proxy and entitled to vote at such meeting may adjourn from
time to time; provided, however, that if the holders of any class of stock of
the Corporation are entitled to vote separately as a class upon any matter at
such meeting, any adjournment of the meeting in respect of action by such class
upon such matter shall be determined by the holders of a majority of the shares
of such class present in person or represented by proxy and entitled to vote at
such meeting. When a meeting is adjourned to another time or place, notice need
not be given of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken. At the adjourned
meeting the stockholders, or the holders of any class of stock entitled to vote
separately as a class, as the case may be, may transact any business which might
have been transacted by them at the original meeting. If the adjournment is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the adjourned meeting.
SECTION 6. ORGANIZATION. Each annual and special meeting of Stockholders
held in person shall be presided over by a chairman, who shall have the
exclusive authority to, among other things, determine (a) whether business and
nominations have been properly brought before such meetings, and (b) the order
in which business and nominations properly brought before such meeting shall be
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<PAGE>
considered. The chairman of each annual and special meeting shall be the
Chairman of the Board of Directors, or such person as shall be appointed by the
resolution approved by the majority of the Board of Directors.
The Secretary of the Corporation shall act as Secretary of all meetings of
the stockholders; but in the absence of the Secretary, the Chairman may appoint
any person to act as Secretary of the meeting. It shall be the duty of the
Secretary to prepare and make, at least ten (10) days before every meeting of
stockholders, a complete list of stockholders entitled to vote at such meeting,
arranged in alphabetical order and showing the address of each stockholder and
the number of shares registered in the name of each stockholder. Such list shall
be open, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting or, if not so
specified, at the place where the meeting is to be held, for the ten (10) days
next preceding the meeting, to the examination of any stockholder, for any
purpose germane to the meeting, during ordinary business hours, and shall be
produced and kept at the time and place of the meeting during the whole time
thereof and subject to the inspection of any stockholder who may be present.
SECTION 7. VOTING. Except as otherwise provided in the Certificate of
Incorporation or by law, each stockholder shall be entitled to one vote for each
share of the capital stock of the Corporation registered in the name of such
stockholder upon the books of the Corporation. Each stockholder entitled to vote
at a meeting of stockholders or to express consent or dissent to corporate
action in writing without a meeting may authorize another person or persons to
act for him by proxy, but no such proxy shall be voted or acted upon after three
years from its date, unless the proxy provides for a longer period. When
directed by the presiding officer or upon the demand of any stockholder, the
vote upon any matter before a meeting of stockholders shall be by ballot. Except
as otherwise provided by law or by the Certificate of Incorporation, Directors
shall be elected by a plurality of the votes cast at a meeting of stockholders
by the stockholders entitled to vote in the election and, whenever any corporate
action, other than the election of Directors is to be taken, it shall be
authorized by a majority of the votes cast at a meeting of stockholders by the
stockholders entitled to vote thereon.
Shares of the capital stock of the Corporation belonging to the
Corporation or to another corporation, if a majority of the shares entitled to
vote in the election of directors of such other corporation is held, directly or
indirectly, by the Corporation, shall neither be entitled to vote nor be counted
for quorum purposes.
SECTION 8. INSPECTORS. When required by law or directed by the presiding
officer or upon the demand of any stockholder entitled to vote, but not
otherwise, the polls shall be opened and closed, the proxies and ballots shall
be received and taken in charge, and all questions touching the
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<PAGE>
qualification of voters, the validity of proxies and the acceptance or rejection
of votes shall be decided at any meeting of the stockholders by two or more
Inspectors who may be appointed by the Board of Directors before the meeting, or
if not so appointed, shall be appointed by the presiding officer at the meeting.
If any person so appointed fails to appear or act, the vacancy may be filled by
appointment in like manner.
SECTION 9. ACTION WITHOUT MEETING. Unless otherwise provided in the
Certificate of Incorporation of the Corporation, prior to a firm commitment
underwritten public offering of the Corporation's Common Stock in which gross
proceeds equal or exceed $25 million before deducting underwriters' discounts
and other expenses of the offering (the "Offering"), any action permitted or
required by law, the Certificate of Incorporation of the Corporation or these
Bylaws to be taken at a meeting of stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent or consents in writing,
setting forth the action so taken, shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted and shall be delivered to the Corporation by
delivery to its registered office in the state of incorporation, its principal
place of business, or an officer or agent of the Corporation having custody of
the book in which proceedings of meetings of stockholders are recorded. Delivery
made to the Corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested.
Every written consent shall bear the date of signature of each stockholder
who signs the consent, and no written consent shall be effective to take the
corporate action referred to therein unless, within sixty (60) days of the
earliest dated consent delivered in the manner required by this Section to the
Corporation, written consents signed by a sufficient number of holders to take
action are delivered to the Corporation by delivery to its registered office in
the state of incorporation, its principal place of business, or an officer or
agent of the Corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Delivery made to the Corporation's
registered office shall be by hand or by certified or registered mail, return
receipt requested.
Prompt notice of the taking of corporation action without a meeting by
less than a unanimous written consent shall be given by the Secretary to those
stockholders who have not consented in writing.
Subsequent to the Offering, any action required or permitted to be taken
by the Stockholders must be effected at a duly called annual or special meeting
of Stockholders and may not be effected without such a meeting by any consent in
writing by such holders.
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ARTICLE II
BOARD OF DIRECTORS
SECTION 1. NUMBER AND TERM OF OFFICE. The business and affairs of the
Corporation shall be managed by or under the direction of a Board of Directors,
none of whom need be stockholders of the Corporation. The number of Directors
constituting the Board of Directors shall be fixed from time to time by
resolution passed by a majority of the Board of Directors. The Directors shall,
except as hereinafter otherwise provided for filling vacancies or as otherwise
provided in the Certificate of Incorporation, be elected at the annual meeting
of stockholders, and shall hold office until their respective successors are
elected and qualified or until their earlier resignation or removal.
SECTION 2. REMOVAL, VACANCIES AND ADDITIONAL DIRECTORS. Except as
otherwise provided in the Certificate of Incorporation, the stockholders may, at
any special meeting the notice of which shall state that it is called for that
purpose, remove, with or without cause, any Director and fill the vacancy;
provided that whenever any Director shall have been elected by the holders of
any class of stock of the Corporation voting separately as a class under the
provisions of the Certificate of Incorporation, such Director may be removed and
the vacancy filled only by the holders of that class of stock voting separately
as a class. Except as otherwise provided in the Certificate of Incorporation,
vacancies caused by any such removal and not filled by the stockholders at the
meeting at which such removal shall have been made, or any vacancy caused by the
death or resignation of any Director or for any other reason, and any newly
created directorship resulting from any increase in the authorized number of
Directors, may be filled by the affirmative vote of a majority of the Directors
then in office, although less than a quorum, and any Director so elected to fill
any such vacancy or newly created directorship shall hold office until his
successor is elected and qualified or until his earlier resignation or removal.
When one or more Directors shall resign effective at a future date, a
majority of the Directors then in office, including those who have so resigned,
shall have power to fill such vacancy or vacancies, the vote thereon to take
effect when such resignation or resignations shall become effective, and each
Director so chosen shall hold office as herein provided in connection with the
filling of other vacancies.
SECTION 3. PLACE OF MEETING. The Board of Directors may hold its meetings
in such place or places in the State of Delaware or outside the State of
Delaware as the Board from time to time shall determine.
SECTION 4. REGULAR MEETINGS. Regular meetings of the Board of Directors
shall be held at such times and places as the Board from time to time by
resolution shall determine. No notice
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shall be required for any regular meeting of the Board of Directors; but a copy
of every resolution fixing or changing the time or place of regular meetings
shall be mailed to every Director at least five (5) days before the first
meeting held in pursuance thereof.
SECTION 5. SPECIAL MEETINGS. Special meetings of the Board of Directors
shall be held whenever called by direction of the Chairman of the Board, the
Vice Chairman of the Board, the President or by any two of the Directors then in
office.
Notice of the day, hour and place of holding of each special meeting shall
be given by mailing the same at least two (2) days before the meeting or by
causing the same to be transmitted by telegraph, cable or wireless at least one
day before the meeting to each Director. Unless otherwise indicated in the
notice thereof, any and all business other than an amendment of these Bylaws may
be transacted at any special meeting, and an amendment of these Bylaws may be
acted upon if the notice of the meeting shall have stated that the amendment of
these Bylaws is one of the purposes of the meeting. At any meeting at which
every Director shall be present, even though without any notice, any business
may be transacted, including the amendment of these Bylaws.
SECTION 6. QUORUM. Subject to the provisions of Section 2 of this Article
II, a majority of the members of the Board of Directors in office (but, unless
the Board shall consist solely of one Director, in no case less than one-third
of the total number of Directors nor less than two Directors) shall constitute a
quorum for the transaction of business and the vote of the majority of the
Directors present at any meeting of the Board of Directors at which a quorum is
present shall be the act of the Board of Directors. If at any meeting of the
Board there is less than a quorum present, a majority of those present may
adjourn the meeting from time to time.
SECTION 7. ORGANIZATION. The Chairman of the Board, or in his absence, the
Vice Chairman of the Board, or in his absence, the President shall preside at
all meetings of the Board of Directors. In the absence of the Chairman of the
Board, the Vice Chairman of the Board and the President, a Chairman shall be
elected from the Directors present. The Secretary of the Corporation shall act
as Secretary of all meetings of the Directors; but in the absence of the
Secretary, the Chairman may appoint any person to act as Secretary of the
meeting.
SECTION 8. COMMITTEE. The Board of Directors may, by resolution passed by
a majority of the whole Board, designate one or more committees, each committee
to consist of one or more of the Directors of the Corporation. The Board may
designate one or more Directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of a member of a committee, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not he or they
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constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or disqualified
member. Any such committee, to the extent provided by resolution passed by a
majority of the whole Board, shall have and may exercise all the powers and
authority of the Board of Directors in the management of the business and the
affairs of the Corporation, and may authorize the seal of the Corporation to be
affixed to all papers which may require it; but no such committee shall have the
power or authority in reference to amending the Certificate of Incorporation,
adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, recommending to the stockholders a
dissolution of the Corporation or a revocation of a dissolution, or amending
these Bylaws; and unless such resolution, these Bylaws, or the Certificate of
Incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend or to authorize the issuance of stock.
SECTION 9. CONFERENCE TELEPHONE MEETINGS. Unless otherwise restricted by
the Certificate of Incorporation or by these Bylaws, the members of the Board of
Directors or any committee designated by the Board, may participate in a meeting
of the Board or such committee, as the case may be, by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and such participation shall
constitute presence in person at such meeting.
SECTION 10. CONSENT OF DIRECTORS OR COMMITTEE IN LIEU OF MEETING. Unless
otherwise restricted by the Certificate of Incorporation or by these Bylaws, any
action required or permitted to be taken at any meeting of the Board of
Directors, or of any committee thereto, may be taken without a meeting if all
members of the Board or committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of proceedings of
the Board or committee, as the case may be.
ARTICLE III
OFFICERS
SECTION 1. OFFICERS. The officers of the Corporation shall be a Chairman
of the Board, a Vice Chairman of the Board, a President, one or more Vice
Presidents, a Secretary and a Treasurer, and such additional officers, if any,
as shall be elected by the Board of Directors pursuant to the provisions of
Section 8 of this Article III. The Chairman of the Board, the Vice Chairman of
the Board, the President, one or more Vice Presidents, the Secretary and the
Treasurer shall be elected by the Board of Directors at its first meeting after
each annual meeting of the stockholders. The failure to hold such election shall
not of itself terminate the term of office of any officer. All officers shall
hold office at the pleasure of the Board of Directors. Any officer may resign at
any time upon
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written notice to the Corporation. Officers may, but need not, be Directors. Any
number of offices may be held by the same person.
All officers, agents and employees shall be subject to removal, with or
without cause, at any time by the Board of Directors. The removal of an officer
without cause shall be without prejudice to his contract rights, if any. The
election or appointment of an officer shall not of itself create contract
rights. All agents and employees other than officers elected by the Board of
Directors shall also be subject to removal, with or without cause, at any time
by the officers appointing them.
Any vacancy caused by the death of any officer, his resignation, his
removal, or otherwise, may be filled by the Board of Directors, and any officer
so elected shall hold office at the pleasure of the Board of Directors.
In addition to the powers and duties of the officers of the Corporation as
set forth in these Bylaws, the officers shall have such authority and shall
perform such duties as from time to time may be determined by the Board of
Directors.
SECTION 2. POWERS AND DUTIES OF THE CHAIRMAN OF THE BOARD. The Chairman of
the Board shall be the chief executive officer of the Corporation and, subject
to the control of the Board of Directors, shall have general charge and control
of all its business and affairs and shall have all powers and shall perform all
duties incident to the office of Chairman of the Board. He shall preside at all
meetings of the stockholders and at all meetings of the Board of Directors and
shall have such other powers and perform such other duties as may from time to
time be assigned to him by these Bylaws or by the Board of Directors.
SECTION 3. POWERS AND DUTIES OF THE VICE CHAIRMAN OF THE BOARD. The Vice
Chairman of the Board, in the absence of the Chairman of the Board, shall be the
chief executive officer of the Corporation and, subject to the control of the
Board of Directors and the Chairman of the Board, shall have general charge and
control of all its business and affairs and shall have all powers and shall
perform all duties incident to the office of Vice Chairman of the Board. In the
absence of the Chairman of the Board, he shall preside at all meetings of the
stockholders and at all meetings of the Board of Directors and shall have such
other powers and perform such other duties as may from time to time be assigned
to him by these Bylaws or by the Board of Directors or the Chairman of the
Board.
SECTION 4. POWERS AND DUTIES OF THE PRESIDENT. The President shall be the
chief operating officer of the Corporation and, subject to the control of the
Board of Directors, the Chairman of the Board and the Vice Chairman of the
Board, shall have general charge and control of all its operations
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and shall have all powers and shall perform all duties incident to the office of
President. In the absence of the Chairman of the Board and the Vice Chairman of
the Board, he shall preside at all meetings of the stockholders and at all
meetings of the Board of Directors and shall have such other powers and perform
such other duties as may from time to time be assigned to him by these Bylaws or
by the Board of Directors, the Chairman of the Board or the Vice Chairman of the
Board.
SECTION 5. POWERS AND DUTIES OF THE VICE PRESIDENTS. Each Vice President
shall have all powers and shall perform all duties incident to the office of
Vice President and shall have such other powers and perform such other duties as
may from time to time be assigned to him by these Bylaws or by the Board of
Directors, the Chairman of the Board, the Vice Chairman of the Board or the
President.
SECTION 6. POWERS AND DUTIES OF THE SECRETARY. The Secretary shall keep
the minutes of all meetings of the Board of Directors and the minutes of all
meetings of the stockholders in books provided for that purpose; he shall attend
to the giving or serving of all notices of the Corporation; he shall have
custody of the corporate seal of the Corporation and shall affix the same to
such documents and other papers as the Board of Directors or the President shall
authorize and direct; he shall have charge of the stock certificate books,
transfer books and stock ledgers and such other books and papers as the Board of
Directors or the President shall direct, all of which shall at all reasonable
times be open to the examination of any Director, upon application, at the
office of the Corporation during business hours; and whenever required by the
Board of Directors, the Chairman of the Board, the Vice Chairman of the Board or
the President shall render statements of such accounts; and he shall have all
powers and shall perform all duties incident to the office of Secretary and
shall also have such other powers and shall perform such other duties as may
from time to time be assigned to him by these Bylaws or by the Board of
Directors, the Chairman of the Board, the Vice Chairman of the Board or the
President.
SECTION 7. POWERS AND DUTIES OF THE TREASURER. The Treasurer shall have
custody of, and when proper shall pay out, disburse or otherwise dispose of, all
funds and securities of the Corporation which may have come into his hands; he
may endorse on behalf of the Corporation for collection checks, notes and other
obligations and shall deposit the same to the credit of the Corporation in such
bank or banks or depositary or depositaries as the Board of Directors may
designate; he shall sign all receipts and vouchers for payments made to the
Corporation; he shall enter or cause to be entered regularly in the books of the
Corporation kept for the purpose full and accurate accounts of all moneys
received or paid or otherwise disposed of by him and whenever required by the
Board of Directors, the Chairman of the Board, the Vice Chairman of the Board or
the President shall render statements of such accounts; he shall, at all
reasonable times, exhibit his books and accounts to any Director of the
Corporation upon application at the office of the
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Corporation during business hours; and he shall have all powers and he shall
perform all duties incident to the office of Treasurer and shall also have such
other powers and shall perform such other duties as may from time to time be
assigned to him by these Bylaws or by the Board of Directors, the Chairman of
the Board, the Vice Chairman of the Board or the President.
SECTION 8. ADDITIONAL OFFICERS. The Board of Directors may from time to
time elect such other officers (who may but need not be Directors), including a
Controller, Assistant Treasurers, Assistant Secretaries and Assistant
Controllers, as the Board may deem advisable and such officers shall have such
authority and shall perform such duties as may from time to time be assigned to
them by the Board of Directors, the Chairman of the Board, the Vice Chairman of
the Board or the President.
The Board of Directors may from time to time by resolution delegate to any
Assistant Treasurer or Assistant Treasurers any of the powers or duties herein
assigned to the Treasurer; and may similarly delegate to any Assistant Secretary
or Assistant Secretaries any of the powers or duties assigned to the Secretary.
SECTION 9. GIVING OF BOND BY OFFICERS. All officers of the Corporation, if
required to do so by the Board of Directors, shall furnish bonds to the
Corporation for the faithful performance of their duties, in such penalties and
with such conditions and security as the Board shall require.
SECTION 10. VOTING UPON STOCKS. Unless otherwise ordered by the Board of
Directors, the Chairman of the Board, the Vice Chairman of the Board, the
President or any Vice President shall have full power and authority on behalf of
the Corporation to attend and to act and to vote, or in the name of the
Corporation to execute proxies to vote, at any meeting of stockholders of any
corporation in which the Corporation may hold stock, and at any such meeting
shall possess and may exercise, in person or by proxy, any and all rights,
powers and privileges incident to the ownership of such stock. The Board of
Directors may from time to time, by resolution, confer like powers upon any
other person or persons.
SECTION 11. COMPENSATION OF OFFICERS. The officers of the Corporation
shall be entitled to receive such compensation for their services as shall from
time to time be determined by the Board of Directors.
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ARTICLE IV
INDEMNIFICATION OF DIRECTORS AND OFFICERS
SECTION 1. NATURE OF INDEMNITY. The Corporation shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he is or was or has
agreed to become a Director or officer of the Corporation, or is or was serving
or has agreed to serve at the request of the Corporation as a Director or
officer of another corporation, partnership, joint venture, trust or other
enterprise, or by reason of any action alleged to have been taken or omitted in
such capacity, and may indemnify any person who was or is a party or is
threatened to be made a party to such an action, suit or proceeding by reason of
the fact that he is or was or has agreed to become an employee or agent of the
Corporation, or is or was serving or has agreed to serve at the request of the
Corporation as an employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him or on his behalf in connection with such action, suit or
proceeding and any appeal therefrom, if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful; except that in the case of
an action or suit by or in the right of the Corporation to procure a judgment in
its favor (1) such indemnification shall be limited to expenses (including
attorneys' fees) actually and reasonably incurred by such person in the defense
or settlement of such action or suit, and (2) no indemnification shall be made
in respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Corporation unless and only to the extent that the
Delaware Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Delaware Court of
Chancery or such other court shall deem proper.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had reasonable cause to believe that his conduct was unlawful.
SECTION 2. SUCCESSFUL DEFENSE. To the extent that a Director, officer,
employee or agent of the Corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in Section 1
of this Article IV or in defense of any claim, issue or matter
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therein, he shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith.
SECTION 3. DETERMINATION THAT INDEMNIFICATION IS PROPER. Any
indemnification of a Director or officer of the Corporation under Section 1 of
this Article IV (unless ordered by a court) shall be made by the Corporation
unless a determination is made that indemnification of the Director or officer
is not proper in the circumstances because he has not met the applicable
standard of conduct set forth in Section 1. Any indemnification of an employee
or agent of the Corporation under Section 1 (unless ordered by a court) may be
made by the Corporation upon a determination that indemnification of the
employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in Section 1. Any such determination
shall be made (1) by the Board of Directors by a majority vote of a quorum
consisting of Directors who were not parties to such action, suit or proceeding,
or (2) if such a quorum is not obtainable, or, even if obtainable a quorum of
disinterested Directors so directs, by independent legal counsel in a written
opinion, or (3) by the stockholders.
SECTION 4. ADVANCE PAYMENT OF EXPENSES. Unless the Board of Directors
otherwise determines in a specific case, expenses incurred by a Director or
officer in defending a civil or criminal action, suit or proceeding shall be
paid by the Corporation in advance of the final disposition of such action, suit
or proceeding upon receipt of an undertaking by or on behalf of the Director or
officer to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the Corporation as authorized in this Article IV.
Such expenses incurred by other employees and agents may be so paid upon such
terms and conditions, if any, as the Board of Directors deems appropriate. The
Board of Directors may authorize the Corporation's legal counsel to represent
such Director, officer, employee or agent in any action, suit or proceeding,
whether or not the Corporation is a party to such action, suit or proceeding.
SECTION 5. SURVIVAL; PRESERVATION OF OTHER RIGHTS. The foregoing
indemnification provisions shall be deemed to be a contract between the
Corporation and each Director, officer, employee and agent who serves in any
such capacity at any time while these provisions as well as the relevant
provisions of the Delaware General Corporation Law are in effect and any repeal
or modification thereof shall not affect any right or obligation then existing
with respect to any state of facts then or previously existing or any action,
suit, or proceeding previously or thereafter brought or threatened based in
whole or in part upon any such state of facts. Such a contract right may not be
modified retroactively without the consent of such Director, officer, employee
or agent.
The indemnification provided by this Article IV shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any bylaw, agreement, vote of stockholders
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or disinterested Directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office, and
shall continue as to a person who has ceased to be a Director, officer, employee
or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person. The Corporation may enter into an agreement
with any of its Directors, officers, employees or agents providing for
indemnification and advancement of expenses, including attorneys fees, that may
change, enhance, qualify or limit any right to indemnification or advancement of
expenses created by this Article IV.
SECTION 6. SEVERABILITY. If this Article IV or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each Director or officer and may
indemnify each employee or agent of the Corporation as to costs, charges and
expenses (including attorneys' fees), judgment, fines and amounts paid in
settlement with respect to any action, suit or proceeding, whether civil,
criminal, administrative or investigative, including an action by or in the
right of the Corporation, to the fullest extent permitted by any applicable
portion of this Article IV that shall not have been invalidated and to the
fullest extent permitted by applicable law.
SECTION 7. SUBROGATION. In the event of payment of indemnification to a
person described in Section 1 of this Article IV, the Corporation shall be
subrogated to the extent of such payment to any right of recovery such person
may have and such person, as a condition of receiving indemnification from the
Corporation, shall execute all documents and do all things that the Corporation
may deem necessary or desirable to perfect such right of recovery, including the
execution of such documents necessary to enable the Corporation effectively to
enforce any such recovery.
SECTION 8. NO DUPLICATION OF PAYMENTS. The Corporation shall not be liable
under this Article IV to make any payment in connection with any claim made
against a person described in Section 1 of this Article IV to the extent such
person has otherwise received payment (under any insurance policy, bylaw or
otherwise) of the amounts otherwise indemnifiable hereunder.
ARTICLE V
STOCK-SEAL-FISCAL YEAR
SECTION 1. CERTIFICATES FOR SHARES OF STOCK. The certificates for shares
of stock of the Corporation shall be in such form, not inconsistent with the
Certificate of Incorporation, as shall be approved by the Board of Directors.
All certificates shall be signed by the Chairman of the Board, the Vice Chairman
of the Board, the President or a Vice President and by the Secretary or an
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Assistant Secretary or the Treasurer or an Assistant Treasurer, and shall not be
valid unless so signed.
In case any officer or officers who shall have signed any such certificate
or certificates shall cease to be such officer or officers of the Corporation,
whether because of death, resignation or otherwise, before such certificate or
certificates shall have been delivered by the Corporation, such certificate or
certificates may nevertheless be issued and delivered as though the person or
persons who signed such certificate or certificates had not ceased to be such
officer or officers of the Corporation.
All certificates for shares of stock shall be consecutively numbered as
the same are issued. The name of the person owning the shares represented
thereby with the number of such shares and the date of issue thereof shall be
entered on the books of the Corporation.
Except as hereinafter provided, all certificates surrendered to the
Corporation for transfer shall be canceled, and no new certificates shall be
issued until former certificates for the same number of shares have been
surrendered and canceled.
SECTION 2. LOST, STOLEN OR DESTROYED CERTIFICATES. Whenever a person
owning a certificate for shares of stock of the Corporation alleges that it has
been lost, stolen or destroyed, he shall file in the office of the Corporation
an affidavit setting forth, to the best of his knowledge and belief, the time,
place and circumstances of the loss, theft or destruction, and, if required by
the Board of Directors, a bond of indemnity or other indemnification sufficient
in the opinion of the Board of Directors to indemnify the Corporation and its
agents against any claim that may be made against it or them on account of the
alleged loss, theft or destruction of any such certificate or the issuance of a
new certificate in replacement therefor. Thereupon the Corporation may cause to
be issued to such person a new certificate in replacement for the certificate
alleged to have been lost, stolen or destroyed. Upon the stub of every new
certificate so issued shall be noted the fact of such issue and the number, date
and the name of the registered owner of the lost, stolen or destroyed
certificate in lieu of which the new certificate is issued.
SECTION 3. TRANSFER OF SHARES. Shares of stock of the Corporation shall be
transferred on the books of the Corporation by the holder thereof, in person or
by his attorney duly authorized in writing, upon surrender and cancellation of
certificates for the number of shares of stock to be transferred, except as
provided in Section 2 of this Article IV.
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SECTION 4. REGULATIONS. The Board of Directors shall have power and
authority to make such rules and regulations as it may deem expedient concerning
the issue, transfer and registration of certificates for shares of stock of the
Corporation.
SECTION 5. RECORD DATE. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting or to receive payment of any dividend or other distribution or
allotment of any rights, or to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful action,
as the case may be, the Board of Directors may fix, in advance, a record date,
which shall not be (i) more than sixty (60) nor less than ten (10) days before
the date of such meeting, or (ii) in the case of corporate action to be taken by
consent in writing without a meeting prior to, or more than ten (10) days after,
the date upon which the resolution fixing the record date is adopted by the
Board of Directors, or (iii) more than sixty (60) days prior to any other
action.
If no record date is fixed, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given or,
if notice is waived, at the close of business on the day next preceding the day
on which the meeting is held; the record date for determining stockholders
entitled to express consent to corporate action in writing without a meeting,
when no prior action by the Board of Directors is necessary, shall be the day on
which the first written consent is delivered to the Corporation; and the record
date for determining stockholders for any other purpose shall be at the close of
business on the day on which the Board of Directors adopts the resolution
relating thereto. A determination of stockholders of record entitled to notice
of or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
SECTION 6. DIVIDENDS. Subject to the provisions of the Certificate of
Incorporation, the Board of Directors shall have power to declare and pay
dividends upon shares of stock of the Corporation, but only out of funds
available for the payment of dividends as provided by law.
Subject to the provisions of the Certificate of Incorporation, any
dividends declared upon the stock of the Corporation shall be payable on such
date or dates as the Board of Directors shall determine. If the date fixed for
the payment of any dividend shall in any year fall upon a legal holiday, then
the dividend payable on such date shall be paid on the next day not a legal
holiday.
SECTION 7. CORPORATE SEAL. The Board of Directors shall provide a suitable
seal, containing the name of the Corporation, which seal shall be kept in the
custody of the Secretary. A
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duplicate of the seal may be kept and be used by any officer of the Corporation
designated by the Board of Directors, the Chairman of the Board, the Vice
Chairman of the Board or the President.
SECTION 8. FISCAL YEAR. The fiscal year of the Corporation shall be such
fiscal year as the Board of Directors from time to time by resolution shall
determine.
ARTICLE VI
MISCELLANEOUS PROVISIONS
SECTION 1. CHECKS, NOTES, ETC. All checks, drafts, bills of exchange,
acceptances, notes or other obligations or orders for the payment of money shall
be signed and, if so required by the Board of Directors, countersigned by such
officers of the Corporation and/or other persons as the Board of Directors from
time to time shall designate.
Checks, drafts, bills of exchange, acceptances, notes, obligations and
orders for the payment of money made payable to the Corporation may be endorsed
for deposit to the credit of the Corporation with a duly authorized depository
by the Treasurer and/or such other officers or persons as the Board of Directors
from time to time may designate.
SECTION 2. LOANS. No loans and no renewals of any loans shall be
contracted on behalf of the Corporation except as authorized by the Board of
Directors. When authorized so to do, any officer or agent of the Corporation may
effect loans and advances for the Corporation from any bank, trust company or
other institution or from any firm, corporation or individual, and for such
loans and advances may make, execute and deliver promissory notes, bonds or
other evidences of indebtedness of the Corporation. When authorized so to do,
any officer or agent of the Corporation may pledge, hypothecate or transfer, as
security for the payment of any and all loans, advances, indebtedness and
liabilities of the Corporation, any and all stocks, securities and other
personal property at any time held by the Corporation, and to that end may
endorse, assign and deliver the same. Such authority may be general or confined
to specific instances.
SECTION 3. CONTRACTS. Except as otherwise provided in these Bylaws or by
law or as otherwise directed by the Board of Directors, the Chairman of the
Board, the Vice Chairman of the Board, the President or any Vice President shall
be authorized to execute and deliver, in the name and on behalf of the
Corporation, all agreements, bonds, contracts, deeds, mortgages, and other
instruments, either for the Corporation's own account or in a fiduciary or other
capacity, and the seal of the Corporation, if appropriate, shall be affixed
thereto by any of such officers or the Secretary or an Assistant Secretary. The
Board of Directors, the Chairman of the Board, the Vice Chairman of the Board,
the President or any Vice President designated by the Board of Directors, the
Chairman
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of the Board, the Vice Chairman of the Board or the President may authorize any
other officer, employee or agent to execute and deliver, in the name and on
behalf of the Corporation, agreements, bonds, contracts, deeds, mortgages, and
other instruments, either for the Corporation's own account or in a fiduciary or
other capacity, and, if appropriate, to affix the seal of the Corporation
thereto. The grant of such authority by the Board or any such officer may be
general or confined to specific instances.
SECTION 4. WAIVERS OF NOTICE. Whenever any notice whatever is required to
be given by law, by the Certificate of Incorporation or by these Bylaws to any
person or persons, a waiver thereof in writing, signed by the person or persons
entitled to the notice, whether before or after the time stated therein, shall
be deemed equivalent thereto.
SECTION 5. OFFICES OUTSIDE OF DELAWARE. Except as otherwise required by
the laws of the State of Delaware, the Corporation may have an office or offices
and keep its books, documents and papers outside of the State of Delaware at
such place or places as from time to time may be determined by the Board of
Directors, the Chairman of the Board or the Vice Chairman of the Board.
ARTICLE VII
AMENDMENTS
The Board of Directors shall have the power to adopt, amend and repeal
from time to time Bylaws of the Corporation, subject to the right of the
stockholders entitled to vote with respect thereto to amend or repeal such
Bylaws as adopted or amended by the Board of Directors; provided, however, that
unless a different percentage is called for in a particular provision hereof,
any amendment or repeal of the Bylaws of the Corporation by the stockholders
shall be by a vote of the holders of at least 66 2/3 percent of the total votes
eligible to be cast by holders of voting stock with respect to such amendment or
repeal.
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EXHIBIT 10.1
METALS USA, INC.
1997 LONG-TERM INCENTIVE PLAN
1. PURPOSE. The purpose of this 1997 Long-Term Incentive Plan (the"Plan")
of Metals USA, Inc., a Delaware corporation (the "Company"), is to advance the
interests of the Company and its stockholders by providing a means to attract,
retain and reward executive officers and other key employees and consultants of
and service providers to the Company and its subsidiaries (including consultants
and others providing services of substantial value) and to enable such persons
to acquire or increase a proprietary interest in the Company, thereby promoting
a closer identity of interests between such persons and the Company's
stockholders.
2. DEFINITIONS. The definitions of awards under the Plan, including
Options, SARs (including Limited SARs), Restricted Stock, Deferred Stock, Stock
granted as a bonus or in lieu of other awards, Dividend Equivalents and Other
Stock-Based Awards are set forth in Section 6 of the Plan. Such awards, together
with any other right or interest granted to a Participant under the Plan, are
termed "Awards." For purposes of the Plan, the following additional terms shall
be defined as set forth below:
(a) "Award Agreement" means any written agreement, contract, notice or
other instrument or document evidencing an Award.
(b) "Beneficiary" shall mean the person, persons, trust or trusts which
have been designated by a Participant in his or her most recent written
beneficiary designation filed with the Committee to receive the benefits
specified under the Plan upon such Participant's death or, if there is no
designated Beneficiary or surviving designated Beneficiary, then the person,
persons, trust or trusts entitled by will or the laws of descent and
distribution to receive such benefits.
(c) "Board" means the Board of Directors of the Company.
(d) A "Change in Control" shall be deemed to have occurred if:
(i) any person, other than the Company or an employee benefit plan
of the Company, acquires directly or indirectly the Beneficial Ownership (as
defined in Section 13(d) of the Exchange Act) 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 percent or
more of the total voting power of all of the then-outstanding voting securities
of the Company;
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(ii) the following individuals no longer constitute a majority of
the members of the Board: (A) the individuals who, as of the closing date of the
Initial Public Offering, constitute the Board (the "Original Directors"); (B)
the individuals who thereafter are elected to the Board and whose election, or
nomination for election, to the Board 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 and whose election, or
nomination for election, to the Board 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 the Company approve a merger,
consolidation, recapitalization or reorganization of the Company, or 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 percent 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
percent of the holders of outstanding voting securities of the Company
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 the Company shall approve a plan of
complete liquidation of the Company or an agreement for the sale or disposition
by the Company of all or a substantial portion of the Company's assets (i.e., 50
percent or more of the total assets of the Company).
(e) "Code" means the Internal Revenue Code of 1986, as amended from time
to time. References to any provision of the Code shall be deemed to include
regulations thereunder and successor provisions and regulations thereto.
(f) "Committee" means the Compensation Committee of the Board, or such
other Board committee as may be designated by the Board to administer the Plan.
(g) "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time. References to any provision of the Exchange Act shall be
deemed to include rules thereunder and successor provisions and rules thereto.
(h) "Fair Market Value" means, with respect to Stock, Awards, or other
property, the fair market value of such Stock, Awards, or other property
determined by such methods or procedures as shall be established from time to
time by the Committee, PROVIDED, HOWEVER, that (i) if the
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Stock is listed on a national securities exchange or quoted in an interdealer
quotation system, the Fair Market Value of such Stock on a given date shall be
based upon the last sales price or, if unavailable, the average of the closing
bid and asked prices per share of the Stock on such date (or, if there was no
trading or quotation in the Stock on such date, on the next preceding date on
which there was trading or quotation) as reported in the WALL STREET JOURNAL (or
other reporting service approved by the Committee), (ii) the "Fair Market Value"
of Stock subject to Options granted effective upon commencement of the Initial
Public Offering shall be the Initial Public Offering price of the shares so
issued and sold in the Initial Public Offering, as set forth in the first final
prospectus used in such offering (the provisions of clause (i) notwithstanding)
and (iii) the "Fair Market Value" of Stock prior to the date of the Initial
Public Offering shall be as determined by the Board of Directors.
(i) "Initial Public Offering" shall mean an initial public offering of
shares of Stock in a firm commitment underwriting registered with the Securities
nd Exchange Commission in compliance with the provisions of the Securities Act
of 1933, as amended.
(j) "ISO" means any Option intended to be and designated as an incentive
stock option within the meaning of Section 422 of the Code.
(k) "Participant" means a person who, at a time when eligible under
Section 5 hereof, has been granted an Award under the Plan.
(l) "Rule 16b-3" means Rule 16b-3, as from time to time in effect and
applicable to the Plan and Participants, promulgated by the Securities and
Exchange Commission under Section 16 of the Exchange Act.
(m) "Stock" means the Common Stock, $.01 par value, of the Company and
such other securities as may be substituted for Stock or such other securities
pursuant to Section 4.
3. ADMINISTRATION.
(a) AUTHORITY OF THE COMMITTEE. The Plan shall be administered by the
Committee. The Committee shall have full and final authority to take the
following actions, in each case subject to and consistent with the provisions of
the Plan:
(i) to select persons to whom Awards may be granted;
(ii) to determine the type or types of Awards to be granted to each
such person;
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(iii) to determine the number of Awards to be granted, the number of
shares of Stock to which an Award will relate, the terms and conditions of any
Award granted under the Plan (including, but not limited to, any exercise price,
grant price or purchase price, any restriction or condition, any schedule for
lapse of restrictions or conditions relating to transferability or forfeiture,
exercisability or settlement of an Award, and waivers or accelerations thereof,
performance conditions relating to an Award (including performance conditions
relating to Awards not intended to be governed by Section 7(f) and waivers and
modifications thereof), based in each case on such considerations as the
Committee shall determine), and all other matters to be determined in connection
with an Award;
(iv) to determine whether, to what extent and under what
circumstances an Award may be settled, or the exercise price of an Award may be
paid, in cash, Stock, other Awards, or other property, or an Award may be
canceled, forfeited, or surrendered;
(v) to determine whether, to what extent and under what
circumstances cash, Stock, other Awards or other property payable with respect
to an Award will be deferred either automatically, at the election of the
Committee or at the election of the Participant;
(vi) to prescribe the form of each Award Agreement, which need not
be identical for each Participant;
(vii) to adopt, amend, suspend, waive and rescind such rules and
regulations and appoint such agents as the Committee may deem necessary or
advisable to administer the Plan;
(viii)to correct any defect or supply any omission or reconcile any
inconsistency in the Plan and to construe and interpret the Plan and any Award,
rules and regulations, Award Agreement or other instrument hereunder; and
(ix) to make all other decisions and determinations as may be
required under the terms of the Plan or as the Committee may deem necessary or
advisable for the administration of the Plan.
(b) MANNER OF EXERCISE OF COMMITTEE AUTHORITY. Unless authority is
specifically reserved to the Board under the terms of the Plan, the Company's
Certificate of Incorporation or Bylaws, or applicable law, the Committee shall
have sole discretion in exercising authority under the Plan. Any action of the
Committee with respect to the Plan shall be final, conclusive and binding on all
persons, including the Company, subsidiaries of the Company, Participants, any
person claiming any rights under the Plan from or through any Participant and
stockholders, except to the extent the Committee may subsequently modify, or
take further action
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not consistent with, its prior action. If not specified in the Plan, the time at
which the Committee must or may make any determination shall be determined by
the Committee, and any such determination may thereafter by modified by the
Committee (subject to Section 8(e)). The express grant of any specific power to
the Committee, and the taking of any action by the Committee, shall not be
construed as limiting any power or authority of the Committee. The Committee may
delegate to officers or managers of the Company or any subsidiary of the Company
the authority, subject to such terms as the Committee shall determine, to
perform administrative functions and, with respect to Participants not subject
to Section 16 of the Exchange Act, to perform such other functions as the
Committee may determine, to the extent permitted under Rule 16b-3, if
applicable, and other applicable law.
(c) LIMITATION OF LIABILITY. Each member of the Committee shall be
entitled to, in good faith, rely or act upon any report or other information
furnished to him by any officer or other employee of the Company or any
subsidiary, the Company's independent certified public accountants or any
executive compensation consultant, legal counsel or other professional retained
by the Company to assist in the administration of the Plan. No member of the
Committee, nor any officer or employee of the Company acting on behalf of the
Committee, shall be personally liable for any action, determination or
interpretation taken or made in good faith with respect to the Plan, and all
members of the Committee and any officer or employee of the Company acting on
its behalf shall, to the extent permitted by law, be fully indemnified and
protected by the Company with respect to any such action, determination or
interpretation.
4. STOCK SUBJECT TO PLAN.
(a) AMOUNT OF STOCK RESERVED. The total amount of Stock that may be
subject to outstanding awards, determined immediately after the grant of any
Award, shall not exceed the greater of 2,500,000 shares of Stock or 13% of the
total number of shares of Stock outstanding at the time of such grant.
Notwithstanding the foregoing, the number of shares that may be delivered upon
the exercise of ISOs shall not exceed 500,000, subject in each case to
adjustment as provided in Section 4(c), and the number of shares that may be
delivered as Restricted Stock and Deferred Stock (other than pursuant to an
Award granted under Section 7(f)) shall not in the aggregate exceed 500,000,
provided, however, that shares subject to ISOs, Restricted Stock or Deferred
Stock Awards shall not be deemed delivered if such Awards are forfeited, expire
or otherwise terminate without delivery of shares to the Participant. To the
extent that an Award is only to be paid in cash or is paid in cash, any shares
of Stock subject to such Award shall again be available for the grant of an
Award. Any shares of Stock delivered pursuant to an Award may consist, in whole
or in part, of authorized and unissued shares, treasury shares or shares
acquired in the market for a Participant's Account.
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(b) ANNUAL PER-PARTICIPANT LIMITATIONS. During any calendar year, no
Participant may be granted Awards that may be settled by delivery of more than
250,000 shares of Stock, subject to adjustment as provided in Section 4(c). In
addition, with respect to Awards that may be settled in cash (in whole or in
part), no Participant may be paid during any calendar year cash amounts relating
to such Awards that exceed the greater of the Fair Market Value of the number of
shares of Stock set forth in the preceding sentence at the date of grant or the
date of settlement of Award. This provision sets forth two separate limitations,
so that Awards that may be settled solely by delivery of Stock will not operate
to reduce the amount of cash-only Awards, and vice versa; nevertheless, Awards
that may be settled in Stock or cash must not exceed either limitation.
(c) ADJUSTMENTS. In the event that the Committee shall determine that any
dividend or other distribution (whether in the form of cash, Stock or other
property), recapitalization, forward or reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase or exchange of Stock or other
securities, liquidation, dissolution, or other similar corporate transaction or
event, affects the Stock such that an adjustment is appropriate in order to
prevent dilution or enlargement of the rights of Participants under the Plan,
then the Committee shall, in such manner as it may deem equitable, adjust any or
all of (i) the number and kind of shares of Stock reserved and available for
Awards under Section 4(a), including shares reserved for the ISOs and Restricted
and Deferred Stock, (ii) the number and kind of shares of Stock specified in the
Annual Per-Participant Limitations under Section 4(b), (iii) the number and kind
of shares of outstanding Restricted Stock or other outstanding Award in
connection with which shares have been issued, (iv) the number and kind of
shares that may be issued in respect of other outstanding Awards and (v) the
exercise price, grant price or purchase price relating to any Award (or, if
deemed appropriate, the Committee may make provision for a cash payment with
respect to any outstanding Award). In addition, the Committee is authorized to
make adjustments in the terms and conditions of, and the criteria included in,
Awards in recognition of unusual or nonrecurring events (including, without
limitation, events described in the preceding sentence) affecting the Company or
any subsidiary or the financial statements of the Company or any subsidiary, or
in response to changes in applicable laws, regulations, or accounting
principles. The foregoing notwithstanding, no adjustments shall be authorized
under this Section 4(c) with respect to ISOs or SARs in tandem therewith to the
extent that such authority would cause the Plan to fail to comply with Section
422(b)(1) of the Code, and no such adjustment shall be authorized with respect
to Options, SARs or other Awards subject to Section 7(f) to the extent that such
authority would cause such Awards to fail to qualify as "qualified
performance-based compensation" under Section 162(m)(4)(C) of the Code.
5. ELIGIBILITY. Executive officers and other key employees of the Company
and its subsidiaries, including any director or officer who is also such an
employee, and persons who provide consulting or other services to the Company
deemed by the Committee to be of substantial value to the Company, are eligible
to be granted Awards under the Plan. In addition, a person who
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has been offered employment by the Company or its subsidiaries is eligible to be
granted an Award under the Plan, provided that such Award shall be cancelled if
such person fails to commence such employment, and no payment of value may be
made in connection with such Award until such person has commenced such
employment. The foregoing notwithstanding, no member of the Committee shall be
eligible to be granted Awards under the Plan.
6. SPECIFIC TERMS OF AWARDS.
(a) GENERAL. Awards may be granted on the terms and conditions set forth
in this Section 6. In addition, the Committee may impose on any Award or the
exercise thereof such additional terms and conditions, not inconsistent with the
provisions of the Plan, as the Committee shall determine, including terms
requiring forfeiture of Awards in the event of termination of employment or
service of the Participant. Except as provided in Section 6(f), 6(h), or 7(a),
or to the extent required to comply with requirements of the Delaware General
Corporation Law that lawful consideration be paid for Stock, only services may
be required as consideration for the grant (but not the exercise) of any Award.
(b) OPTIONS. The Committee is authorized to grant Options (including
"reload" options automatically granted to offset specified exercises of Options)
on the following terms and conditions ("Options"):
(i) EXERCISE PRICE. The exercise price per share of Stock
purchasable under an Option shall be determined by the Committee; PROVIDED,
HOWEVER, that, except as provided in Section 7(a), such exercise price shall be
not less than the Fair Market Value of a share on the date of grant of such
Option.
(ii) TIME AND METHOD OF EXERCISE. The Committee shall determine the
time or times at which an Option may be exercised in whole or in part, the
methods by which such exercise price may be paid or deemed to be paid, the form
of such payment, including, without limitation, cash, Stock, other Awards or
awards granted under other Company plans or other property (including notes or
other contractual obligations of Participants to make payment on a deferred
basis, such as through "cashless exercise" arrangements, to the extent permitted
by applicable law), and the methods by which Stock will be delivered or deemed
to be delivered to Participants.
(iii) ISOS. The terms of any ISO granted under the Plan shall comply
in all respects with the provisions of Section 422 of the Code, including but
not limited to the requirement that no ISO shall be granted more than ten years
after the effective date of the Plan. Anything in the Plan to the contrary
notwithstanding, no term of the Plan relating to ISOs shall be interpreted,
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<PAGE>
amended, or altered, nor shall any discretion or authority granted under the
Plan be exercised, so as to disqualify either the Plan or any ISO under Section
422 of the Code, unless requested by the affected Participant.
(iv) TERMINATION OF EMPLOYMENT. Unless otherwise determined by the
Committee, upon termination of a Participant's employment with the Company and
its subsidiaries, such Participant may exercise any Options during the
three-month period following such termination of employment, but only to the
extent such Option was exercisable immediately prior to such termination of
employment. Notwithstanding the foregoing, if the Committee determines that such
termination is for cause, all Options held by the Participant shall terminate as
of the termination of employment.
(c) STOCK APPRECIATION RIGHTS. The Committee is authorized to grant SARs
on the following terms and conditions ("SARs"):
(i) RIGHT TO PAYMENT. An SAR shall confer on the Participant to whom
it is granted a right to receive, upon exercise thereof, the excess of (A) the
Fair Market Value of one share of Stock on the date of exercise (or, if the
Committee shall so determine in the case of any such right other than one
related to an ISO, the Fair Market Value of one share at any time during a
specified period before or after the date of exercise), over (B) the grant price
of the SAR as determined by the Committee as of the date of grant of the SAR,
which, except as provided in Section 7(a), shall be not less than the Fair
Market Value of one share of Stock on the date of grant.
(ii) OTHER TERMS. The Committee shall determine the time or times at
which an SAR may be exercised in whole or in part, the method of exercise,
method of settlement, form of consideration payable in settlement, method by
which Stock will be delivered or deemed to be delivered to Participants, whether
or not an SAR shall be in tandem with any other Award, and any other terms and
conditions of any SAR. Limited SARs that may only be exercised upon the
occurrence of a Change in Control may be granted on such terms, not inconsistent
with this Section 6(c), as the Committee may determine. Limited SARs may be
either freestanding or in tandem with other Awards.
(d) RESTRICTED STOCK. The Committee is authorized to grant Restricted
Stock on the following terms and conditions ("Restricted Stock"):
(i) GRANT AND RESTRICTIONS. Restricted Stock shall be subject to
such restrictions on transferability and other restrictions, if any, as the
Committee may impose, which restrictions may lapse separately or in combination
at such times, under such circumstances, in such installments, or otherwise, as
the Committee may determine. Except to the extent restricted under
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the terms of the Plan and any Award Agreement relating to the Restricted Stock,
a Participant granted Restricted Stock shall have all of the rights of a
stockholder including, without limitation, the right to vote Restricted Stock or
the right to receive dividends thereon.
(ii) FORFEITURE. Except as otherwise determined by the Committee,
upon termination of employment or service (as determined under criteria
established by the Committee) during the applicable restriction period,
Restricted Stock that is at that time subject to restrictions shall be forfeited
and reacquired by the Company; PROVIDED, HOWEVER, that the Committee may
provide, by rule or regulation or in any Award Agreement, or may determine in
any individual case, that restrictions or forfeiture conditions relating to
Restricted Stock will be waived in whole or in part in the event of termination
resulting from specified causes.
(iii) CERTIFICATES FOR STOCK. Restricted Stock granted under the
Plan may be evidenced in such manner as the Committee shall determine. If
certificates representing Restricted Stock are registered in the name of the
Participant, such certificates may bear an appropriate legend referring to the
terms, conditions, and restrictions applicable to such Restricted Stock, the
Company may retain physical possession of the certificate, and the Participant
shall have delivered a stock power to the Company, endorsed in blank, relating
to the Restricted Stock.
(iv) DIVIDENDS. Dividends paid on Restricted Stock shall be either
paid at the dividend payment date in cash or in shares of unrestricted Stock
having a Fair Market Value equal to the amount of such dividends, or the payment
of such dividends shall be deferred and/or the amount or value thereof
automatically reinvested in additional Restricted Stock, other Awards, or other
investment vehicles, as the Committee shall determine or permit the Participant
to elect. Stock distributed in connection with a Stock split or Stock dividend,
and other property distributed as a dividend, shall be subject to restrictions
and a risk of forfeiture to the same extent as the Restricted Stock with respect
to which such Stock or other property has been distributed, unless otherwise
determined by the Committee.
(e) DEFERRED STOCK. The Committee is authorized to grant Deferred Stock
subject to the following terms and conditions ("Deferred Stock"):
(i) AWARD AND RESTRICTIONS. Delivery of Stock will occur upon
expiration of the deferral period specified for an Award of Deferred Stock by
the Committee (or, if permitted by the Committee, as elected by the
Participant). In addition, Deferred Stock shall be subject to such restrictions
as the Committee may impose, if any, which restrictions may lapse at the
expiration of the deferral period or at earlier specified times, separately or
in combination, in installments or otherwise, as the Committee may determine.
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(ii) FORFEITURE. Except as otherwise determined by the Committee,
upon termination of employment or service (as determined under criteria
established by the Committee) during the applicable deferral period or portion
thereof to which forfeiture conditions apply (as provided in the Award Agreement
evidencing the Deferred Stock), all Deferred Stock that is at that time subject
to such forfeiture conditions shall be forfeited; PROVIDED, HOWEVER, that the
Committee may provide, by rule or regulation or in any Award Agreement, or may
determine in any individual case, that restrictions or forfeiture conditions
relating to Deferred Stock will be waived in whole or in part in the event of
termination resulting from specified causes.
(f) BONUS STOCK AND AWARDS IN LIEU OF CASH OBLIGATIONS. The Committee is
authorized to grant Stock as a bonus, or to grant Stock or other Awards in lieu
of Company obligations to pay cash under other plans or compensatory
arrangements. Stock or Awards granted hereunder shall be subject to such other
terms as shall be determined by the Committee.
(g) DIVIDEND EQUIVALENTS. The Committee is authorized to grant Dividend
Equivalents entitling the Participant to receive cash, Stock, other Awards or
other property equal in value to dividends paid with respect to a specified
number of shares of Stock ("Dividend Equivalents"). Dividend Equivalents may be
awarded on a free-standing basis or in connection with another Award. The
Committee may provide that Dividend Equivalents shall be paid or distributed
when accrued or shall be deemed to have been reinvested in additional Stock,
Awards or other investment vehicles, and subject to such restrictions on
transferability and risks of forfeiture, as the Committee may specify.
(h) OTHER STOCK-BASED AWARDS. The Committee is authorized, subject to
limitations under applicable law, to grant such other Awards that may be
denominated or payable in, valued in whole or in part by reference to, or
otherwise based on, or related to, Stock and factors that may influence the
value of Stock, as deemed by the Committee to be consistent with the purposes of
the Plan, including, without limitation, convertible or exchangeable debt
securities, other rights convertible or exchangeable into Stock, purchase rights
for Stock, Awards with value and payment contingent upon performance of the
Company or any other factors designated by the Committee and Awards valued by
reference to the book value of Stock or the value of securities of or the
performance of specified subsidiaries ("Other Stock Based Awards"). The
Committee shall determine the terms and conditions of such Awards. Stock issued
pursuant to an Award in the nature of a purchase right granted under this
Section 6(h) shall be purchased for such consideration, paid for at such times,
by such methods, and in such forms, including, without limitation, cash, Stock,
other Awards, or other property, as the Committee shall determine. Cash awards,
as an element of or supplement to any other Award under the Plan, may be granted
pursuant to this Section 6(h).
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7. CERTAIN PROVISIONS APPLICABLE TO AWARDS.
(a) STAND-ALONE, ADDITIONAL, TANDEM, AND SUBSTITUTE AWARDS. Awards granted
under the Plan may, in the discretion of the Committee, be granted either alone
or in addition to, in tandem with or in substitution for any other Award granted
under the Plan or any award granted under any other plan of the Company, any
subsidiary or any business entity to be acquired by the Company or a subsidiary,
or any other right of a Participant to receive payment from the Company or any
subsidiary. Awards granted in addition to or in tandem with other Awards or
awards may be granted either as of the same time as or a different time from the
grant of such other Awards or awards.
(b) TERM OF AWARDS. The term of each Award shall be for such period as may
be determined by the Committee; PROVIDED, HOWEVER, that in no event shall the
term of any ISO or an SAR granted in tandem therewith exceed a period of ten
years from the date of its grant (or such shorter period as may be applicable
under Section 422 of the Code).
(c) FORM OF PAYMENT UNDER AWARDS. Subject to the terms of the Plan and any
applicable Award Agreement, payments to be made by the Company or a subsidiary
upon the grant, exercise or settlement of an Award may be made in such forms as
the Committee shall determine, including, without limitation, cash, Stock, other
Awards or other property, and may be made in a single payment or transfer, in
installments or on a deferred basis. Such payments may include, without
limitation, provisions for the payment or crediting of reasonable interest on
installment or deferred payments or the grant or crediting of Dividend
Equivalents in respect of installment or deferred payments denominated in Stock.
(d) LOAN PROVISIONS. With the consent of the Committee, and subject at all
times to, and only to the extent, if any, permitted under and in accordance
with, laws and regulations and other binding obligations or provisions
applicable to the Company, the Company may make, guarantee or arrange for a loan
or loans to a Participant with respect to the exercise of any Option or other
payment in connection with any Award, including the payment by a Participant of
any or all federal, state or local income or other taxes due in connection with
any Award. Subject to such limitations, the Committee shall have full authority
to decide whether to make a loan or loans hereunder and to determine the amount,
terms and provisions of any such loan or loans, including the interest rate to
be charged in respect of any such loan or loans, whether the loan or loans are
to be with or without recourse against the borrower, the terms on which the loan
is to be repaid and conditions, if any, under which the loan or loans may be
forgiven.
(e) PERFORMANCE-BASED AWARDS. The Committee may, in its discretion,
designate any Award the exercisability or settlement of which is subject to the
achievement of
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performance conditions as a performance-based Award subject to this Section
7(f), in order to qualify such Award as "qualified performance-based
compensation" within the meaning of Code Section 162(m) and regulations
thereunder. The performance objectives for an Award subject to this Section 7(f)
shall consist of one or more business criteria and a targeted level or levels of
performance with respect to such criteria, as specified by the Committee but
subject to this Section 7(f). Performance objectives shall be objective and
shall otherwise meet the requirements of Section 162(m)(4)(C) of the Code.
Business criteria used by the Committee in establishing performance objectives
for Awards subject to this Section 7(f) shall be selected exclusively from among
the following:
(1) Annual return on capital;
(2) Annual earnings per share;
(3) Annual cash flow provided by operations;
(4) Changes in annual revenues; and/or
(5) Strategic business criteria, consisting of one or more
objectives based on meeting specified revenue, market penetration, geographic
business expansion goals, cost targets, and goals relating to acquisitions or
divestitures.
The levels of performance required with respect to such business criteria
may be expressed in absolute or relative levels. Achievement of performance
objectives with respect to such Awards shall be measured over a period of not
less than one year nor more than five years, as the Committee may specify.
Performance objectives may differ for such Awards to different Participants. The
Committee shall specify the weighting to be given to each performance objective
for purposes of determining the final amount payable with respect to any such
Award. The Committee may, in its discretion, reduce the amount of a payout
otherwise to be made in connection with an Award subject to this Section 7(f),
but may not exercise discretion to increase such amount, and the Committee may
consider other performance criteria in exercising such discretion. All
determinations by the Committee as to the achievement of performance objectives
shall be in writing. The Committee may not delegate any responsibility with
respect to an Award subject to this Section 7(f).
(f) ACCELERATION UPON A CHANGE OF CONTROL. Notwithstanding anything
contained herein to the contrary, unless otherwise provided by the Committee in
an Award Agreement, all conditions and restrictions relating to an Award,
including limitations on exercisability, risks of forfeiture and conditions and
restrictions requiring the continued performance
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of services or the achievement of performance objectives with respect to the
exercisability or settlement of such Award, shall immediately lapse upon a
Change in Control.
8. GENERAL PROVISIONS.
(a) COMPLIANCE WITH LAWS AND OBLIGATIONS. The Company shall not be
obligated to issue or deliver Stock in connection with any Award or take any
other action under the Plan in a transaction subject to the registration
requirements of the Securities Act of 1933, as amended, or any other federal or
state securities law, any requirement under any listing agreement between the
Company and any national securities exchange or automated quotation system or
any other law, regulation or contractual obligation of the Company until the
Company is satisfied that such laws, regulations, and other obligations of the
Company have been complied with in full. Certificates representing shares of
Stock issued under the Plan will be subject to such stop-transfer orders and
other restrictions as may be applicable under such laws, regulations and other
obligations of the Company, including any requirement that a legend or legends
be placed thereon.
(b) LIMITATIONS ON TRANSFERABILITY. Awards and other rights under the Plan
will not be transferable by a Participant except by will or the laws of descent
and distribution or to a Beneficiary in the event of the Participant's death,
and, if exercisable, shall be exercisable during the lifetime of a Participant
only by such Participant or his guardian or legal representative; PROVIDED,
HOWEVER, that such Awards and other rights (other than ISOs and SARs in tandem
therewith) may be transferred to one or more transferees during the lifetime of
the Participant, and may be exercised by such transferees in accordance with the
terms of such Award consistent with the registration of the offer and sale of
Stock on Form S-8 or Form S-3 or a successor registration form of the Securities
and Exchange Commission, and permitted by the Committee. Awards and other rights
under the Plan may not be pledged, mortgaged, hypothecated or otherwise
encumbered, and shall not be subject to the claims of creditors.
(c) NO RIGHT TO CONTINUED EMPLOYMENT OR SERVICE. Neither the Plan nor any
action taken hereunder shall be construed as giving any employee or other person
the right to be retained in the employ or service of the Company or any of its
subsidiaries, nor shall it interfere in any way with the right of the Company or
any of its subsidiaries to terminate any employee's employment or other person's
service at any time.
(d) TAXES. The Company and any subsidiary is authorized to withhold from
any Award granted or to be settled, any delivery of Stock in connection with an
Award, any other payment relating to an Award or any payroll or other payment to
a Participant amounts of withholding and other taxes due or potentially payable
in connection with any transaction involving an Award, and to take such other
action as the Committee may deem advisable to enable the Company and
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Participants to satisfy obligations for the payment of withholding taxes and
other tax obligations relating to any Award. This authority shall include
authority to withhold or receive Stock or other property and to make cash
payments in respect thereof in satisfaction of a Participant's tax obligations.
(e) CHANGES TO THE PLAN AND AWARDS. The Board may amend, alter, suspend,
discontinue or terminate the Plan or the Committee's authority to grant Awards
under the Plan without the consent of stockholders or Participants, except that
any such action shall be subject to the approval of the Company's stockholders
at or before the next annual meeting of stockholders for which the record date
is after such Board action if such stockholder approval is required by any
federal or state law or regulation or the rules of any stock exchange or
automated quotation system on which the Stock may then be listed or quoted, and
the Board may otherwise, in its discretion, determine to submit other such
changes to the Plan to stockholders for approval; PROVIDED, HOWEVER, that,
without the consent of an affected Participant, no such action may materially
impair the rights of such Participant under any Award theretofore granted to
him. The Committee may waive any conditions or rights under, or amend, alter,
suspend, discontinue, or terminate, any Award theretofore granted and any Award
Agreement relating thereto; PROVIDED, HOWEVER, that, without the consent of an
affected Participant, no such action may materially impair the rights of such
Participant under such Award.
(f) NO RIGHTS TO AWARDS; NO STOCKHOLDER RIGHTS. No Participant or employee
shall have any claim to be granted any Award under the Plan, and there is no
obligation for uniformity of treatment of Participants and employees. No Award
shall confer on any Participant any of the rights of a stockholder of the
Company unless and until Stock is duly issued or transferred and delivered to
the Participant in accordance with the terms of the Award or, in the case of an
Option, the Option is duly exercised.
(g) UNFUNDED STATUS OF AWARDS; CREATION OF TRUSTS. The Plan is intended to
constitute an "unfunded" plan for incentive and deferred compensation. With
respect to any payments not yet made to a Participant pursuant to an Award,
nothing contained in the Plan or any Award shall give any such Participant any
rights that are greater than those of a general creditor of the Company;
PROVIDED, HOWEVER, that the Committee may authorize the creation of trusts or
make other arrangements to meet the Company's obligations under the Plan to
deliver cash, Stock, other Awards, or other property pursuant to any Award,
which trusts or other arrangements shall be consistent with the "unfunded"
status of the Plan unless the Committee otherwise determines with the consent of
each affected Participant.
(h) NONEXCLUSIVITY OF THE PLAN. Neither the adoption of the Plan by the
Board nor its submission to the stockholders of the Company for approval shall
be construed as creating
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any limitations on the power of the Board to adopt such other compensatory
arrangements as it may deem desirable, including, without limitation, the
granting of stock options otherwise than under the Plan, and such arrangements
may be either applicable generally or only in specific cases.
(i) NO FRACTIONAL SHARES. No fractional shares of Stock shall be issued or
delivered pursuant to the Plan or any Award. The Committee shall determine
whether cash, other Awards, or other property shall be issued or paid in lieu of
such fractional shares or whether such fractional shares or any rights thereto
shall be forfeited or otherwise eliminated.
(j) COMPLIANCE WITH CODE SECTION 162(M). It is the intent of the Company
that employee Options, SARs and other Awards designated as Awards subject to
Section 7(f) shall constitute "qualified performance-based compensation" within
the meaning of Code Section 162(m). Accordingly, if any provision of the Plan or
any Award Agreement relating to such an Award does not comply or is inconsistent
with the requirements of Code Section 162(m), such provision shall be construed
or deemed amended to the extent necessary to conform to such requirements, and
no provision shall be deemed to confer upon the Committee or any other person
discretion to increase the amount of compensation otherwise payable in
connection with any such Award upon attainment of the performance objectives.
(k) GOVERNING LAW. The validity, construction and effect of the Plan, any
rules and regulations relating to the Plan and any Award Agreement shall be
determined in accordance with the laws of the State of Delaware, without giving
effect to principles of conflicts of laws, and applicable federal law.
(l) EFFECTIVE DATE; PLAN TERMINATION. The Plan shall become effective as
of the date of its adoption by the Board, subject to stockholder approval prior
to the commencement of the Initial Public Offering, and shall continue in effect
until terminated by the Board.
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EXHIBIT 10.2
METALS USA, INC.
1997 NON-EMPLOYEE DIRECTORS' STOCK PLAN
1. PURPOSE. The purpose of this 1997 Non-Employee Directors' Stock Plan
(the "Plan") of Metals USA, Inc., a Delaware corporation (the "Company"), is to
advance the interests of the Company and its stockholders by providing a means
to attract and retain highly qualified persons to serve as non-employee
directors of the Company and to enable such persons to acquire or increase a
proprietary interest in the Company, thereby promoting a closer identity of
interests between such persons and the Company's stockholders.
2. DEFINITIONS. In addition to terms defined elsewhere in the Plan, the
following are defined terms under the Plan:
(a) "Code" means the Internal Revenue Code of 1986, as amended from time
to time. References to any provision of the Code shall be deemed to include
regulations thereunder and successor provisions and regulations thereto.
(b) "Deferred Share" means a credit to a Participant's deferral account
under Section 7 which represents the right to receive one Share upon settlement
of the deferral account. Deferral accounts, and Deferred Shares credited
thereto, are maintained solely as bookkeeping entries by the Company evidencing
unfunded obligations of the Company.
(c) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
References to any provision of the Exchange Act shall be deemed to include rules
thereunder and successor provisions and rules thereto.
(d) "Fair Market Value" of a Share on a given date mean the last sales
price or, if last sales information is generally unavailable, the average of the
closing bid and asked prices per Share on such date (or, if there was no trading
or quotation in the stock on such date, on the next preceding date on which
there was trading or quotation) as reported in the WALL STREET JOURNAL;
PROVIDED, HOWEVER, that the "Fair Market Value" of a Share subject to Options
granted effective on the date on which the Company commences an Initial Public
Offering shall be the price of the shares so issued and sold, as set forth in
the first final prospectus used in such Initial Public Offering.
(e) "Initial Public Offering" means an initial public offering of shares
in a firm commitment underwriting registered with the Securities and Exchange
Commission in compliance with the provisions of the Securities Act of 1933, as
amended.
<PAGE>
(f) "Option" means the right, granted to a director under Section 6, to
purchase a specified number of Shares at the specified exercise price for a
specified period of time under the Plan. All Options will be non-qualified stock
options.
(g) "Participant" means a person who, as a non-employee director of the
Company, has been granted an Option or Deferred Shares which remain outstanding
or who has elected to be paid fees in the form of Shares or Deferred Shares
under the Plan.
(h) "Rule 16b-3" means Rule 16b-3, as from time to time in effect and
applicable to the Plan and Participants, promulgated by the Securities and
Exchange Commission under Section 16 of the Exchange Act.
(i) "Share" means a share of common stock, $.01 par value, of the Company
and such other securities as may be substituted for such Share or such other
securities pursuant to Section 8.
3. SHARES AVAILABLE UNDER THE PLAN. Subject to adjustment as provided in
Section 8, the total number of Shares reserved and available for issuance under
the Plan is 250,000. Such Shares may be authorized but unissued Shares, treasury
Shares, or Shares acquired in the market for the account of the Participant. For
purposes of the Plan, Shares that may be purchased upon exercise of an Option or
delivered in settlement of Deferred Shares will not be considered to be
available after such Option has been granted or Deferred Share credited, except
for purposes of issuance in connection with such Option or Deferred Share;
PROVIDED, HOWEVER, that, if an Option expires for any reason without having been
exercised in full, the Shares subject to the unexercised portion of such Option
will again be available for issuance under the Plan.
4. ADMINISTRATION OF THE PLAN. The Plan will be administered by the Board
of Directors of the Company; PROVIDED, HOWEVER, that any action by the Board
relating to the Plan will be taken only if, in addition to any other required
vote, such action is approved by the affirmative vote of a majority of the
directors.
5. ELIGIBILITY. Each director of the Company who, on any date on which an
Option is to be granted under Section 6 or on which fees are to be paid which
could be received in the form of Shares or deferred in the form of Deferred
Shares under Section 7, is not an employee of the Company or any subsidiary of
the Company will be eligible, at such date, to be granted an Option under
Section 6 or receive fees in the form of Shares or defer fees in the form of
Deferred Shares under Section 7. No person other than those specified in this
Section 5 will be eligible to participate in the Plan.
6. OPTIONS. An Option to purchase 10,000 Shares, subject to adjustment as
provided in Section 8, will be automatically granted, (i) at the commencement of
the Initial Public
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Offering, to each person who is serving as a director of the Company at that
time or who becomes a director of the Company at that time and who is eligible
under Section 5 at that time, and thereafter (ii) at the effective date of
initial election to the Board of Directors, to each person so elected who is
eligible under Section 5 at that date. In addition, an Option to purchase 5,000
Shares, subject to adjustment as provided in Section 8, will be automatically
granted, at the close of business of each annual meeting of stockholders of the
Company, to each member of the Board of Directors who is eligible under Section
5 at the close of business of such annual meeting. Notwithstanding the
foregoing, any person who was automatically granted an Option to purchase 10,000
Shares at the effective date of initial election to the Board of Directors shall
not be automatically granted an Option to purchase 5,000 shares at the first
annual meeting of stockholders following such initial election if such annual
meeting takes place within three months of the effective date of such person's
initial election to the Board of Directors.
(a) EXERCISE PRICE. he exercise price per Share purchasable upon exercise
of an Option will be equal to 100% of the Fair Market Value of a Share on the
date of grant of the Option.
(b) OPTION EXPIRATION. A Participant's Option will expire at the earlier
of (i) 10 years after the date of grant or (ii) one year after the date the
Participant ceases to serve as a director of the Company for any reason.
(c) EXERCISABILITY. Each Option may be exercised commencing immediately
upon its grant.
(d) METHOD OF EXERCISE. A Participant may exercise an Option, in whole or
in part, at such time as it is exercisable and prior to its expiration, by
giving written notice of exercise to the Secretary of the Company, specifying
the Option to be exercised and the number of Shares to be purchased, and paying
in full the exercise price in cash (including by check) or by surrender of
Shares already owned by the Participant having a Fair Market Value at the time
of exercise equal to the exercise price, or by a combination of cash and Shares.
7. RECEIPT OF SHARES OR DEFERRED SHARES IN LIEU OF FEES. Each director of
the Company may elect to be paid fees, in his or her capacity as a director
(including annual retainer fees for service on the Board, fees for service on a
Board committee, fees for service as chairman of a Board committee, and any
other fees paid to directors) in the form of Shares or Deferred Shares in lieu
of cash payment of such fees, if such director is eligible to do so under
Section 5 at the date any such fee is otherwise payable. If so elected, payment
of fees in the form of Shares or Deferred Shares shall be made in accordance
with this Section 7.
(a) ELECTIONS. Each director who elects to be paid fees for a given
calendar year in the form of Shares or to defer such payment of fees in the form
of Deferred Shares for such
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year must file an irrevocable written election with the Secretary of the Company
no later than December 31 of the year preceding such calendar year; PROVIDED,
HOWEVER, that any newly elected or appointed director may file an election for
any year not later than 30 days after the date such person first became a
director, and a director may file an election for the year in which the Plan
became effective not later than 30 days after the date of effectiveness. An
election by a director shall be deemed to be continuing and therefore applicable
to subsequent Plan years unless the director revokes or changes such election by
filing a new election form by the due date for such form specified in this
Section 7(a). The election must specify the following:
(i) A percentage of fees to be received in the form of Shares or
deferred in the form of Deferred Shares under the Plan; and
(ii) In the case of a deferral, the period or periods during which
settlement of Deferred Shares will be deferred (subject to such
limitations as may be specified by counsel to the Company).
Certain elections may not result in receipt of Shares or deferral of fees
as Deferred Shares.
(b) PAYMENT OF FEES IN THE FORM OF SHARES. At any date on which fees are
payable to a Participant who has elected to receive such fees in the form of
Shares, the Company will issue to such Participant, or to a designated third
party for the account of such Participant, a number of Shares having an
aggregate Fair Market Value at that date equal to the fees, or as nearly as
possible equal to the fees (but in no event greater than the fees), that would
have been payable at such date but for the Participant's election to receive
Shares in lieu thereof. If the Shares are to be credited to an account
maintained by the Participant and to the extent reasonably practicable without
requiring the actual issuance of fractional Shares, the Company shall cause
fractional Shares to be credited to the Participant's account. If fractional
Shares are not so credited, any part of the Participant's fees not paid in the
form of whole Shares will be payable in cash to the Participant (either paid
separately or included in a subsequent payment of fees, including a subsequent
payment of fees subject to an election under this Section 7).
(c) DEFERRAL OF FEES IN THE FORM OF DEFERRED SHARES. The
Company will establish a deferral account for each Participant who elects to
defer fees in the form of Deferred Shares under this Section 7. At any date on
which fees are payable to a Participant who has elected to defer fees in the
form of Deferred Shares, the Company will credit such Participant's deferral
account with a number of Deferred Shares equal to the number of Shares having an
aggregate Fair Market Value at that date equal to the fees that otherwise would
have been payable at such date but for the Participant's election to defer
receipt of such fees in the form of Deferred Shares. The amount of Deferred
Shares so credited shall include fractional Shares calculated to at least three
decimal places.
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<PAGE>
(d) CREDITING OF DIVIDEND EQUIVALENTS. Whenever dividends are paid or
distributions made with respect to Shares, a Participant to whom Deferred Shares
are then credited in a deferral account shall be entitled to receive, as
dividend equivalents, an amount equal in value to the amount of the dividend
paid or property distributed on a single Share multiplied by the number of
Deferred Shares (including any fractional Share) credited to his or her deferral
account as of the record date for such dividend or distribution. Such dividend
equivalents shall be credited to the Participant's deferral account as a number
of Deferred Shares determined by dividing the aggregate value of such dividend
equivalents by the Fair Market Value of a Share at the payment date of the
dividend or distribution.
(e) SETTLEMENT OF DEFERRED SHARES. The Company will settle the
Participant's deferral account by delivering to the Participant (or his or her
beneficiary) a number of Shares equal to the number of whole Deferred Shares
then credited to his or her deferral account (or a specified portion in the
event of any partial settlement), together with cash in lieu of any fractional
Share remaining at a time that less than one whole Deferred Share is credited to
such deferral account. Such settlement shall be made within 30 days of the
Participant's resignation from Board of Directors of the Company.
(f) DELAYED EFFECTIVENESS OF ELECTIONS IN ORDER TO COMPLY WITH RULE 16B-3.
Other provisions of this Section 7 notwithstanding, if any payment of fees in
the form of Shares or deferral of fees in the form of Deferred Shares would
occur (i) less than six months after the Participant filed the election which
would result in such payment or deferral, (ii) at a time when the Company's
employee benefit plans are being operated in conformity with Rule 16b-3 as in
effect on and after May 1, 1991, and (iii) at a time that Rule 16b-3 imposes a
requirement that participant-directed transactions occur more than six months
after the participant's making of an irrevocable election in order for such
transactions to be exempt from Section 16(b) liability, then such fees instead
shall be paid in cash on a non-deferred basis.
(g) NONFORFEITABILITY. The interest of each Participant in any fees paid
in the form of Shares or Deferred Shares (and any deferral account relating
thereto) at all times will be nonforfeitable.
8. ADJUSTMENT PROVISIONS.
(a) CORPORATE TRANSACTIONS AND EVENTS. In the event any dividend or other
distribution (whether in the form of cash, Shares or other property),
recapitalization, forward or reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase, exchange of Shares or other
securities of the Company, extraordinary dividend (whether in the form of cash,
Shares, or other property), liquidation, dissolution, or other similar corporate
transaction or event affects the Shares such that an adjustment is appropriate
in order to prevent dilution or enlargement
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<PAGE>
of each Participant's rights under the Plan, then an adjustment shall be made,
in a manner that is proportionate to the change to the Shares and otherwise
equitable, in (i) the number and kind of Shares remaining reserved and available
for issuance under Section 3, (ii) the number and kind of Shares to be subject
to each automatic grant of an Option under Section 6, (iii) the number and kind
of Shares issuable upon exercise of outstanding Options, and/or the exercise
price per Share thereof (provided that no fractional Shares will be issued upon
exercise of any Option), (iv) the kind of Shares to be issued in lieu of fees
under Section 7, and (v) the number and kind of Shares to be issued upon
settlement of Deferred Shares under Section 7. In addition, the Board of
Directors is authorized to make such adjustments in recognition of unusual or
non-recurring events (including, without limitation, events described in the
preceding sentence) affecting the Company or any subsidiary or the financial
statements of the Company or any subsidiary, or in response to changes in
applicable laws, regulations or accounting principles. The foregoing
notwithstanding, no adjustment may be made hereunder except as will be necessary
to maintain the proportionate interest of the Participant under the Plan and to
preserve, without exceeding, the value of outstanding Options and potential
grants of Options and the value of outstanding Deferred Shares.
(b) INSUFFICIENT NUMBER OF SHARES. If at any date an insufficient number
of Shares are available under the Plan for the automatic grant of Options or the
receipt of fees in the form of Shares or deferral of fees in the form of
Deferred Shares at that date, Options will first be automatically granted
proportionately to each eligible director, to the extent Shares are then
available (provided that no fractional Shares will be issued upon exercise of
any Option) and otherwise as provided under Section 6, and then, if any Shares
remain available, fees shall be paid in the form of Shares or deferred in the
form of Deferred Shares proportionately among directors then eligible to
participate to the extent Shares are then available and otherwise as provided
under Section 7.
9. CHANGES TO THE PLAN. The Board of Directors may amend, alter, suspend,
discontinue, or terminate the Plan or authority to grant Options or pay fees in
the form of Shares or Deferred Shares under the Plan without the consent of
stockholders or Participants, except that any amendment or alteration will be
subject to the approval of the Company's stockholders at or before the next
annual meeting of stockholders for which the record date is after the date of
such Board action if such stockholder approval is required by any federal or
state law or regulation or the rules of any stock exchange or automated
quotation system as then in effect, and the Board may otherwise determine to
submit other such amendments or alterations to stockholders for approval;
PROVIDED, HOWEVER, that, without the consent of an affected Participant, no such
action may materially impair the rights of such Participant with respect to any
previously granted Option or any previous payment of fees in the form of Shares
or Deferred Shares.
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10. GENERAL PROVISIONS.
(a) AGREEMENTS. Options, Deferred Shares, and any other right or
obligation under the Plan may be evidenced by agreements or other documents
executed by the Company and the Participant incorporating the terms and
conditions set forth in the Plan, together with such other terms and conditions
not inconsistent with the Plan, as the Board of Directors may from time to time
approve.
(b) COMPLIANCE WITH LAWS AND OBLIGATIONS. The Company will not be
obligated to issue or deliver Shares in connection with any Option, in payment
of any directors' fees, or in settlement of Deferred Shares in a transaction
subject to the registration requirements of the Securities Act of 1933, as
amended, or any other federal or state securities law, any requirement under any
listing agreement between the Company and any stock exchange or automated
quotation system, or any other law, regulation, or contractual obligation of the
Company, until the Company is satisfied that such laws, regulations, and other
obligations of the Company have been complied with in full. Certificates
representing Shares issued under the Plan will be subject to such stop-transfer
orders and other restrictions as may be applicable under such laws, regulations,
and other obligations of the Company, including any requirement that a legend or
legends be placed thereon.
(c) LIMITATIONS ON TRANSFERABILITY. Options, Deferred Shares, and any
other right under the Plan will not be transferable by a Participant except by
will or the laws of descent and distribution (or to a designated beneficiary in
the event of a Participant's death), and will be exercisable during the lifetime
of the Participant only by such Participant or his or her guardian or legal
representative; PROVIDED, HOWEVER, that Options and Deferred Shares (and rights
relating thereto) may be transferred to one or more trusts or other
beneficiaries during the lifetime of the Participant for purposes of the
Participant's estate planning or at the Participant's death, and such
transferees may exercise rights thereunder in accordance with the terms thereof,
but only if and to the extent then permitted under Rule 16b-3 and consistent
with the registration of the offer and sale of Shares related thereto on Form
S-8, Form S-3, or such other registration form of the Securities and Exchange
Commission as may then be filed and effective with respect to the Plan. The
Company may rely upon the beneficiary designation last filed in accordance with
this Section 10(c). Options, Deferred Shares, and other rights under the Plan
may not be pledged, mortgaged, hypothecated, or otherwise encumbered, and shall
not be subject to the claims of creditors of any Participant.
(d) NO RIGHT TO CONTINUE AS A DIRECTOR. Nothing contained in the Plan or
any agreement hereunder will confer upon any Participant any right to continue
to serve as a director of the Company.
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(e) NO STOCKHOLDER RIGHTS CONFERRED. Nothing contained in the Plan or any
agreement hereunder will confer upon any Participant (or any person or entity
claiming rights by or through a Participant) any rights of a stockholder of the
Company unless and until Shares are in fact issued to such Participant (or
person) or, in the case an Option, such Option is validly exercised in
accordance with Section 6.
(f) NONEXCLUSIVITY OF THE PLAN. Neither the adoption of the Plan by the
Board of Directors nor its submission to the stockholders of the Company for
approval shall be construed as creating any limitations on the power of the
Board to adopt such other compensatory arrangements for directors as it may deem
desirable.
(g) GOVERNING LAW. The validity, construction, and effect of the Plan and
any agreement hereunder will be determined in accordance with the laws of the
State of Delaware, without giving effect to principles of conflicts of laws, and
applicable federal law.
11. STOCKHOLDER APPROVAL, EFFECTIVE DATE, AND PLAN TERMINATION. The Plan
will be effective as of the date of its adoption by the Board, subject to
stockholder approval prior to the commencement of the Initial Public Offering,
and, unless earlier terminated by action of the Board of Directors, shall
terminate at such time as no Shares remain available for issuance under the Plan
and the Company and Participants have no further rights or obligations under the
Plan.
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EXHIBIT 10.3
AGREEMENT AND PLAN OF ORGANIZATION
dated as of the 30th day of April, 1997
by and among
METALS USA, INC.
AFFILIATED METALS ACQUISITION CORP.
(a subsidiary of Metals USA, Inc.)
AFFILIATED METALS COMPANY
and
the STOCKHOLDERS named herein
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TABLE OF CONTENTS
Page
1. THE MERGER.............................................................6
1.1 Delivery and Filing of Articles of Merger........................6
1.2 Effective Time of the Merger.....................................6
1.3 Certificate of Incorporation, By-laws and
Board of Directors of Surviving Corporation......................6
1.4 Certain Information With Respect to the
Capital Stock of the COMPANY, METALS and NEWCO...................7
1.5 Effect of Merger.................................................7
2. CONVERSION OF STOCK....................................................9
2.1 Manner of Conversion.............................................9
3. DELIVERY OF MERGER CONSIDERATION......................................10
4. CLOSING...............................................................10
5. REPRESENTATIONS AND WARRANTIES OF COMPANY
AND STOCKHOLDERS......................................................12
(A) Representations and Warranties of COMPANY
and STOCKHOLDERS..........................................12
5.1 Due Organization................................................12
5.2 Authorization...................................................13
5.3 Capital Stock of the COMPANY....................................13
5.4 Transactions in Capital Stock, Organization Accounting..........13
5.5 No Bonus Shares.................................................14
5.6 Subsidiaries....................................................14
5.7 Predecessor Status; etc.........................................14
5.8 Spin-off by the COMPANY.........................................15
5.9 Financial Statements............................................15
5.10 Liabilities and Obligations.....................................15
5.11 Accounts and Notes Receivable...................................16
5.12 Permits and Intangibles.........................................16
5.13 Environmental Matters...........................................17
5.14 Personal Property...............................................18
5.15 Significant Customers; Material Contracts and Commitments.......19
5.16 Real Property...................................................20
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5.17 Insurance.......................................................20
5.18 Compensation; Employment Agreements; Organized Labor Matters....21
5.19 Employee Plans..................................................22
5.20 Compliance with ERISA...........................................23
5.21 Conformity with Law; Litigation.................................24
5.22 Taxes...........................................................25
5.23 No Violations; Consents, Etc....................................25
5.24 Government Contracts............................................26
5.25 Absence of Changes..............................................26
5.26 Deposit Accounts; Powers of Attorney............................28
5.27 Validity of Obligations.........................................28
5.28 Relations with Governments......................................28
5.29 Disclosure......................................................29
5.30 Prohibited Activities...........................................30
(B) Representations and Warranties of STOCKHOLDERS......30
5.31 Authority; Ownership............................................30
5.32 Preemptive Rights...............................................30
5.33 No Intention to Dispose of METALS Stock.........................31
6. REPRESENTATIONS OF METALS and NEWCO...................................31
6.1 Due Organization................................................31
6.2 Authorization...................................................32
6.3 Capital Stock of METALS and NEWCO...............................32
6.4 Transactions in Capital Stock, Organization Accounting..........32
6.5 Subsidiaries....................................................33
6.6 Financial Statements............................................33
6.7 Liabilities and Obligations.....................................33
6.8 Conformity with Law; Litigation.................................33
6.9 No Violations...................................................34
6.10 Validity of Obligations.........................................35
6.11 METALS Stock....................................................35
6.12 No Side Agreements..............................................36
6.13 Business; Real Property; Material Agreements....................36
6.14 Taxes...........................................................36
6.15 Absence of Changes..............................................37
6.16 Validity of Obligations.........................................38
6.17 Disclosure......................................................38
6.18 Private Offering................................................39
7. COVENANTS PRIOR TO CLOSING............................................39
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7.1 Access and Cooperation; Due Diligence...........................39
7.2 Conduct of Business Pending Closing.............................40
7.3 Prohibited Activities...........................................41
7.4 No Shop.........................................................43
7.5 Notice to Bargaining Agents.....................................43
7.6 Agreements......................................................43
7.7 Notification of Certain Matters.................................44
7.8 Amendment of Schedules..........................................44
7.9 Cooperation in Preparation of Registration Statement............46
7.10 Final Financial Statements......................................46
7.11 Further Assurances..............................................47
7.12 Authorized Capital..............................................47
7.13 Compliance with the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 (the "Hart-Scott Act").......47
7.14 Environmental Indemnity.........................................48
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF
STOCKHOLDERS AND COMPANY..............................................48
8.1 Representations and Warranties; Performance of Obligations......48
8.2 Satisfaction....................................................49
8.3 No Litigation...................................................49
8.4 Opinion of Counsel..............................................49
8.5 Registration Statement..........................................49
8.6 Consents and Approvals..........................................50
8.7 Good Standing Certificates......................................50
8.8 No Material Adverse Change......................................50
8.9 Closing of IPO..................................................50
8.10 Secretary's Certificate.........................................50
8.11 Employment Agreements...........................................51
8.12 Tax Matters.....................................................51
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF METALS AND NEWCO...............51
9.1 Representations and Warranties; Performance of Obligations......51
9.2 No Litigation...................................................52
9.3 Secretary's Certificate.........................................52
9.4 No Material Adverse Effect......................................52
9.5 STOCKHOLDERS' Release...........................................52
9.6 Satisfaction....................................................53
9.7 Termination of Related Party Agreements.........................53
9.8 Opinion of Counsel..............................................53
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9.9 Consents and Approvals..........................................53
9.10 Good Standing Certificates......................................53
9.11 Registration Statement..........................................54
9.12 Employment Agreements...........................................54
9.13 Closing of IPO..................................................54
9.14 FIRPTA Certificate..............................................54
10. COVENANTS OF METALS AND THE STOCKHOLDERS AFTER CLOSING................54
10.1 Release From Guarantees; Repayment of Certain Obligations.......54
10.2 Preservation of Tax and Accounting Treatment....................55
10.3 Preparation and Filing of Tax Returns...........................55
10.4 Directors.......................................................56
10.5 Preservation of Employee Benefit Plans..........................56
11. INDEMNIFICATION.......................................................57
11.1 General Indemnification by the STOCKHOLDERS.....................57
11.2 Indemnification by METALS.......................................59
11.3 Third Person Claims.............................................59
11.4 Exclusive Remedy................................................61
11.5 Limitations on Indemnification..................................62
12. TERMINATION OF AGREEMENT..............................................62
12.1 Termination.....................................................62
12.2 Liabilities in Event of Termination.............................63
13. NONCOMPETITION........................................................64
13.1 Prohibited Activities...........................................64
13.2 Damages.........................................................65
13.3 Reasonable Restraint............................................65
13.4 Severability; Reformation.......................................65
13.5 Independent Covenant............................................66
13.6 Materiality.....................................................66
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION..............................66
14.1 STOCKHOLDERS....................................................66
14.2 METALS AND NEWCO................................................67
14.3 Damages.........................................................68
14.4 Survival........................................................68
15. TRANSFER RESTRICTIONS.................................................68
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15.1 Transfer Restrictions...........................................68
16. FEDERAL SECURITIES ACT REPRESENTATIONS................................69
16.1 Compliance with Law.............................................69
16.2 Economic Risk; Sophistication...................................70
17. REGISTRATION RIGHTS...................................................70
17.1 Piggyback Registration Rights...................................70
17.2 Demand Registration Rights......................................71
17.3 Registration Procedures.........................................73
17.4 Indemnification.................................................74
17.5 Underwriting Agreement..........................................75
17.6 Rule 144 Reporting..............................................76
18. GENERAL...............................................................76
18.1 Cooperation.....................................................76
18.2 Successors and Assigns..........................................77
18.3 Entire Agreement................................................77
18.4 Counterparts....................................................77
18.5 Brokers and Agents..............................................78
18.6 Expenses........................................................78
18.7 Notices.........................................................78
18.8 Governing Law...................................................80
18.9 Survival of Representations and Warranties......................80
18.10 Exercise of Rights and Remedies.................................80
18.11 Time............................................................81
18.12 Reformation and Severability....................................81
18.13 Remedies Cumulative.............................................81
18.14 Captions........................................................81
18.15 Amendments and Waivers..........................................81
18.16 Warrantholder...................................................81
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ANNEXES
Annex I - Consideration to Be Paid to Stockholders
Annex II - Stockholders and Stock Ownership of the Company
Annex III - Stockholders and Stock Ownership of Metals
Annex IV - Certificate of Incorporation and By-Laws of Metals and Newco
Annex V - Form of Opinion of Counsel to Metals
Annex VI - Form of Opinion of Counsel to Company and Stockholders
Annex VII - Form of Key Employee Employment Agreement
Annex VIII - Form of Indemnification Agreement
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SCHEDULES
5.1 Due Organization
5.2 Authorization
5.3 Capital Stock of the COMPANY
5.4 Transactions in Capital Stock, Organization Accounting
5.5 No Bonus Shares
5.6 Subsidiaries
5.7 Predecessor Status; etc
5.8 Spin-off by the COMPANY
5.9 Financial Statements
5.10 Liabilities and Obligations
5.11 Accounts and Notes Receivable
5.12 Permits and Intangibles
5.13 Environmental Matters
5.14 Personal Property
5.15 Significant Customers; Material Contracts and Commitments
5.16 Real Property
5.17 Insurance
5.18 Compensation; Employment Agreements; Organized Labor Matters
5.19 Employee Plans
5.20 Compliance with ERISA
5.21 Conformity with Law; Litigation
5.22 Taxes
5.23 No Violations, Consents, etc.
5.24 Government Contracts
5.25 Absence of Changes
5.26 Deposit Accounts; Powers of Attorney
5.28 Relations with Governments
5.30 Prohibited Activities
5.31 Authority; Ownership
6.4 Transactions in Capital Stock, Organization Accounting
6.7 Liabilities and Obligations
6.8 Conformity with Law; Litigation
6.9 No Violations
6.13 Business; Real Property; Material Agreements
6.14 Taxes
7.2 Conduct of Business Pending Closing
7.3 Prohibited Activities
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7.5 Notice to Bargaining Agents
9.12 Employment Agreements
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<PAGE>
AGREEMENT AND PLAN OF ORGANIZATION
THIS AGREEMENT AND PLAN OF ORGANIZATION (the "Agreement") is made as of
the 30th day of April, 1997, by and among METALS USA, Inc., a Delaware
corporation ("METALS"), AFFILIATED METALS ACQUISITION CORP., a Delaware
corporation ("NEWCO"), AFFILIATED METALS COMPANY, a Missouri corporation (the
"COMPANY"), and (i) PATRICK A. NOTESTINE LIVING REVOCABLE TRUST, (ii) GREGORY E.
POTH, and (iii) WILLIAM W. HUDSON, as Trustee under Trust Agreement dated June
17, 1994 (the "STOCKHOLDERS"). The STOCKHOLDERS are all the stockholders of the
COMPANY.
WHEREAS, NEWCO is a corporation duly organized and existing under
the laws of the State of Delaware, having been incorporated on April 23,
1997, solely for the purpose of completing the transactions set forth
herein, and is a wholly-owned subsidiary of METALS, a corporation
organized and existing under the laws of the State of Delaware;
WHEREAS, the respective Boards of Directors of NEWCO and the COMPANY
(which together are hereinafter collectively referred to as "Constituent
Corporations") deem it advisable and in the best interests of the
Constituent Corporations and their respective stockholders that NEWCO
merge with and into the COMPANY pursuant to this Agreement and the
applicable provisions of the laws of the States of Delaware and the State
of Incorporation;
WHEREAS, METALS is entering into other separate agreements
substantially similar to this Agreement (the "Other Agreements"), each of
which is entitled "Agreement and Plan of Organization," with each of the
Other Founding Companies (as defined herein) and their respective
stockholders in order to acquire additional metals processing, metals
fabricating and specialty metals companies;
WHEREAS, this Agreement and the Other Agreements constitute the
"METALS Plan of Organization;"
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WHEREAS, the STOCKHOLDERS and the Boards of Directors and the
stockholders of METALS, each of the Other Founding Companies and each of
the subsidiaries of METALS that are parties to the Other Agreements have
approved and adopted the METALS Plan of Organization as an integrated plan
pursuant to which the STOCKHOLDERS and the stockholders of each of the
other Founding Companies will transfer the capital stock of each of the
Founding Companies to METALS and the stockholders of each of the other
Founding Companies will acquire the stock of METALS (but not cash or other
property) as a tax-free transfer of property under Section 351 of the
Internal Revenue Code of 1986, as amended;
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the Board of Directors of the
COMPANY has approved this Agreement as part of the METALS Plan of
Organization in order to transfer the capital stock of the COMPANY to
METALS;
WHEREAS, unless the context otherwise requires, capitalized terms
used in this Agreement or in any schedule attached hereto and not
otherwise defined shall have the following meanings for all purposes of
this Agreement: "1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Acquired Party" means the COMPANY, any subsidiary and any member of a
Relevant Group.
"Acquisition Companies" shall mean NEWCO and each of the other Delaware
companies wholly-owned by METALS prior to the Funding and Consummation Date.
"Affiliates" has the meaning set forth in Section 5.8.
"Articles of Merger" shall mean those Articles or Certificates of Merger
with respect to the Merger in such forms as may be required by the laws of the
State of Delaware and the State of Incorporation.
"Balance Sheet Date" shall mean February 28, 1997.
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"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
"COMPANY" has the meaning set forth in the first paragraph of this
Agreement.
"COMPANY Stock" has the meaning set forth in Section 2.1.
"Constituent Corporations" has the meaning set forth in the second recital
of this Agreement.
"Draft Registration Statement" means the draft dated April 25, 1997 of the
Registration Statement, and any corrections thereto and supplemental information
delivered by METALS to the COMPANY for delivery to the STOCKHOLDERS prior to the
time this Agreement is delivered to METALS.
"Effective Time of the Merger" shall mean the time as of which the Merger
becomes effective, which shall, in any case, occur on the Funding and
Consummation Date.
"Environmental Laws" has the meaning set forth in Section 5.13.
"Expiration Date" has the meaning set forth in Section 5(A).
"Founding Companies" means:
Affiliated Metals Company, a Missouri corporation;
Interstate Steel Supply Company, a Pennsylvania corporation,
Interstate Steel Supply Company of Pittsburgh, a Pennsylvania
corporation, Interstate Steel Supply Company of Maryland, a
Maryland corporation, and Interstate Steel Processing Company,
a Pennsylvania corporation;
Queensboro Steel Corporation, a North Carolina corporation;
Southern Alloy of America, Inc., a North Carolina corporation;
Steel Service Systems, Inc., a Wisconsin corporation;
Texas Aluminum Industries, Inc., a Texas corporation, Cornerstone
Metals Corporation, a Nevada corporation, Cornerstone Building
Products, Inc., a Nevada corporation, Cornerstone Aluminum
Company, Inc., a Nevada corporation, and Cornerstone Patio
Concepts, L.L.C., a Nevada limited liability company;
Uni-Steel Incorporated, an Oklahoma corporation; and
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Williams Steel & Supply Co., Inc., a Wisconsin corporation.
"Funding and Consummation Date" has the meaning set forth in Section 4.
"IPO" means the initial public offering of METALS Stock pursuant to the
Registration Statement as referenced in Section 9.13.
"Material Adverse Effect" has the meaning set forth in Section 5.1.
"Material Documents" has the meaning set forth in Section 5.23.
"Merger" means the merger of NEWCO with and into the COMPANY pursuant to
this Agreement and the applicable provisions of the laws of the State of
Delaware and the laws of the State of Incorporation.
"METALS" has the meaning set forth in the first paragraph of this
Agreement.
"METALS Charter Documents" has the meaning set forth in Section 6.1.
"METALS Stock" means the common stock, par value $.01 per share, of
METALS.
"NEWCO" has the meaning set forth in the first paragraph of this
Agreement.
"NEWCO STOCK" means the common stock, par value $.01 per share, of NEWCO.
"Other Founding Companies" means all of the Founding Companies other than
the Company.
"Plans" has the meaning set forth in Section 5.19.
"Pricing" means the date of determination by METALS and the Underwriters
of the public offering price of the shares of METALS Stock in the IPO; the
parties hereto contemplate that the Pricing shall take place on the Closing
Date.
"Qualified Plans" has the meaning set forth in Section 5.20.
"Registration Statement" means that certain registration statement on Form
S-1 to be filed with the SEC covering the shares of METALS Stock to be issued in
the IPO and all amendments thereto.
"Relevant Group" means the COMPANY and any affiliated, combined,
consolidated, unitary or similar group of which the COMPANY is or was a member.
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"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
"Schedule" means each Schedule attached hereto, which shall reference the
relevant sections of this Agreement, on which parties hereto disclose
information as part of their respective representations, warranties and
covenants.
"SEC" means the United States Securities and Exchange Commission.
"State of Incorporation" means the State of Missouri.
"STOCKHOLDERS" has the meaning set forth in the first paragraph of this
Agreement.
"Surviving Corporation" shall mean the COMPANY as the surviving party in
the Merger.
"Tax" or "Taxes" means all federal, state, local or foreign net or gross
income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, withholding, employment, excise, property, deed, stamp, alternative
or add on minimum, or other taxes, assessments, duties, fees, levies or other
governmental charges, whether disputed or not, together with any interest,
penalties, additions to tax or additional amounts with respect thereto.
"Underwriters" means the prospective underwriters identified in the
Registration Statement.
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:
1. THE MERGER
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER. The Constituent
Corporations will cause the Articles of Merger to be signed, verified and placed
in escrow under the control of METALS to be held for filing with the Secretary
of State of the State of Delaware and the Secretary of State of the State of
Incorporation on the Funding and Consummation Date.
1.2 EFFECTIVE TIME OF THE MERGER. At the Effective Time of the Merger,
NEWCO shall be merged with and into the COMPANY in accordance with the Articles
of Merger, the separate existence of NEWCO shall cease, the COMPANY shall be the
surviving party in the Merger and the
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COMPANY is sometimes hereinafter referred to as the Surviving Corporation. The
Merger will be effected in a single transaction.
1.3 CERTIFICATE OF INCORPORATION, BY-LAWS AND BOARD OF DIRECTORS OF
SURVIVING CORPORATION. At the Effective Time of the Merger:
(i) the Certificate of Incorporation of the COMPANY then in effect
shall be the Certificate of Incorporation of the Surviving Corporation
until changed as provided by law;
(ii) the By-laws of NEWCO then in effect shall become the By-laws of
the Surviving Corporation; and subsequent to the Effective Time of the
Merger, such By-laws shall be the By-laws of the Surviving Corporation
until they shall thereafter be duly amended (and such By-laws shall be
amended, if necessary, to comply with applicable state law);
(iii) the Board of Directors of the Surviving Corporation shall
consist of the persons who are on the Board of Directors of the COMPANY
immediately prior to the Effective Time of the Merger, provided that J.
Michael Kirksey shall be elected as a director of the Surviving
Corporation effective as of the Effective Time of the Merger; the Board of
Directors of the Surviving Corporation shall hold office subject to the
provisions of the laws of the State of Incorporation 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 of the Merger shall continue as the officers of the Surviving
Corporation in the same capacity or capacities, and effective upon the
Effective Time of the Merger J. Michael Kirksey shall be appointed as a
vice president of the Surviving Corporation and Terry L. Freeman 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 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE COMPANY,
METALS AND NEWCO. The respective designations and numbers of outstanding shares
and
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voting rights of each class of outstanding capital stock of the COMPANY, METALS
and NEWCO 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 5.3 hereto;
(ii) immediately prior to the Closing Date and the Funding and
Consummation Date, the authorized capital stock of METALS will consist of
50,000,000 shares of METALS Stock, of which the number of issued and
outstanding shares will be set forth in the Registration Statement, and
5,000,000 shares of preferred stock, $.01 par value, of which no shares
will be issued and outstanding, and a number of shares of Restricted
Voting Common Stock, $.01 par value (the "Restricted Common Stock"), to be
determined by METALS in good faith, all of which will be issued and
outstanding except as otherwise set forth in the Registration Statement;
and
(iii) as of the date of this Agreement, the authorized capital stock
of NEWCO consists of 1,000 shares of NEWCO Stock, of which one hundred
(100) shares are issued and outstanding.
1.5 EFFECT OF MERGER. At the Effective Time of the Merger, the effect of
the Merger shall be as provided in the applicable provisions of the General
Corporation Law of the State of Delaware (the "Delaware GCL") and the law of the
State of Incorporation. Except as herein specifically set forth, the identity,
existence, purposes, powers, objects, franchises, privileges, rights and
immunities of the COMPANY shall continue unaffected and unimpaired by the Merger
and the corporate franchises, existence and rights of NEWCO shall be merged with
and into the COMPANY, and the COMPANY, as the Surviving Corporation, shall be
fully vested therewith. At the Effective Time of the Merger, the separate
existence of NEWCO 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
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or belonging to or due to the COMPANY and NEWCO shall 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 interest therein, whether by deed or otherwise, under the laws of the
State of Incorporation 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.
2. CONVERSION OF STOCK
2.1 MANNER OF CONVERSION. The manner of converting the shares of (i)
outstanding capital stock of the COMPANY ("COMPANY Stock") and (ii) NEWCO Stock,
issued and outstanding immediately prior to the Effective Time of the Merger,
respectively, into shares of (x) METALS Stock and cash and (y) common stock of
the Surviving Corporation, respectively, shall be as follows:
As of the Effective Time of the Merger:
(i) all of the shares of COMPANY Stock issued and outstanding
immediately prior to the Effective Time of the Merger, by virtue of the
Merger and without any action on the part of the holder thereof,
automatically shall be deemed to represent (1) the right to receive the
number of shares of METALS Stock set forth on Annex I hereto with respect
to
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such holder and (2) the right to receive the amount of cash set forth on
Annex I hereto with respect to such holder;
(ii) all shares of COMPANY Stock 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 of the Merger, shall, by virtue of the Merger
and without any action on the part of METALS, automatically be converted
into one fully paid and non-assessable share of common stock of the
Surviving Corporation which shall constitute all of the issued and
outstanding shares of common stock of the Surviving Corporation
immediately after the Effective Time of the Merger.
All METALS Stock received by the STOCKHOLDERS pursuant to this Agreement
shall, except for restrictions on resale or transfer described in Sections 15
and 16 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 GCL. All METALS Stock received
by the STOCKHOLDERS shall be issued and delivered to the STOCKHOLDERS free and
clear of any liens, claims or encumbrances of any kind or nature. All voting
rights of such METALS Stock received by the STOCKHOLDERS shall be fully
exercisable by the STOCKHOLDERS and the STOCKHOLDERS shall not be deprived nor
restricted in exercising those rights. At the Effective Time of the Merger,
METALS shall have no class of capital stock issued and outstanding other than
the METALS Stock and the Restricted Voting Common Stock.
3. DELIVERY OF MERGER CONSIDERATION
3.1 On the Funding and Consummation Date the STOCKHOLDERS, who are the
holders of all outstanding certificates representing shares of COMPANY Stock,
shall, upon surrender of such
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certificates, receive the respective number of shares of METALS Stock and the
amount of cash described on Annex I hereto, said cash to be payable by certified
check.
3.2 The STOCKHOLDERS shall deliver to METALS at the Closing the
certificates representing COMPANY Stock, duly endorsed in blank by the
STOCKHOLDERS, or accompanied by blank stock powers, and with all necessary
transfer tax and other revenue stamps, acquired at the STOCKHOLDERS' expense,
affixed and canceled. The STOCKHOLDERS agree 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.
4. CLOSING
At or prior to the Pricing, the parties shall take all actions necessary
to prepare to (i) effect the Merger (including the execution of the Articles of
Merger which shall be placed in escrow under the control of METALS for filing
with the appropriate authorities on the Funding and Consummation Date) and (ii)
effect the conversion and delivery of shares referred to in Section 3 hereof;
provided, that such actions shall not include the actual completion of the
Merger or the conversion and delivery of the shares and certified check(s)
referred to in Section 3 hereof, each of which actions shall only be taken upon
the Funding and Consummation Date as herein provided. The escrow agreement
relating to the Articles of Merger shall provide that in the event that there is
no Funding and Consummation Date and this Agreement automatically terminates as
provided in this Section 4 the Articles of Merger shall not be filed and shall
be returned to the STOCKHOLDERS. The taking of the actions described in clauses
(i) and (ii) above (the "Closing") shall take place on the closing date (the
"Closing Date") at the offices of Bracewell & Patterson, L.L.P., South Tower
Pennzoil Place, 711 Louisiana, Suite 2900, Houston, Texas 77002. On the Funding
and Consummation Date (x) the Articles of Merger shall be filed with the
appropriate state authorities so that they shall be, as early as practicable on
the Funding and Consummation Date, effective and the Merger shall thereby be
effected, (y) all transactions contemplated by this
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Agreement, including the conversion and delivery of shares, the delivery of a
certified check or checks in an amount equal to the cash portion of the
consideration which the STOCKHOLDERS shall be entitled to receive pursuant to
the Merger referred to in Section 3 hereof and (z) the closing with respect to
the IPO shall occur and be completed. The date on which the actions described in
the preceding clauses (x), (y) and (z) occurs shall be referred to as the
"Funding and Consummation Date." Except as otherwise provided in Section 12
hereof, during the period from the Closing Date to the Funding and Consummation
Date, this Agreement may only be terminated by the parties if the underwriting
agreement in respect of the IPO is terminated pursuant to the terms of such
agreement. This Agreement shall also in any event automatically terminate if the
Funding and Consummation Date has not occurred within 10 business days of the
Closing Date. Time is of the essence.
5. REPRESENTATIONS AND WARRANTIES OF COMPANY
AND STOCKHOLDERS
(A) REPRESENTATIONS AND WARRANTIES OF COMPANY AND STOCKHOLDERS.
Each of the COMPANY and the STOCKHOLDERS jointly and severally represent
and warrant that all of the following representations and warranties in this
Section 5(A) are true at the date of this Agreement and, subject to Section 7.8
hereof, shall be true at the time of Closing and the Funding and Consummation
Date, and that such representations and warranties shall survive the Funding and
Consummation Date for a period of twelve months (the last day of such period
being the "Expiration Date"), except that the warranties and representations set
forth in Section 5.22 hereof shall survive until such time as the limitations
period has run for all tax periods ended on or prior to the Funding and
Consummation Date, which shall be deemed to be the Expiration Date for Section
5.22. For purposes of this Section 5, the term COMPANY shall mean and refer to
the COMPANY and all of its subsidiaries.
5.1 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 the requisite power and authority to carry on its business as it is now
being conducted. The COMPANY is duly qualified
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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 (i) as set forth on Schedule 5.1 or (ii) 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 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 5.1. The stock records of the
COMPANY, as heretofore made available to METALS, 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 complete in all material 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, power and
authority to enter into this Agreement and the Merger. The most recent
resolutions adopted by the Board of Directors of the COMPANY and the most recent
resolutions adopted by the STOCKHOLDERS, all of which are dated no earlier than
ten business days prior to the date hereof, approve this Agreement and the
transactions contemplated hereby in all respects, and copies of all such
resolutions, certified by the Secretary or an Assistant Secretary of the COMPANY
as being in full force and effect on the date hereof, are attached hereto as
Schedule 5.2.
5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the
COMPANY is as set forth on Schedule 5.3. All of the issued and outstanding
shares of the capital stock of the COMPANY are owned by the STOCKHOLDERS in the
amounts set forth in Annex II. Each STOCKHOLDER, severally, represents and
warrants that except as set forth on Schedule 5.3, the shares of capital stock
of the COMPANY owned by such STOCKHOLDER are owned free and clear of all liens,
security interests, pledges, charges, voting trusts, restrictions, encumbrances
and claims
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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, are owned of record and beneficially by the STOCKHOLDERS and
further, such shares were offered, issued, sold and delivered by the COMPANY in
compliance with all applicable state and Federal laws concerning the issuance of
securities. Further, none of such shares were issued in violation of any
preemptive rights of any past or present stockholder.
5.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except as set
forth on Schedule 5.4, the COMPANY has not acquired any COMPANY Stock since
January 1, 1995. Except as set forth on Schedule 5.4, (i) no option, warrant,
call, conversion right or commitment of any kind exists which obligates the
COMPANY to issue any of its authorized but unissued capital stock; (ii) the
COMPANY has no obligation (contingent or otherwise) to purchase, redeem or
otherwise acquire any of its equity securities or any interests therein or to
pay any dividend or make any distribution in respect thereof; and (iii) neither
the voting stock structure of the COMPANY nor the relative ownership of shares
among any of its respective stockholders has been altered or changed in
contemplation of the Merger and/or the METALS Plan of Organization. Schedule 5.4
also includes a complete and accurate list of all stock option or stock purchase
plans, including a list of all outstanding options, warrants or other rights to
acquire shares of the COMPANY's stock and copies of such plans have been
delivered to METALS or are attached to Schedule 5.4.
5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of the
shares of COMPANY Stock was issued pursuant to awards, grants or bonuses in
contemplation of the Merger or the METALS Plan of Organization.
5.6 SUBSIDIARIES. Except as set forth on Schedule 5.6, the COMPANY has no
subsidiaries. Except as set forth in Schedule 5.6 and except for any
corporations or entities with respect to which the COMPANY owns less than 1% of
the issued and outstanding stock, the COMPANY does not presently 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,
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association or business entity nor is the COMPANY, directly or indirectly, a
participant in any joint venture, partnership or other non-corporate entity.
5.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 5.7 is a listing of all
names of all predecessor companies of the COMPANY, including the names of any
entities acquired by the COMPANY (by stock purchase, merger or otherwise) or
owned by the COMPANY or from whom the COMPANY previously acquired material
assets, in any case, from the earliest date upon which any STOCKHOLDER acquired
his or her stock in any COMPANY. Except as disclosed on Schedule 5.7, the
COMPANY has not been, within such period of time, a subsidiary or division of
another corporation or a part of an acquisition which was later rescinded.
5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8, there
has not been any sale, spin-off or split-up of material assets of either the
COMPANY or any other person or entity that directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under common
control with, the COMPANY ("Affiliates") since January 1, 1995.
5.9 FINANCIAL STATEMENTS. Attached hereto as Schedule 5.9 are copies of
the following financial statements (the "COMPANY Financial Statements") of the
COMPANY: the COMPANY's audited Balance Sheets as of August 31, 1996, September
2, 1995 and August 31, 1994, and Statements of Income, Stockholders' Equity and
Cash Flows for each of the years in the periods then ended. Such Financial
Statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods indicated
(except as noted thereon or on Schedule 5.9). Except as set forth on Schedule
5.9, such Balance Sheets present fairly in all material respects the financial
position of the COMPANY as of the dates indicated thereon, and such Statements
of Income, Stockholders Equity and Cash Flows present fairly in all material
respects the results of operations for the periods indicated thereon.
5.10 LIABILITIES AND OBLIGATIONS. The COMPANY has delivered to METALS an
accurate list (which is set forth on Schedule 5.10) as of the Balance Sheet Date
of (i) all liabilities of the COMPANY of a nature that they are required in
accordance with GAAP to be reflected on a balance sheet and which are not
reflected on the balance sheet of the COMPANY at the Balance
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Sheet Date or otherwise reflected in the COMPANY Financial Statements at the
Balance Sheet Date, and which are not disclosed on any of the other Schedules to
this Agreement and which would have a Material Adverse Effect on the COMPANY,
and (ii) all loan agreements, indemnity or guaranty agreements, bonds,
mortgages, pledges or other security agreements to which the COMPANY is a party
or by which its properties may be bound. Except as set forth on Schedule 5.10,
to the best knowledge of the COMPANY, since the Balance Sheet Date the COMPANY
has not incurred any material liabilities of any kind, character or description,
whether accrued, absolute, secured or unsecured, contingent or otherwise, other
than liabilities incurred in the ordinary course of business. The COMPANY has
also delivered to METALS on Schedule 5.10, in the case of those contingent
liabilities related to pending or threatened litigation, or other liabilities
which are not fixed, a good faith and reasonable estimate of the maximum amount
which the COMPANY reasonably expects will be payable and the amount, if any,
accrued or reserved for each such potential liability on the COMPANY's Financial
Statements. For each such contingent liability or liability for which the amount
is not fixed or is contested, the COMPANY has provided to METALS the following
information:
(i) a summary description of the liability together with the
following:
(a) copies of all relevant documentation relating thereto;
(b) amounts claimed and any other action or relief sought; and
(c) name of claimant and all other parties to the claim, suit
or proceeding;
(ii) the name of each court or agency before which such claim, suit
or proceeding is pending; and
(iii) the date such claim, suit or proceeding was instituted; and
(iv) a good faith and reasonable estimate of the maximum amount, if
any, which is likely to become payable with respect to each such
liability. If no estimate is provided, the estimate shall for purposes of
this Agreement be deemed to be zero.
5.11 ACCOUNTS AND NOTES RECEIVABLE. The COMPANY has delivered to METALS an
accurate list (which is set forth on Schedule 5.11) of the accounts and notes
receivable of the
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COMPANY, as of the Balance Sheet Date, including any such amounts which are not
reflected in the balance sheet as of the Balance Sheet Date, and including
receivables from and advances to employees and the STOCKHOLDERS. Except to the
extent reflected on Schedule 5.11, such accounts, notes and other receivables
are collectible in the amounts shown on Schedule 5.11, net of reserves reflected
in the balance sheet as of the Balance Sheet Date.
5.12 PERMITS AND INTANGIBLES. The COMPANY or its employees, as
appropriate, hold all licenses, franchises, permits and other governmental
authorizations ("Licenses") the absence of any of which could have a Material
Adverse Effect on the Company's business, and the COMPANY has delivered to
METALS an accurate list and summary description (which is set forth on Schedule
5.12) of all such Licenses, including any 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
5.13). At or prior to the Closing, all such trademarks, trade names, patents,
patent applications, copyrights and other intellectual property will be assigned
or licensed to the COMPANY for no additional consideration. To the best
knowledge of the COMPANY, the Licenses and other rights listed on Schedules 5.12
and 5.13 are valid, and the COMPANY has not received any notice that any person
intends to cancel, terminate or not renew any such License or other right. The
COMPANY has conducted and is conducting its business in compliance with the
requirements, standards, criteria and conditions set forth in the Licenses and
other rights listed on Schedules 5.12 and 5.13 and is not in violation of any of
the foregoing except where such non-compliance or violation would not have a
Material Adverse Effect on the COMPANY. Except as specifically provided in
Schedule 5.12, 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 or other rights.
5.13 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 5.13, and
except where any failure to comply or action would not have a Material Adverse
Effect, (i) the COMPANY has
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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 and Hazardous Substances (as such terms are defined in any applicable
Environmental Law), as well as petroleum and petroleum products (collectively
"Hazardous Materials"); (ii) the COMPANY has obtained and adhered to all
necessary permits and other approvals necessary to treat, transport, store,
dispose of and otherwise handle Hazardous Materials, a list of all of which
permits and approvals is set forth on Schedule 5.13, 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
Materials have been treated, stored, disposed of or otherwise handled; (iii)
there have been no releases or threats of releases (as these terms are defined
in Environmental Laws) of any Hazardous Materials at, from, in or on any
property owned or operated by the COMPANY except as permitted by Environmental
Laws; (iv) the COMPANY knows of no on-site or off-site location to which the
COMPANY has transported or disposed of Hazardous Materials or arranged for the
transportation of Hazardous Materials, which site 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, METALS or NEWCO for
any clean-up cost, remedial work, damage to natural resources, property damage
or personal injury, including, but not limited to, any claim under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended; and (v) to the best knowledge of the COMPANY, the COMPANY has no
contingent liability in connection with any release of any Hazardous Materials
into the environment; provided, however, that the representation set forth in
this clause (v) shall not be deemed to limit in any way the representations and
warranties set forth in clauses (i) - (iv) of this Section 5.13.
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5.14 PERSONAL PROPERTY. The COMPANY has delivered to METALS an accurate
list (which is set forth on Schedule 5.14) of (x) all personal property material
to the operations of the COMPANY included (or that will be included) in
"depreciable plant, property and equipment" on the balance sheet of the COMPANY,
(y) all other personal property owned by the COMPANY with an individual value in
excess of $50,000 (i) as of the Balance Sheet Date and (ii) acquired since the
Balance Sheet Date and (z) all material leases and agreements in respect of
personal property, including, in the case of each of (x), (y) and (z), (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. Except as set forth on Schedule
5.14, (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 5.14, (ii) all of the personal property listed on Schedule
5.14 is in good working order and condition, ordinary wear and tear excepted and
(iii) all leases and agreements included on Schedule 5.14 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.
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. The
COMPANY has delivered to METALS an accurate list (which is set forth on Schedule
5.15) of (i) all significant customers, it being understood and agreed that a
"significant customer," for purposes of this Section 5.15, means a customer (or
person or entity) representing 5% or more of the COMPANY's annual revenues for
its most recently completed fiscal year. Except to the extent set forth on
Schedule 5.15, 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.
The COMPANY has listed on Schedule 5.15 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),
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other than agreements listed on Schedule 5.10, 5.14 or 5.16, (a) in existence as
of the Balance Sheet Date and (b) entered into since the Balance Sheet Date, and
in each case has delivered true, complete and correct copies of such agreements
to METALS. The COMPANY has also indicated on Schedule 5.15 a summary description
of all plans or projects involving the opening of new operations, expansion of
existing operations, the acquisition of any personal property, business or
assets requiring, in any event, the payment of more than $50,000 by the COMPANY
during any 12-month period.
5.16 REAL PROPERTY. Schedule 5.16 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. Except as set forth
on Schedule 5.16, any such real property owned by the COMPANY will be sold or
distributed by the COMPANY and leased back by the COMPANY on terms no less
favorable to the COMPANY than those available from an unaffiliated party and
otherwise reasonably acceptable to METALS at or prior to the Closing Date. The
COMPANY has good and insurable title to any real property owned by it that is
not shown on Schedule 5.16 as property intended to be sold or distributed prior
to the Closing Date, subject to no mortgage, pledge, lien, conditional sales
agreement, encumbrance or charge, except for:
(i) liens reflected on Schedules 5.10 or 5.16 as securing specified
liabilities (with respect to which no material default exists);
(ii) liens for current taxes not yet payable and assessments not in
default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other exceptions to
title which do not adversely affect the current use of the property.
True, complete and correct copies of all leases and agreements in respect
of such real property leased by the COMPANY are attached to Schedule 5.16, 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 5.16. Except as set forth on Schedule 5.16, all of such
leases included on Schedule 5.16 are in full force and effect and constitute
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valid and binding agreements of the parties (and their successors) thereto in
accordance with their respective terms.
5.17 INSURANCE. The COMPANY has delivered to METALS (i) an accurate list
as of the Balance Sheet Date of all insurance policies carried by the COMPANY,
(ii) an accurate list of all insurance loss runs or workers compensation claims
received for the past three (3) policy years and (iii) true, complete and
correct copies of all insurance policies currently in effect. 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. All of such insurance policies are currently in full force and
effect and shall, to the best knowledge of the COMPANY, remain in full force and
effect through the Funding and Consummation Date. Since January 1, 1994, no
insurance carried by the COMPANY has been canceled by the insurer and the
COMPANY has not been denied coverage.
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS. The
COMPANY has delivered to METALS an accurate list (which is set forth on Schedule
5.18) 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. The COMPANY has provided to METALS
true, complete and correct copies of any employment agreements for persons
listed on Schedule 5.18. Since the Balance Sheet Date, there have been no
material 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 5.18, (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
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COMPANY's knowledge, threatened labor dispute involving the COMPANY and any
group of its employees nor has the COMPANY experienced any labor interruptions
over the past three years. The COMPANY believes its relationship with employees
to be good.
5.19 EMPLOYEE PLANS. The STOCKHOLDERS have delivered to METALS an accurate
schedule (Schedule 5.19) showing all employee benefit plans of COMPANY
(including COMPANY's Subsidiaries), including all employment agreements and
other agreements or arrangements 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 5.19,
COMPANY (including the COMPANY's Subsidiaries) does not sponsor, maintain or
contribute to any plan program, fund or arrangement that constitutes an
"employee pension benefit plan," nor has COMPANY or any Subsidiary 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. Neither COMPANY
nor any Subsidiary has sponsored, maintained or contributed to any employee
pension benefit plan other than the plans set forth on Schedule 5.19, nor is
COMPANY or any Subsidiary 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 COMPANY's or any Subsidiary's employees.
Neither the COMPANY nor any Subsidiary is now, or will as a result of its
past activities become, liable to the Pension Benefit Guaranty Corporation or to
any multiemployer employee pension benefit plan under the provisions of Title IV
of ERISA for any amounts which would have a Material Adverse Effect on the
COMPANY.
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All employee benefit plans listed on Schedule 5.19 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 or any Subsidiary with
respect to any plan listed on Schedule 5.19 have either been fulfilled in their
entirety or are fully reflected on the balance sheet of the COMPANY as of the
Balance Sheet Date.
5.20 COMPLIANCE WITH ERISA. All such plans listed on Schedule 5.19 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 such determination letters are
included as part of Schedule 5.19 hereof. Except as disclosed on Schedule 5.20,
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 5.19 hereof.
Neither STOCKHOLDERS, any such plan listed in Schedule 5.19, nor COMPANY
(including the COMPANY's Subsidiaries) has engaged in any transaction prohibited
under the provisions of Section 4975 of the Code or Section 406 of ERISA. No
such Plan listed in Schedule 5.19 has incurred an accumulated funding
deficiency, as defined in Section 412(a) of the Code and Section 302(1) of
ERISA; and COMPANY (including the COMPANY's Subsidiaries) has not incurred any
liability for excise tax or penalty due to the Internal Revenue Service nor any
liability to the Pension Benefit Guaranty Corporation. The STOCKHOLDERS further
represent that except as set forth on Schedule 5.19 hereto:
(i) 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;
(ii) no such plan listed in Schedule 5.19 subject to the provisions
of Title IV of ERISA has been terminated;
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(iii) 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 5.19;
(iv) COMPANY (including the COMPANY's Subsidiaries) has not incurred
liability under Section 4062 of ERISA; and
(v) To their best knowledge, circumstances exist pursuant to which
the COMPANY could have any direct or indirect liability whatsoever
(including, but not limited to, any liability to any multiemployer 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.
5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedule 5.21 or 5.13, 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 which would have a Material Adverse Effect; and except to
the extent set forth on Schedule 5.10 or 5.13, there are no material claims,
actions, suits or proceedings, pending or, to the knowledge of the COMPANY,
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 any of them
and no notice of any claim, action, suit or proceeding, whether pending or
threatened, has been received by the COMPANY. 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, orders, approvals, variances, rules and regulations,
including all such orders and other governmental approvals set forth on
Schedules 5.12 and 5.13, except where any such noncompliance, individually or in
the aggregate, would not have a Material Adverse Effect.
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5.22 TAXES. COMPANY (including the COMPANY's 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; and except as
set forth on Schedule 5.22, there are no examinations in progress or claims
pending against any of them for federal, state and other taxes (including
penalties and interest) for any period or periods prior to and including the
Balance Sheet Date and no notice of any claim for taxes, whether pending or
threatened, has been received. All tax, including interest and penalties
(whether or not shown on any tax return) owed by the COMPANY or any of the
COMPANY's Subsidiaries has been paid. The amounts shown as accruals for taxes on
the COMPANY Financial Statements are sufficient for the payment of all taxes of
the kinds indicated (including penalties and interest) for all fiscal periods
ended on or before that date. Copies of (i) any tax examinations, (ii)
extensions of statutory limitations and (iii) the federal and local income tax
returns and franchise tax returns of COMPANY (including the COMPANY
Subsidiaries) for their last three (3) fiscal years, or such shorter period of
time as any of them shall have existed, are attached hereto as Schedule 5.22 or
have otherwise been delivered to METALS. The COMPANY has a taxable year ended
December 31. 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.
5.23 NO VIOLATIONS; CONSENTS, ETC. The COMPANY is not in violation of any
Charter Document. Neither the COMPANY nor, to the best knowledge of the COMPANY,
any other party thereto, is in default under any lease, instrument, agreement,
license, or permit set forth on Schedule 5.12, 5.13, 5.14, 5.15 or 5.16, or any
other material agreement to which it is a party or by which its properties are
bound (the "Material Documents") in any manner that could result in a Material
Adverse Effect; and, except as set forth in Schedule 5.23, (a) the rights and
benefits of the COMPANY under the Material Documents will not be materially
adversely affected by the transactions contemplated hereby and (b) 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
material violation or breach or constitute a default under, any of the terms or
provisions
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of the Material Documents or the Charter Documents. Except as set forth on
Schedule 5.23, 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. Except as set forth on Schedule 5.23, none of the
Material Documents prohibits the use or publication by the COMPANY, METALS or
NEWCO 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, METALS,
NEWCO or any Other Founding Company.
5.24 GOVERNMENT CONTRACTS. Except as set forth on Schedule 5.24, the
COMPANY is not now a party to any governmental contracts subject to price
redetermination or renegotiation.
5.25 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
on Schedule 5.25 or as otherwise contemplated hereby, 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
except for distributions that would have been permitted after the date
hereof under Section 7.3(iii) hereof;
(v) any material increase in the compensation, bonus, sales
commissions or fee arrangement payable or to become payable by the COMPANY
to any of its officers,
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directors, STOCKHOLDERS, employees, consultants or agents, except for
ordinary and customary bonuses and salary increases for employees in
accordance with past practice;
(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 STOCKHOLDERS 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 other distribution of property or assets by the COMPANY
other than in the ordinary course of business and other than distributions
of real estate and other assets as permitted by this Agreement (including
the Schedules hereto).
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5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The COMPANY has delivered to
METALS an accurate schedule (which is set forth on Schedule 5.26) as of the date
of the 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; and
(iv) the name of each person authorized to draw thereon or have
access thereto. Schedule 5.26 also sets forth the name of each person,
corporation, firm or other entity holding a general or special power of
attorney from the COMPANY and a description of the terms of such power.
5.27 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by the COMPANY and the performance of the transactions contemplated herein have
been duly and validly authorized by the Board of Directors of the COMPANY and
this Agreement has been duly and validly authorized by all necessary corporate
action and is a legal, valid and binding obligation of the COMPANY.
5.28 RELATIONS WITH GOVERNMENTS. Except for political contributions made
in a lawful manner which, in the aggregate, do not exceed $10,000 per year, the
COMPANY has not over the past five (5) years made, offered or agreed to offer
anything of value to any governmental official, political party or candidate for
government office nor has it 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. If political contributions made by the
COMPANY have exceeded $10,000 per year for each year in which any STOCKHOLDER
has been a stockholder of the COMPANY, each contribution in the amount of $5,000
or more shall be described on Schedule 5.28.
5.29 DISCLOSURE. (a) This Agreement, including the Annexes and Schedules
hereto, and the completed Director and Officer Questionnaires and the completed
S-1 Questionnaire furnished to METALS by the COMPANY and the STOCKHOLDERS in
connection herewith, do not contain
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an untrue statement of a material fact or omit to state a material fact
necessary to make the statements herein and therein, in light of the
circumstances under which they were made, not misleading; provided, however,
that the foregoing does not apply to statements contained in or omitted from any
of such documents made or omitted in reliance upon information furnished in
writing by METALS. If, prior to the 25th day after the date of the final
prospectus of METALS utilized in connection with the IPO, the COMPANY or the
STOCKHOLDERS become aware of any fact or circumstance which would affect the
accuracy of a representation or warranty of COMPANY or STOCKHOLDERS in this
Agreement in any material respect, the COMPANY and the STOCKHOLDERS shall
immediately give notice of such fact or circumstance to METALS. However, subject
to the provisions of Section 7.8, such notification shall not relieve either the
COMPANY or the STOCKHOLDERS of their respective obligations under this
Agreement, and, subject to the provisions of Section 7.8, at the sole option of
METALS, the truth and accuracy of any and all warranties and representations of
the COMPANY, or on behalf of the COMPANY and of STOCKHOLDERS at the date of this
Agreement and on the Closing Date and on the Funding and Consummation Date,
shall be a precondition to the consummation of this transaction.
(b) The COMPANY and the STOCKHOLDERS acknowledge and agree (i)
that there exists no firm commitment, binding agreement, or promise or other
assurance of any kind, whether express or implied, oral or written, that a
Registration Statement will become effective or that the IPO pursuant thereto
will occur at a particular price or within a particular range of prices or occur
at all; (ii) that neither METALS or any of its officers, directors, agents or
representatives nor any Underwriter shall have any liability to the COMPANY, the
STOCKHOLDERS or any other person affiliated or associated with the COMPANY for
any failure of the Registration Statement to become effective, the IPO to occur
at a particular price or within a particular range of prices or to occur at all;
and (iii) that the decision of STOCKHOLDERS to enter into this Agreement, or to
vote in favor of or consent to the proposed Merger, has been or will be made
independent of, and without reliance upon, any statements, opinions or other
communications, or due diligence investigations which have been or will be made
or performed by any prospective Underwriter, relative to METALS
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or the prospective IPO. METALS agrees, however, to use all reasonable efforts to
consummate the METALS Plan of Organization and IPO as contemplated hereby.
5.30 PROHIBITED ACTIVITIES. Except as set forth on Schedule 5.30, 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.
(B) REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS
Each STOCKHOLDER severally represents and warrants that the
representations and warranties set forth below are true as of the date of this
Agreement and, subject to Section 7.8 hereof, shall be true at the time of
Closing and on the Funding and Consummation Date, and that the representations
and warranties set forth in Sections 5.31 and 5.32 shall survive until the first
anniversary of the Funding and Consummation Date, which shall be the Expiration
Date for purposes of Sections 5.31 and 5.32.
5.31 AUTHORITY; OWNERSHIP. Such STOCKHOLDER has the full legal right,
power and authority to enter into this Agreement. Such STOCKHOLDER owns
beneficially and of record all of the shares of the COMPANY stock identified on
Annex II as being owned by such STOCKHOLDER, and, except as set forth on
Schedule 5.31, such COMPANY Stock is owned free and clear of all liens,
encumbrances and claims of every kind.
5.32 PREEMPTIVE RIGHTS. Such STOCKHOLDER does not have, or hereby waives,
any preemptive or other right to acquire shares of COMPANY Stock or METALS Stock
that such STOCKHOLDER has or may have had. Nothing herein, however, shall limit
or restrict the rights of any STOCKHOLDER to acquire METALS Stock pursuant to
(i) this Agreement or (ii) any option granted by METALS.
5.33 NO INTENTION TO DISPOSE OF METALS STOCK. No STOCKHOLDER is under any
binding commitment or contract to sell, exchange or otherwise dispose of shares
of METALS Stock received as described in Section 3.1.
6. REPRESENTATIONS OF METALS AND NEWCO
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METALS and NEWCO jointly and severally represent and warrant that
all of the following representations and warranties in this Section 6 are true
at the date of this Agreement and, subject to Section 7.8 hereof, shall be true
at the time of Closing and the Funding and Consummation Date, and that such
representations and warranties shall survive the Funding and Consummation Date
for a period of twelve months (the last day of such period being the "Expiration
Date"), except that (i) the warranties and representations set forth in Section
6.14 hereof shall survive until such time as the limitations period has run for
all tax periods ended on or prior to the Funding and Consummation Date, which
shall be deemed to be the Expiration Date for Section 6.14 and (ii) solely for
purposes of determining whether a claim for indemnification under Section
11.2(iv) hereof has been made on a timely basis, and solely to the extent that
in connection with the IPO, any of the STOCKHOLDERS actually incurs liability
under the 1933 Act, the 1934 Act, or any other Federal or state securities laws,
the representations and warranties set forth herein shall survive until the
expiration of any applicable limitations period, which shall be deemed to be the
Expiration Date for such purposes.
6.1 DUE ORGANIZATION. METALS and NEWCO are each corporations duly
organized, validly existing and in good standing under the laws of the State of
Delaware, 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 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. True,
complete and correct copies of the Certificate of Incorporation and By-laws,
each as proposed to be amended, of METALS and NEWCO (the "METALS Charter
Documents") are all attached hereto as Annex IV.
6.2 AUTHORIZATION. (i) The respective representatives 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 consummate the
Merger. All corporate acts and other proceedings required to have been taken by
METALS and NEWCO to authorize the execution,
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delivery and performance of this Agreement and the consummation of the Merger
have been duly and properly taken.
6.3 CAPITAL STOCK OF METALS AND NEWCO. The authorized capital stock of
METALS and NEWCO is as set forth in Sections 1.4(ii) and (iii), respectively.
All of the issued and outstanding shares of the capital stock of NEWCO are owned
by METALS and all of the issued and outstanding shares of the capital stock of
METALS are owned by the persons set forth on Annex III hereof, in each case,
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 METALS and NEWCO have been duly
authorized and validly issued, are fully paid and nonassessable, are owned of
record and beneficially by METALS and the persons set forth on Annex III,
respectively, and further, such shares were offered, issued, sold and delivered
by METALS and NEWCO in compliance with all applicable state and Federal laws
concerning the issuance of securities. Further, none of such shares were issued
in violation of the preemptive rights of any past or present stockholder of
METALS or NEWCO.
6.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except for the
Other Agreements and except as set forth on Schedule 6.4, (i) no option,
warrant, call, conversion right or commitment of any kind exists which obligates
METALS or NEWCO to issue any of their respective authorized but unissued capital
stock; and (ii) neither METALS nor NEWCO has any obligation (contingent or
otherwise) to purchase, redeem or otherwise acquire any of its equity securities
or any interests therein or to pay any dividend or make any distribution in
respect thereof. Schedule 6.4 also includes complete and accurate copies of all
stock option or stock purchase plans, including a list, accurate as of the date
hereof, of all outstanding options, warrants or other rights to acquire shares
of the stock of METALS.
6.5 SUBSIDIARIES. NEWCO has no subsidiaries. METALS has no subsidiaries
except for NEWCO and each of the companies identified as "NEWCO" in each of the
Other Agreements. Except as set forth in the preceding sentence, neither METALS
nor NEWCO presently owns, of record or beneficially, or controls, directly or
indirectly, any capital stock, securities convertible into
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capital stock or any other equity interest in any corporation, association or
business entity, and neither METALS nor NEWCO, directly or indirectly, is a
participant in any joint venture, partnership or other non-corporate entity.
6.6 FINANCIAL STATEMENTS. Included in the Draft Registration Statement are
copies of the following financial statements (the "METALS Financial Statements")
of METALS, which reflect the results of its operations from inception in July
1996: METALS's audited Balance Sheet as of December 31, 1996. Such METALS
Financial Statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
indicated (except as noted thereon). Such Balance Sheet presents fairly the
financial position of METALS as of such date.
6.7 LIABILITIES AND OBLIGATIONS. Except as set forth on Schedule 6.7,
METALS and NEWCO have no material liabilities, contingent or otherwise, except
as set forth in or contemplated by this Agreement and the Other Agreements and
except for fees incurred in connection with the transactions contemplated hereby
and thereby.
6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedule 6.8, neither METALS nor NEWCO is 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 either of them which would have a Material Adverse Effect; and
except to the extent set forth in Schedule 6.8, there are no material claims,
actions, suits or proceedings, pending or, to the knowledge of METALS or NEWCO,
threatened against or affecting, METALS or NEWCO, 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
either of them and no notice of any claim, action, suit or proceeding, whether
pending or threatened, has been received. METALS and NEWCO have conducted and
are conducting their respective businesses in substantial compliance with the
requirements, standards, criteria and conditions set forth in applicable
Federal, state and local statutes, ordinances, permits, licenses,
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orders, approvals, variances, rules and regulations and are not in violation of
any of the foregoing which would have a Material Adverse Effect.
6.9 NO VIOLATIONS. Neither METALS nor NEWCO is in violation of any METALS
Charter Document. None of METALS, NEWCO, or, to the knowledge of METALS and
NEWCO, any other party thereto, is in default under any lease, instrument,
agreement, license, or permit to which METALS or NEWCO is a party, or by which
METALS or NEWCO, or any of their respective properties, are bound (collectively,
the "METALS Documents"); and (a) the rights and benefits of METALS and NEWCO
under the METALS Documents will not be adversely affected by the transactions
contemplated hereby and (b) the execution and delivery of this Agreement by
METALS and NEWCO and the performance of their obligations hereunder do not, and
the consummation of the transactions contemplated hereby and compliance with the
terms hereof will not, conflict with, or result in any violation or default
(with or without notice or lapse of time, or both), under or give rise to a
right of termination, cancellation, or acceleration of any obligation or to loss
of a material benefit under, or result in the creation of any lien upon any of
the assets of METALS or any NEWCO under, any provision of (i) the Certificate of
Incorporation or Bylaws of METALS or the comparable governing instruments of any
NEWCO, (ii) any note, bond, mortgage, indenture or deed of trust or any license,
lease, contract, commitment, agreement or arrangement to which METALS and any
NEWCO is a party or by which any of their respective properties or assets are
bound or (iii) any judgment, order, decree or law, ordinance, rule or
regulation, applicable to METALS or any NEWCO or their respective properties or
assets. 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 material violation or breach or constitute a default under, any of
the terms or provisions of the METALS Documents or the METALS Charter Documents.
Except as set forth on Schedule 6.9, none of the METALS 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
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contemplated hereby will not give rise to any right to termination, cancellation
or acceleration or loss of any right or benefit.
6.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by METALS and NEWCO and the performance of the transactions contemplated herein
have been duly and validly authorized by the respective 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.
6.11 METALS STOCK. At the time of issuance thereof and delivery to the
STOCKHOLDERS, the METALS Stock to be delivered to the STOCKHOLDERS pursuant to
this Agreement will constitute valid and legally issued shares of METALS, fully
paid and nonassessable, and with the exception of restrictions upon resale set
forth in Sections 15 and 16 hereof, will be identical in all substantive
respects (which do not include the form of certificate upon which it is printed
or the presence or absence of a CUSIP number on any such certificate) to the
METALS Stock issued and outstanding as of the date hereof by reason of the
provisions of the Delaware GCL. The METALS Stock issued and delivered to the
STOCKHOLDERS shall at the time of such issuance and delivery be free and clear
of any liens, claims or encumbrances of any kind or character. The shares of
METALS Stock to be issued to the STOCKHOLDERS pursuant to this Agreement will
not be registered under the 1933 Act, except as provided in Section 17 hereof.
6.12 NO SIDE AGREEMENTS. Neither METALS nor NEWCO has entered or will
enter into any agreement with any of the Founding Companies or any of the
stockholders of the Founding Companies or METALS other than the Other Agreements
and the agreements contemplated by each of the Other Agreements, including the
employment agreements, leases and Indemnification Agreements referred to herein
or entered into in connection with the transactions contemplated hereby and
thereby.
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. METALS was formed in
July 1996 and has conducted limited operations since that time. Neither METALS
nor NEWCO has conducted any material business since the date of its inception,
except in connection with this
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Agreement, the Other Agreements and the IPO. Neither METALS nor NEWCO owns or
has at any time owned any real property or any material personal property or is
a party to any other agreement, except as listed on Schedule 6.13 and except
that METALS is a party to the Other Agreements and the agreements contemplated
thereby and to such agreements as will be filed as Exhibits to the Registration
Statement.
6.14 TAXES. METALS and NEWCO have 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; and except as set forth on Schedule 6.14,
there are no examinations in progress or claims against METALS for federal,
state and other taxes (including penalties and interest) for any period or
periods prior to and including the Balance Sheet Date and no notice of any claim
for taxes, whether pending or threatened, has been received. All taxes which
METALS or any NEWCO has been required to collect or withhold have been duly and
timely collected and withheld and have been set aside in accounts for such
purposes, or have been duly and timely paid to the proper governmental
authority. All tax, including interest and penalties (whether or not shown on
any tax return) owed by METALS, any member of an affiliated or consolidated
group which includes or included METALS, or with respect to any payment made or
deemed made by METALS herein has been paid. The amounts shown as accruals for
taxes on METALS Financial Statements are sufficient for the payment of all taxes
of the kinds indicated (including penalties and interest) for all fiscal periods
ended on or before that date. Copies of any (i) tax examinations, (ii)
extensions of statutory limitations, (iii) federal and local income tax returns
and franchise tax returns of METALS for the year ended December 31, 1996, are
attached hereto as Schedule 6.14. Except as set forth in Schedule 6.14, METALS
and NEWCO have not entered into any tax sharing agreement or similar
arrangement. METALS is not an investment company as defined in Section 351(e)(1)
of the Code.
6.15 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
in the Draft Registration Statement delivered to the STOCKHOLDERS, and except as
contemplated by this Agreement and the Other Agreements, there has not been:
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(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of METALS or
NEWCO;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
METALS or NEWCO;
(iii) any change in the authorized capital of METALS or NEWCO or
their outstanding securities or any change in their 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 METALS or
NEWCO;
(v) any work interruptions, labor grievances or claims filed, or any
event or condition of any character, materially adversely affecting the
business of METALS or NEWCO;
(vi) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of METALS or NEWCO to any person;
(vii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to METALS or NEWCO;
(viii)any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property
or rights of METALS or NEWCO or requiring consent of any party to the
transfer and assignment of any such assets, property or rights;
(ix) any waiver of any material rights or claims of METALS or NEWCO;
(x) any amendment or termination of any material contract,
agreement, license, permit or other right to which METALS or NEWCO is a
party;
(xi) any transaction by METALS or NEWCO outside the ordinary course
of its business;
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(xii) any other distribution of property or assets by METALS or
NEWCO other than in the ordinary course of business.
6.16 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by METALS and NEWCO and the performance of the transactions contemplated herein
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.
6.17 DISCLOSURE. The Draft Registration Statement delivered to the COMPANY
and the STOCKHOLDERS, together with this Agreement and the information furnished
to the COMPANY and the STOCKHOLDERS in connection herewith, does not contain an
untrue statement of a material fact or omit to state a material fact necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading; provided, however, that the foregoing does not apply
to statements contained in or omitted from any of such documents made or omitted
in reliance upon information furnished by the COMPANY or the STOCKHOLDERS.
6.18 PRIVATE OFFERING. (a) Neither METALS, any of its affiliates nor
anyone on its or their behalf, has issued, sold, or offered any securities of
METALS to any person under circumstances that would cause the issuance and sale
of the METALS Stock to the STOCKHOLDERS pursuant to this Agreement, to be
subject to the registration requirements of the 1933 Act.
(b) The offering of shares of METALS Stock pursuant to the METALS Plan of
Organization has been made in compliance with applicable federal and state
securities laws.
7. COVENANTS PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION; DUE DILIGENCE. (a) Between the date of this
Agreement and the Funding and Consummation Date, the COMPANY will afford to the
officers and authorized representatives of METALS and the Other Founding
Companies access to all of the COMPANY's sites, properties, books and records
and will furnish METALS with such additional financial and
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operating data and other information as to the business and properties of the
COMPANY as METALS or the Other Founding Companies may from time to time
reasonably request. The COMPANY will cooperate with METALS and the Other
Founding Companies, 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, NEWCO, the
STOCKHOLDERS and the COMPANY will treat all information obtained in connection
with the negotiation and performance of this Agreement or the due diligence
investigations conducted with respect to the Other Founding Companies as
confidential in accordance with the provisions of Section 14 hereof. In
addition, METALS will cause each of the Other Founding Companies to enter into a
provision similar to this Section 7.1 requiring each such Other Founding
Company, its stockholders, directors, officers, representatives, employees and
agents to keep confidential any information obtained by such Other Founding
Company.
(b) Between the date of this Agreement and the Funding and Consummation
Date, METALS will afford to the officers and authorized representatives of the
COMPANY access to all of METALS's and NEWCO's sites, properties, books and
records and will furnish the COMPANY with such additional financial and
operating data and other information as to the business and properties of METALS
and NEWCO as the COMPANY may from time to time reasonably request. METALS and
NEWCO will cooperate with the COMPANY, 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. The
COMPANY will cause all information obtained in connection with the negotiation
and performance of this Agreement to be treated as confidential in accordance
with the provisions of Section 14 hereof.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Funding and Consummation Date, the COMPANY will, except as set
forth on Schedule 7.2:
(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;
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(ii) use all reasonable efforts to 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) use all reasonable efforts to 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;
(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; and
(viii)maintain or reduce present salaries and commission levels for
all officers, directors, employees and agents except for ordinary and
customary bonus and salary increases for employees in accordance with past
practices.
7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3, between
the date hereof and the Funding and Consummation Date, the COMPANY will not,
without prior written consent of METALS, which consent 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 other than in
connection with the exercise of options or warrants listed in Schedule
5.4;
(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 for distributions in the amount of estimated taxes payable by the
STOCKHOLDERS on S corporation earnings (if any) of the COMPANY for the
period from the Balance Sheet Date to the Closing Date and specified on
Schedule 7.3 hereto, and any other distributions of Accumulated
Adjustments Accounts amounts specified on Schedule 7.3 hereto, it being
understood and agreed that any such distributions in excess of such
estimated taxes shall result in a corresponding dollar for dollar decrease
in the amount of cash otherwise payable to the STOCKHOLDERS as part of the
Merger consideration hereunder;
(iv) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditures, except if it is in
the normal course of business (consistent with past practice) or involves
an amount not in excess of $100,000;
(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 $50,000 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 course of business
(the liens set forth in clause (2) being referred to herein as "Statutory
Liens"), or (3) liens set forth on Schedule 5.10 and/or 5.15 hereto;
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(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business and other
than distributions of real estate and other assets as permitted in this
Agreement (including the Schedules hereto);
(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;
(ix) waive any material rights or claims of the COMPANY, provided
that the COMPANY may negotiate and adjust bills and accounts in the course
of good faith disputes with customers in a manner consistent with past
practice, provided, further, that such adjustments shall not be deemed to
be included in Schedule 5.11 unless specifically listed thereon;
(x) amend or terminate any material agreement, permit, license or
other right of the COMPANY; or
(xi) enter into any other transaction outside the ordinary course of
its business or prohibited hereunder.
7.4 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 Funding and Consummation 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 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 of the COMPANY.
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7.5 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 on Schedule 7.5 with proof that any required notice has been
sent.
7.6 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 listed on Schedule
9.12 hereto and (ii) any existing agreement between the COMPANY and any
STOCKHOLDER, on or prior to the Funding and Consummation Date provided that
nothing herein shall prohibit or prevent the COMPANY from paying (either prior
to or on the Closing Date) notes or other obligations from the COMPANY to the
STOCKHOLDERS in accordance with the terms thereof, which terms have been
disclosed to METALS. Such termination agreements are listed on Schedule 7.6 and
copies thereof shall be attached thereto.
7.7 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. METALS and NEWCO 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 or NEWCO contained herein to be untrue or inaccurate in any material
respect at or prior to the Closing and (ii) any material failure of METALS or
NEWCO 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 7.7 shall not be deemed to (i) modify the representations or
warranties hereunder of the party delivering such notice, which modification may
only be made pursuant to Section 7.8, (ii)
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modify the conditions set forth in Sections 8 and 9, or (iii) limit or otherwise
affect the remedies available hereunder to the party receiving such notice.
7.8 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 24 hours prior to the
anticipated effectiveness of the Registration Statement to supplement or amend
promptly the Schedules 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, provided however,
that supplements and amendments to Schedules 5.10, 5.11, 5.14 and 5.15 shall
only have to be delivered at the Closing Date, unless such Schedule is to be
amended to reflect an event occurring other than in the ordinary course of
business. Notwithstanding the foregoing sentence, no amendment or supplement to
a Schedule prepared by the COMPANY that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect may be made unless METALS
and a majority of the Founding Companies other than the COMPANY consent to such
amendment or supplement; and provided further, that no amendment or supplement
to a Schedule prepared by METALS or NEWCO that constitutes or reflects an event
or occurrence that would have a Material Adverse Effect may be made unless a
majority of the Founding Companies consent to such amendment or supplement. For
all purposes of this Agreement, including without limitation for purposes of
determining whether the conditions set forth in Sections 8.1 and 9.1 have been
fulfilled, the Schedules hereto shall be deemed to be the Schedules as amended
or supplemented pursuant to this Section 7.8. In the event that one of the Other
Founding Companies seeks to amend or supplement a Schedule pursuant to Section
7.8 of one of the Other Agreements, and such amendment or supplement constitutes
or reflects an event or occurrence that would have a Material Adverse Effect on
such Other Founding Company, METALS shall give the COMPANY notice promptly after
it has knowledge thereof. If METALS and a majority of the Founding Companies
consent to such amendment or supplement, which consent shall have been deemed
given by METALS or any Founding Company if no response is received within 24
hours following receipt of notice of such amendment or supplement (or sooner
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if required by the circumstances under which such consent is requested), but the
COMPANY does not give its consent, the COMPANY may terminate this Agreement
pursuant to Section 12.1(iv) hereof. In the event that the COMPANY seeks to
amend or supplement a Schedule pursuant to this Section 7.8, and METALS and a
majority of the Other Founding Companies do not consent to such amendment or
supplement, this Agreement shall be deemed terminated by mutual consent as set
forth in Section 12.1(i) hereof. In the event that METALS or NEWCO seeks to
amend or supplement a Schedule pursuant to this Section 7.8 and a majority of
the Founding Companies do not consent to such amendment or supplement, this
Agreement shall be deemed terminated by mutual consent as set forth in Section
12.1(i) hereof. No party to this Agreement shall be liable to any other party if
this Agreement shall be terminated pursuant to the provisions of this Section
7.8. No amendment of or supplement to a Schedule shall be made later than 24
hours prior to the anticipated effectiveness of the Registration Statement.
7.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The COMPANY and
STOCKHOLDERS shall furnish or cause to be furnished to METALS and the
Underwriters all of the information concerning the COMPANY and the STOCKHOLDERS
required for inclusion in, and will cooperate with METALS and the Underwriters
in the preparation of, the Registration Statement and the prospectus included
therein (including audited and unaudited financial statements, prepared in
accordance with generally accepted accounting principles, in form suitable for
inclusion in the Registration Statement). The COMPANY and the STOCKHOLDERS agree
promptly to advise METALS if at any time during the period in which a prospectus
relating to the offering is required to be delivered under the Securities Act,
any information contained in the prospectus concerning the COMPANY or the
STOCKHOLDERS becomes incorrect or incomplete in any material respect, and to
provide the information needed to correct such inaccuracy. Insofar as the
information relates solely to the COMPANY or the STOCKHOLDERS, the COMPANY
represents and warrants as to such information with respect to itself, and each
Stockholder represents and warrants, as to such information with respect to the
COMPANY and himself or herself, that the Registration Statement will not include
an untrue statement of a material fact or omit to state a
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material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
7.10 FINAL FINANCIAL STATEMENTS. The COMPANY shall provide prior to the
Funding and Consummation Date, and METALS shall have had sufficient time to
review the unaudited consolidated balance sheets of the COMPANY as of the end of
all fiscal quarters following the Balance Sheet Date, and the unaudited
consolidated statement of income, cash flows and retained earnings of the
COMPANY for all fiscal quarters ended after the Balance Sheet Date, disclosing
no material adverse change in the financial condition of the COMPANY or the
results of its operations from the financial statements as of the Balance Sheet
Date. Such financial statements shall have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods indicated (except as noted therein). Except as noted in
such financial statements, all of such financial statements will present fairly
the results of operations of the COMPANY for the periods indicated therein.
7.11 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.
7.12 AUTHORIZED CAPITAL. Prior to the Funding and Consummation Date,
METALS shall maintain its authorized capital stock as set forth in the
Registration Statement filed with the SEC except for such changes in authorized
capital stock as are made to respond to comments made by the SEC or requirements
of any exchange or automated trading system for which application is made to
register the METALS Stock and any changes necessary or advisable in order to
permit the delivery of the opinion contemplated by Section 8.12 hereof.
7.13 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. 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
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Hart-Scott Act, (ii) such compliance by the STOCKHOLDERS and the COMPANY shall
be deemed a condition precedent in addition to the conditions precedent set
forth in Section 9 of this Agreement, and such compliance by METALS and NEWCO
shall be deemed a condition precedent in addition to the conditions precedent
set forth in Section 8 of 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. The
obligation of each party to consummate the transactions contemplated by this
Agreement is subject to the expiration or termination of the waiting period
under the Hart-Scott Act, if applicable.
7.14 ENVIRONMENTAL INDEMNITY. At or prior to the Closing, the parties
identified in the form of Indemnification Agreement attached hereto as ANNEX
VIII shall enter into an Indemnification Agreement in the form attached hereto
as ANNEX VIII, with such changes thereto as may be approved by METALS, in its
sole discretion.
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. The obligations of
the STOCKHOLDERS and the COMPANY with respect to actions to be taken on the
Funding and Consummation Date are subject to the satisfaction or waiver on or
prior to the Funding and Consummation Date of the conditions set forth in
Sections 8.1, 8.5, 8.8, 8.9 and 8.12. As of the Closing Date or, with respect to
the conditions set forth in Sections 8.1, 8.5, 8.8, 8.9 and 8.12, as of the
Funding and Consummation Date, if any such conditions have 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 Funding and Consummation Date
shall constitute a waiver of any
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conditions not so satisfied. However, no such waiver shall be deemed to affect
the survival of the representations and warranties of METALS and NEWCO contained
in Section 6 hereof.
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
representations and warranties of METALS and NEWCO contained in Section 6 shall
be true and correct in all material respects as of the Closing Date and the
Funding and Consummation 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 and NEWCO on or before the
Closing Date and the Funding and Consummation Date shall have been duly complied
with and performed in all material respects; and certificates to the foregoing
effect dated the Closing Date and the Funding and Consummation Date,
respectively, 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.
The STOCKHOLDERS and the COMPANY shall be satisfied that the Registration
Statement and the prospectus forming a part thereof, including any amendments
thereof or supplements thereto, shall not contain any untrue statement of a
material fact, or omit to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, provided
that the condition contained in this sentence shall be deemed satisfied if the
COMPANY or STOCKHOLDERS shall have failed to inform METALS in writing prior to
the effectiveness of the Registration Statement of the existence of an untrue
statement of a material fact or the omission of such a statement of a material
fact.
8.3 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO 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 management of the COMPANY deems it inadvisable to proceed with the
transactions hereunder.
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8.4 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
V.
8.5 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC and the underwriters named therein shall have
agreed to acquire on a firm commitment basis, subject to the conditions set
forth in the underwriting agreement, on terms such that the aggregate value of
the cash and the number of shares of METALS Stock to be received by the
STOCKHOLDERS is not less than the Minimum Value set forth on Annex I.
8.6 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 and no action
or proceeding shall have been instituted or threatened to restrain or prohibit
the Merger and no governmental agency or body shall have taken any other action
or made any request of COMPANY as a result of which COMPANY deems it inadvisable
to proceed with the transactions hereunder.
8.7 GOOD STANDING CERTIFICATES. METALS and NEWCO each shall have delivered
to the COMPANY a certificate, dated as of a date no later than ten days prior to
the Closing Date, duly issued by the Delaware Secretary of State and in each
state in which METALS or NEWCO is authorized to do business, showing that each
of METALS and NEWCO is in good standing and authorized to do business and that
all state franchise and/or income tax returns and taxes for METALS and NEWCO,
respectively, for all periods prior to the Closing have been filed and paid.
8.8 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall have
occurred with respect to METALS or NEWCO which would constitute a Material
Adverse Effect.
8.9 CLOSING OF IPO. The closing of the sale of the METALS Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
8.10 SECRETARY'S CERTIFICATE. The COMPANY shall have received a
certificate or certificates, dated the Closing Date and signed by the secretary
of METALS and of NEWCO, certifying the truth and correctness of attached copies
of the METALS's and NEWCO's respective Certificates of Incorporation (including
amendments thereto), By-Laws (including amendments
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thereto), and resolutions of the boards of directors and, if required, the
stockholders of METALS and NEWCO approving METALS's and NEWCO's entering into
this Agreement and the consummation of the transactions contemplated hereby.
8.11 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule 9.12
shall have been afforded the opportunity to enter into an employment agreement
substantially in the form of Annex VII hereto.
8.12 TAX MATTERS. The STOCKHOLDERS shall have received an opinion of
Arthur Andersen LLP that the METALS Plan of Organization will qualify as a
tax-free transfer of property under Section 351 of the Code and that the
STOCKHOLDERS will not recognize gain to the extent the STOCKHOLDERS exchange
stock of the COMPANY for METALS stock (but not cash or other property) pursuant
to the METALS Plan of Organization.
9. 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. The obligations of METALS and
NEWCO with respect to actions to be taken on the Funding and Consummation Date
are subject to the satisfaction or waiver on or prior to the Funding and
Consummation Date of the conditions set forth in Sections 9.1, 9.4 and 9.13. As
of the Closing Date or, with respect to the conditions set forth in Sections
9.1, 9.4 and 9.13, as of the Funding and Consummation Date, if any such
conditions have not been satisfied, METALS and NEWCO shall have the right to
terminate this Agreement, or waive any such condition, but no such waiver shall
be deemed to affect the survival of the representations and warranties contained
in Section 5 hereof.
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 and the Funding and Consummation 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
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be complied with or performed by the STOCKHOLDERS and the COMPANY on or before
the Closing Date or the Funding and Consummation 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 the Funding and Consummation Date, respectively, and signed by them to such
effect.
9.2 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of METALS as a result of which the
management of METALS deems it inadvisable to proceed with the transactions
hereunder.
9.3 SECRETARY'S CERTIFICATE. METALS shall have received a certificate,
dated the Closing Date and signed by the secretary of the COMPANY, certifying
the truth and correctness of attached copies of the COMPANY's Certificate of
Incorporation (including amendments thereto), By-Laws (including amendments
thereto), and resolutions of the board of directors and the STOCKHOLDERS
approving the COMPANY's entering into this Agreement and the consummation of the
transactions contemplated hereby.
9.4 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 covered by insurance, which
change, loss or damage materially affects or impairs the ability of the COMPANY
to conduct its business.
9.5 STOCKHOLDERS' RELEASE. The STOCKHOLDERS shall have delivered to METALS
an instrument dated the Closing Date which shall be effective only upon the
occurrence of the Funding and Consummation 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 (x) items
specifically identified on Schedules 5.10 and 5.15 as being claims of or
obligations to the STOCKHOLDERS, (y) continuing obligations
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to STOCKHOLDERS relating to their employment by the COMPANY and (z) obligations
arising under this Agreement or the transactions contemplated hereby. In the
event that the Funding and Consummation Date does not occur, then the release
instrument referenced herein shall be void and of no further force or effect.
9.6 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.
9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth on
Schedule 9.7, all existing agreements between the COMPANY and the STOCKHOLDERS
(and entities controlled by the STOCKHOLDERS) shall have been canceled effective
prior to or as of the Funding and Consummation Date.
9.8 OPINION OF COUNSEL. METALS shall have received an opinion from Counsel
to the COMPANY and the STOCKHOLDERS, dated the Closing Date, substantially in
the form annexed hereto as Annex VI.
9.9 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 5.23 shall have been obtained;
and no action or proceeding shall have been instituted or threatened to restrain
or prohibit the Merger 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.
9.10 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
COMPANY's state of incorporation and, unless waived by METALS, 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
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income tax returns and taxes for the COMPANY for all periods prior to the
Closing have been filed and paid.
9.11 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC.
9.12 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule 9.12
shall enter into an employment agreement substantially in the form of Annex VII
hereto.
9.13 CLOSING OF IPO. The closing of the sale of the METALS Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
9.14 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.
10. COVENANTS OF METALS AND THE STOCKHOLDERS AFTER CLOSING
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS. METALS
shall use its best efforts to have the STOCKHOLDERS released from any and all
guarantees on any indebtedness that they personally guaranteed and from any and
all pledges of assets that they pledged to secure such indebtedness for the
benefit of the COMPANY, with all such guarantees on indebtedness being assumed
by METALS. In the event that METALS cannot obtain such releases from the lenders
of any such guaranteed indebtedness on or prior to 120 days subsequent to the
Funding and Consummation Date, METALS shall promptly pay off or otherwise
refinance or retire such indebtedness. From and after the Funding and
Consummation Date and until such time as all of such indebtedness is paid off,
refinanced or retired, METALS shall maintain unencumbered funds in amounts
sufficient to provide for such pay off, refinancing or retirement, provided that
METALS may use such funds for other purposes, in its sole discretion, with the
prior written consent of each STOCKHOLDER who has not as of that time been
released from his or her guarantee as described above and whose indebtedness as
described above has not as of that time been paid off, refinanced or retired.
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10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as contemplated
by this Agreement or the Registration Statement, after the Funding and
Consummation Date, METALS shall not and shall not permit any of its subsidiaries
to undertake any act that would jeopardize the tax-free status of the
organization, including without limitation:
(a) the retirement or reacquisition, directly or indirectly, of all
or part of the METALS Stock issued in connection with the transactions
contemplated hereby; or
(b) the entering into of financial arrangements for the benefit of
the STOCKHOLDERS.
10.3 PREPARATION AND FILING OF TAX RETURNS.
(i) The COMPANY, if possible, or otherwise the STOCKHOLDERS shall
file or cause to be filed all federal income Tax Returns of any Acquired
Party for all taxable periods that end on or before the Funding and
Consummation Date, and shall permit METALS to review all such Tax Returns
prior to such filings. Unless the COMPANY is a C corporation, the
STOCKHOLDERS shall pay or cause to be paid all Tax liabilities (in excess
of all amounts already paid with respect thereto or properly accrued or
reserved with respect thereto on the COMPANY Financial Statements) shown
by such Returns to be due.
(ii) METALS shall file or cause to be filed all separate Returns of,
or that include, any Acquired Party for all taxable periods ending after
the Funding and Consummation Date.
(iii) Each party hereto shall, and shall cause its subsidiaries and
affiliates to, provide to each of the other parties hereto such
cooperation and information as any of them reasonably may request in
filing any 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. Such cooperation and
information shall include providing copies of all relevant portions of
relevant Returns, together with relevant accompanying schedules and
relevant work papers, relevant documents relating to rulings or other
determinations by Taxing Authorities and relevant records concerning the
ownership and Tax basis of property, which such party may possess. Each
party shall make its
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employees reasonably available on a mutually convenient basis at its cost
to provide explanation of any documents or information so provided.
Subject to the preceding sentence, each party required to file Returns
pursuant to this Agreement shall bear all costs of filing such Returns.
(iv) Each of the COMPANY, NEWCO, METALS and each STOCKHOLDER shall
comply with the tax reporting requirements of Section 1.351-3 of the
Treasury Regulations promulgated under the Code, and treat the transaction
as a tax-free contribution under Section 351(a) of the Code subject to
gain, if any, recognized on the receipt of cash or other property under
Section 351(b) of the Code subject to gain, if any, recognized on the
receipt of cash or other property under Section 351(b) of the Code.
10.4 DIRECTORS. The persons named in the Draft Registration Statement
shall be appointed as directors and elected as officers of METALS, as and to the
extent set forth in the Draft Registration Statement, promptly following the
Funding and Consummation Date. This provision shall not imply that the
STOCKHOLDERS have any power or duty to elect officers of METALS.
10.5 PRESERVATION OF EMPLOYEE BENEFIT PLANS. Following the Funding and
Consummation Date, METALS shall use all reasonable efforts to permit the COMPANY
to maintain all health insurance, life insurance, 401(k) plan and other employee
benefit plans in effect at the COMPANY, unless any such change is (a) approved
by a vote of at least two-thirds of the members of the Board of Directors of
METALS, or (b) required by applicable laws or regulations, including the
antidiscriminatory provisions of ERISA and the related regulations. In the event
that any such changes (other than changes so approved by the Board of Directors
of METALS) are required, subject to applicable law, METALS shall permit the
COMPANY to implement alternative benefits that provide the affected employees of
the COMPANY with an undiminished aggregate level of benefits. On the Funding and
Consummation Date, the employees of the COMPANY will be the employees of the
Surviving Corporation (provided that this provision is for purposes of
clarifying that the Merger, in and of itself, will not have any impact on the
employment status of any employee and provided, further that this provision
shall not in any way limit the management rights of the
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Surviving Corporation or METALS to assess workforce needs and make appropriate
adjustments as necessary or desirable within their discretion subject to
applicable laws and collective bargaining agreements).
11. INDEMNIFICATION
The STOCKHOLDERS, METALS and NEWCO each make the following covenants that
are applicable to them, respectively:
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. The STOCKHOLDERS
covenant and agree that they, jointly and severally, will indemnify, defend,
protect and hold harmless METALS, NEWCO, the COMPANY and the Surviving
Corporation at all times, from and after the date of this Agreement until the
Expiration Date (provided that for purposes of Section 11.1(iii) below, the
Expiration Date shall be the date on which the applicable statute of limitations
expires), 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) incurred by METALS, NEWCO, the COMPANY or the Surviving
Corporation as a result of or arising from (i) any breach of the representations
and warranties of the STOCKHOLDERS or the COMPANY set forth herein or on the
schedules or certificates delivered in connection herewith, (ii) any breach of
any agreement on the part of the STOCKHOLDERS or the COMPANY under this
Agreement, or (iii) any liability under the 1933 Act, the 1934 Act or other
Federal or state law or regulation, at common law or otherwise, arising out of
or based upon any untrue statement or alleged untrue statement of a material
fact relating to the COMPANY or the STOCKHOLDERS, and provided to METALS or its
counsel by the COMPANY or the STOCKHOLDERS (but in the case of the STOCKHOLDERS,
only if such statement was provided in writing) contained in the Registration
Statement or any prospectus forming a part thereof, or any amendment thereof or
supplement thereto, or arising out of or based upon any omission or alleged
omission to state therein a material fact relating to the COMPANY or the
STOCKHOLDERS required to be stated therein or necessary to make the statements
therein not
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misleading, provided, however, that such indemnity shall not inure to the
benefit of METALS, NEWCO, the COMPANY or the Surviving Corporation to the extent
that such untrue statement (or alleged untrue statement) was made in, or
omission (or alleged omission) occurred in, any preliminary prospectus and the
STOCKHOLDERS provided, in writing, corrected information to METALS counsel and
to METALS for inclusion in the final prospectus, and such information was not so
included or properly delivered, and provided further, that no STOCKHOLDER shall
be liable for any indemnification obligation pursuant to this Section 11.1 to
the extent attributable to a breach of any representation, warranty or agreement
made herein individually by any other STOCKHOLDER.
METALS and NEWCO acknowledge and agree that other than the representations
and warranties of COMPANY or STOCKHOLDERS specifically contained in this
Agreement, there are no representations or warranties of COMPANY or
STOCKHOLDERS, either express or implied, with respect to the transactions
contemplated by this Agreement, the COMPANY or its assets, liabilities and
business.
METALS and any NEWCO further acknowledge and agree that, should the
Closing occur, their sole and exclusive remedy with respect to any and all
claims relating to this Agreement and the transactions contemplated in this
Agreement, shall be pursuant to the indemnification provisions set forth in this
Section 11. METALS and NEWCO hereby waive, from and after the Closing, to the
fullest extent permitted under applicable law, any and all rights, claims and
causes of action they or any indemnified person may have against the COMPANY or
any STOCKHOLDER relating to this Agreement or the transactions arising under or
based upon any federal, state, local or foreign statute, law, rule, regulation
or otherwise.
11.2 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 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) incurred by the
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STOCKHOLDERS as a result of or arising from (i) any breach by METALS or NEWCO of
their representations and warranties set forth herein or on the schedules or
certificates attached hereto, (ii) any breach of any agreement on the part of
METALS or NEWCO under this Agreement, (iii) any liabilities which the
STOCKHOLDERS may incur due to METALS's or NEWCO's failure to be responsible for
the liabilities and obligations of the COMPANY as provided in Section 1 hereof
(except to the extent that METALS or NEWCO has claims against the STOCKHOLDERS
by reason of such liabilities); or (iv) any liability under the 1933 Act, the
1934 Act or other Federal or state law or regulation, at common law or
otherwise, arising out of or based upon any untrue statement or alleged untrue
statement of a material fact relating to METALS, NEWCO or any of the Other
Founding Companies contained in any preliminary prospectus, the Registration
Statement or any prospectus forming a part thereof, or any amendment thereof or
supplement thereto, or arising out of or based upon any omission or alleged
omission to state therein a material fact relating to METALS or NEWCO or any of
the Other Founding Companies required to be stated therein or necessary to make
the statements therein not misleading.
11.3 THIRD PERSON CLAIMS. Promptly after any party hereto (hereinafter 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, the Indemnified Party shall, as a
condition precedent to a claim with respect thereto being made against any party
obligated to provide indemnification pursuant to Section 11.1 or 11.2 hereof
(hereinafter the "Indemnifying Party"), give the Indemnifying Party written
notice of such claim or the commencement of such action or proceeding. Such
notice shall state the nature and the basis of such claim and a reasonable
estimate of the amount thereof. The Indemnifying Party shall have the right to
defend and settle, at its own expense and by its own counsel, any such matter so
long as the Indemnifying Party pursues the same in good faith and diligently,
provided that the Indemnifying Party shall not settle any criminal proceeding
without the written consent of the Indemnified Party. If the Indemnifying Party
undertakes to defend or settle, it shall promptly notify the Indemnified Party
of its intention to do so, and the Indemnified Party shall cooperate with the
Indemnifying Party
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and its counsel in the defense thereof and in any settlement thereof. Such
cooperation shall include, but shall not be limited to, furnishing the
Indemnifying Party with any books, records or information reasonably requested
by the Indemnifying Party that are in the Indemnified Party's possession or
control. All Indemnified Parties shall use the same counsel, which shall be the
counsel selected by Indemnifying Party, provided that if counsel to the
Indemnifying Party shall have a conflict of interest that prevents counsel for
the Indemnifying Party from representing Indemnified Party, Indemnified Party
shall have the right to participate in such matter through counsel of its own
choosing and Indemnifying Party will reimburse the Indemnified Party for the
reasonable expenses of its counsel. After the Indemnifying Party has notified
the Indemnified Party of its intention to undertake to defend or settle any such
asserted liability, and for so long as the Indemnifying Party diligently pursues
such defense, the Indemnifying Party shall not be liable for any additional
legal expenses incurred by the Indemnified Party in connection with any defense
or settlement of such asserted liability, except (i) as set forth in the
preceding sentence and (ii) to the extent such participation is requested by the
Indemnifying Party, in which event the Indemnified Party shall be reimbursed by
the Indemnifying Party for reasonable additional legal expenses and
out-of-pocket expenses. If the Indemnifying Party desires to accept a final and
complete settlement of any such Third Person claim and the Indemnified Party
refuses to consent to such settlement, then the Indemnifying Party's liability
under this Section with respect to such Third Person claim shall be limited to
the amount so offered in settlement by said Third Person. Upon agreement as to
such settlement between said Third Person and the Indemnifying Party, the
Indemnifying Party shall, in exchange for a complete release from the
Indemnified Party, promptly pay to the Indemnified Party the amount agreed to in
such settlement and the Indemnified Party shall, from that moment on, bear full
responsibility for any additional costs of defense which it subsequently incurs
with respect to such claim and all additional costs of settlement or judgment.
If the Indemnifying Party does not undertake to defend such matter to which the
Indemnified Party is entitled to indemnification hereunder, or fails diligently
to pursue such defense, the Indemnified Party may undertake such defense through
counsel of its choice, at the cost and expense of the Indemnifying Party, and
the
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Indemnified Party may settle such matter, and the Indemnifying Party shall
reimburse the Indemnified Party for the amount paid in such settlement and any
other liabilities or expenses incurred by the Indemnified Party in connection
therewith, provided, however, that under no circumstances shall the Indemnified
Party settle any Third Person claim without the written consent of the
Indemnifying Party, which consent shall not be unreasonably withheld or delayed.
All settlements hereunder shall effect a complete release of the Indemnified
Party, unless the Indemnified Party otherwise agrees in writing. The parties
hereto will make appropriate adjustments for insurance proceeds in determining
the amount of any indemnification obligation under this Section.
11.4 EXCLUSIVE REMEDY. The indemnification provided for in this Section 11
shall (except as prohibited by ERISA) be the exclusive remedy in any action
seeking damages or any other form of monetary relief brought by any party to
this Agreement against another party, provided that, nothing herein shall be
construed to limit the right of a party, in a proper case, to seek injunctive
relief for a breach of this Agreement. Any indemnity payment under this Section
11 shall be treated as an adjustment to the exchange consideration for tax
purposes unless a final determination (which shall include the execution of a
Form 870-AD or successor form) with respect to the indemnified party or any of
its affiliate causes any such payment not to be treated as an adjustment to the
exchange consideration for U.S. Federal Income Tax purposes.
11.5 LIMITATIONS ON INDEMNIFICATION. METALS, NEWCO, the Surviving
Corporation and the other persons or entities indemnified pursuant to Section
11.1 or 11.2 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 the greater of (a) 1.0% of the sum of (i) the cash
paid to STOCKHOLDERS plus (ii) the value of the METALS Stock delivered to
STOCKHOLDERS (calculated as provided in this Section 11.5) or (b) $50,000 (the
"Indemnification Threshold"). STOCKHOLDERS shall not assert any claim for
indemnification hereunder against METALS or
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NEWCO until such time as, and solely to the extent that, the aggregate of all
claims which STOCKHOLDERS may have against METALS or NEWCO shall exceed $50,000.
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 related to a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement, no STOCKHOLDER shall be
liable under this Section 11 for an amount which exceeds the amount of proceeds
received by such STOCKHOLDER in connection with the Merger. For purposes of
calculating the value of the METALS Stock received by a STOCKHOLDER, METALS
Stock shall be valued at its initial public offering price as set forth in the
Registration Statement. It is hereby understood and agreed that a STOCKHOLDER
may satisfy an indemnification obligation through payment of a combination of
stock and cash in proportion equal to the proportion of stock and cash received
by such STOCKHOLDER in connection with the Merger, valued as described
immediately above.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION.This Agreement may be terminated at any time prior to the
Funding and Consummation Date solely:
(i) by mutual consent of the boards of directors of METALS and the
COMPANY;
(ii) by the STOCKHOLDERS or the COMPANY (acting through its board of
directors), on the one hand, or by METALS (acting through its board of
directors), on the other hand, if the transactions contemplated by this
Agreement to take place at the Closing shall not have been consummated by
December 31, 1997, 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 Funding and Consummation Date;
(iii) by the STOCKHOLDERS or COMPANY, on the one hand, or by METALS, on
the other hand, if a material breach or default shall be made by the other party
in the observance or in the due and timely performance of any of the covenants
or agreements contained herein, and the
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curing of such default shall not have been made on or before the Funding and
Consummation Date or by the STOCKHOLDERS or the COMPANY, if the conditions set
forth in Section 8 hereof have not been satisfied or waived as of the Closing
Date or the Funding and Consummation Date, as applicable, or by METALS, if the
conditions set forth in Section 9 hereof have not been satisfied or waived as of
the Closing Date or the Funding and Consummation Date, as applicable;
(iv) pursuant to Section 7.8 hereof; or
(v) pursuant to Section 4 hereof.
12.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in Section
7.8 hereof, 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.
13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES. The STOCKHOLDERS will not, for a period of
five (5) years following the Funding and Consummation 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 metals
processing, metals fabricating and/or specialty metals business, including
brokering, manufacturing and distribution services, in direct competition with
METALS or any of the subsidiaries thereof, within 200 miles of where the COMPANY
or any of its subsidiaries conducted business prior to the effectiveness of the
Merger (the "Territory");
(ii) call upon any person who is, at that time, within the Territory, an
employee of METALS (including the subsidiaries thereof) in a sales
representative or managerial capacity for the purpose or with the intent of
enticing such employee away from or out of the employ of METALS
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(including the subsidiaries thereof), provided that each STOCKHOLDER shall be
permitted to call upon and hire any member of his or her immediate family;
(iii) call upon any person or entity which is, at that time, or which has
been, within one (1) year prior to the Funding and Consummation Date, a customer
of METALS (including the subsidiaries thereof), of the COMPANY or of any of the
Other Founding Companies within the Territory for the purpose of soliciting or
selling products or services in direct competition with METALS within the
Territory;
(iv) call upon any prospective acquisition candidate, on any STOCKHOLDER's
own behalf or on behalf of any competitor in the metals processing, metals
fabricating and/or specialty metals business, including brokering, manufacturing
and distribution services, which candidate, to the actual knowledge of such
STOCKHOLDER after due inquiry, was called upon by METALS (including the
subsidiaries thereof) or for which, to the actual knowledge of such STOCKHOLDER
after due inquiry, METALS (or any subsidiary thereof) made an acquisition
analysis, for the purpose of acquiring such entity; or
(v) disclose customers, whether in existence or proposed, of the COMPANY
to any person, firm, partnership, corporation or business for any reason or
purpose whatsoever except to the extent that the COMPANY has in the past
disclosed such information to the public for valid business reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit any STOCKHOLDER 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.
13.2 DAMAGES. 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 and restraining orders.
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13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this Section 13 impose a reasonable restraint on the
STOCKHOLDERS in light of the activities and business of METALS (including the
subsidiaries thereof) on the date of the execution of this Agreement and the
current plans of METALS.
13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13 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.
13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13 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 (including the subsidiaries 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 13, during which the agreements
and covenants of each STOCKHOLDER made in this Section 13 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 13. The covenants
contained in Section 13 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.
13.6 MATERIALITY. The COMPANY and the STOCKHOLDERS hereby agree that this
covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. The STOCKHOLDERS recognize and acknowledge that they
had in the past, currently have, and in the future may possibly have, access to
certain confidential
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information of the COMPANY, the Other Founding Companies, and/or METALS, such as
operational policies, and pricing and cost policies that are valuable, special
and unique assets of the COMPANY's, the Other Founding Companies' and/or
METALS's respective businesses. 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 METALS or the Surviving Corporation and (c) to
counsel and other advisers, provided that such advisers (other than counsel)
agree to the confidentiality provisions of this Section 14.1, 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 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, or (iii) the disclosing party
reasonably believes that such disclosure is required in connection with the
defense of a lawsuit against the disclosing party. 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 an injunction 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.
In the event the transactions contemplated by this Agreement are not
consummated, STOCKHOLDERS shall have none of the above-mentioned restrictions on
their ability to disseminate confidential information with respect to the
COMPANY.
14.2 METALS AND NEWCO. METALS and NEWCO recognize and acknowledge that
they had in the past and currently have access to certain confidential
information of the COMPANY, such as operational policies, and pricing and cost
policies that are valuable, special and unique assets of the COMPANY's business.
METALS and NEWCO agree that, prior to the Closing, or if the Transactions
contemplated by this Agreement are not consummated, they will not disclose such
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confidential information to any person, firm, corporation, association or other
entity for any purpose or reason whatsoever, except (a) to authorized
representatives of the COMPANY, (b) to counsel and other advisers, provided that
such advisers (other than counsel) agree to the confidentiality provisions of
this Section 14.1, (c) to the Other Founding Companies and their representatives
pursuant to Section 7.1(a), unless (i) such information becomes known to the
public generally through no fault of METALS or NEWCO, (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),
METALS and NEWCO shall, if possible, give prior written notice thereof to the
COMPANY and the STOCKHOLDERS and provide the COMPANY and the STOCKHOLDERS with
the opportunity to contest such disclosure, or (iii) the disclosing party
reasonably believes that such disclosure is required in connection with the
defense of a lawsuit against the disclosing party, and (d) to the public to the
extent necessary or advisable in connection with the filing of the Registration
Statement and the IPO and the securities laws applicable thereto and to the
operation of METALS as a publicly held entity after the IPO. In the event of a
breach or threatened breach by METALS or NEWCO of the provisions of this
Section, the COMPANY and the STOCKHOLDERS shall be entitled to an injunction
restraining METALS and NEWCO from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting the
COMPANY and the STOCKHOLDERS from pursuing any other available remedy for such
breach or threatened breach, including the recovery of damages.
14.3 DAMAGES. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Section 14.1 and 14.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach by any of them of the foregoing covenants, the covenant may be
enforced against the other parties by injunctions and restraining orders.
14.4 SURVIVAL. The obligations of the parties under this Article 14 shall
survive the termination of this Agreement for a period of five years from the
Funding and Consummation Date.
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15. TRANSFER RESTRICTIONS
15.1 TRANSFER RESTRICTIONS. Unless otherwise agreed by METALS, except for
transfers to immediate family members who agree to be bound by the restrictions
set forth in this Section 15.1 (or trusts for the benefit of the STOCKHOLDERS or
family members, the trustees of which so agree), for a period of one year from
the Closing, except pursuant to Section 17 hereof, none of the STOCKHOLDERS
shall sell, assign, exchange, transfer, encumber, pledge, distribute, appoint,
or otherwise dispose of any shares of METALS Stock as described in Section 3.1
received by the STOCKHOLDERS in the Merger. The certificates evidencing the
METALS Stock delivered to the STOCKHOLDERS pursuant to Section 3 of this
Agreement will bear a legend substantially in the form set forth below and
containing such other information as METALS may deem necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED
OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE,
ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT
OR OTHER DISPOSITION PRIOR TO [FIRST ANNIVERSARY OF CLOSING DATE]. UPON THE
WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE
THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER AGENT)
AFTER THE DATE SPECIFIED ABOVE.
16. FEDERAL SECURITIES ACT REPRESENTATIONS
16.1 COMPLIANCE WITH LAW. The STOCKHOLDERS acknowledge that the shares of
METALS Stock to be delivered to the STOCKHOLDERS pursuant to this Agreement have
not been and will not be registered under the 1933 Act (except as provided in
Section 17 hereof) and therefore
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may not be resold without compliance with the 1933 Act. The METALS Stock to be
acquired by such STOCKHOLDERS pursuant to this Agreement is being acquired
solely for their own respective accounts, for investment purposes only, and with
no present intention of distributing, selling or otherwise disposing of it in
connection with a distribution. The STOCKHOLDERS covenant, warrant and represent
that none of the shares of METALS Stock issued to such STOCKHOLDERS will be
offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all of the applicable provisions
of the 1933 Act and the rules and regulations of the SEC. All the METALS Stock
shall bear the following legend in addition to the legend required under Section
15 of this Agreement: THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE
TRANSFERRED IF THE HOLDER HEREOF COMPLIES WITH THE ACT AND APPLICABLE SECURITIES
LAW.
16.2 ECONOMIC RISK; SOPHISTICATION. The STOCKHOLDERS are able to bear the
economic risk of an investment in the METALS Stock to be acquired pursuant to
this Agreement and can afford to sustain a total loss of such investment and
have such knowledge and experience in financial and business matters that they
are capable of evaluating the merits and risks of the proposed investment in the
METALS Stock. The STOCKHOLDERS party hereto have 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 current and proposed officers
and directors of METALS, the plans for the operations of the business of METALS,
the business, operations and financial condition of the Founding Companies other
than the COMPANY, and any plans for additional acquisitions and the like. The
STOCKHOLDERS have asked any and all questions in the nature described in the
preceding sentence and all questions have been answered to their satisfaction.
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17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. 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 shelf
registration of shares to be used as consideration for acquisitions of
additional businesses by METALS and (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 all of the 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) which
any such STOCKHOLDER requests, provided that METALS shall have the right to
reduce the number of shares included in such registration to the extent that
inclusion of such shares could, in the written opinion of tax counsel to METALS
or its independent auditors, jeopardize the status of the transactions
contemplated hereby and by the Registration Statement as a tax-free organization
under Section 351 of the Code. In addition, if METALS is advised in writing in
good faith by any managing underwriter of an underwritten offering of the
securities being offered pursuant to any registration statement under this
Section 17.1 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, provided,
that, for each such offering made by METALS after the IPO, such reduction shall
be made first by reducing the number of shares to be sold by persons other than
METALS, the STOCKHOLDERS and the stockholders of the Other Founding Companies
(collectively, the STOCKHOLDERS and the stockholders of the other Founding
Companies being referred to herein as the "Founding
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Stockholders"), and thereafter, if a further reduction is required, by reducing
the number of shares to be sold by the Founding Stockholders.
17.2 DEMAND REGISTRATION RIGHTS. At any time after the date one year after
the Closing and prior to the date three years after the Closing, the holders of
a majority of the shares of METALS Stock issued to the Founding Stockholders
pursuant to this Agreement and the Other Agreements 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 the shares of METALS Stock issued to the
STOCKHOLDERS pursuant to this Agreement and the Other Agreements (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 Founding Stockholders (a
"Demand Registration"). Within ten (10) days of the receipt of such request,
METALS shall give written notice of such request to all other Founding
Stockholders and shall, as soon as practicable but in no event later than 45
days after notice from any STOCKHOLDER, file and use its best efforts to cause
to become effective a registration statement covering all such shares. METALS
shall be obligated to effect only one Demand Registration for all Founding
Stockholders and will keep such Demand Registration current and effective for
not less than 120 days (or such shorter period as is required to sell all of the
shares registered thereby).
Notwithstanding the foregoing paragraph, following any such a demand, a
majority of METALS's 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 Founding 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, no registration of the
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Founding Stockholders' METALS Stock shall be initiated under this Section 17.2
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 Founding Stockholders the right to participate in such public
offering pursuant to, and subject to, Section 17.1 hereof.
17.3 REGISTRATION PROCEDURES. Whenever METALS is required to register
shares of METALS Stock pursuant to Sections 17.1 and 17.2, 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 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;
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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 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 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
Article 17 (including all registration, filing, qualification, legal, printer
and accounting fees, but excluding underwriting commissions and discounts),
shall be borne by METALS.
17.4 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.
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(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
17.5 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 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.
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17.5 UNDERWRITING AGREEMENT. In connection with each registration pursuant
to Sections 17.1 and 17.2 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.
17.6 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 understood and defined in Rule 144 under the 1933 Act for
a period of four years beginning 90 days following the effective date of
the Registration Statement;
(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 at any
time after it has become subject to such reporting requirements; 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 (at any time from and after 90 days following the
effective date of the Registration Statement, and of the 1933 Act and the
1934 Act (any time after it has become subject to such reporting
requirements), 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.
18. GENERAL
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18.1 COOPERATION. The COMPANY, STOCKHOLDERS, METALS and NEWCO shall
each deliver or cause to be delivered to the other on the Funding and
Consummation 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 Funding and Consummation 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 Funding and Consummation Date.
18.2 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.
18.3 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, NEWCO 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, NEWCO and
METALS, acting through their respective officers or trustees, duly authorized by
their respective Boards of Directors. Any disclosure made on any Schedule
delivered pursuant hereto shall be deemed to have been disclosed for purposes of
any other Schedule required hereby, provided that the COMPANY shall make a good
faith effort to cross reference disclosure, as necessary or advisable, between
related Schedules.
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18.4 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.
18.5 BROKERS AND AGENTS. Except as disclosed on Schedule 18.5, 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.
18.6 EXPENSES. Whether or not the transactions herein contemplated shall
be consummated, METALS will pay the fees, expenses and disbursements of METALS
and its agents, representatives, accountants and counsel incurred in connection
with the subject matter of this Agreement and any amendments thereto, including
all costs and expenses incurred in the performance and compliance with all
conditions to be performed by METALS under this Agreement, including the fees
and expenses of Arthur Andersen, LLP, Bracewell & Patterson, L.L.P., and any
other person or entity retained by METALS or by Notre Capital Ventures II,
L.L.C., and the costs of preparing the Registration Statement. 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 Merger, other than Transfer Taxes, if any, imposed by the
State of Delaware. 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 Section 2 hereof. The
STOCKHOLDERS acknowledge that the risks of the transactions contemplated hereby
include tax risks, with respect to which the STOCKHOLDERS are relying solely on
the opinion contemplated by Section 8.12 hereof.
18.7 NOTICES. All notices of communication 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
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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.
(a) If to METALS, or NEWCO, addressed to them at:
Metals USA, Inc.
4801 Woodway, Suite 300E
Houston, Texas 77056
Attn: J. Michael Kirksey
with copies to:
Thomas W. Adkins
Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana Street, Suite 2900
Houston, Texas 77002-2781
(b) If to the STOCKHOLDERS, addressed to them at their addresses
set forth on Annex II, with copies to:
Christopher S. Collins
Andrews & Kurth, L.L.P.
4200 Texas Commerce Tower
Houston, Texas 77002
and to:
Mr. Peter Fanchi
Thompson Coburn
One Mercantile Center
St. Louis, Missouri 63101
Tele: (314) 552-6034
Fax: (314) 552-7000
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(c) If to the COMPANY, addressed to it at:
Affiliated Metals, Inc.
P. O. Box 1306
1020 Niedringhaus
Granite City, IL 62040
Attn: Pat Notestine, President
Tele: (618) 451-4700
Fax: (618) 451-7238
with copies to:
Metals USA, Inc.
4801 Woodway, Suite 300E
Houston, TX 77056
Attn: J. Michael Kirksey
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Delaware.
18.9 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 Expiration Date.
18.10 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.
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18.11 TIME. Time is of the essence with respect to this Agreement.
18.12 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.
18.13 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.
18.14 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
18.15 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived only with the
written consent of METALS, NEWCO, the COMPANY and STOCKHOLDERS who hold or who
will hold at least 50% of the METALS Stock issued or to be issued upon
consummation of the Merger. Any amendment or waiver effected in accordance with
this Section 18.15 shall be binding upon each of the parties hereto, any other
person receiving METALS Stock in connection with the Merger and each future
holder of such METALS Stock.
18.16 WARRANTHOLDER. By its execution and delivery hereof, Capital For
Business, Inc., a Missouri corporation ("CFB"), hereby agrees to exercise in
full the Common Stock Purchase Warrant No. W-1 dated March 13, 1992 issued to
CFB by the COMPANY (the "Warrant") immediately prior to the Closing, and agrees
to be treated as a STOCKHOLDER under this Agreement, provided, however, that,
except for the representations made in this Section 18.16 by CFB, all of the
representations and warranties set forth in Article 5 hereof or elsewhere in
this Agreement made by the STOCKHOLDERS are, with respect to CFB, qualified by
and limited to CFB's actual knowledge without investigations of the matters so
represented or warranted except
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for the provisions of Article V addressing ownership of stock of the Company by
CFB free and clear of liens, claims or encumbrances. In addition, none of the
provisions of Article 13 hereof shall apply to CFB. Notwithstanding anything to
the contrary in this Agreement, (i) CFB's liability to the other parties under
this Agreement, including under the indemnification provisions of Article XI,
shall be limited to amounts incurred by the other parties solely as the result
of a breach of CFB's representations and warranties or agreements made in this
Agreement, and (ii) CFB shall not be liable to any other party to this Agreement
for any breach of representations, warranties or agreements made by the COMPANY
or the other STOCKHOLDERS, or for information provided by the COMPANY or the
other STOCKHOLDERS. At the Closing, CFB and the COMPANY shall terminate the
Agreement referred to in the Warrant, and all other agreements between them or
their affiliates relating to or arising out of CFB's equity investment in the
COMPANY, and CFB shall waive all rights under the Warrant, including without
limitation rights arising under Section 3 thereof, so that CFB shall be entitled
only to the registration and other rights arising under this Agreement. CFB
hereby confirms that it holds no preferred stock or other equity interest in the
COMPANY other than the Warrant.
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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: Art French
Title: Chief Executive Officer
AFFILIATED METALS ACQUISITION CORP.
By:
Name: J. Michael Kirksey
Title: President
AFFILIATED METALS COMPANY
By:
Name:
Title:
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STOCKHOLDERS:
Patrick A. Notestine Living Revocable Trust
By:
Name:
Title:
Gregory E. Poth
William W. Hudson,
Trustee under Trust Agreement dated June
17, 1994
CAPITAL FOR BUSINESS, INC.
By:
Stephen B. Broun
Senior Vice President
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ANNEX I
TO THE AGREEMENT
AND PLAN OF REORGANIZATION
DATED AS OF APRIL 30, 1997
BY AND AMONG
METALS USA, INC.
AND THE OTHER PARTIES NAMED THEREIN
CONSIDERATION TO BE PAID TO THE STOCKHOLDERS
Aggregate consideration to be paid to the STOCKHOLDERS:
$18,984,232.80 in cash and the value of outstanding Common Stock of Metals
(assuming an offering price of $13.00 per share), consisting of 1,022,230 shares
of Metals Stock and $5,695,242.80 in cash, it being agreed that the actual
amount of all cash payments described in this Annex I will depend on the actual
initial offering price of the Common Stock of Metals in the IP0, and may be more
or less than $13.00 per share; provided, however that such price shall not be
less than $8.00 per share.
Consideration to be paid to each STOCKHOLDER:
---------------------------------------------
Shares of Common Cash
Stockholder Stock of Metals ($)
- ----------- ------------- -------------
Patrick A. Notestine Living Revocable Trust .... 348,703 1,942,762.49
Gregory E. Poth ................................ 160,940 896,657.61
William W. Hudson, as Trustee under
Trust Agreement dated June 17,1994 ............ 160,940 896,657.61
Capital For Business ........................... 351,647 1,959,165.08
------------- -------------
1,022,230 5,695,242.80
============= =============
MINIMUM VALUE: $ 11,682,605 (based on a price of $8.00 per share)
============
EXHIBIT 10.4
AGREEMENT AND PLAN OF ORGANIZATION
dated as of the 30th day of April, 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.
(each a subsidiary of Metals USA, Inc.)
INTERSTATE STEEL SUPPLY COMPANY
INTERSTATE STEEL SUPPLY COMPANY OF PITTSBURGH
INTERSTATE STEEL SUPPLY COMPANY OF MARYLAND
INTERSTATE STEEL PROCESSING COMPANY
and
the STOCKHOLDERS named herein
<PAGE>
TABLE OF CONTENTS
Page
1. THE MERGER.............................................................6
1.1 Delivery and Filing of Articles of Merger........................6
1.2 Effective Time of the Merger.....................................6
1.3 Certificate of Incorporation, By-laws and
Board of Directors of Surviving Corporation......................6
1.4 Certain Information With Respect to the Capital Stock
of the COMPANY, METALS and NEWCO.................................7
1.5 Effect of Merger.................................................8
2. CONVERSION OF STOCK....................................................9
2.1 Manner of Conversion.............................................9
3. DELIVERY OF MERGER CONSIDERATION......................................10
4. CLOSING...............................................................11
5. REPRESENTATIONS AND WARRANTIES OF COMPANY
AND STOCKHOLDERS......................................................12
(A) Representations and Warranties of
COMPANY and STOCKHOLDERS..................................12
5.1 Due Organization................................................12
5.2 Authorization...................................................13
5.3 Capital Stock of the COMPANY....................................13
5.4 Transactions in Capital Stock, Organization Accounting..........14
5.5 No Bonus Shares.................................................14
5.6 Subsidiaries....................................................14
5.7 Predecessor Status; etc.........................................15
5.8 Spin-off by the COMPANY.........................................15
5.9 Financial Statements............................................15
5.10 Liabilities and Obligations.....................................15
5.11 Accounts and Notes Receivable...................................17
5.12 Permits and Intangibles.........................................17
5.13 Environmental Matters...........................................18
5.14 Personal Property...............................................19
5.15 Significant Customers; Material Contracts and Commitments.......19
5.16 Real Property...................................................20
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5.17 Insurance.......................................................21
5.18 Compensation; Employment Agreements; Organized Labor Matters....21
5.19 Employee Plans..................................................22
5.20 Compliance with ERISA...........................................23
5.21 Conformity with Law; Litigation.................................24
5.22 Taxes...........................................................25
5.23 No Violations; Consents, Etc....................................26
5.24 Government Contracts............................................26
5.25 Absence of Changes..............................................26
5.26 Deposit Accounts; Powers of Attorney............................28
5.27 Validity of Obligations.........................................29
5.28 Relations with Governments......................................29
5.29 Disclosure......................................................29
5.30 Prohibited Activities...........................................30
(B) Representations and Warranties of STOCKHOLDERS......30
5.31 Authority; Ownership............................................31
5.32 Preemptive Rights...............................................31
5.33 No Intention to Dispose of METALS Stock.........................31
6. REPRESENTATIONS OF METALS and NEWCO...................................31
6.1 Due Organization................................................32
6.2 Authorization...................................................32
6.3 Capital Stock of METALS and NEWCO...............................32
6.4 Transactions in Capital Stock, Organization Accounting..........33
6.5 Subsidiaries....................................................33
6.6 Financial Statements............................................33
6.7 Liabilities and Obligations.....................................34
6.8 Conformity with Law; Litigation.................................34
6.9 No Violations...................................................34
6.10 Validity of Obligations.........................................35
6.11 METALS Stock....................................................36
6.12 No Side Agreements..............................................36
6.13 Business; Real Property; Material Agreements....................36
6.14 Taxes...........................................................37
6.15 Absence of Changes..............................................37
6.16 Validity of Obligations.........................................39
6.17 Disclosure......................................................39
6.18 Private Offering................................................39
7. COVENANTS PRIOR TO CLOSING............................................39
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7.1 Access and Cooperation; Due Diligence...........................39
7.2 Conduct of Business Pending Closing.............................40
7.3 Prohibited Activities...........................................41
7.4 No Shop.........................................................43
7.5 Notice to Bargaining Agents.....................................44
7.6 Agreements......................................................44
7.7 Notification of Certain Matters.................................44
7.8 Amendment of Schedules..........................................45
7.9 Cooperation in Preparation of Registration Statement............46
7.10 Final Financial Statements......................................47
7.11 Further Assurances..............................................47
7.12 Authorized Capital..............................................47
7.13 Compliance with the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 (the "Hart-Scott Act").......48
7.14 Environmental Indemnity.........................................48
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF
STOCKHOLDERS AND COMPANY..............................................48
8.1 Representations and Warranties; Performance of Obligations......49
8.2 Satisfaction....................................................49
8.3 No Litigation...................................................50
8.4 Opinion of Counsel..............................................50
8.5 Registration Statement..........................................50
8.6 Consents and Approvals..........................................50
8.7 Good Standing Certificates......................................50
8.8 No Material Adverse Change......................................51
8.9 Closing of IPO..................................................51
8.10 Secretary's Certificate.........................................51
8.11 Employment Agreements...........................................51
8.12 Tax Matters.....................................................51
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF METALS AND NEWCO...............51
9.1 Representations and Warranties; Performance of Obligations......52
9.2 No Litigation...................................................52
9.3 Secretary's Certificate.........................................52
9.4 No Material Adverse Effect......................................53
9.5 STOCKHOLDERS' Release...........................................53
9.6 Satisfaction....................................................53
9.7 Termination of Related Party Agreements.........................53
9.8 Opinion of Counsel..............................................53
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9.9 Consents and Approvals..........................................54
9.10 Good Standing Certificates......................................54
9.11 Registration Statement..........................................54
9.12 Employment Agreements...........................................54
9.13 Closing of IPO..................................................54
9.14 FIRPTA Certificate..............................................54
10. COVENANTS OF METALS AND THE STOCKHOLDERS AFTER CLOSING................55
10.1 Release From Guarantees; Repayment of Certain Obligations.......55
10.2 Preservation of Tax and Accounting Treatment....................55
10.3 Preparation and Filing of Tax Returns...........................55
10.4 Directors.......................................................57
10.5 Preservation of Employee Benefit Plans..........................57
11. INDEMNIFICATION.......................................................57
11.1 General Indemnification by the STOCKHOLDERS.....................57
11.2 Indemnification by METALS.......................................59
11.3 Third Person Claims.............................................60
11.4 Exclusive Remedy................................................62
11.5 Limitations on Indemnification..................................62
12. TERMINATION OF AGREEMENT..............................................63
12.1 Termination.....................................................63
12.2 Liabilities in Event of Termination.............................64
13. NONCOMPETITION........................................................64
13.1 Prohibited Activities...........................................64
13.2 Damages.........................................................65
13.3 Reasonable Restraint............................................66
13.4 Severability; Reformation.......................................66
13.5 Independent Covenant............................................66
13.6 Materiality.....................................................66
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION..............................67
14.1 STOCKHOLDERS....................................................67
14.2 METALS AND NEWCO................................................68
14.3 Damages.........................................................68
14.4 Survival........................................................69
15. TRANSFER RESTRICTIONS.................................................69
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15.1 Transfer Restrictions...........................................69
16. FEDERAL SECURITIES ACT REPRESENTATIONS................................70
16.1 Compliance with Law.............................................70
16.2 Economic Risk; Sophistication...................................70
17. REGISTRATION RIGHTS...................................................71
17.1 Piggyback Registration Rights...................................71
17.2 Demand Registration Rights......................................72
17.3 Registration Procedures.........................................73
17.4 Indemnification.................................................74
17.5 Underwriting Agreement..........................................76
17.6 Rule 144 Reporting..............................................76
18. GENERAL...............................................................77
18.1 Cooperation.....................................................77
18.2 Successors and Assigns..........................................77
18.3 Entire Agreement................................................78
18.4 Counterparts....................................................78
18.5 Brokers and Agents..............................................78
18.6 Expenses........................................................78
18.7 Notices.........................................................79
18.8 Governing Law...................................................80
18.9 Survival of Representations and Warranties......................80
18.10 Exercise of Rights and Remedies.................................81
18.11 Time............................................................81
18.12 Reformation and Severability....................................81
18.13 Remedies Cumulative.............................................81
18.14 Captions........................................................81
18.15 Amendments and Waivers..........................................81
APPENDIX
Appendix I - Mergers
ANNEXES
Annex I - Consideration to Be Paid to Stockholders
Annex II - Stockholders and Stock Ownership of the Company
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Annex III - Stockholders and Stock Ownership of Metals
Annex IV - Certificate of Incorporation and By-Laws of Metals and Newco
Annex V - Form of Opinion of Counsel to Metals
Annex VI - Form of Opinion of Counsel to Company and Stockholders
Annex VII - Form of Key Employee Employment Agreement
Annex VIII - Form of Indemnification Agreement
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SCHEDULES
5.1 Due Organization
5.2 Authorization
5.3 Capital Stock of the COMPANY
5.4 Transactions in Capital Stock, Organization Accounting
5.5 No Bonus Shares
5.6 Subsidiaries
5.7 Predecessor Status; etc
5.8 Spin-off by the COMPANY
5.9 Financial Statements
5.10 Liabilities and Obligations
5.11 Accounts and Notes Receivable
5.12 Permits and Intangibles
5.13 Environmental Matters
5.14 Personal Property
5.15 Significant Customers; Material Contracts and Commitments
5.16 Real Property
5.17 Insurance
5.18 Compensation; Employment Agreements; Organized Labor Matters
5.19 Employee Plans
5.20 Compliance with ERISA
5.21 Conformity with Law; Litigation
5.22 Taxes
5.23 No Violations, Consents, etc.
5.24 Government Contracts
5.25 Absence of Changes
5.26 Deposit Accounts; Powers of Attorney
5.28 Relations with Governments
5.30 Prohibited Activities
5.31 Authority; Ownership
6.4 Transactions in Capital Stock, Organization Accounting
6.7 Liabilities and Obligations
6.8 Conformity with Law; Litigation
6.9 No Violations
6.13 Business; Real Property; Material Agreements
6.14 Taxes
7.2 Conduct of Business Pending Closing
7.3 Prohibited Activities
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7.5 Notice to Bargaining Agents
9.12 Employment Agreements
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AGREEMENT AND PLAN OF ORGANIZATION
THIS AGREEMENT AND PLAN OF ORGANIZATION (the "Agreement") is made as of
the 30th day of April, 1997, by and among METALS USA, Inc., a Delaware
corporation ("METALS"), INTERSTATE STEEL I ACQUISITION CORP., INTERSTATE STEEL
II ACQUISITION CORP., INTERSTATE STEEL III ACQUISITION CORP., and INTERSTATE
STEEL IV ACQUISITION CORP., each a Delaware corporation (collectively, "NEWCO",
and individually, "each NEWCO"), INTERSTATE STEEL SUPPLY COMPANY, a Pennsylvania
corporation, INTERSTATE STEEL SUPPLY COMPANY OF PITTSBURGH, a Pennsylvania
corporation, INTERSTATE STEEL SUPPLY COMPANY OF MARYLAND, a Maryland
corporation, and INTERSTATE STEEL PROCESSING COMPANY, a Pennsylvania corporation
(collectively, the "COMPANY", and individually, "each COMPANY"), and (i) ARNOLD
W. BRADBURD and (ii) WILLIAM L. BRADBURD, RUSSELL T. BRADBURD, KENNETH T.
BRADBURD and AMY RUTH BRADBURD, trustees under a Trust Agreement dated April 22,
1997 (the "STOCKHOLDERS"). The STOCKHOLDERS are all the stockholders of the
COMPANY.
WHEREAS, each NEWCO is a corporation duly organized and existing
under the laws of the State of Delaware, having been incorporated on April
23, 1997, solely for the purpose of completing the transactions set forth
herein, and is a wholly-owned subsidiary of METALS, a corporation
organized and existing under the laws of the State of Delaware;
WHEREAS, the respective Boards of Directors of each NEWCO and each
COMPANY (which together are hereinafter collectively referred to as
"Constituent Corporations") deem it advisable and in the best interests of
the Constituent Corporations and their respective stockholders that each
NEWCO merge with and into each COMPANY, as set forth on Appendix I hereto,
pursuant to this Agreement and the applicable provisions of the laws of
the States of Delaware and the States of Incorporation;
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WHEREAS, METALS is entering into other separate agreements
substantially similar to this Agreement (the "Other Agreements"), each of
which is entitled "Agreement and Plan of Organization," with each of the
Other Founding Companies (as defined herein) and their respective
stockholders in order to acquire additional metals processing, metals
fabricating and specialty metals companies;
WHEREAS, this Agreement and the Other Agreements constitute the
"METALS Plan of Organization;"
WHEREAS, the STOCKHOLDERS and the Boards of Directors and the
stockholders of METALS, each of the Other Founding Companies and each of
the subsidiaries of METALS that are parties to the Other Agreements have
approved and adopted the METALS Plan of Organization as an integrated plan
pursuant to which the STOCKHOLDERS and the stockholders of each of the
other Founding Companies will transfer the capital stock of each of the
Founding Companies to METALS and the stockholders of each of the other
Founding Companies will acquire the stock of METALS (but not cash or other
property) as a tax-free transfer of property under Section 351 of the
Internal Revenue Code of 1986, as amended;
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the Board of Directors of each
COMPANY has approved this Agreement as part of the METALS Plan of
Organization in order to transfer the capital stock of each COMPANY to
METALS;
WHEREAS, unless the context otherwise requires, capitalized terms
used in this Agreement or in any schedule attached hereto and not
otherwise defined shall have the following meanings for all purposes of
this Agreement:
"1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Acquired Party" means the COMPANY, any subsidiary and any member of a
Relevant Group.
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"Acquisition Companies" shall mean NEWCO and each of the other Delaware
companies wholly-owned by METALS prior to the Funding and Consummation Date.
"Affiliates" has the meaning set forth in Section 5.8.
"Articles of Merger" shall mean those Articles or Certificates of Merger
with respect to the Merger in such forms as may be required by the laws of the
State of Delaware and the State of Incorporation.
"Balance Sheet Date" shall mean December 31, 1996.
"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
"COMPANY" has the meaning set forth in the first paragraph of this
Agreement.
"COMPANY Stock" has the meaning set forth in Section 2.1.
"Constituent Corporations" has the meaning set forth in the second recital
of this Agreement.
"Draft Registration Statement" means the draft dated April 25, 1997 of the
Registration Statement, and any corrections thereto and supplemental information
delivered by METALS to the COMPANY for delivery to the STOCKHOLDERS prior to the
time this Agreement is delivered to METALS.
"Effective Time of the Merger" shall mean the time as of which the Merger
becomes effective, which shall, in any case, occur on the Funding and
Consummation Date.
"Environmental Laws" has the meaning set forth in Section 5.13.
"Expiration Date" has the meaning set forth in Section 5(A).
"Founding Companies" means:
Affiliated Metals Company, a Missouri corporation;
Interstate Steel Supply Company, a Pennsylvania corporation,
Interstate Steel Supply Company of Pittsburgh, a Pennsylvania
corporation, Interstate Steel Supply Company of Maryland, a
Maryland corporation, and Interstate Steel Processing Company,
a Pennsylvania corporation;
Queensboro Steel Corporation, a North Carolina corporation;
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Southern Alloy of America, Inc., a North Carolina corporation;
Steel Service Systems, Inc., a Wisconsin corporation;
Texas Aluminum Industries, Inc., a Texas corporation, Cornerstone
Metals Corporation, a Nevada corporation, Cornerstone Building
Products, Inc., a Nevada corporation, Cornerstone Aluminum
Company, Inc., a Nevada corporation, and Cornerstone Patio
Concepts, L.L.C., a Nevada limited liability company;
Uni-Steel Incorporated, an Oklahoma corporation; and
Williams Steel & Supply Co., Inc., a Wisconsin corporation.
"Funding and Consummation Date" has the meaning set forth in Section 4.
"IPO" means the initial public offering of METALS Stock pursuant to the
Registration Statement as referenced in Section 9.13.
"Material Adverse Effect" has the meaning set forth in Section 5.1.
"Material Documents" has the meaning set forth in Section 5.23.
"Merger" means the merger of each NEWCO with and into each COMPANY, as set
forth on Appendix I hereto, pursuant to this Agreement and the applicable
provisions of the laws of the State of Delaware and the laws of the States of
Incorporation.
"METALS" has the meaning set forth in the first paragraph of this
Agreement.
"METALS Charter Documents" has the meaning set forth in Section 6.1.
"METALS Stock" means the common stock, par value $.01 per share, of
METALS.
"NEWCO" has the meaning set forth in the first paragraph of this
Agreement.
"NEWCO STOCK" means the common stock, par value $.01 per share, of NEWCO.
"Other Founding Companies" means all of the Founding Companies other than
the Company.
"Plans" has the meaning set forth in Section 5.19.
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"Pricing" means the date of determination by METALS and the Underwriters
of the public offering price of the shares of METALS Stock in the IPO; the
parties hereto contemplate that the Pricing shall take place on the Closing
Date.
"Qualified Plans" has the meaning set forth in Section 5.20.
"Registration Statement" means that certain registration statement on Form
S-1 to be filed with the SEC covering the shares of METALS Stock to be issued in
the IPO and all amendments thereto.
"Relevant Group" means the COMPANY and any affiliated, combined,
consolidated, unitary or similar group of which the COMPANY is or was a member.
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
"Schedule" means each Schedule attached hereto, which shall reference the
relevant sections of this Agreement, on which parties hereto disclose
information as part of their respective representations, warranties and
covenants.
"SEC" means the United States Securities and Exchange Commission.
"States of Incorporation" means the States of Pennsylvania and Maryland.
"STOCKHOLDERS" has the meaning set forth in the first paragraph of this
Agreement.
"Surviving Corporation" shall mean each COMPANY as the surviving party in
each Merger.
"Tax" or "Taxes" means all federal, state, local or foreign net or gross
income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, withholding, employment, excise, property, deed, stamp, alternative
or add on minimum, or other taxes, assessments, duties, fees, levies or other
governmental charges, whether disputed or not, together with any interest,
penalties, additions to tax or additional amounts with respect thereto.
"Underwriters" means the prospective underwriters identified in the
Registration Statement.
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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1. THE MERGER
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER. The Constituent
Corporations will cause the Articles of Merger to be signed, verified and placed
in escrow under the control of METALS to be held for filing with the Secretary
of State of the States of Delaware and the Secretary of State of the State of
Incorporation on the Funding and Consummation Date.
1.2 EFFECTIVE TIME OF THE MERGER. At the Effective Time of the Merger,
each NEWCO shall be merged with and into each COMPANY as set forth on Appendix I
hereto in accordance with the Articles of Merger, the separate existence of each
NEWCO shall cease, each COMPANY shall be the surviving party in the Merger and
each COMPANY is sometimes hereinafter referred to as the Surviving Corporation.
The Merger will be effected in a single transaction.
1.3 CERTIFICATE OF INCORPORATION, BY-LAWS AND BOARD OF DIRECTORS OF
SURVIVING CORPORATION. At the Effective Time of the Merger:
(i) the Certificate of Incorporation of each COMPANY then in effect
shall be the Certificate of Incorporation of the respective Surviving
Corporation until changed as provided by law;
(ii) the By-laws of each NEWCO then in effect shall become the
By-laws of the Surviving Corporation; and subsequent to the Effective Time
of the Merger, such By-laws shall be the By-laws of the Surviving
Corporation until they shall thereafter be duly amended (and such By-laws
shall be amended, if necessary, to comply with applicable state law);
(iii) the Board of Directors of the respective Surviving Corporation
shall consist of the persons who are on the Board of Directors of each
COMPANY immediately prior to the Effective Time of the Merger, provided
that J. Michael Kirksey shall be elected as a director of each Surviving
Corporation effective as of the Effective Time of the Merger; the Board of
Directors of each Surviving Corporation shall hold office subject to the
provisions of the laws of the appropriate State of Incorporation and of
the Certificate of Incorporation and By-laws of the respective Surviving
Corporation; and
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(iv) the officers of each COMPANY immediately prior to the Effective
Time of the Merger shall continue as the officers of the respective
Surviving Corporation in the same capacity or capacities, and effective
upon the Effective Time of the Merger J. Michael Kirksey shall be
appointed as a vice president of each Surviving Corporation and Terry L.
Freeman shall be appointed as an Assistant Secretary of each Surviving
Corporation, each of such officers to serve, subject to the provisions of
the Certificate of Incorporation and Bylaws of the respective Surviving
Corporation, until his or her successor is duly elected and qualified.
1.4 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE COMPANY,
METALS AND NEWCO. The respective designations and numbers of outstanding shares
and voting rights of each class of outstanding capital stock of each COMPANY,
METALS and each NEWCO 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 each COMPANY is as set forth on Schedule 5.3 hereto;
(ii) immediately prior to the Closing Date and the Funding and
Consummation Date, the authorized capital stock of METALS will consist of
50,000,000 shares of METALS Stock, of which the number of issued and
outstanding shares will be set forth in the Registration Statement, and
5,000,000 shares of preferred stock, $.01 par value, of which no shares
will be issued and outstanding, and a number of shares of Restricted
Voting Common Stock, $.01 par value (the "Restricted Common Stock"), to be
determined by METALS in good faith, all of which will be issued and
outstanding except as otherwise set forth in the Registration Statement;
and
(iii) as of the date of this Agreement, the authorized capital stock
of each NEWCO consists of 1,000 shares of NEWCO Stock, of which one
hundred (100) shares are issued and outstanding.
1.5 EFFECT OF MERGER. At the Effective Time of the Merger, the effect of
the Merger shall be as provided in the applicable provisions of the General
Corporation Law of the State of Delaware
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(the "Delaware GCL") and the law of the appropriate State of Incorporation.
Except as herein specifically set forth, the identity, existence, purposes,
powers, objects, franchises, privileges, rights and immunities of each COMPANY
shall continue unaffected and unimpaired by each Merger and the corporate
franchises, existence and rights of each NEWCO shall be merged with and into
each COMPANY, and each COMPANY, as the Surviving Corporation, shall be fully
vested therewith. At the Effective Time of the Merger, the separate existence of
each NEWCO shall cease and, in accordance with the terms of this Agreement, the
respective 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 respective COMPANY and respective
NEWCO shall be transferred to, and vested in, the respective 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 respective Surviving Corporation
as they were of the respective COMPANY and respective NEWCO; and the title to
any real estate, or interest therein, whether by deed or otherwise, under the
laws of the appropriate State of Incorporation vested in the respective COMPANY
and respective NEWCO, shall not revert or be in any way impaired by reason of
the Merger. Except as otherwise provided herein, the respective Surviving
Corporation shall thenceforth be responsible and liable for all the liabilities
and obligations of the respective COMPANY and respective NEWCO and any claim
existing, or action or proceeding pending, by or against the respective COMPANY
or respective NEWCO may be prosecuted as if the Merger had not taken place, or
the respective Surviving Corporation may be substituted in their place. Neither
the rights of creditors nor any liens upon the property of the respective
COMPANY or respective NEWCO shall be impaired by the Merger, and all debts,
liabilities and duties of the respective COMPANY and respective NEWCO shall
attach to the respective Surviving Corporation, and may be enforced against such
Surviving Corporation to the
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same extent as if said debts, liabilities and duties had been incurred or
contracted by such Surviving Corporation.
2. CONVERSION OF STOCK
2.1 MANNER OF CONVERSION. The manner of converting the shares of (i)
outstanding capital stock of each COMPANY ("COMPANY Stock") and (ii) the
appropriate NEWCO Stock, issued and outstanding immediately prior to the
Effective Time of the Merger, respectively, into shares of (x) METALS Stock and
cash and (y) common stock of the respective Surviving Corporation, respectively,
shall be as follows:
As of the Effective Time of the Merger:
(i) all of the shares of COMPANY Stock issued and outstanding
immediately prior to the Effective Time of the Merger, by virtue of the
Merger and without any action on the part of the holder thereof,
automatically shall be deemed to represent (1) the right to receive the
number of shares of METALS Stock set forth on Annex I hereto with respect
to such holder and (2) the right to receive the amount of cash set forth
on Annex I hereto with respect to such holder;
(ii) all shares of COMPANY Stock 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 of the Merger, shall, by virtue of the Merger
and without any action on the part of METALS, automatically be converted
into one fully paid and non-assessable share of common stock of the
Surviving Corporation which shall constitute all of the issued and
outstanding shares of common stock of the Surviving Corporation
immediately after the Effective Time of the Merger.
All METALS Stock received by the STOCKHOLDERS pursuant to this Agreement
shall, except for restrictions on resale or transfer described in Sections 15
and 16 hereof, have the same
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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 GCL. All METALS Stock received by the STOCKHOLDERS
shall be issued and delivered to the STOCKHOLDERS free and clear of any liens,
claims or encumbrances of any kind or nature. All voting rights of such METALS
Stock received by the STOCKHOLDERS shall be fully exercisable by the
STOCKHOLDERS and the STOCKHOLDERS shall not be deprived nor restricted in
exercising those rights. At the Effective Time of the Merger, METALS shall have
no class of capital stock issued and outstanding other than the METALS Stock and
the Restricted Voting Common Stock.
3. DELIVERY OF MERGER CONSIDERATION
3.1 On the Funding and Consummation Date the STOCKHOLDERS, 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 and the amount of cash described on Annex I hereto, said
cash to be payable by certified check.
3.2 The STOCKHOLDERS shall deliver to METALS at the Closing the
certificates representing COMPANY Stock, duly endorsed in blank by the
STOCKHOLDERS, or accompanied by blank stock powers, and with all necessary
transfer tax and other revenue stamps, acquired at the STOCKHOLDERS' expense,
affixed and canceled. The STOCKHOLDERS agree 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.
4. CLOSING
At or prior to the Pricing, the parties shall take all actions necessary
to prepare to (i) effect the Merger (including the execution of the Articles of
Merger which shall be placed in escrow under the control of METALS for filing
with the appropriate authorities on the Funding and
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Consummation Date) and (ii) effect the conversion and delivery of shares
referred to in Section 3 hereof; provided, that such actions shall not include
the actual completion of the Merger or the conversion and delivery of the shares
and certified check(s) referred to in Section 3 hereof, each of which actions
shall only be taken upon the Funding and Consummation Date as herein provided.
The escrow agreement relating to the Articles of Merger shall provide that in
the event that there is no Funding and Consummation Date and this Agreement
automatically terminates as provided in this Section 4 the Articles of Merger
shall not be filed and shall be returned to the STOCKHOLDERS. The taking of the
actions described in clauses (i) and (ii) above (the "Closing") shall take place
on the closing date (the "Closing Date") at the offices of Bracewell &
Patterson, L.L.P., South Tower Pennzoil Place, 711 Louisiana, Suite 2900,
Houston, Texas 77002. On the Funding and Consummation Date (x) the Articles of
Merger shall be filed with the appropriate state authorities so that they shall
be, as early as practicable on the Funding and Consummation Date, effective and
the Merger shall thereby be effected, (y) all transactions contemplated by this
Agreement, including the conversion and delivery of shares, the delivery of a
certified check or checks in an amount equal to the cash portion of the
consideration which the STOCKHOLDERS shall be entitled to receive pursuant to
the Merger referred to in Section 3 hereof and (z) the closing with respect to
the IPO shall occur and be completed. The date on which the actions described in
the preceding clauses (x), (y) and (z) occurs shall be referred to as the
"Funding and Consummation Date." Except as otherwise provided in Section 12
hereof, during the period from the Closing Date to the Funding and Consummation
Date, this Agreement may only be terminated by the parties if the underwriting
agreement in respect of the IPO is terminated pursuant to the terms of such
agreement. This Agreement shall also in any event automatically terminate if the
Funding and Consummation Date has not occurred within 10 business days of the
Closing Date. Time is of the essence.
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5. REPRESENTATIONS AND WARRANTIES OF COMPANY
AND STOCKHOLDERS
(A) REPRESENTATIONS AND WARRANTIES OF COMPANY AND STOCKHOLDERS.
Each of the COMPANY and the STOCKHOLDERS jointly and severally represent
and warrant that all of the following representations and warranties in this
Section 5(A) are true at the date of this Agreement and, subject to Section 7.8
hereof, shall be true at the time of Closing and the Funding and Consummation
Date, and that such representations and warranties shall survive the Funding and
Consummation Date for a period of twelve months (the last day of such period
being the "Expiration Date"), except that the warranties and representations set
forth in Section 5.22 hereof shall survive until such time as the limitations
period has run for all tax periods ended on or prior to the Funding and
Consummation Date, which shall be deemed to be the Expiration Date for Section
5.22. For purposes of this Section 5, the term COMPANY shall mean and refer to
the COMPANY and all of its subsidiaries.
5.1 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 the 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 (i) as set forth on Schedule 5.1 or (ii) 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 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 5.1. The stock records of the COMPANY,
as heretofore made available to METALS, are correct and complete in all material
respects. There are
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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 complete in all
material 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, power and
authority to enter into this Agreement and the Merger. The most recent
resolutions adopted by the Board of Directors of the COMPANY and the most recent
resolutions adopted by the STOCKHOLDERS, all of which are dated no earlier than
ten business days prior to the date hereof, approve this Agreement and the
transactions contemplated hereby in all respects, and copies of all such
resolutions, certified by the Secretary or an Assistant Secretary of the COMPANY
as being in full force and effect on the date hereof, are attached hereto as
Schedule 5.2.
5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the
COMPANY is as set forth on Schedule 5.3. All of the issued and outstanding
shares of the capital stock of the COMPANY are owned by the STOCKHOLDERS in the
amounts set forth in Annex II. Each STOCKHOLDER, severally, represents and
warrants that except as set forth on Schedule 5.3, the shares of capital stock
of the COMPANY owned by such STOCKHOLDER 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, are owned of record and beneficially by the
STOCKHOLDERS and further, such shares were offered, issued, sold and delivered
by the COMPANY in compliance with all applicable state and Federal laws
concerning the issuance of securities. Further, none of such shares were issued
in violation of any preemptive rights of any past or present stockholder.
5.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except as set
forth on Schedule 5.4, the COMPANY has not acquired any COMPANY Stock since
January 1, 1995. Except as set forth on Schedule 5.4, (i) no option, warrant,
call, conversion right or commitment of any kind exists which obligates the
COMPANY to issue any of its authorized but unissued capital stock; (ii)
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the COMPANY has no obligation (contingent or otherwise) to purchase, redeem or
otherwise acquire any of its equity securities or any interests therein or to
pay any dividend or make any distribution in respect thereof; and (iii) neither
the voting stock structure of the COMPANY nor the relative ownership of shares
among any of its respective stockholders has been altered or changed in
contemplation of the Merger and/or the METALS Plan of Organization. Schedule 5.4
also includes a complete and accurate list of all stock option or stock purchase
plans, including a list of all outstanding options, warrants or other rights to
acquire shares of the COMPANY's stock and copies of such plans have been
delivered to METALS or are attached to Schedule 5.4.
5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of the
shares of COMPANY Stock was issued pursuant to awards, grants or bonuses in
contemplation of the Merger or the METALS Plan of Organization.
5.6 SUBSIDIARIES. Except as set forth on Schedule 5.6, the COMPANY has no
subsidiaries. Except as set forth in Schedule 5.6 and except for any
corporations or entities with respect to which the COMPANY owns less than 1% of
the issued and outstanding stock, the COMPANY does not presently 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 business entity nor is the COMPANY, directly or
indirectly, a participant in any joint venture, partnership or other
non-corporate entity.
5.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 5.7 is a listing of all
names of all predecessor companies of the COMPANY, including the names of any
entities acquired by the COMPANY (by stock purchase, merger or otherwise) or
owned by the COMPANY or from whom the COMPANY previously acquired material
assets, in any case, from the earliest date upon which any STOCKHOLDER acquired
his or her stock in any COMPANY. Except as disclosed on Schedule 5.7, the
COMPANY has not been, within such period of time, a subsidiary or division of
another corporation or a part of an acquisition which was later rescinded.
5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8, there
has not been any sale, spin-off or split-up of material assets of either the
COMPANY or any other person or entity
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that directly, or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, the COMPANY ("Affiliates") since
January 1, 1995.
5.9 FINANCIAL STATEMENTS. Attached hereto as Schedule 5.9 are copies of
the following financial statements (the "COMPANY Financial Statements") of the
COMPANY: the COMPANY's audited Balance Sheets as of December 31, 1996, 1995 and
1994, and Statements of Income, Stockholders' Equity and Cash Flows for each of
the three years in the period ended December 31, 1996 (December 31, 1996 being
hereinafter referred to as the "Balance Sheet Date"). Such Financial Statements
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated (except as noted
thereon or on Schedule 5.9). Except as set forth on Schedule 5.9, such Balance
Sheets present fairly in all material respects the financial position of the
COMPANY as of the dates indicated thereon, and such Statements of Income,
Stockholders Equity and Cash Flows present fairly in all material respects the
results of operations for the periods indicated thereon.
5.10 LIABILITIES AND OBLIGATIONS. The COMPANY has delivered to METALS an
accurate list (which is set forth on Schedule 5.10) as of the Balance Sheet Date
of (i) all liabilities of the COMPANY of a nature that they are required in
accordance with GAAP to be reflected on a balance sheet and which are not
reflected on the balance sheet of the COMPANY at the Balance Sheet Date or
otherwise reflected in the COMPANY Financial Statements at the Balance Sheet
Date, and which are not disclosed on any of the other Schedules to this
Agreement and which would have a Material Adverse Effect on the COMPANY, and
(ii) all loan agreements, indemnity or guaranty agreements, bonds, mortgages,
pledges or other security agreements to which the COMPANY is a party or by which
its properties may be bound. Except as set forth on Schedule 5.10, to the best
knowledge of the COMPANY, since the Balance Sheet Date the COMPANY has not
incurred any material liabilities of any kind, character or description, whether
accrued, absolute, secured or unsecured, contingent or otherwise, other than
liabilities incurred in the ordinary course of business. The COMPANY has also
delivered to METALS on Schedule 5.10, in the case of those contingent
liabilities related to pending or threatened litigation, or other liabilities
which are not fixed, a good
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faith and reasonable estimate of the maximum amount which the COMPANY reasonably
expects will be payable and the amount, if any, accrued or reserved for each
such potential liability on the COMPANY's Financial Statements. For each such
contingent liability or liability for which the amount is not fixed or is
contested, the COMPANY has provided to METALS the following information:
(i) a summary description of the liability together with the
following:
(a) copies of all relevant documentation relating thereto;
(b) amounts claimed and any other action or relief sought; and
(c) name of claimant and all other parties to the claim, suit
or proceeding;
(ii) the name of each court or agency before which such claim, suit
or proceeding is pending; and
(iii) the date such claim, suit or proceeding was instituted; and
(iv) a good faith and reasonable estimate of the maximum amount, if
any, which is likely to become payable with respect to each such
liability. If no estimate is provided, the estimate shall for purposes of
this Agreement be deemed to be zero.
5.11 ACCOUNTS AND NOTES RECEIVABLE. The COMPANY has delivered to METALS an
accurate list (which is set forth on Schedule 5.11) of the accounts and notes
receivable of the COMPANY, as of the Balance Sheet Date, including any such
amounts which are not reflected in the balance sheet as of the Balance Sheet
Date, and including receivables from and advances to employees and the
STOCKHOLDERS. Except to the extent reflected on Schedule 5.11, such accounts,
notes and other receivables are collectible in the amounts shown on Schedule
5.11, net of reserves reflected in the balance sheet as of the Balance Sheet
Date.
5.12 PERMITS AND INTANGIBLES. The COMPANY or its employees, as
appropriate, hold all licenses, franchises, permits and other governmental
authorizations ("Licenses") the absence of any of which could have a Material
Adverse Effect on the Company's business, and the COMPANY has delivered to
METALS an accurate list and summary description (which is set forth on Schedule
5.12) of all such Licenses, including any trademarks, trade names, patents,
patent applications and
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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 5.13). At or
prior to the Closing, all such trademarks, trade names, patents, patent
applications, copyrights and other intellectual property will be assigned or
licensed to the COMPANY for no additional consideration. To the best knowledge
of the COMPANY, the Licenses and other rights listed on Schedules 5.12 and 5.13
are valid, and the COMPANY has not received any notice that any person intends
to cancel, terminate or not renew any such License or other right. The COMPANY
has conducted and is conducting its business in compliance with the
requirements, standards, criteria and conditions set forth in the Licenses and
other rights listed on Schedules 5.12 and 5.13 and is not in violation of any of
the foregoing except where such non-compliance or violation would not have a
Material Adverse Effect on the COMPANY. Except as specifically provided in
Schedule 5.12, 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 or other rights.
5.13 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 5.13, and
except where any failure to comply or action would not have a Material Adverse
Effect, (i) 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 and Hazardous Substances (as such terms are defined
in any applicable Environmental Law), as well as petroleum and petroleum
products (collectively "Hazardous Materials"); (ii) the COMPANY has obtained and
adhered to all necessary permits and other approvals necessary to treat,
transport, store, dispose of and otherwise handle Hazardous Materials, a list of
all of which permits and approvals is set forth on Schedule 5.13, and
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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 Materials have been treated, stored, disposed of or otherwise
handled; (iii) there have been no releases or threats of releases (as these
terms are defined in Environmental Laws) of any Hazardous Materials at, from, in
or on any property owned or operated by the COMPANY except as permitted by
Environmental Laws; (iv) the COMPANY knows of no on-site or off-site location to
which the COMPANY has transported or disposed of Hazardous Materials or arranged
for the transportation of Hazardous Materials, which site 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, METALS or
NEWCO for any clean-up cost, remedial work, damage to natural resources,
property damage or personal injury, including, but not limited to, any claim
under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended; and (v) to the best knowledge of the COMPANY, the COMPANY
has no contingent liability in connection with any release of any Hazardous
Materials into the environment; provided, however, that the representation set
forth in this clause (v) shall not be deemed to limit in any way the
representations and warranties set forth in clauses (i) - (iv) of this Section
5.13.
5.14 PERSONAL PROPERTY. The COMPANY has delivered to METALS an accurate
list (which is set forth on Schedule 5.14) of (x) all personal property material
to the operations of the COMPANY included (or that will be included) in
"depreciable plant, property and equipment" on the balance sheet of the COMPANY,
(y) all other personal property owned by the COMPANY with an individual value in
excess of $50,000 (i) as of the Balance Sheet Date and (ii) acquired since the
Balance Sheet Date and (z) all material leases and agreements in respect of
personal property, including, in the case of each of (x), (y) and (z), (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. Except as set forth on Schedule
5.14, (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
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Schedule 5.14, (ii) all of the personal property listed on Schedule 5.14 is in
good working order and condition, ordinary wear and tear excepted and (iii) all
leases and agreements included on Schedule 5.14 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.
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. The
COMPANY has delivered to METALS an accurate list (which is set forth on Schedule
5.15) of (i) all significant customers, it being understood and agreed that a
"significant customer," for purposes of this Section 5.15, means a customer (or
person or entity) representing 5% or more of the COMPANY's annual revenues for
its most recently completed fiscal year. Except to the extent set forth on
Schedule 5.15, 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.
The COMPANY has listed on Schedule 5.15 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),
other than agreements listed on Schedule 5.10, 5.14 or 5.16, (a) in existence as
of the Balance Sheet Date and (b) entered into since the Balance Sheet Date, and
in each case has delivered true, complete and correct copies of such agreements
to METALS. The COMPANY has also indicated on Schedule 5.15 a summary description
of all plans or projects involving the opening of new operations, expansion of
existing operations, the acquisition of any personal property, business or
assets requiring, in any event, the payment of more than $50,000 by the COMPANY
during any 12-month period.
5.16 REAL PROPERTY. Schedule 5.16 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. Except as set forth
on Schedule 5.16, any such real property owned by the COMPANY will be sold or
distributed by the COMPANY and leased back by the COMPANY on
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terms no less favorable to the COMPANY than those available from an unaffiliated
party and otherwise reasonably acceptable to METALS at or prior to the Closing
Date. The COMPANY has good and insurable title to any real property owned by it
that is not shown on Schedule 5.16 as property intended to be sold or
distributed prior to the Closing Date, subject to no mortgage, pledge, lien,
conditional sales agreement, encumbrance or charge, except for:
(i) liens reflected on Schedules 5.10 or 5.16 as securing specified
liabilities (with respect to which no material default exists);
(ii) liens for current taxes not yet payable and assessments not in
default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other exceptions to
title which do not adversely affect the current use of the property.
True, complete and correct copies of all leases and agreements in respect
of such real property leased by the COMPANY are attached to Schedule 5.16, 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 5.16. Except as set forth on Schedule 5.16, all of such
leases included on Schedule 5.16 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.
5.17 INSURANCE. The COMPANY has delivered to METALS (i) an accurate list
as of the Balance Sheet Date of all insurance policies carried by the COMPANY,
(ii) an accurate list of all insurance loss runs or workers compensation claims
received for the past three (3) policy years and (iii) true, complete and
correct copies of all insurance policies currently in effect. 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. All of such insurance policies are currently in full force and
effect and shall, to the best knowledge of the COMPANY, remain in full force and
effect through the Funding and Consummation Date. Since January 1, 1994, no
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insurance carried by the COMPANY has been canceled by the insurer and the
COMPANY has not been denied coverage.
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS. The
COMPANY has delivered to METALS an accurate list (which is set forth on Schedule
5.18) 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. The COMPANY has provided to METALS
true, complete and correct copies of any employment agreements for persons
listed on Schedule 5.18. Since the Balance Sheet Date, there have been no
material 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 5.18, (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 nor has the COMPANY experienced any labor
interruptions over the past three years. The COMPANY believes its relationship
with employees to be good.
5.19 EMPLOYEE PLANS. The STOCKHOLDERS have delivered to METALS an accurate
schedule (Schedule 5.19) showing all employee benefit plans of COMPANY
(including COMPANY's Subsidiaries), including all employment agreements and
other agreements or arrangements 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 5.19,
COMPANY (including
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the COMPANY's Subsidiaries) does not sponsor, maintain or contribute to any plan
program, fund or arrangement that constitutes an "employee pension benefit
plan," nor has COMPANY or any Subsidiary 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. Neither COMPANY nor any Subsidiary has sponsored,
maintained or contributed to any employee pension benefit plan other than the
plans set forth on Schedule 5.19, nor is COMPANY or any Subsidiary 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 COMPANY's or any Subsidiary's employees.
Neither the COMPANY nor any Subsidiary is now, or will as a result of its
past activities become, liable to the Pension Benefit Guaranty Corporation or to
any multiemployer employee pension benefit plan under the provisions of Title IV
of ERISA for any amounts which would have a Material Adverse Effect on the
COMPANY.
All employee benefit plans listed on Schedule 5.19 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 or any Subsidiary with
respect to any plan listed on Schedule 5.19 have either been fulfilled in their
entirety or are fully reflected on the balance sheet of the COMPANY as of the
Balance Sheet Date.
5.20 COMPLIANCE WITH ERISA. All such plans listed on Schedule 5.19 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 such
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determination letters are included as part of Schedule 5.19 hereof. Except as
disclosed on Schedule 5.20, 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 5.19 hereof. Neither STOCKHOLDERS, any such plan listed in
Schedule 5.19, nor COMPANY (including the COMPANY's Subsidiaries) has engaged in
any transaction prohibited under the provisions of Section 4975 of the Code or
Section 406 of ERISA. No such Plan listed in Schedule 5.19 has incurred an
accumulated funding deficiency, as defined in Section 412(a) of the Code and
Section 302(1) of ERISA; and COMPANY (including the COMPANY's Subsidiaries) has
not incurred any liability for excise tax or penalty due to the Internal Revenue
Service nor any liability to the Pension Benefit Guaranty Corporation. The
STOCKHOLDERS further represent that except as set forth on Schedule 5.19 hereto:
(i) 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;
(ii) no such plan listed in Schedule 5.19 subject to the provisions
of Title IV of ERISA has been terminated;
(iii) 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 5.19;
(iv) COMPANY (including the COMPANY's Subsidiaries) has not incurred
liability under Section 4062 of ERISA; and
(v) To their best knowledge, circumstances exist pursuant to which
the COMPANY could have any direct or indirect liability whatsoever
(including, but not limited to, any liability to any multiemployer 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
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was, a member of a "controlled group" (as defined in Section 412(n)(6)(B)
of the Code) that includes the COMPANY.
5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedule 5.21 or 5.13, 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 which would have a Material Adverse Effect; and except to
the extent set forth on Schedule 5.10 or 5.13, there are no material claims,
actions, suits or proceedings, pending or, to the knowledge of the COMPANY,
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 any of them
and no notice of any claim, action, suit or proceeding, whether pending or
threatened, has been received by the COMPANY. 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, orders, approvals, variances, rules and regulations,
including all such orders and other governmental approvals set forth on
Schedules 5.12 and 5.13, except where any such noncompliance, individually or in
the aggregate, would not have a Material Adverse Effect.
5.22 TAXES. COMPANY (including the COMPANY's 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; and except as
set forth on Schedule 5.22, there are no examinations in progress or claims
pending against any of them for federal, state and other taxes (including
penalties and interest) for any period or periods prior to and including the
Balance Sheet Date and no notice of any claim for taxes, whether pending or
threatened, has been received. All tax, including interest and penalties
(whether or not shown on any tax return) owed by the COMPANY or any of the
COMPANY's Subsidiaries has been paid. The amounts shown as accruals for taxes on
the COMPANY Financial Statements are sufficient for the payment of all taxes of
the kinds indicated (including penalties and interest) for all fiscal periods
ended on or before that date. Copies
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of (i) any tax examinations, (ii) extensions of statutory limitations and (iii)
the federal and local income tax returns and franchise tax returns of COMPANY
(including the COMPANY Subsidiaries) for their last three (3) fiscal years, or
such shorter period of time as any of them shall have existed, are attached
hereto as Schedule 5.22 or have otherwise been delivered to METALS. The COMPANY
has a taxable year ended December 31. 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.
5.23 NO VIOLATIONS; CONSENTS, ETC. The COMPANY is not in violation of any
Charter Document. Neither the COMPANY nor, to the best knowledge of the COMPANY,
any other party thereto, is in default under any lease, instrument, agreement,
license, or permit set forth on Schedule 5.12, 5.13, 5.14, 5.15 or 5.16, or any
other material agreement to which it is a party or by which its properties are
bound (the "Material Documents") in any manner that could result in a Material
Adverse Effect; and, except as set forth in Schedule 5.23, (a) the rights and
benefits of the COMPANY under the Material Documents will not be materially
adversely affected by the transactions contemplated hereby and (b) 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
material violation or breach or constitute a default under, any of the terms or
provisions of the Material Documents or the Charter Documents. Except as set
forth on Schedule 5.23, 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. Except as set forth on Schedule 5.23,
none of the Material Documents prohibits the use or publication by the COMPANY,
METALS or NEWCO 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,
METALS, NEWCO or any Other Founding Company.
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5.24 GOVERNMENT CONTRACTS. Except as set forth on Schedule 5.24, the
COMPANY is not now a party to any governmental contracts subject to price
redetermination or renegotiation.
5.25 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
on Schedule 5.25 or as otherwise contemplated hereby, 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
except for distributions that would have been permitted after the date
hereof under Section 7.3(iii) hereof;
(v) any material 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, except for ordinary and customary bonuses and salary increases for
employees in accordance with past practice;
(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 STOCKHOLDERS or any affiliate thereof;
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(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 other distribution of property or assets by the COMPANY
other than in the ordinary course of business and other than distributions
of real estate and other assets as permitted by this Agreement (including
the Schedules hereto).
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The COMPANY has delivered to
METALS an accurate schedule (which is set forth on Schedule 5.26) as of the date
of the 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; and
(iv) the name of each person authorized to draw thereon or have
access thereto.
Schedule 5.26 also sets forth the name of each person, corporation, firm
or other entity holding a general or special power of attorney from the COMPANY
and a description of the terms of such power.
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5.27 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by the COMPANY and the performance of the transactions contemplated herein have
been duly and validly authorized by the Board of Directors of the COMPANY and
this Agreement has been duly and validly authorized by all necessary corporate
action and is a legal, valid and binding obligation of the COMPANY.
5.28 RELATIONS WITH GOVERNMENTS. Except for political contributions made
in a lawful manner which, in the aggregate, do not exceed $10,000 per year, the
COMPANY has not over the past five (5) years made, offered or agreed to offer
anything of value to any governmental official, political party or candidate for
government office nor has it 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. If political contributions made by the
COMPANY have exceeded $10,000 per year for each year in which any STOCKHOLDER
has been a stockholder of the COMPANY, each contribution in the amount of $5,000
or more shall be described on Schedule 5.28.
5.29 DISCLOSURE. (a) This Agreement, including the Annexes and Schedules
hereto, and the completed Director and Officer Questionnaires and the completed
S-1 Questionnaire furnished to METALS by the COMPANY and the STOCKHOLDERS in
connection herewith, do not contain an untrue statement of a material fact or
omit to state a material fact necessary to make the statements herein and
therein, in light of the circumstances under which they were made, not
misleading; provided, however, that the foregoing does not apply to statements
contained in or omitted from any of such documents made or omitted in reliance
upon information furnished in writing by METALS. If, prior to the 25th day after
the date of the final prospectus of METALS utilized in connection with the IPO,
the COMPANY or the STOCKHOLDERS become aware of any fact or circumstance which
would affect the accuracy of a representation or warranty of COMPANY or
STOCKHOLDERS in this Agreement in any material respect, the COMPANY and the
STOCKHOLDERS shall immediately give notice of such fact or circumstance to
METALS. However, subject to the provisions of Section 7.8, such notification
shall not relieve either the COMPANY or the STOCKHOLDERS of their respective
obligations under this Agreement, and,
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subject to the provisions of Section 7.8, at the sole option of METALS, the
truth and accuracy of any and all warranties and representations of the COMPANY,
or on behalf of the COMPANY and of STOCKHOLDERS at the date of this Agreement
and on the Closing Date and on the Funding and Consummation Date, shall be a
precondition to the consummation of this transaction.
(b) The COMPANY and the STOCKHOLDERS acknowledge and agree (i)
that there exists no firm commitment, binding agreement, or promise or other
assurance of any kind, whether express or implied, oral or written, that a
Registration Statement will become effective or that the IPO pursuant thereto
will occur at a particular price or within a particular range of prices or occur
at all; (ii) that neither METALS or any of its officers, directors, agents or
representatives nor any Underwriter shall have any liability to the COMPANY, the
STOCKHOLDERS or any other person affiliated or associated with the COMPANY for
any failure of the Registration Statement to become effective, the IPO to occur
at a particular price or within a particular range of prices or to occur at all;
and (iii) that the decision of STOCKHOLDERS to enter into this Agreement, or to
vote in favor of or consent to the proposed Merger, has been or will be made
independent of, and without reliance upon, any statements, opinions or other
communications, or due diligence investigations which have been or will be made
or performed by any prospective Underwriter, relative to METALS or the
prospective IPO. METALS agrees, however, to use all reasonable efforts to
consummate the METALS Plan of Organization and IPO as contemplated hereby.
5.30 PROHIBITED ACTIVITIES. Except as set forth on Schedule 5.30, 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.
(B) REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS
Each STOCKHOLDER severally represents and warrants that the
representations and warranties set forth below are true as of the date of this
Agreement and, subject to Section 7.8 hereof, shall be true at the time of
Closing and on the Funding and Consummation Date, and that the representations
and warranties set forth in Sections 5.31 and 5.32 shall survive until the first
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anniversary of the Funding and Consummation Date, which shall be the Expiration
Date for purposes of Sections 5.31 and 5.32.
5.31 AUTHORITY; OWNERSHIP. Such STOCKHOLDER has the full legal right,
power and authority to enter into this Agreement. Such STOCKHOLDER owns
beneficially and of record all of the shares of the COMPANY stock identified on
Annex II as being owned by such STOCKHOLDER, and, except as set forth on
Schedule 5.31, such COMPANY Stock is owned free and clear of all liens,
encumbrances and claims of every kind.
5.32 PREEMPTIVE RIGHTS. Such STOCKHOLDER does not have, or hereby waives,
any preemptive or other right to acquire shares of COMPANY Stock or METALS Stock
that such STOCKHOLDER has or may have had. Nothing herein, however, shall limit
or restrict the rights of any STOCKHOLDER to acquire METALS Stock pursuant to
(i) this Agreement or (ii) any option granted by METALS.
5.33 NO INTENTION TO DISPOSE OF METALS STOCK. No STOCKHOLDER is under any
binding commitment or contract to sell, exchange or otherwise dispose of shares
of METALS Stock received as described in Section 3.1.
6. REPRESENTATIONS OF METALS AND NEWCO
METALS and NEWCO jointly and severally represent and warrant that
all of the following representations and warranties in this Section 6 are true
at the date of this Agreement and, subject to Section 7.8 hereof, shall be true
at the time of Closing and the Funding and Consummation Date, and that such
representations and warranties shall survive the Funding and Consummation Date
for a period of twelve months (the last day of such period being the "Expiration
Date"), except that (i) the warranties and representations set forth in Section
6.14 hereof shall survive until such time as the limitations period has run for
all tax periods ended on or prior to the Funding and Consummation Date, which
shall be deemed to be the Expiration Date for Section 6.14 and (ii) solely for
purposes of determining whether a claim for indemnification under Section
11.2(iv) hereof has been made on a timely basis, and solely to the extent that
in connection with the IPO, any of the
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STOCKHOLDERS actually incurs liability under the 1933 Act, the 1934 Act, or any
other Federal or state securities laws, the representations and warranties set
forth herein shall survive until the expiration of any applicable limitations
period, which shall be deemed to be the Expiration Date for such purposes.
6.1 DUE ORGANIZATION. METALS and NEWCO are each corporations duly
organized, validly existing and in good standing under the laws of the State of
Delaware, 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 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. True,
complete and correct copies of the Certificate of Incorporation and By-laws,
each as proposed to be amended, of METALS and NEWCO (the "METALS Charter
Documents") are all attached hereto as Annex IV.
6.2 AUTHORIZATION. (i) The respective representatives 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 consummate the
Merger. All corporate acts and other proceedings required to have been taken by
METALS and NEWCO to authorize the execution, delivery and performance of this
Agreement and the consummation of the Merger have been duly and properly taken.
6.3 CAPITAL STOCK OF METALS AND NEWCO. The authorized capital stock of
METALS and NEWCO is as set forth in Sections 1.4(ii) and (iii), respectively.
All of the issued and outstanding shares of the capital stock of NEWCO are owned
by METALS and all of the issued and outstanding shares of the capital stock of
METALS are owned by the persons set forth on Annex III hereof, in each case,
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 METALS and NEWCO have been duly
authorized and validly issued, are fully paid and nonassessable, are owned of
record and beneficially by METALS and the persons set forth on
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Annex III, respectively, and further, such shares were offered, issued, sold and
delivered by METALS and NEWCO in compliance with all applicable state and
Federal laws concerning the issuance of securities. Further, none of such shares
were issued in violation of the preemptive rights of any past or present
stockholder of METALS or NEWCO.
6.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except for the
Other Agreements and except as set forth on Schedule 6.4, (i) no option,
warrant, call, conversion right or commitment of any kind exists which obligates
METALS or NEWCO to issue any of their respective authorized but unissued capital
stock; and (ii) neither METALS nor NEWCO has any obligation (contingent or
otherwise) to purchase, redeem or otherwise acquire any of its equity securities
or any interests therein or to pay any dividend or make any distribution in
respect thereof. Schedule 6.4 also includes complete and accurate copies of all
stock option or stock purchase plans, including a list, accurate as of the date
hereof, of all outstanding options, warrants or other rights to acquire shares
of the stock of METALS.
6.5 SUBSIDIARIES. NEWCO has no subsidiaries. METALS has no subsidiaries
except for NEWCO and each of the companies identified as "NEWCO" in each of the
Other Agreements. Except as set forth in the preceding sentence, neither METALS
nor NEWCO presently owns, of record or beneficially, or controls, directly or
indirectly, any capital stock, securities convertible into capital stock or any
other equity interest in any corporation, association or business entity, and
neither METALS nor NEWCO, directly or indirectly, is a participant in any joint
venture, partnership or other non-corporate entity.
6.6 FINANCIAL STATEMENTS. Included in the Draft Registration Statement are
copies of the following financial statements (the "METALS Financial Statements")
of METALS, which reflect the results of its operations from inception in July
1996: METALS's audited Balance Sheet as of December 31, 1996. Such METALS
Financial Statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
indicated (except as noted thereon). Such Balance Sheet presents fairly the
financial position of METALS as of such date.
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6.7 LIABILITIES AND OBLIGATIONS. Except as set forth on Schedule 6.7,
METALS and NEWCO have no material liabilities, contingent or otherwise, except
as set forth in or contemplated by this Agreement and the Other Agreements and
except for fees incurred in connection with the transactions contemplated hereby
and thereby.
6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedule 6.8, neither METALS nor NEWCO is 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 either of them which would have a Material Adverse Effect; and
except to the extent set forth in Schedule 6.8, there are no material claims,
actions, suits or proceedings, pending or, to the knowledge of METALS or NEWCO,
threatened against or affecting, METALS or NEWCO, 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
either of them and no notice of any claim, action, suit or proceeding, whether
pending or threatened, has been received. METALS and NEWCO have conducted and
are conducting their respective businesses 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 and are not in violation of any of
the foregoing which would have a Material Adverse Effect.
6.9 NO VIOLATIONS. Neither METALS nor NEWCO is in violation of any METALS
Charter Document. None of METALS, NEWCO, or, to the knowledge of METALS and
NEWCO, any other party thereto, is in default under any lease, instrument,
agreement, license, or permit to which METALS or NEWCO is a party, or by which
METALS or NEWCO, or any of their respective properties, are bound (collectively,
the "METALS Documents"); and (a) the rights and benefits of METALS and NEWCO
under the METALS Documents will not be adversely affected by the transactions
contemplated hereby and (b) the execution and delivery of this Agreement by
METALS and NEWCO and the performance of their obligations hereunder do not, and
the consummation of the transactions contemplated hereby and compliance with the
terms hereof will not, conflict with,
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or result in any violation or default (with or without notice or lapse of time,
or both), under or give rise to a right of termination, cancellation, or
acceleration of any obligation or to loss of a material benefit under, or result
in the creation of any lien upon any of the assets of METALS or any NEWCO under,
any provision of (i) the Certificate of Incorporation or Bylaws of METALS or the
comparable governing instruments of any NEWCO, (ii) any note, bond, mortgage,
indenture or deed of trust or any license, lease, contract, commitment,
agreement or arrangement to which METALS and any NEWCO is a party or by which
any of their respective properties or assets are bound or (iii) any judgment,
order, decree or law, ordinance, rule or regulation, applicable to METALS or any
NEWCO or their respective properties or assets. 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 material violation or
breach or constitute a default under, any of the terms or provisions of the
METALS Documents or the METALS Charter Documents. Except as set forth on
Schedule 6.9, none of the METALS 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.
6.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by METALS and NEWCO and the performance of the transactions contemplated herein
have been duly and validly authorized by the respective 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.
6.11 METALS STOCK. At the time of issuance thereof and delivery to the
STOCKHOLDERS, the METALS Stock to be delivered to the STOCKHOLDERS pursuant to
this Agreement will constitute valid and legally issued shares of METALS, fully
paid and nonassessable, and with the exception of restrictions upon resale set
forth in Sections 15 and 16 hereof, will be identical in all substantive
respects (which do not include the form of certificate upon which it is
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printed or the presence or absence of a CUSIP number on any such certificate) to
the METALS Stock issued and outstanding as of the date hereof by reason of the
provisions of the Delaware GCL. The METALS Stock issued and delivered to the
STOCKHOLDERS shall at the time of such issuance and delivery be free and clear
of any liens, claims or encumbrances of any kind or character. The shares of
METALS Stock to be issued to the STOCKHOLDERS pursuant to this Agreement will
not be registered under the 1933 Act, except as provided in Section 17 hereof.
6.12 NO SIDE AGREEMENTS. Neither METALS nor NEWCO has entered or will
enter into any agreement with any of the Founding Companies or any of the
stockholders of the Founding Companies or METALS other than the Other Agreements
and the agreements contemplated by each of the Other Agreements, including the
employment agreements, leases and Indemnification Agreements referred to herein
or entered into in connection with the transactions contemplated hereby and
thereby.
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. METALS was formed in
July 1996 and has conducted limited operations since that time. Neither METALS
nor NEWCO has conducted any material business since the date of its inception,
except in connection with this Agreement, the Other Agreements and the IPO.
Neither METALS nor NEWCO owns or has at any time owned any real property or any
material personal property or is a party to any other agreement, except as
listed on Schedule 6.13 and except that METALS is a party to the Other
Agreements and the agreements contemplated thereby and to such agreements as
will be filed as Exhibits to the Registration Statement.
6.14 TAXES. METALS and NEWCO have 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; and except as set forth on Schedule 6.14,
there are no examinations in progress or claims against METALS for federal,
state and other taxes (including penalties and interest) for any period or
periods prior to and including the Balance Sheet Date and no notice of any claim
for taxes, whether pending or threatened, has been received. All taxes which
METALS or any NEWCO has been required to collect or withhold have been duly and
timely collected and withheld and have been set
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aside in accounts for such purposes, or have been duly and timely paid to the
proper governmental authority. All tax, including interest and penalties
(whether or not shown on any tax return) owed by METALS, any member of an
affiliated or consolidated group which includes or included METALS, or with
respect to any payment made or deemed made by METALS herein has been paid. The
amounts shown as accruals for taxes on METALS Financial Statements are
sufficient for the payment of all taxes of the kinds indicated (including
penalties and interest) for all fiscal periods ended on or before that date.
Copies of any (i) tax examinations, (ii) extensions of statutory limitations,
(iii) federal and local income tax returns and franchise tax returns of METALS
for the year ended December 31, 1996, are attached hereto as Schedule 6.14.
Except as set forth in Schedule 6.14, METALS and NEWCO have not entered into any
tax sharing agreement or similar arrangement. METALS is not an investment
company as defined in Section 351(e)(1) of the Code.
6.15 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
in the Draft Registration Statement delivered to the STOCKHOLDERS, and except as
contemplated by this Agreement and the Other Agreements, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of METALS or
NEWCO;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
METALS or NEWCO;
(iii) any change in the authorized capital of METALS or NEWCO or
their outstanding securities or any change in their 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 METALS or
NEWCO;
(v) any work interruptions, labor grievances or claims filed, or any
event or condition of any character, materially adversely affecting the
business of METALS or NEWCO;
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(vi) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of METALS or NEWCO to any person;
(vii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to METALS or NEWCO;
(viii)any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property
or rights of METALS or NEWCO or requiring consent of any party to the
transfer and assignment of any such assets, property or rights;
(ix) any waiver of any material rights or claims of METALS or NEWCO;
(x) any amendment or termination of any material contract,
agreement, license, permit or other right to which METALS or NEWCO is a
party;
(xi) any transaction by METALS or NEWCO outside the ordinary course
of its business;
(xii) any other distribution of property or assets by METALS or
NEWCO other than in the ordinary course of business.
6.16 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by METALS and NEWCO and the performance of the transactions contemplated herein
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.
6.17 DISCLOSURE. The Draft Registration Statement delivered to the COMPANY
and the STOCKHOLDERS, together with this Agreement and the information furnished
to the COMPANY and the STOCKHOLDERS in connection herewith, does not contain an
untrue statement of a material fact or omit to state a material fact necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading; provided, however, that the foregoing does not apply
to statements contained in or omitted from any of such documents made or omitted
in reliance upon information furnished by the COMPANY or the STOCKHOLDERS.
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6.18 PRIVATE OFFERING. (a) Neither METALS, any of its affiliates nor
anyone on its or their behalf, has issued, sold, or offered any securities of
METALS to any person under circumstances that would cause the issuance and sale
of the METALS Stock to the STOCKHOLDERS pursuant to this Agreement, to be
subject to the registration requirements of the 1933 Act.
(b) The offering of shares of METALS Stock pursuant to the METALS Plan of
Organization has been made in compliance with applicable federal and state
securities laws.
7. COVENANTS PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION; DUE DILIGENCE. (a) Between the date of this
Agreement and the Funding and Consummation Date, the COMPANY will afford to the
officers and authorized representatives of METALS and the Other Founding
Companies 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 or
the Other Founding Companies may from time to time reasonably request. The
COMPANY will cooperate with METALS and the Other Founding Companies, 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, NEWCO, the STOCKHOLDERS and the
COMPANY will treat all information obtained in connection with the negotiation
and performance of this Agreement or the due diligence investigations conducted
with respect to the Other Founding Companies as confidential in accordance with
the provisions of Section 14 hereof. In addition, METALS will cause each of the
Other Founding Companies to enter into a provision similar to this Section 7.1
requiring each such Other Founding Company, its stockholders, directors,
officers, representatives, employees and agents to keep confidential any
information obtained by such Other Founding Company.
(b) Between the date of this Agreement and the Funding and Consummation
Date, METALS will afford to the officers and authorized representatives of the
COMPANY access to all
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of METALS's and NEWCO's sites, properties, books and records and will furnish
the COMPANY with such additional financial and operating data and other
information as to the business and properties of METALS and NEWCO as the COMPANY
may from time to time reasonably request. METALS and NEWCO will cooperate with
the COMPANY, 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. The COMPANY will cause all
information obtained in connection with the negotiation and performance of this
Agreement to be treated as confidential in accordance with the provisions of
Section 14 hereof.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Funding and Consummation Date, the COMPANY will, except as set
forth on Schedule 7.2:
(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) use all reasonable efforts to 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) use all reasonable efforts to 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;
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(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; and
(viii) maintain or reduce present salaries and commission levels for
all officers, directors, employees and agents except for ordinary and
customary bonus and salary increases for employees in accordance with past
practices.
7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3, between
the date hereof and the Funding and Consummation Date, the COMPANY will not,
without prior written consent of METALS, which consent will not be unreasonably
withheld:
(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 other than in
connection with the exercise of options or warrants listed in Schedule
5.4;
(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 for distributions in the amount of estimated taxes payable by the
STOCKHOLDERS on S corporation earnings (if any) of the COMPANY for the
period from the Balance Sheet Date to the Closing Date and specified on
Schedule 7.3 hereto, and any other distributions of Accumulated
Adjustments Accounts amounts specified on Schedule 7.3 hereto, it being
understood and agreed that any such distributions in excess of such
estimated taxes shall result in a corresponding dollar for dollar decrease
in the amount of cash otherwise payable to the STOCKHOLDERS as part of the
Merger consideration hereunder;
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(iv) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditures, except if it is in
the normal course of business (consistent with past practice) or involves
an amount not in excess of $100,000;
(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 $50,000 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 course of business
(the liens set forth in clause (2) being referred to herein as "Statutory
Liens"), or (3) liens set forth on Schedule 5.10 and/or 5.15 hereto;
(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business and other
than distributions of real estate and other assets as permitted in this
Agreement (including the Schedules hereto);
(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;
(ix) waive any material rights or claims of the COMPANY, provided
that the COMPANY may negotiate and adjust bills and accounts in the course
of good faith disputes with customers in a manner consistent with past
practice, provided, further, that such adjustments shall not be deemed to
be included in Schedule 5.11 unless specifically listed thereon;
(x) amend or terminate any material agreement, permit, license or
other right of the COMPANY; or
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(xi) enter into any other transaction outside the ordinary course of
its business or prohibited hereunder.
7.4 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 Funding and Consummation 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 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 of the COMPANY.
7.5 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 on Schedule 7.5 with proof that any required notice has been
sent.
7.6 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 listed on Schedule
9.12 hereto and (ii) any existing agreement between the COMPANY and any
STOCKHOLDER, on or prior to the Funding and Consummation Date provided that
nothing herein shall prohibit or prevent the COMPANY from paying (either prior
to or on the Closing Date) notes or other obligations from the COMPANY to the
STOCKHOLDERS in accordance with the terms thereof, which terms have been
disclosed to METALS. Such termination agreements are listed on Schedule 7.6 and
copies thereof shall be attached thereto.
7.7 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
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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. METALS and NEWCO 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 or NEWCO
contained herein to be untrue or inaccurate in any material respect at or prior
to the Closing and (ii) any material failure of METALS or NEWCO 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 7.7 shall
not be deemed to (i) modify the representations or warranties hereunder of the
party delivering such notice, which modification may only be made pursuant to
Section 7.8, (ii) modify the conditions set forth in Sections 8 and 9, or (iii)
limit or otherwise affect the remedies available hereunder to the party
receiving such notice.
7.8 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 24 hours prior to the
anticipated effectiveness of the Registration Statement to supplement or amend
promptly the Schedules 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, provided however,
that supplements and amendments to Schedules 5.10, 5.11, 5.14 and 5.15 shall
only have to be delivered at the Closing Date, unless such Schedule is to be
amended to reflect an event occurring other than in the ordinary course of
business. Notwithstanding the foregoing sentence, no amendment or supplement to
a Schedule prepared by the COMPANY that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect may be made unless METALS
and a majority of the Founding Companies other than the COMPANY consent to such
amendment or supplement; and provided further, that no amendment or supplement
to a Schedule prepared by METALS or NEWCO that
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constitutes or reflects an event or occurrence that would have a Material
Adverse Effect may be made unless a majority of the Founding Companies consent
to such amendment or supplement. For all purposes of this Agreement, including
without limitation for purposes of determining whether the conditions set forth
in Sections 8.1 and 9.1 have been fulfilled, the Schedules hereto shall be
deemed to be the Schedules as amended or supplemented pursuant to this Section
7.8. In the event that one of the Other Founding Companies seeks to amend or
supplement a Schedule pursuant to Section 7.8 of one of the Other Agreements,
and such amendment or supplement constitutes or reflects an event or occurrence
that would have a Material Adverse Effect on such Other Founding Company, METALS
shall give the COMPANY notice promptly after it has knowledge thereof. If METALS
and a majority of the Founding Companies consent to such amendment or
supplement, which consent shall have been deemed given by METALS or any Founding
Company if no response is received within 24 hours following receipt of notice
of such amendment or supplement (or sooner if required by the circumstances
under which such consent is requested), but the COMPANY does not give its
consent, the COMPANY may terminate this Agreement pursuant to Section 12.1(iv)
hereof. In the event that the COMPANY seeks to amend or supplement a Schedule
pursuant to this Section 7.8, and METALS and a majority of the Other Founding
Companies do not consent to such amendment or supplement, this Agreement shall
be deemed terminated by mutual consent as set forth in Section 12.1(i) hereof.
In the event that METALS or NEWCO seeks to amend or supplement a Schedule
pursuant to this Section 7.8 and a majority of the Founding Companies do not
consent to such amendment or supplement, this Agreement shall be deemed
terminated by mutual consent as set forth in Section 12.1(i) hereof. No party to
this Agreement shall be liable to any other party if this Agreement shall be
terminated pursuant to the provisions of this Section 7.8. No amendment of or
supplement to a Schedule shall be made later than 24 hours prior to the
anticipated effectiveness of the Registration Statement.
7.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The COMPANY and
STOCKHOLDERS shall furnish or cause to be furnished to METALS and the
Underwriters all of the information concerning the COMPANY and the STOCKHOLDERS
required for inclusion in,
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and will cooperate with METALS and the Underwriters in the preparation of, the
Registration Statement and the prospectus included therein (including audited
and unaudited financial statements, prepared in accordance with generally
accepted accounting principles, in form suitable for inclusion in the
Registration Statement). The COMPANY and the STOCKHOLDERS agree promptly to
advise METALS if at any time during the period in which a prospectus relating to
the offering is required to be delivered under the Securities Act, any
information contained in the prospectus concerning the COMPANY or the
STOCKHOLDERS becomes incorrect or incomplete in any material respect, and to
provide the information needed to correct such inaccuracy. Insofar as the
information relates solely to the COMPANY or the STOCKHOLDERS, the COMPANY
represents and warrants as to such information with respect to itself, and each
Stockholder represents and warrants, as to such information with respect to the
COMPANY and himself or herself, that the Registration Statement will not include
an untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
7.10 FINAL FINANCIAL STATEMENTS. The COMPANY shall provide prior to the
Funding and Consummation Date, and METALS shall have had sufficient time to
review the unaudited consolidated balance sheets of the COMPANY as of the end of
all fiscal quarters following the Balance Sheet Date, and the unaudited
consolidated statement of income, cash flows and retained earnings of the
COMPANY for all fiscal quarters ended after the Balance Sheet Date, disclosing
no material adverse change in the financial condition of the COMPANY or the
results of its operations from the financial statements as of the Balance Sheet
Date. Such financial statements shall have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods indicated (except as noted therein). Except as noted in
such financial statements, all of such financial statements will present fairly
the results of operations of the COMPANY for the periods indicated therein.
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7.11 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.
7.12 AUTHORIZED CAPITAL. Prior to the Funding and Consummation Date,
METALS shall maintain its authorized capital stock as set forth in the
Registration Statement filed with the SEC except for such changes in authorized
capital stock as are made to respond to comments made by the SEC or requirements
of any exchange or automated trading system for which application is made to
register the METALS Stock and any changes necessary or advisable in order to
permit the delivery of the opinion contemplated by Section 8.12 hereof.
7.13 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. 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 compliance by the STOCKHOLDERS and the COMPANY
shall be deemed a condition precedent in addition to the conditions precedent
set forth in Section 9 of this Agreement, and such compliance by METALS and
NEWCO shall be deemed a condition precedent in addition to the conditions
precedent set forth in Section 8 of 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. The
obligation of each party to consummate the transactions contemplated by this
Agreement is subject to the expiration or termination of the waiting period
under the Hart-Scott Act, if applicable.
7.14 ENVIRONMENTAL INDEMNITY. At or prior to the Closing, the parties
identified in the form of Indemnification Agreement attached hereto as ANNEX
VIII shall enter into an Indemnification Agreement in the form attached hereto
as ANNEX VIII, with such changes thereto as may be approved by METALS, in its
sole discretion.
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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. The obligations of
the STOCKHOLDERS and the COMPANY with respect to actions to be taken on the
Funding and Consummation Date are subject to the satisfaction or waiver on or
prior to the Funding and Consummation Date of the conditions set forth in
Sections 8.1, 8.5, 8.8, 8.9 and 8.12. As of the Closing Date or, with respect to
the conditions set forth in Sections 8.1, 8.5, 8.8, 8.9 and 8.12, as of the
Funding and Consummation Date, if any such conditions have 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 Funding and Consummation 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 of METALS and NEWCO contained in Section 6 hereof.
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
representations and warranties of METALS and NEWCO contained in Section 6 shall
be true and correct in all material respects as of the Closing Date and the
Funding and Consummation 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 and NEWCO on or before the
Closing Date and the Funding and Consummation Date shall have been duly complied
with and performed in all material respects; and certificates to the foregoing
effect dated the Closing Date and the Funding and Consummation Date,
respectively, 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.
The STOCKHOLDERS and the COMPANY shall
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be satisfied that the Registration Statement and the prospectus forming a part
thereof, including any amendments thereof or supplements thereto, shall not
contain any untrue statement of a material fact, or omit to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, provided that the condition contained in this sentence
shall be deemed satisfied if the COMPANY or STOCKHOLDERS shall have failed to
inform METALS in writing prior to the effectiveness of the Registration
Statement of the existence of an untrue statement of a material fact or the
omission of such a statement of a material fact.
8.3 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO 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 management of the COMPANY deems it inadvisable to proceed with the
transactions hereunder.
8.4 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
V.
8.5 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC and the underwriters named therein shall have
agreed to acquire on a firm commitment basis, subject to the conditions set
forth in the underwriting agreement, on terms such that the aggregate value of
the cash and the number of shares of METALS Stock to be received by the
STOCKHOLDERS is not less than the Minimum Value set forth on Annex I.
8.6 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 and no action
or proceeding shall have been instituted or threatened to restrain or prohibit
the Merger and no governmental agency or body shall have taken any other action
or made any request of COMPANY as a result of which COMPANY deems it inadvisable
to proceed with the transactions hereunder.
8.7 GOOD STANDING CERTIFICATES. METALS and NEWCO each shall have delivered
to the COMPANY a certificate, dated as of a date no later than ten days prior to
the Closing Date, duly
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issued by the Delaware Secretary of State and in each state in which METALS or
NEWCO is authorized to do business, showing that each of METALS and NEWCO is in
good standing and authorized to do business and that all state franchise and/or
income tax returns and taxes for METALS and NEWCO, respectively, for all periods
prior to the Closing have been filed and paid.
8.8 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall have
occurred with respect to METALS or NEWCO which would constitute a Material
Adverse Effect.
8.9 CLOSING OF IPO. The closing of the sale of the METALS Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
8.10 SECRETARY'S CERTIFICATE. The COMPANY shall have received a
certificate or certificates, dated the Closing Date and signed by the secretary
of METALS and of NEWCO, certifying the truth and correctness of attached copies
of the METALS's and NEWCO's respective Certificates of Incorporation (including
amendments thereto), By-Laws (including amendments thereto), and resolutions of
the boards of directors and, if required, the stockholders of METALS and NEWCO
approving METALS's and NEWCO's entering into this Agreement and the consummation
of the transactions contemplated hereby.
8.11 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule 9.12
shall have been afforded the opportunity to enter into an employment agreement
substantially in the form of Annex VII hereto.
8.12 TAX MATTERS. The STOCKHOLDERS shall have received an opinion of
Arthur Andersen LLP that the METALS Plan of Organization will qualify as a
tax-free transfer of property under Section 351 of the Code and that the
STOCKHOLDERS will not recognize gain to the extent the STOCKHOLDERS exchange
stock of the COMPANY for METALS stock (but not cash or other property) pursuant
to the METALS Plan of Organization.
9. 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
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conditions. The obligations of METALS and NEWCO with respect to actions to be
taken on the Funding and Consummation Date are subject to the satisfaction or
waiver on or prior to the Funding and Consummation Date of the conditions set
forth in Sections 9.1, 9.4 and 9.13. As of the Closing Date or, with respect to
the conditions set forth in Sections 9.1, 9.4 and 9.13, as of the Funding and
Consummation Date, if any such conditions have not been satisfied, METALS and
NEWCO shall have the right to terminate this Agreement, or waive any such
condition, but no such waiver shall be deemed to affect the survival of the
representations and warranties contained in Section 5 hereof.
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 and the Funding and Consummation 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
or the Funding and Consummation 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 the Funding and
Consummation Date, respectively, and signed by them to such effect.
9.2 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of METALS as a result of which the
management of METALS deems it inadvisable to proceed with the transactions
hereunder.
9.3 SECRETARY'S CERTIFICATE. METALS shall have received a certificate,
dated the Closing Date and signed by the secretary of the COMPANY, certifying
the truth and correctness of attached copies of the COMPANY's Certificate of
Incorporation (including amendments thereto), By-Laws (including amendments
thereto), and resolutions of the board of directors and the
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STOCKHOLDERS approving the COMPANY's entering into this Agreement and the
consummation of the transactions contemplated hereby.
9.4 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 covered by insurance, which
change, loss or damage materially affects or impairs the ability of the COMPANY
to conduct its business.
9.5 STOCKHOLDERS' RELEASE. The STOCKHOLDERS shall have delivered to METALS
an instrument dated the Closing Date which shall be effective only upon the
occurrence of the Funding and Consummation 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 (x) items
specifically identified on Schedules 5.10 and 5.15 as being claims of or
obligations to the STOCKHOLDERS, (y) continuing obligations to STOCKHOLDERS
relating to their employment by the COMPANY and (z) obligations arising under
this Agreement or the transactions contemplated hereby. In the event that the
Funding and Consummation Date does not occur, then the release instrument
referenced herein shall be void and of no further force or effect.
9.6 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.
9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth on
Schedule 9.7, all existing agreements between the COMPANY and the STOCKHOLDERS
(and entities controlled by the STOCKHOLDERS) shall have been canceled effective
prior to or as of the Funding and Consummation Date.
9.8 OPINION OF COUNSEL. METALS shall have received an opinion from Counsel
to the COMPANY and the STOCKHOLDERS, dated the Closing Date, substantially in
the form annexed hereto as Annex VI.
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9.9 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 5.23 shall have been obtained;
and no action or proceeding shall have been instituted or threatened to restrain
or prohibit the Merger 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.
9.10 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
COMPANY's state of incorporation and, unless waived by METALS, 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.
9.11 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC.
9.12 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule 9.12
shall enter into an employment agreement substantially in the form of Annex VII
hereto.
9.13 CLOSING OF IPO. The closing of the sale of the METALS Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
9.14 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.
10. COVENANTS OF METALS AND THE STOCKHOLDERS AFTER CLOSING
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS. METALS
shall use its best efforts to have the STOCKHOLDERS released from any and all
guarantees on any
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indebtedness that they personally guaranteed and from any and all pledges of
assets that they pledged to secure such indebtedness for the benefit of the
COMPANY, with all such guarantees on indebtedness being assumed by METALS. In
the event that METALS cannot obtain such releases from the lenders of any such
guaranteed indebtedness on or prior to 120 days subsequent to the Funding and
Consummation Date, METALS shall promptly pay off or otherwise refinance or
retire such indebtedness. From and after the Funding and Consummation Date and
until such time as all of such indebtedness is paid off, refinanced or retired,
METALS shall maintain unencumbered funds in amounts sufficient to provide for
such pay off, refinancing or retirement, provided that METALS may use such funds
for other purposes, in its sole discretion, with the prior written consent of
each STOCKHOLDER who has not as of that time been released from his or her
guarantee as described above and whose indebtedness as described above has not
as of that time been paid off, refinanced or retired.
10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as contemplated
by this Agreement or the Registration Statement, after the Funding and
Consummation Date, METALS shall not and shall not permit any of its subsidiaries
to undertake any act that would jeopardize the tax-free status of the
organization, including without limitation:
(a) the retirement or reacquisition, directly or indirectly, of all
or part of the METALS Stock issued in connection with the transactions
contemplated hereby; or
(b) the entering into of financial arrangements for the benefit of
the STOCKHOLDERS.
10.3 PREPARATION AND FILING OF TAX RETURNS.
(i) The COMPANY, if possible, or otherwise the STOCKHOLDERS shall
file or cause to be filed all federal income Tax Returns of any Acquired
Party for all taxable periods that end on or before the Funding and
Consummation Date, and shall permit METALS to review all such Tax Returns
prior to such filings. Unless the COMPANY is a C corporation, the
STOCKHOLDERS shall pay or cause to be paid all Tax liabilities (in
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excess of all amounts already paid with respect thereto or properly
accrued or reserved with respect thereto on the COMPANY Financial
Statements) shown by such Returns to be due.
(ii) METALS shall file or cause to be filed all separate Returns of,
or that include, any Acquired Party for all taxable periods ending after
the Funding and Consummation Date.
(iii) Each party hereto shall, and shall cause its subsidiaries and
affiliates to, provide to each of the other parties hereto such
cooperation and information as any of them reasonably may request in
filing any 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. Such cooperation and
information shall include providing copies of all relevant portions of
relevant Returns, together with relevant accompanying schedules and
relevant work papers, relevant documents relating to rulings or other
determinations by Taxing Authorities and relevant records concerning the
ownership and Tax basis of property, which such party may possess. Each
party shall make its employees reasonably available on a mutually
convenient basis at its cost to provide explanation of any documents or
information so provided. Subject to the preceding sentence, each party
required to file Returns pursuant to this Agreement shall bear all costs
of filing such Returns.
(iv) Each of the COMPANY, NEWCO, METALS and each STOCKHOLDER shall
comply with the tax reporting requirements of Section 1.351-3 of the
Treasury Regulations promulgated under the Code, and treat the transaction
as a tax-free contribution under Section 351(a) of the Code subject to
gain, if any, recognized on the receipt of cash or other property under
Section 351(b) of the Code subject to gain, if any, recognized on the
receipt of cash or other property under Section 351(b) of the Code.
10.4 DIRECTORS. The persons named in the Draft Registration Statement
shall be appointed as directors and elected as officers of METALS, as and to the
extent set forth in the Draft Registration Statement, promptly following the
Funding and Consummation Date. This provision shall not imply that the
STOCKHOLDERS have any power or duty to elect officers of METALS.
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10.5 PRESERVATION OF EMPLOYEE BENEFIT PLANS. Following the Funding and
Consummation Date, METALS shall use all reasonable efforts to permit the COMPANY
to maintain all health insurance, life insurance, 401(k) plan and other employee
benefit plans in effect at the COMPANY, unless any such change is (a) approved
by a vote of at least two-thirds of the members of the Board of Directors of
METALS, or (b) required by applicable laws or regulations, including the
antidiscriminatory provisions of ERISA and the related regulations. In the event
that any such changes (other than changes so approved by the Board of Directors
of METALS) are required, subject to applicable law, METALS shall permit the
COMPANY to implement alternative benefits that provide the affected employees of
the COMPANY with an undiminished aggregate level of benefits. On the Funding and
Consummation Date, the employees of the COMPANY will be the employees of the
Surviving Corporation (provided that this provision is for purposes of
clarifying that the Merger, in and of itself, will not have any impact on the
employment status of any employee and provided, further that this provision
shall not in any way limit the management rights of the Surviving Corporation or
METALS to assess workforce needs and make appropriate adjustments as necessary
or desirable within their discretion subject to applicable laws and collective
bargaining agreements).
11. INDEMNIFICATION
The STOCKHOLDERS, METALS and NEWCO each make the following covenants that
are applicable to them, respectively:
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. The STOCKHOLDERS
covenant and agree that they, jointly and severally, will indemnify, defend,
protect and hold harmless METALS, NEWCO, the COMPANY and the Surviving
Corporation at all times, from and after the date of this Agreement until the
Expiration Date (provided that for purposes of Section 11.1(iii) below, the
Expiration Date shall be the date on which the applicable statute of limitations
expires), from and against all claims, damages, actions, suits, proceedings,
demands, assessments, adjustments, costs and expenses (including specifically,
but without limitation, reasonable attorneys'
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fees and expenses of investigation) incurred by METALS, NEWCO, the COMPANY or
the Surviving Corporation as a result of or arising from (i) any breach of the
representations and warranties of the STOCKHOLDERS or the COMPANY set forth
herein or on the schedules or certificates delivered in connection herewith,
(ii) any breach of any agreement on the part of the STOCKHOLDERS or the COMPANY
under this Agreement, or (iii) any liability under the 1933 Act, the 1934 Act or
other Federal or state law or regulation, at common law or otherwise, arising
out of or based upon any untrue statement or alleged untrue statement of a
material fact relating to the COMPANY or the STOCKHOLDERS, and provided to
METALS or its counsel by the COMPANY or the STOCKHOLDERS (but in the case of the
STOCKHOLDERS, only if such statement was provided in writing) contained in the
Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto, or arising out of or based upon any
omission or alleged omission to state therein a material fact relating to the
COMPANY or the STOCKHOLDERS required to be stated therein or necessary to make
the statements therein not misleading, provided, however, that such indemnity
shall not inure to the benefit of METALS, NEWCO, the COMPANY or the Surviving
Corporation to the extent that such untrue statement (or alleged untrue
statement) was made in, or omission (or alleged omission) occurred in, any
preliminary prospectus and the STOCKHOLDERS provided, in writing, corrected
information to METALS counsel and to METALS for inclusion in the final
prospectus, and such information was not so included or properly delivered, and
provided further, that no STOCKHOLDER shall be liable for any indemnification
obligation pursuant to this Section 11.1 to the extent attributable to a breach
of any representation, warranty or agreement made herein individually by any
other STOCKHOLDER.
METALS and NEWCO acknowledge and agree that other than the representations
and warranties of COMPANY or STOCKHOLDERS specifically contained in this
Agreement, there are no representations or warranties of COMPANY or
STOCKHOLDERS, either express or implied, with respect to the transactions
contemplated by this Agreement, the COMPANY or its assets, liabilities and
business.
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METALS and any NEWCO further acknowledge and agree that, should the
Closing occur, their sole and exclusive remedy with respect to any and all
claims relating to this Agreement and the transactions contemplated in this
Agreement, shall be pursuant to the indemnification provisions set forth in this
Section 11. METALS and NEWCO hereby waive, from and after the Closing, to the
fullest extent permitted under applicable law, any and all rights, claims and
causes of action they or any indemnified person may have against the COMPANY or
any STOCKHOLDER relating to this Agreement or the transactions arising under or
based upon any federal, state, local or foreign statute, law, rule, regulation
or otherwise.
11.2 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 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) incurred by the
STOCKHOLDERS as a result of or arising from (i) any breach by METALS or NEWCO of
their representations and warranties set forth herein or on the schedules or
certificates attached hereto, (ii) any breach of any agreement on the part of
METALS or NEWCO under this Agreement, (iii) any liabilities which the
STOCKHOLDERS may incur due to METALS's or NEWCO's failure to be responsible for
the liabilities and obligations of the COMPANY as provided in Section 1 hereof
(except to the extent that METALS or NEWCO has claims against the STOCKHOLDERS
by reason of such liabilities); or (iv) any liability under the 1933 Act, the
1934 Act or other Federal or state law or regulation, at common law or
otherwise, arising out of or based upon any untrue statement or alleged untrue
statement of a material fact relating to METALS, NEWCO or any of the Other
Founding Companies contained in any preliminary prospectus, the Registration
Statement or any prospectus forming a part thereof, or any amendment thereof or
supplement thereto, or arising out of or based upon any omission or alleged
omission to state therein a material fact relating to METALS or NEWCO or any of
the Other Founding Companies required to be stated therein or necessary to make
the statements therein not misleading.
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11.3 THIRD PERSON CLAIMS. Promptly after any party hereto (hereinafter 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, the Indemnified Party shall, as a
condition precedent to a claim with respect thereto being made against any party
obligated to provide indemnification pursuant to Section 11.1 or 11.2 hereof
(hereinafter the "Indemnifying Party"), give the Indemnifying Party written
notice of such claim or the commencement of such action or proceeding. Such
notice shall state the nature and the basis of such claim and a reasonable
estimate of the amount thereof. The Indemnifying Party shall have the right to
defend and settle, at its own expense and by its own counsel, any such matter so
long as the Indemnifying Party pursues the same in good faith and diligently,
provided that the Indemnifying Party shall not settle any criminal proceeding
without the written consent of the Indemnified Party. If the Indemnifying Party
undertakes to defend or settle, it shall promptly notify the Indemnified Party
of its intention to do so, and the Indemnified Party shall cooperate with the
Indemnifying Party and its counsel in the defense thereof and in any settlement
thereof. Such cooperation shall include, but shall not be limited to, furnishing
the Indemnifying Party with any books, records or information reasonably
requested by the Indemnifying Party that are in the Indemnified Party's
possession or control. All Indemnified Parties shall use the same counsel, which
shall be the counsel selected by Indemnifying Party, provided that if counsel to
the Indemnifying Party shall have a conflict of interest that prevents counsel
for the Indemnifying Party from representing Indemnified Party, Indemnified
Party shall have the right to participate in such matter through counsel of its
own choosing and Indemnifying Party will reimburse the Indemnified Party for the
reasonable expenses of its counsel. After the Indemnifying Party has notified
the Indemnified Party of its intention to undertake to defend or settle any such
asserted liability, and for so long as the Indemnifying Party diligently pursues
such defense, the Indemnifying Party shall not be liable for any additional
legal expenses incurred by the Indemnified Party in connection with any defense
or settlement of such asserted liability, except (i) as set forth in the
preceding sentence and (ii) to the extent such participation is requested by the
Indemnifying Party, in which event the Indemnified Party shall be
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reimbursed by the Indemnifying Party for reasonable additional legal expenses
and out-of-pocket expenses. If the Indemnifying Party desires to accept a final
and complete settlement of any such Third Person claim and the Indemnified Party
refuses to consent to such settlement, then the Indemnifying Party's liability
under this Section with respect to such Third Person claim shall be limited to
the amount so offered in settlement by said Third Person. Upon agreement as to
such settlement between said Third Person and the Indemnifying Party, the
Indemnifying Party shall, in exchange for a complete release from the
Indemnified Party, promptly pay to the Indemnified Party the amount agreed to in
such settlement and the Indemnified Party shall, from that moment on, bear full
responsibility for any additional costs of defense which it subsequently incurs
with respect to such claim and all additional costs of settlement or judgment.
If the Indemnifying Party does not undertake to defend such matter to which the
Indemnified Party is entitled to indemnification hereunder, or fails diligently
to pursue such defense, the Indemnified Party may undertake such defense through
counsel of its choice, at the cost and expense of the Indemnifying Party, and
the Indemnified Party may settle such matter, and the Indemnifying Party shall
reimburse the Indemnified Party for the amount paid in such settlement and any
other liabilities or expenses incurred by the Indemnified Party in connection
therewith, provided, however, that under no circumstances shall the Indemnified
Party settle any Third Person claim without the written consent of the
Indemnifying Party, which consent shall not be unreasonably withheld or delayed.
All settlements hereunder shall effect a complete release of the Indemnified
Party, unless the Indemnified Party otherwise agrees in writing. The parties
hereto will make appropriate adjustments for insurance proceeds in determining
the amount of any indemnification obligation under this Section.
11.4 EXCLUSIVE REMEDY. The indemnification provided for in this Section 11
shall (except as prohibited by ERISA) be the exclusive remedy in any action
seeking damages or any other form of monetary relief brought by any party to
this Agreement against another party, provided that, nothing herein shall be
construed to limit the right of a party, in a proper case, to seek injunctive
relief for a breach of this Agreement. Any indemnity payment under this Section
11 shall be treated
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as an adjustment to the exchange consideration for tax purposes unless a final
determination (which shall include the execution of a Form 870-AD or successor
form) with respect to the indemnified party or any of its affiliate causes any
such payment not to be treated as an adjustment to the exchange consideration
for U.S. Federal Income Tax purposes.
11.5 LIMITATIONS ON INDEMNIFICATION. METALS, NEWCO, the Surviving
Corporation and the other persons or entities indemnified pursuant to Section
11.1 or 11.2 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 the greater of (a) 1.0% of the sum of (i) the cash
paid to STOCKHOLDERS plus (ii) the value of the METALS Stock delivered to
STOCKHOLDERS (calculated as provided in this Section 11.5) or (b) $50,000 (the
"Indemnification Threshold"). STOCKHOLDERS shall not assert any claim for
indemnification hereunder against METALS or NEWCO until such time as, and solely
to the extent that, the aggregate of all claims which STOCKHOLDERS may have
against METALS or NEWCO shall exceed $50,000.
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 related to a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement, no STOCKHOLDER shall be
liable under this Section 11 for an amount which exceeds the amount of proceeds
received by such STOCKHOLDER in connection with the Merger. For purposes of
calculating the value of the METALS Stock received by a STOCKHOLDER, METALS
Stock shall be valued at its initial public offering price as set forth in the
Registration Statement. It is hereby understood and agreed that a STOCKHOLDER
may satisfy an indemnification obligation through payment of a combination of
stock and cash in proportion equal to the proportion of stock and cash received
by such STOCKHOLDER in connection with the Merger, valued as described
immediately above.
12. TERMINATION OF AGREEMENT
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12.1 TERMINATION.This Agreement may be terminated at any time prior to the
Funding and Consummation Date solely:
(i) by mutual consent of the boards of directors of METALS and the
COMPANY;
(ii) by the STOCKHOLDERS or the COMPANY (acting through its board of
directors), on the one hand, or by METALS (acting through its board of
directors), on the other hand, if the transactions contemplated by this
Agreement to take place at the Closing shall not have been consummated by
December 31, 1997, 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 Funding and Consummation Date;
(iii) by the STOCKHOLDERS or COMPANY, on the one hand, or by METALS, on
the other hand, if a material breach or default shall be made by the other party
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 on or before the Funding and Consummation Date or by the STOCKHOLDERS
or the COMPANY, if the conditions set forth in Section 8 hereof have not been
satisfied or waived as of the Closing Date or the Funding and Consummation Date,
as applicable, or by METALS, if the conditions set forth in Section 9 hereof
have not been satisfied or waived as of the Closing Date or the Funding and
Consummation Date, as applicable;
(iv) pursuant to Section 7.8 hereof; or
(v) pursuant to Section 4 hereof.
12.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in Section
7.8 hereof, 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.
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13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES. The STOCKHOLDERS will not, for a period of
five (5) years following the Funding and Consummation 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 metals
processing, metals fabricating and/or specialty metals business, including
brokering, manufacturing and distribution services, in direct competition with
METALS or any of the subsidiaries thereof, within 200 miles of where the COMPANY
or any of its subsidiaries conducted business prior to the effectiveness of the
Merger (the "Territory");
(ii) call upon any person who is, at that time, within the Territory, an
employee of METALS (including the subsidiaries thereof) in a sales
representative or managerial capacity for the purpose or with the intent of
enticing such employee away from or out of the employ of METALS (including the
subsidiaries thereof), provided that each STOCKHOLDER shall be permitted to call
upon and hire any member of his or her immediate family;
(iii) call upon any person or entity which is, at that time, or which has
been, within one (1) year prior to the Funding and Consummation Date, a customer
of METALS (including the subsidiaries thereof), of the COMPANY or of any of the
Other Founding Companies within the Territory for the purpose of soliciting or
selling products or services in direct competition with METALS within the
Territory;
(iv) call upon any prospective acquisition candidate, on any STOCKHOLDER's
own behalf or on behalf of any competitor in the metals processing, metals
fabricating and/or specialty metals business, including brokering, manufacturing
and distribution services, which candidate, to the actual knowledge of such
STOCKHOLDER after due inquiry, was called upon by METALS (including the
subsidiaries thereof) or for which, to the actual knowledge of such STOCKHOLDER
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after due inquiry, METALS (or any subsidiary thereof) made an acquisition
analysis, for the purpose of acquiring such entity; or
(v) disclose customers, whether in existence or proposed, of the COMPANY
to any person, firm, partnership, corporation or business for any reason or
purpose whatsoever except to the extent that the COMPANY has in the past
disclosed such information to the public for valid business reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit any STOCKHOLDER 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.
13.2 DAMAGES. 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 and restraining orders.
13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this Section 13 impose a reasonable restraint on the
STOCKHOLDERS in light of the activities and business of METALS (including the
subsidiaries thereof) on the date of the execution of this Agreement and the
current plans of METALS.
13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13 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.
13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13 shall
be construed as an agreement independent of any other provision in this
Agreement, and the existence of any
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claim or cause of action of any STOCKHOLDER against METALS (including the
subsidiaries 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 13, during which the agreements and covenants of each STOCKHOLDER
made in this Section 13 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 13. The covenants contained in Section 13 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.
13.6 MATERIALITY. The COMPANY and the STOCKHOLDERS hereby agree that this
covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. 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, the Other Founding Companies,
and/or METALS, such as operational policies, and pricing and cost policies that
are valuable, special and unique assets of the COMPANY's, the Other Founding
Companies' and/or METALS's respective businesses. 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 METALS or the Surviving Corporation and
(c) to counsel and other advisers, provided that such advisers (other than
counsel) agree to the confidentiality provisions of this Section 14.1, 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 under color of law, provided, that prior to disclosing
any information pursuant to this clause (ii), the STOCKHOLDERS
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shall, if possible, give prior written notice thereof to METALS and provide
METALS with the opportunity to contest such disclosure, or (iii) the disclosing
party reasonably believes that such disclosure is required in connection with
the defense of a lawsuit against the disclosing party. 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 an injunction 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. In the event the transactions contemplated by this Agreement are not
consummated, STOCKHOLDERS shall have none of the above-mentioned restrictions on
their ability to disseminate confidential information with respect to the
COMPANY.
14.2 METALS AND NEWCO. METALS and NEWCO recognize and acknowledge that
they had in the past and currently have access to certain confidential
information of the COMPANY, such as operational policies, and pricing and cost
policies that are valuable, special and unique assets of the COMPANY's business.
METALS and NEWCO agree that, prior to the Closing, or if the Transactions
contemplated by this Agreement are not consummated, 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 the COMPANY, (b) to counsel and other advisers, provided that
such advisers (other than counsel) agree to the confidentiality provisions of
this Section 14.1, (c) to the Other Founding Companies and their representatives
pursuant to Section 7.1(a), unless (i) such information becomes known to the
public generally through no fault of METALS or NEWCO, (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),
METALS and NEWCO shall, if possible, give prior written notice thereof to the
COMPANY and the STOCKHOLDERS and provide the COMPANY and the STOCKHOLDERS with
the opportunity to contest such disclosure, or (iii) the disclosing party
reasonably believes that such disclosure is required in connection with the
defense of a lawsuit against the disclosing party, and (d) to the public to the
extent necessary or advisable in connection
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with the filing of the Registration Statement and the IPO and the securities
laws applicable thereto and to the operation of METALS as a publicly held entity
after the IPO. In the event of a breach or threatened breach by METALS or NEWCO
of the provisions of this Section, the COMPANY and the STOCKHOLDERS shall be
entitled to an injunction restraining METALS and NEWCO from disclosing, in whole
or in part, such confidential information. Nothing herein shall be construed as
prohibiting the COMPANY and the STOCKHOLDERS from pursuing any other available
remedy for such breach or threatened breach, including the recovery of damages.
14.3 DAMAGES. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Section 14.1 and 14.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach by any of them of the foregoing covenants, the covenant may be
enforced against the other parties by injunctions and restraining orders.
14.4 SURVIVAL. The obligations of the parties under this Article 14 shall
survive the termination of this Agreement for a period of five years from the
Funding and Consummation Date.
15. TRANSFER RESTRICTIONS
15.1 TRANSFER RESTRICTIONS. Unless otherwise agreed by METALS, except for
transfers to immediate family members who agree to be bound by the restrictions
set forth in this Section 15.1 (or trusts for the benefit of the STOCKHOLDERS or
family members, the trustees of which so agree), for a period of one year from
the Closing, except pursuant to Section 17 hereof, none of the STOCKHOLDERS
shall sell, assign, exchange, transfer, encumber, pledge, distribute, appoint,
or otherwise dispose of any shares of METALS Stock as described in Section 3.1
received by the STOCKHOLDERS in the Merger. The certificates evidencing the
METALS Stock delivered to the STOCKHOLDERS pursuant to Section 3 of this
Agreement will bear a legend substantially in the form set forth below and
containing such other information as METALS may deem necessary or appropriate:
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THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED
OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE,
ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT
OR OTHER DISPOSITION PRIOR TO [FIRST ANNIVERSARY OF CLOSING DATE]. UPON THE
WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE
THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER AGENT)
AFTER THE DATE SPECIFIED ABOVE.
16. FEDERAL SECURITIES ACT REPRESENTATIONS
16.1 COMPLIANCE WITH LAW. The STOCKHOLDERS acknowledge that the shares of
METALS Stock to be delivered to the STOCKHOLDERS pursuant to this Agreement have
not been and will not be registered under the 1933 Act (except as provided in
Section 17 hereof) and therefore may not be resold without compliance with the
1933 Act. The METALS Stock to be acquired by such STOCKHOLDERS pursuant to this
Agreement is being acquired solely for their own respective accounts, for
investment purposes only, and with no present intention of distributing, selling
or otherwise disposing of it in connection with a distribution. The STOCKHOLDERS
covenant, warrant and represent that none of the shares of METALS Stock issued
to such STOCKHOLDERS will be offered, sold, assigned, pledged, hypothecated,
transferred or otherwise disposed of except after full compliance with all of
the applicable provisions of the 1933 Act and the rules and regulations of the
SEC. All the METALS Stock shall bear the following legend in addition to the
legend required under Section 15 of this Agreement:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE
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TRANSFERRED IF THE HOLDER HEREOF COMPLIES WITH THE ACT AND APPLICABLE SECURITIES
LAW.
16.2 ECONOMIC RISK; SOPHISTICATION. The STOCKHOLDERS are able to bear the
economic risk of an investment in the METALS Stock to be acquired pursuant to
this Agreement and can afford to sustain a total loss of such investment and
have such knowledge and experience in financial and business matters that they
are capable of evaluating the merits and risks of the proposed investment in the
METALS Stock. The STOCKHOLDERS party hereto have 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 current and proposed officers
and directors of METALS, the plans for the operations of the business of METALS,
the business, operations and financial condition of the Founding Companies other
than the COMPANY, and any plans for additional acquisitions and the like. The
STOCKHOLDERS have asked any and all questions in the nature described in the
preceding sentence and all questions have been answered to their satisfaction.
17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. 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 shelf
registration of shares to be used as consideration for acquisitions of
additional businesses by METALS and (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 all of the 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) which
any such STOCKHOLDER requests, provided
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that METALS shall have the right to reduce the number of shares included in such
registration to the extent that inclusion of such shares could, in the written
opinion of tax counsel to METALS or its independent auditors, jeopardize the
status of the transactions contemplated hereby and by the Registration Statement
as a tax-free organization under Section 351 of the Code. In addition, if METALS
is advised in writing in good faith by any managing underwriter of an
underwritten offering of the securities being offered pursuant to any
registration statement under this Section 17.1 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, provided, that, for each such offering made by
METALS after the IPO, such reduction shall be made first by reducing the number
of shares to be sold by persons other than METALS, the STOCKHOLDERS and the
stockholders of the Other Founding Companies (collectively, the STOCKHOLDERS and
the stockholders of the other Founding Companies being referred to herein as the
"Founding Stockholders"), and thereafter, if a further reduction is required, by
reducing the number of shares to be sold by the Founding Stockholders.
17.2 DEMAND REGISTRATION RIGHTS. At any time after the date one year after
the Closing and prior to the date three years after the Closing, the holders of
a majority of the shares of METALS Stock issued to the Founding Stockholders
pursuant to this Agreement and the Other Agreements 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 the shares of METALS Stock issued to the
STOCKHOLDERS pursuant to this Agreement and the Other Agreements (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 Founding Stockholders (a
"Demand Registration"). Within ten (10) days of the
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receipt of such request, METALS shall give written notice of such request to all
other Founding Stockholders and shall, as soon as practicable but in no event
later than 45 days after notice from any STOCKHOLDER, file and use its best
efforts to cause to become effective a registration statement covering all such
shares. METALS shall be obligated to effect only one Demand Registration for all
Founding Stockholders and will keep such Demand Registration current and
effective for not less than 120 days (or such shorter period as is required to
sell all of the shares registered thereby).
Notwithstanding the foregoing paragraph, following any such a demand, a
majority of METALS's 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 Founding 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, no registration of the Founding Stockholders'
METALS Stock shall be initiated under this Section 17.2 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
Founding Stockholders the right to participate in such public offering pursuant
to, and subject to, Section 17.1 hereof.
17.3 REGISTRATION PROCEDURES. Whenever METALS is required to register
shares of METALS Stock pursuant to Sections 17.1 and 17.2, 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;
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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 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 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 will not contain an untrue
statement of material fact or omit to state any fact necessary to make the
statements therein not misleading.
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All expenses incurred in connection with the registration under this
Article 17 (including all registration, filing, qualification, legal, printer
and accounting fees, but excluding underwriting commissions and discounts),
shall be borne by METALS.
17.4 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
17.5 shall be limited to an amount
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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 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.
17.5 UNDERWRITING AGREEMENT. In connection with each registration pursuant
to Sections 17.1 and 17.2 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.
17.6 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:
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(i) make and keep public information regarding METALS available as
those terms are understood and defined in Rule 144 under the 1933 Act for
a period of four years beginning 90 days following the effective date of
the Registration Statement;
(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 at any
time after it has become subject to such reporting requirements; 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 (at any time from and after 90 days following the
effective date of the Registration Statement, and of the 1933 Act and the
1934 Act (any time after it has become subject to such reporting
requirements), 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.
18. GENERAL
18.1 COOPERATION. The COMPANY, STOCKHOLDERS, METALS and NEWCO shall
each deliver or cause to be delivered to the other on the Funding and
Consummation 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 Funding and Consummation 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 Funding and Consummation Date.
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18.2 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.
18.3 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, NEWCO 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, NEWCO and
METALS, acting through their respective officers or trustees, duly authorized by
their respective Boards of Directors. Any disclosure made on any Schedule
delivered pursuant hereto shall be deemed to have been disclosed for purposes of
any other Schedule required hereby, provided that the COMPANY shall make a good
faith effort to cross reference disclosure, as necessary or advisable, between
related Schedules.
18.4 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.
18.5 BROKERS AND AGENTS. Except as disclosed on Schedule 18.5, 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.
18.6 EXPENSES. Whether or not the transactions herein contemplated shall
be consummated, METALS will pay the fees, expenses and disbursements of METALS
and its agents, representatives, accountants and counsel incurred in connection
with the subject matter of this
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Agreement and any amendments thereto, including all costs and expenses incurred
in the performance and compliance with all conditions to be performed by METALS
under this Agreement, including the fees and expenses of Arthur Andersen, LLP,
Bracewell & Patterson, L.L.P., and any other person or entity retained by METALS
or by Notre Capital Ventures II, L.L.C., and the costs of preparing the
Registration Statement. 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 Merger, other than
Transfer Taxes, if any, imposed by the State of Delaware. 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 Section 2 hereof. The STOCKHOLDERS acknowledge that the risks of the
transactions contemplated hereby include tax risks, with respect to which the
STOCKHOLDERS are relying solely on the opinion contemplated by Section 8.12
hereof.
18.7 NOTICES. All notices of communication 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.
(a) If to METALS, or NEWCO, addressed to them at:
Metals USA, Inc.
4801 Woodway, Suite 300E
Houston, Texas 77056
Attn: J. Michael Kirksey
with copies to:
Thomas W. Adkins
Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana Street, Suite 2900
Houston, Texas 77002-2781
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(b) If to the STOCKHOLDERS, addressed to them at their addresses set
forth on Annex II, with copies to:
Christopher S. Collins
Andrews & Kurth, L.L.P.
4200 Texas Commerce Tower
Houston, Texas 77002
(c) If to the COMPANY, addressed to it at:
Interstate Steel Supply Company
1800 E. Byberry Road
Philadelphia, PA 19116-3012
Attn: Arnold Bradburd
Tele: (215) 673-0300
Fax: (215) 969-0334
with copies to:
Metals USA, Inc.
4801 Woodway, Suite 300E
Houston, TX 77056
Attn: J. Michael Kirksey
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Delaware.
18.9 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 Expiration Date.
18.10 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
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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.
18.11 TIME. Time is of the essence with respect to this Agreement.
18.12 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.
18.13 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.
18.14 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
18.15 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived only with the
written consent of METALS, NEWCO, the COMPANY and STOCKHOLDERS who hold or who
will hold at least 50% of the METALS Stock issued or to be issued upon
consummation of the Merger. Any amendment or waiver effected in accordance with
this Section 18.15 shall be binding upon each of the parties hereto, any other
person receiving METALS Stock in connection with the Merger and each future
holder of such METALS Stock.
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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: Art French
Title: Chief Executive Officer
INTERSTATE STEEL I ACQUISITION CORP.
By:
J. Michael Kirksey
President
INTERSTATE STEEL II ACQUISITION CORP.
By:
J. Michael Kirksey
President
INTERSTATE STEEL III ACQUISITION CORP.
By:
J. Michael Kirksey
President
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INTERSTATE STEEL IV ACQUISITION CORP.
By:
J. Michael Kirksey
President
INTERSTATE STEEL SUPPLY COMPANY
By:
Arnold W. Bradburd
Chairman and Chief Executive Officer
INTERSTATE STEEL SUPPLY COMPANY OF PITTSBURGH
By:
Arnold W. Bradburd
Chairman and Chief Executive Officer
INTERSTATE STEEL SUPPLY COMPANY OF MARYLAND
By:
Arnold W. Bradburd
Chairman and Chief Executive Officer
INTERSTATE STEEL PROCESSING COMPANY
By:
Arnold W. Bradburd
Chairman and Chief Executive Officer
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STOCKHOLDERS:
Arnold W. Bradburd
William L. Bradburd
Russell T. Bradburd
Kenneth T. Bradburd
Amy Ruth Bradburd
Trustees under a Trust Agreement
dated April 22, 1997
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APPENDIX I
MERGERS
Interstate Steel I Acquisition Corp. shall merge with and into Interstate Steel
Supply Company
Interstate Steel II Acquisition Corp. shall merge with and into Interstate Steel
Supply Company of Pittsburgh
Interstate Steel III Acquisition Corp. shall merge with and into Interstate
Steel Supply Company of Maryland
Interstate Steel I Acquisition Corp. shall merge with and into Interstate Steel
Processing Company
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ANNEX I
TO THE AGREEMENT
AND PLAN OF REORGANIZATION
DATED AS OF' APRIL 30, 1997
BY AND AMONG
METALS USA, INC.
AND THE OTHER PARTIES NAMED THEREIN
CONSIDERATION TO BE PAID TO THE STOCKHOLDERS
Aggregate consideration to be paid to the STOCKHOLDERS:
$27,992,079.00 in cash and the value of outstanding Common Stock of Metals
(assuming an offering price of $13.00 per share), consisting of 1,917,814 shares
of Metals Stock and $3,060,497 in cash, ft being agreed that the actual amount
of all cash payments described in this Annex I will depend on the actual initial
offering price of the Common Stock of Metals in the IPO, and may be more or less
than $13.00 per share; provided, however that such price shall not be less than
$8.00 per share.
Consideration to be Daid to each STOCKHOLDER:
---------------------------------------------
Shares of Common Merger
Stockholder Stock of Metals Cash
- ----------- ------------ ------------
Arnold W. Bradburd ............................... 1,726,032 2,693,046.60
William L. Bradburd, Russell T. Bradburd,
Kenneth T Bradburd and Amy Ruth Bradburd,
trustees under trust agreement dated
April 22, 1997 .................................. 191,782 367,450.40
------------ ------------
1,917,814 3,060,497.00
============ ============
MINIMUM VALUE: $ 20,456,664 (based on a price of $8.00 per share)
============
Total non-tax related AAA distributions: 5,250,000.00
============
EXHIBIT 10.5
AGREEMENT AND PLAN OF ORGANIZATION
dated as of the 30th day of April, 1997
by and among
METALS USA, INC.
QUEENSBORO STEEL I ACQUISITION CORP.
(a subsidiary of Metals USA, Inc.)
QUEENSBORO STEEL CORPORATION
and
the STOCKHOLDERS named herein
<PAGE>
TABLE OF CONTENTS
Page
1. THE MERGER.............................................................6
1.1 Delivery and Filing of Articles of Merger........................6
1.2 Effective Time of the Merger.....................................6
1.3 Certificate of Incorporation, By-laws and
Board of Directors of Surviving Corporation......................6
1.4 Certain Information With Respect to the
Capital Stock of the COMPANY, METALS and NEWCO...................7
1.5 Effect of Merger.................................................7
2. CONVERSION OF STOCK....................................................9
2.1 Manner of Conversion.............................................9
3. DELIVERY OF MERGER CONSIDERATION......................................10
4. CLOSING...............................................................10
5. REPRESENTATIONS AND WARRANTIES OF COMPANY
AND STOCKHOLDERS......................................................12
(A) Representations and Warranties of COMPANY and
STOCKHOLDERS..............................................12
5.1 Due Organization................................................12
5.2 Authorization...................................................13
5.3 Capital Stock of the COMPANY....................................13
5.4 Transactions in Capital Stock, Organization Accounting..........13
5.5 No Bonus Shares.................................................14
5.6 Subsidiaries....................................................14
5.7 Predecessor Status; etc.........................................14
5.8 Spin-off by the COMPANY.........................................15
5.9 Financial Statements............................................15
5.10 Liabilities and Obligations.....................................15
5.11 Accounts and Notes Receivable...................................16
5.12 Permits and Intangibles.........................................17
5.13 Environmental Matters...........................................17
5.14 Personal Property...............................................18
5.15 Significant Customers; Material Contracts and Commitments.......19
5.16 Real Property...................................................20
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5.17 Insurance.......................................................21
5.18 Compensation; Employment Agreements; Organized Labor Matters....21
5.19 Employee Plans..................................................22
5.20 Compliance with ERISA...........................................23
5.21 Conformity with Law; Litigation.................................24
5.22 Taxes...........................................................25
5.23 No Violations; Consents, Etc....................................25
5.24 Government Contracts............................................26
5.25 Absence of Changes..............................................26
5.26 Deposit Accounts; Powers of Attorney............................28
5.27 Validity of Obligations.........................................28
5.28 Relations with Governments......................................28
5.29 Disclosure......................................................29
5.30 Prohibited Activities...........................................30
(B) Representations and Warranties of STOCKHOLDERS......30
5.31 Authority; Ownership............................................30
5.32 Preemptive Rights...............................................31
5.33 No Intention to Dispose of METALS Stock.........................31
6. REPRESENTATIONS OF METALS and NEWCO...................................31
6.1 Due Organization................................................31
6.2 Authorization...................................................32
6.3 Capital Stock of METALS and NEWCO...............................32
6.4 Transactions in Capital Stock, Organization Accounting..........33
6.5 Subsidiaries....................................................33
6.6 Financial Statements............................................33
6.7 Liabilities and Obligations.....................................33
6.8 Conformity with Law; Litigation.................................34
6.9 No Violations...................................................34
6.10 Validity of Obligations.........................................35
6.11 METALS Stock....................................................35
6.12 No Side Agreements..............................................36
6.13 Business; Real Property; Material Agreements....................36
6.14 Taxes...........................................................36
6.15 Absence of Changes..............................................37
6.16 Validity of Obligations.........................................38
6.17 Disclosure......................................................38
6.18 Private Offering................................................39
7. COVENANTS PRIOR TO CLOSING............................................39
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7.1 Access and Cooperation; Due Diligence...........................39
7.2 Conduct of Business Pending Closing.............................40
7.3 Prohibited Activities...........................................41
7.4 No Shop.........................................................43
7.5 Notice to Bargaining Agents.....................................43
7.6 Agreements......................................................43
7.7 Notification of Certain Matters.................................44
7.8 Amendment of Schedules..........................................44
7.9 Cooperation in Preparation of Registration Statement............46
7.10 Final Financial Statements......................................46
7.11 Further Assurances..............................................47
7.12 Authorized Capital..............................................47
7.13 Compliance with the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 (the "Hart-Scott Act").......47
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF
STOCKHOLDERS AND COMPANY..............................................48
8.1 Representations and Warranties; Performance of Obligations......48
8.2 Satisfaction....................................................49
8.3 No Litigation...................................................49
8.4 Opinion of Counsel..............................................49
8.5 Registration Statement..........................................49
8.6 Consents and Approvals..........................................50
8.7 Good Standing Certificates......................................50
8.8 No Material Adverse Change......................................50
8.9 Closing of IPO..................................................50
8.10 Secretary's Certificate.........................................50
8.11 Employment Agreements...........................................51
8.12 Tax Matters.....................................................51
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF METALS AND NEWCO...............51
9.1 Representations and Warranties; Performance of Obligations......51
9.2 No Litigation...................................................52
9.3 Secretary's Certificate.........................................52
9.4 No Material Adverse Effect......................................52
9.5 STOCKHOLDERS' Release...........................................52
9.6 Satisfaction....................................................53
9.7 Termination of Related Party Agreements.........................53
9.8 Opinion of Counsel..............................................53
9.9 Consents and Approvals..........................................53
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9.10 Good Standing Certificates......................................53
9.11 Registration Statement..........................................54
9.12 Employment Agreements...........................................54
9.13 Closing of IPO..................................................54
9.14 FIRPTA Certificate..............................................54
10. COVENANTS OF METALS AND THE STOCKHOLDERS AFTER CLOSING................54
10.1 Release From Guarantees; Repayment of Certain Obligations.......54
10.2 Preservation of Tax and Accounting Treatment....................55
10.3 Preparation and Filing of Tax Returns...........................55
10.4 Directors.......................................................56
10.5 Preservation of Employee Benefit Plans..........................56
11. INDEMNIFICATION.......................................................57
11.1 General Indemnification by the STOCKHOLDERS.....................57
11.2 Indemnification by METALS.......................................59
11.3 Third Person Claims.............................................59
11.4 Exclusive Remedy................................................61
11.5 Limitations on Indemnification..................................62
12. TERMINATION OF AGREEMENT..............................................62
12.1 Termination.....................................................62
12.2 Liabilities in Event of Termination.............................63
13. NONCOMPETITION........................................................64
13.1 Prohibited Activities...........................................64
13.2 Damages.........................................................65
13.3 Reasonable Restraint............................................65
13.4 Severability; Reformation.......................................65
13.5 Independent Covenant............................................66
13.6 Materiality.....................................................66
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION..............................66
14.1 STOCKHOLDERS....................................................66
14.2 METALS AND NEWCO................................................67
14.3 Damages.........................................................68
14.4 Survival........................................................68
15. TRANSFER RESTRICTIONS.................................................68
15.1 Transfer Restrictions...........................................68
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16. FEDERAL SECURITIES ACT REPRESENTATIONS................................69
16.1 Compliance with Law.............................................69
16.2 Economic Risk; Sophistication...................................70
17. REGISTRATION RIGHTS...................................................70
17.1 Piggyback Registration Rights...................................70
17.2 Demand Registration Rights......................................71
17.3 Registration Procedures.........................................73
17.4 Indemnification.................................................74
17.5 Underwriting Agreement..........................................75
17.6 Rule 144 Reporting..............................................76
18. GENERAL...............................................................76
18.1 Cooperation.....................................................76
18.2 Successors and Assigns..........................................77
18.3 Entire Agreement................................................77
18.4 Counterparts....................................................77
18.5 Brokers and Agents..............................................78
18.6 Expenses........................................................78
18.7 Notices.........................................................78
18.8 Governing Law...................................................80
18.9 Survival of Representations and Warranties......................80
18.10 Exercise of Rights and Remedies.................................80
18.11 Time............................................................81
18.12 Reformation and Severability....................................81
18.13 Remedies Cumulative.............................................81
18.14 Captions........................................................81
18.15 Amendments and Waivers..........................................81
18.16 Special Limitation..............................................81
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ANNEXES
Annex I - Consideration to Be Paid to Stockholders
Annex II - Stockholders and Stock Ownership of the Company
Annex III - Stockholders and Stock Ownership of Metals
Annex IV - Certificate of Incorporation and By-Laws of Metals and Newco
Annex V - Form of Opinion of Counsel to Metals
Annex VI - Form of Opinion of Counsel to Company and Stockholders
Annex VII - Form of Key Employee Employment Agreement
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SCHEDULES
5.1 Due Organization
5.2 Authorization
5.3 Capital Stock of the COMPANY
5.4 Transactions in Capital Stock, Organization Accounting
5.5 No Bonus Shares
5.6 Subsidiaries
5.7 Predecessor Status; etc
5.8 Spin-off by the COMPANY
5.9 Financial Statements
5.10 Liabilities and Obligations
5.11 Accounts and Notes Receivable
5.12 Permits and Intangibles
5.13 Environmental Matters
5.14 Personal Property
5.15 Significant Customers; Material Contracts and Commitments
5.16 Real Property
5.17 Insurance
5.18 Compensation; Employment Agreements; Organized Labor Matters
5.19 Employee Plans
5.20 Compliance with ERISA
5.21 Conformity with Law; Litigation
5.22 Taxes
5.23 No Violations, Consents, etc.
5.24 Government Contracts
5.25 Absence of Changes
5.26 Deposit Accounts; Powers of Attorney
5.28 Relations with Governments
5.30 Prohibited Activities
5.31 Authority; Ownership
6.4 Transactions in Capital Stock, Organization Accounting
6.7 Liabilities and Obligations
6.8 Conformity with Law; Litigation
6.9 No Violations
6.13 Business; Real Property; Material Agreements
6.14 Taxes
7.2 Conduct of Business Pending Closing
7.3 Prohibited Activities
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7.5 Notice to Bargaining Agents
9.12 Employment Agreements
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AGREEMENT AND PLAN OF ORGANIZATION
THIS AGREEMENT AND PLAN OF ORGANIZATION (the "Agreement") is made as of
the 30th day of April, 1997, by and among METALS USA, Inc., a Delaware
corporation ("METALS"), QUEENSBORO STEEL I ACQUISITION CORP., a Delaware
corporation ("NEWCO"), QUEENSBORO STEEL CORPORATION, a North Carolina
corporation (the "COMPANY"), and the STOCKHOLDERS identified on the signature
pages hereto (the "STOCKHOLDERS"). The STOCKHOLDERS are all the stockholders of
the COMPANY.
WHEREAS, NEWCO is a corporation duly organized and existing under
the laws of the State of Delaware, having been incorporated on April 23,
1997, solely for the purpose of completing the transactions set forth
herein, and is a wholly-owned subsidiary of METALS, a corporation
organized and existing under the laws of the State of Delaware;
WHEREAS, the respective Boards of Directors of NEWCO and the COMPANY
(which together are hereinafter collectively referred to as "Constituent
Corporations") deem it advisable and in the best interests of the
Constituent Corporations and their respective stockholders that NEWCO
merge with and into the COMPANY pursuant to this Agreement and the
applicable provisions of the laws of the States of Delaware and the State
of Incorporation;
WHEREAS, METALS is entering into other separate agreements
substantially similar to this Agreement (the "Other Agreements"), each of
which is entitled "Agreement and Plan of Organization," with each of the
Other Founding Companies (as defined herein) and their respective
stockholders in order to acquire additional metals processing, metals
fabricating and specialty metals companies;
WHEREAS, this Agreement and the Other Agreements constitute the
"METALS Plan of Organization;"
WHEREAS, the STOCKHOLDERS and the Boards of Directors and the
stockholders of METALS, each of the Other Founding Companies and each of
the
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subsidiaries of METALS that are parties to the Other Agreements have
approved and adopted the METALS Plan of Organization as an integrated plan
pursuant to which the STOCKHOLDERS and the stockholders of each of the
other Founding Companies will transfer the capital stock of each of the
Founding Companies to METALS and the stockholders of each of the other
Founding Companies will acquire the stock of METALS (but not cash or other
property) as a tax-free transfer of property under Section 351 of the
Internal Revenue Code of 1986, as amended;
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the Board of Directors of the
COMPANY has approved this Agreement as part of the METALS Plan of
Organization in order to transfer the capital stock of the COMPANY to
METALS;
WHEREAS, unless the context otherwise requires, capitalized terms
used in this Agreement or in any schedule attached hereto and not
otherwise defined shall have the following meanings for all purposes of
this Agreement:
"1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Acquired Party" means the COMPANY, any subsidiary and any member of a
Relevant Group.
"Acquisition Companies" shall mean NEWCO and each of the other Delaware
companies wholly-owned by METALS prior to the Funding and Consummation Date.
"Affiliates" has the meaning set forth in Section 5.8.
"Articles of Merger" shall mean those Articles or Certificates of Merger
with respect to the Merger in such forms as may be required by the laws of the
State of Delaware and the State of Incorporation.
"Balance Sheet Date" shall mean December 31, 1996.
"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
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"COMPANY" has the meaning set forth in the first paragraph of this
Agreement.
"COMPANY Stock" has the meaning set forth in Section 2.1.
"Constituent Corporations" has the meaning set forth in the second recital
of this Agreement.
"Draft Registration Statement" means the draft dated April 25, 1997 of the
Registration Statement, and any corrections thereto and supplemental information
delivered by METALS to the COMPANY for delivery to the STOCKHOLDERS prior to the
time this Agreement is delivered to METALS.
"Effective Time of the Merger" shall mean the time as of which the Merger
becomes effective, which shall, in any case, occur on the Funding and
Consummation Date.
"Environmental Laws" has the meaning set forth in Section 5.13.
"Expiration Date" has the meaning set forth in Section 5(A).
"Founding Companies" means:
Affiliated Metals Company, a Missouri corporation;
Interstate Steel Supply Company, a Pennsylvania corporation,
Interstate Steel Supply Company of Pittsburgh, a Pennsylvania
corporation, Interstate Steel Supply Company of Maryland, a
Maryland corporation, and Interstate Steel Processing Company,
a Pennsylvania corporation;
Queensboro Steel Corporation, a North Carolina corporation;
Southern Alloy of America, Inc., a North Carolina corporation;
Steel Service Systems, Inc., a Wisconsin corporation;
Texas Aluminum Industries, Inc., a Texas corporation, Cornerstone
Metals Corporation, a Nevada corporation, Cornerstone Building
Products, Inc., a Nevada corporation, Cornerstone Aluminum
Company, Inc., a Nevada corporation, and Cornerstone Patio
Concepts, L.L.C., a Nevada limited liability company;
Uni-Steel Incorporated, an Oklahoma corporation; and
Williams Steel & Supply Co., Inc., a Wisconsin corporation.
"Funding and Consummation Date" has the meaning set forth in
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Section 4.
"IPO" means the initial public offering of METALS Stock pursuant to the
Registration Statement as referenced in Section 9.13.
"Material Adverse Effect" has the meaning set forth in Section 5.1.
"Material Documents" has the meaning set forth in Section 5.23.
"Merger" means the merger of NEWCO with and into the COMPANY pursuant to
this Agreement and the applicable provisions of the laws of the State of
Delaware and the laws of the State of Incorporation.
"METALS" has the meaning set forth in the first paragraph of this
Agreement.
"METALS Charter Documents" has the meaning set forth in Section 6.1.
"METALS Stock" means the common stock, par value $.01 per share, of
METALS.
"NEWCO" has the meaning set forth in the first paragraph of this
Agreement.
"NEWCO STOCK" means the common stock, par value $.01 per share, of NEWCO.
"Other Founding Companies" means all of the Founding Companies other than
the Company.
"Plans" has the meaning set forth in Section 5.19.
"Pricing" means the date of determination by METALS and the Underwriters
of the public offering price of the shares of METALS Stock in the IPO; the
parties hereto contemplate that the Pricing shall take place on the Closing
Date.
"Qualified Plans" has the meaning set forth in Section 5.20.
"Registration Statement" means that certain registration statement on Form
S-1 to be filed with the SEC covering the shares of METALS Stock to be issued in
the IPO and all amendments thereto.
"Relevant Group" means the COMPANY and any affiliated, combined,
consolidated, unitary or similar group of which the COMPANY is or was a member.
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
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"Schedule" means each Schedule attached hereto, which shall reference the
relevant sections of this Agreement, on which parties hereto disclose
information as part of their respective representations, warranties and
covenants.
"SEC" means the United States Securities and Exchange Commission.
"State of Incorporation" means the State of North Carolina.
"STOCKHOLDERS" has the meaning set forth in the first paragraph of this
Agreement.
"Surviving Corporation" shall mean the COMPANY as the surviving party in
the Merger.
"Tax" or "Taxes" means all federal, state, local or foreign net or gross
income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, withholding, employment, excise, property, deed, stamp, alternative
or add on minimum, or other taxes, assessments, duties, fees, levies or other
governmental charges, whether disputed or not, together with any interest,
penalties, additions to tax or additional amounts with respect thereto.
"Underwriters" means the prospective underwriters identified in the
Registration Statement.
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:
1. THE MERGER
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER. The Constituent
Corporations will cause the Articles of Merger to be signed, verified and placed
in escrow under the control of METALS to be held for filing with the Secretary
of State of the State of Delaware and the Secretary of State of the State of
Incorporation on the Funding and Consummation Date.
1.2 EFFECTIVE TIME OF THE MERGER. At the Effective Time of the Merger,
NEWCO shall be merged with and into the COMPANY in accordance with the Articles
of Merger, the separate existence of NEWCO shall cease, the COMPANY shall be the
surviving party in the Merger and the COMPANY is sometimes hereinafter referred
to as the Surviving Corporation. The Merger will be effected in a single
transaction.
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1.3 CERTIFICATE OF INCORPORATION, BY-LAWS AND BOARD OF DIRECTORS OF
SURVIVING CORPORATION. At the Effective Time of the Merger:
(i) the Certificate of Incorporation of the COMPANY then in effect
shall be the Certificate of Incorporation of the Surviving Corporation
until changed as provided by law;
(ii) the By-laws of NEWCO then in effect shall become the By-laws of
the Surviving Corporation; and subsequent to the Effective Time of the
Merger, such By-laws shall be the By-laws of the Surviving Corporation
until they shall thereafter be duly amended (and such By-laws shall be
amended, if necessary, to comply with applicable state law);
(iii) the Board of Directors of the Surviving Corporation shall
consist of the persons who are on the Board of Directors of the COMPANY
immediately prior to the Effective Time of the Merger, provided that J.
Michael Kirksey shall be elected as a director of the Surviving
Corporation effective as of the Effective Time of the Merger; the Board of
Directors of the Surviving Corporation shall hold office subject to the
provisions of the laws of the State of Incorporation 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 of the Merger shall continue as the officers of the Surviving
Corporation in the same capacity or capacities, and effective upon the
Effective Time of the Merger J. Michael Kirksey shall be appointed as a
vice president of the Surviving Corporation and Terry L. Freeman 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 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE COMPANY,
METALS AND NEWCO. The respective designations and numbers of outstanding shares
and voting rights of each class of outstanding capital stock of the COMPANY,
METALS and NEWCO as of the date of this Agreement are as follows:
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(i) as of the date of this Agreement, the authorized and outstanding
capital stock of the COMPANY is as set forth on Schedule 5.3 hereto;
(ii) immediately prior to the Closing Date and the Funding and
Consummation Date, the authorized capital stock of METALS will consist of
50,000,000 shares of METALS Stock, of which the number of issued and
outstanding shares will be set forth in the Registration Statement, and
5,000,000 shares of preferred stock, $.01 par value, of which no shares
will be issued and outstanding, and a number of shares of Restricted
Voting Common Stock, $.01 par value (the "Restricted Common Stock"), to be
determined by METALS in good faith, all of which will be issued and
outstanding except as otherwise set forth in the Registration Statement;
and
(iii) as of the date of this Agreement, the authorized capital stock
of NEWCO consists of 1,000 shares of NEWCO Stock, of which one hundred
(100) shares are issued and outstanding.
1.5 EFFECT OF MERGER. At the Effective Time of the Merger, the effect of
the Merger shall be as provided in the applicable provisions of the General
Corporation Law of the State of Delaware (the "Delaware GCL") and the law of the
State of Incorporation. Except as herein specifically set forth, the identity,
existence, purposes, powers, objects, franchises, privileges, rights and
immunities of the COMPANY shall continue unaffected and unimpaired by the Merger
and the corporate franchises, existence and rights of NEWCO shall be merged with
and into the COMPANY, and the COMPANY, as the Surviving Corporation, shall be
fully vested therewith. At the Effective Time of the Merger, the separate
existence of NEWCO 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 transferred
to, and vested in, the Surviving Corporation without further act or deed; and
all property, rights and privileges, powers and
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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 interest therein, whether by deed or
otherwise, under the laws of the State of Incorporation 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.
2. CONVERSION OF STOCK
2.1 MANNER OF CONVERSION. The manner of converting the shares of (i)
outstanding capital stock of the COMPANY ("COMPANY Stock") and (ii) NEWCO Stock,
issued and outstanding immediately prior to the Effective Time of the Merger,
respectively, into shares of (x) METALS Stock and cash and (y) common stock of
the Surviving Corporation, respectively, shall be as follows:
As of the Effective Time of the Merger:
(i) all of the shares of COMPANY Stock issued and outstanding
immediately prior to the Effective Time of the Merger, by virtue of the
Merger and without any action on the part of the holder thereof,
automatically shall be deemed to represent (1) the right to receive the
number of shares of METALS Stock set forth on Annex I hereto with respect
to such holder and (2) the right to receive the amount of cash set forth
on Annex I hereto with respect to such holder;
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(ii) all shares of COMPANY Stock 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 of the Merger, shall, by virtue of the Merger
and without any action on the part of METALS, automatically be converted
into one fully paid and non-assessable share of common stock of the
Surviving Corporation which shall constitute all of the issued and
outstanding shares of common stock of the Surviving Corporation
immediately after the Effective Time of the Merger. All METALS Stock
received by the STOCKHOLDERS pursuant to this Agreement shall,
except for restrictions on resale or transfer described in Sections 15 and 16
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 GCL. All METALS Stock received by the
STOCKHOLDERS shall be issued and delivered to the STOCKHOLDERS free and clear of
any liens, claims or encumbrances of any kind or nature. All voting rights of
such METALS Stock received by the STOCKHOLDERS shall be fully exercisable by the
STOCKHOLDERS and the STOCKHOLDERS shall not be deprived nor restricted in
exercising those rights. At the Effective Time of the Merger, METALS shall have
no class of capital stock issued and outstanding other than the METALS Stock and
the Restricted Voting Common Stock.
3. DELIVERY OF MERGER CONSIDERATION
3.1 On the Funding and Consummation Date the STOCKHOLDERS, 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 and the amount of cash described on Annex I hereto, said
cash to be payable by certified check.
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3.2 The STOCKHOLDERS shall deliver to METALS at the Closing the
certificates representing COMPANY Stock, duly endorsed in blank by the
STOCKHOLDERS, or accompanied by blank stock powers, and with all necessary
transfer tax and other revenue stamps, acquired at the STOCKHOLDERS' expense,
affixed and canceled. The STOCKHOLDERS agree 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.
4. CLOSING
At or prior to the Pricing, the parties shall take all actions necessary
to prepare to (i) effect the Merger (including the execution of the Articles of
Merger which shall be placed in escrow under the control of METALS for filing
with the appropriate authorities on the Funding and Consummation Date) and (ii)
effect the conversion and delivery of shares referred to in Section 3 hereof;
provided, that such actions shall not include the actual completion of the
Merger or the conversion and delivery of the shares and certified check(s)
referred to in Section 3 hereof, each of which actions shall only be taken upon
the Funding and Consummation Date as herein provided. The escrow agreement
relating to the Articles of Merger shall provide that in the event that there is
no Funding and Consummation Date and this Agreement automatically terminates as
provided in this Section 4 the Articles of Merger shall not be filed and shall
be returned to the STOCKHOLDERS. The taking of the actions described in clauses
(i) and (ii) above (the "Closing") shall take place on the closing date (the
"Closing Date") at the offices of Bracewell & Patterson, L.L.P., South Tower
Pennzoil Place, 711 Louisiana, Suite 2900, Houston, Texas 77002. On the Funding
and Consummation Date (x) the Articles of Merger shall be filed with the
appropriate state authorities so that they shall be, as early as practicable on
the Funding and Consummation Date, effective and the Merger shall thereby be
effected, (y) all transactions contemplated by this Agreement, including the
conversion and delivery of shares, the delivery of a certified check or checks
in an amount equal to the cash portion of the consideration which the
STOCKHOLDERS
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shall be entitled to receive pursuant to the Merger referred to in Section 3
hereof and (z) the closing with respect to the IPO shall occur and be completed.
The date on which the actions described in the preceding clauses (x), (y) and
(z) occurs shall be referred to as the "Funding and Consummation Date." Except
as otherwise provided in Section 12 hereof, during the period from the Closing
Date to the Funding and Consummation Date, this Agreement may only be terminated
by the parties if the underwriting agreement in respect of the IPO is terminated
pursuant to the terms of such agreement. This Agreement shall also in any event
automatically terminate if the Funding and Consummation Date has not occurred
within 10 business days of the Closing Date. Time is of the essence.
5. REPRESENTATIONS AND WARRANTIES OF COMPANY AND STOCKHOLDERS
(A) REPRESENTATIONS AND WARRANTIES OF COMPANY AND STOCKHOLDERS.
Each of the COMPANY and the STOCKHOLDERS jointly and severally represent
and warrant that all of the following representations and warranties in this
Section 5(A) are true at the date of this Agreement and, subject to Section 7.8
hereof, shall be true at the time of Closing and the Funding and Consummation
Date, and that such representations and warranties shall survive the Funding and
Consummation Date for a period of twelve months (the last day of such period
being the "Expiration Date"), except that the warranties and representations set
forth in Section 5.22 hereof shall survive until such time as the limitations
period has run for all tax periods ended on or prior to the Funding and
Consummation Date, which shall be deemed to be the Expiration Date for Section
5.22. For purposes of this Section 5, the term COMPANY shall mean and refer to
the COMPANY and all of its subsidiaries.
5.1 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 the 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 (i) as set forth on
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Schedule 5.1 or (ii) 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 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 5.1. The stock records of the COMPANY, as heretofore made
available to METALS, 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 complete in all
material 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, power and
authority to enter into this Agreement and the Merger. The most recent
resolutions adopted by the Board of Directors of the COMPANY and the most recent
resolutions adopted by the STOCKHOLDERS, all of which are dated no earlier than
ten business days prior to the date hereof, approve this Agreement and the
transactions contemplated hereby in all respects, and copies of all such
resolutions, certified by the Secretary or an Assistant Secretary of the COMPANY
as being in full force and effect on the date hereof, are attached hereto as
Schedule 5.2.
5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the
COMPANY is as set forth on Schedule 5.3. All of the issued and outstanding
shares of the capital stock of the COMPANY are owned by the STOCKHOLDERS in the
amounts set forth in Annex II. Each STOCKHOLDER, severally, represents and
warrants that except as set forth on Schedule 5.3, the shares of capital stock
of the COMPANY owned by such STOCKHOLDER 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, are owned of record and
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beneficially by the STOCKHOLDERS and further, such shares were offered, issued,
sold and delivered by the COMPANY in compliance with all applicable state and
Federal laws concerning the issuance of securities. Further, none of such shares
were issued in violation of any preemptive rights of any past or present
stockholder.
5.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except as set
forth on Schedule 5.4, the COMPANY has not acquired any COMPANY Stock since
January 1, 1995. Except as set forth on Schedule 5.4, (i) no option, warrant,
call, conversion right or commitment of any kind exists which obligates the
COMPANY to issue any of its authorized but unissued capital stock; (ii) the
COMPANY has no obligation (contingent or otherwise) to purchase, redeem or
otherwise acquire any of its equity securities or any interests therein or to
pay any dividend or make any distribution in respect thereof; and (iii) neither
the voting stock structure of the COMPANY nor the relative ownership of shares
among any of its respective stockholders has been altered or changed in
contemplation of the Merger and/or the METALS Plan of Organization. Schedule 5.4
also includes a complete and accurate list of all stock option or stock purchase
plans, including a list of all outstanding options, warrants or other rights to
acquire shares of the COMPANY's stock and copies of such plans have been
delivered to METALS or are attached to Schedule 5.4.
5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of the
shares of COMPANY Stock was issued pursuant to awards, grants or bonuses in
contemplation of the Merger or the METALS Plan of Organization.
5.6 SUBSIDIARIES. Except as set forth on Schedule 5.6, the COMPANY has no
subsidiaries. Except as set forth in Schedule 5.6 and except for any
corporations or entities with respect to which the COMPANY owns less than 1% of
the issued and outstanding stock, the COMPANY does not presently 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 business entity nor is the COMPANY, directly or
indirectly, a participant in any joint venture, partnership or other
non-corporate entity.
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5.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 5.7 is a listing of all
names of all predecessor companies of the COMPANY, including the names of any
entities acquired by the COMPANY (by stock purchase, merger or otherwise) or
owned by the COMPANY or from whom the COMPANY previously acquired material
assets, in any case, from the earliest date upon which any STOCKHOLDER acquired
his or her stock in any COMPANY. Except as disclosed on Schedule 5.7, the
COMPANY has not been, within such period of time, a subsidiary or division of
another corporation or a part of an acquisition which was later rescinded.
5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8, there
has not been any sale, spin-off or split-up of material assets of either the
COMPANY or any other person or entity that directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under common
control with, the COMPANY ("Affiliates") since January 1, 1995.
5.9 FINANCIAL STATEMENTS. Attached hereto as Schedule 5.9 are copies of
the following financial statements (the "COMPANY Financial Statements") of the
COMPANY: the COMPANY's audited Balance Sheets as of December 31, 1996 and 1995,
and Statements of Income, Stockholders' Equity and Cash Flows for each of the
three years in the period ended December 31, 1996 (December 31, 1996 being
hereinafter referred to as the "Balance Sheet Date"). Such Financial Statements
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated (except as noted
thereon or on Schedule 5.9). Except as set forth on Schedule 5.9, such Balance
Sheets present fairly in all material respects the financial position of the
COMPANY as of the dates indicated thereon, and such Statements of Income,
Stockholders Equity and Cash Flows present fairly in all material respects the
results of operations for the periods indicated thereon.
5.10 LIABILITIES AND OBLIGATIONS. The COMPANY has delivered to METALS an
accurate list (which is set forth on Schedule 5.10) as of the Balance Sheet Date
of (i) all liabilities of the COMPANY of a nature that they are required in
accordance with GAAP to be reflected on a balance sheet and which are not
reflected on the balance sheet of the COMPANY at the Balance Sheet Date or
otherwise reflected in the COMPANY Financial Statements at the Balance Sheet
Date,
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and which are not disclosed on any of the other Schedules to this Agreement and
which would have a Material Adverse Effect on the COMPANY, and (ii) all loan
agreements, indemnity or guaranty agreements, bonds, mortgages, pledges or other
security agreements to which the COMPANY is a party or by which its properties
may be bound. Except as set forth on Schedule 5.10, to the best knowledge of the
COMPANY, since the Balance Sheet Date the COMPANY has not incurred any material
liabilities of any kind, character or description, whether accrued, absolute,
secured or unsecured, contingent or otherwise, other than liabilities incurred
in the ordinary course of business. The COMPANY has also delivered to METALS on
Schedule 5.10, in the case of those contingent liabilities related to pending or
threatened litigation, or other liabilities which are not fixed, a good faith
and reasonable estimate of the maximum amount which the COMPANY reasonably
expects will be payable and the amount, if any, accrued or reserved for each
such potential liability on the COMPANY's Financial Statements. For each such
contingent liability or liability for which the amount is not fixed or is
contested, the COMPANY has provided to METALS the following information:
(i) a summary description of the liability together with the
following:
(a) copies of all relevant documentation relating thereto;
(b) amounts claimed and any other action or relief sought; and
(c) name of claimant and all other parties to the claim, suit
or proceeding;
(ii) the name of each court or agency before which such claim, suit
or proceeding is pending; and
(iii) the date such claim, suit or proceeding was instituted; and
(iv) a good faith and reasonable estimate of the maximum amount, if
any, which is likely to become payable with respect to each such
liability. If no estimate is provided, the estimate shall for purposes of
this Agreement be deemed to be zero.
5.11 ACCOUNTS AND NOTES RECEIVABLE. The COMPANY has delivered to METALS an
accurate list (which is set forth on Schedule 5.11) of the accounts and notes
receivable of the COMPANY, as of the Balance Sheet Date, including any such
amounts which are not reflected in
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the balance sheet as of the Balance Sheet Date, and including receivables from
and advances to employees and the STOCKHOLDERS. Except to the extent reflected
on Schedule 5.11, such accounts, notes and other receivables are collectible in
the amounts shown on Schedule 5.11, net of reserves reflected in the balance
sheet as of the Balance Sheet Date.
5.12 PERMITS AND INTANGIBLES. The COMPANY or its employees, as
appropriate, hold all licenses, franchises, permits and other governmental
authorizations ("Licenses") the absence of any of which could have a Material
Adverse Effect on the Company's business, and the COMPANY has delivered to
METALS an accurate list and summary description (which is set forth on Schedule
5.12) of all such Licenses, including any 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
5.13). At or prior to the Closing, all such trademarks, trade names, patents,
patent applications, copyrights and other intellectual property will be assigned
or licensed to the COMPANY for no additional consideration. To the best
knowledge of the COMPANY, the Licenses and other rights listed on Schedules 5.12
and 5.13 are valid, and the COMPANY has not received any notice that any person
intends to cancel, terminate or not renew any such License or other right. The
COMPANY has conducted and is conducting its business in compliance with the
requirements, standards, criteria and conditions set forth in the Licenses and
other rights listed on Schedules 5.12 and 5.13 and is not in violation of any of
the foregoing except where such non-compliance or violation would not have a
Material Adverse Effect on the COMPANY. Except as specifically provided in
Schedule 5.12, 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 or other rights.
5.13 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 5.13, and
except where any failure to comply or action would not have a Material Adverse
Effect, (i) the COMPANY has complied with and is in compliance with all Federal,
state, local and foreign statutes (civil and
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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 and
Hazardous Substances (as such terms are defined in any applicable Environmental
Law), as well as petroleum and petroleum products (collectively "Hazardous
Materials"); (ii) the COMPANY has obtained and adhered to all necessary permits
and other approvals necessary to treat, transport, store, dispose of and
otherwise handle Hazardous Materials, a list of all of which permits and
approvals is set forth on Schedule 5.13, 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 Materials have
been treated, stored, disposed of or otherwise handled; (iii) there have been no
releases or threats of releases (as these terms are defined in Environmental
Laws) of any Hazardous Materials at, from, in or on any property owned or
operated by the COMPANY except as permitted by Environmental Laws; (iv) the
COMPANY knows of no on-site or off-site location to which the COMPANY has
transported or disposed of Hazardous Materials or arranged for the
transportation of Hazardous Materials, which site 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, METALS or NEWCO for
any clean-up cost, remedial work, damage to natural resources, property damage
or personal injury, including, but not limited to, any claim under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended; and (v) to the best knowledge of the COMPANY, the COMPANY has no
contingent liability in connection with any release of any Hazardous Materials
into the environment; provided, however, that the representation set forth in
this clause (v) shall not be deemed to limit in any way the representations and
warranties set forth in clauses (i) - (iv) of this Section 5.13.
5.14 PERSONAL PROPERTY. The COMPANY has delivered to METALS an accurate
list (which is set forth on Schedule 5.14) of (x) all personal property material
to the operations of the
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COMPANY included (or that will be included) in "depreciable plant, property and
equipment" on the balance sheet of the COMPANY, (y) all other personal property
owned by the COMPANY with an individual value in excess of $50,000 (i) as of the
Balance Sheet Date and (ii) acquired since the Balance Sheet Date and (z) all
material leases and agreements in respect of personal property, including, in
the case of each of (x), (y) and (z), (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. Except as set forth on Schedule 5.14, (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 5.14, (ii) all of
the personal property listed on Schedule 5.14 is in good working order and
condition, ordinary wear and tear excepted and (iii) all leases and agreements
included on Schedule 5.14 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.
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. The
COMPANY has delivered to METALS an accurate list (which is set forth on Schedule
5.15) of (i) all significant customers, it being understood and agreed that a
"significant customer," for purposes of this Section 5.15, means a customer (or
person or entity) representing 5% or more of the COMPANY's annual revenues for
its most recently completed fiscal year. Except to the extent set forth on
Schedule 5.15, 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.
The COMPANY has listed on Schedule 5.15 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),
other than agreements listed on Schedule 5.10, 5.14 or 5.16, (a) in existence as
of the Balance Sheet Date and (b) entered into since the Balance Sheet Date, and
in each case has delivered true, complete
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and correct copies of such agreements to METALS. The COMPANY has also indicated
on Schedule 5.15 a summary description of all plans or projects involving the
opening of new operations, expansion of existing operations, the acquisition of
any personal property, business or assets requiring, in any event, the payment
of more than $50,000 by the COMPANY during any 12-month period.
5.16 REAL PROPERTY. Schedule 5.16 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. Except as set forth
on Schedule 5.16, any such real property owned by the COMPANY will be sold or
distributed by the COMPANY and leased back by the COMPANY on terms no less
favorable to the COMPANY than those available from an unaffiliated party and
otherwise reasonably acceptable to METALS at or prior to the Closing Date. The
COMPANY has good and insurable title to any real property owned by it that is
not shown on Schedule 5.16 as property intended to be sold or distributed prior
to the Closing Date, subject to no mortgage, pledge, lien, conditional sales
agreement, encumbrance or charge, except for:
(i) liens reflected on Schedules 5.10 or 5.16 as securing specified
liabilities (with respect to which no material default exists);
(ii) liens for current taxes not yet payable and assessments not in
default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other exceptions to
title which do not adversely affect the current use of the property.
True, complete and correct copies of all leases and agreements in respect
of such real property leased by the COMPANY are attached to Schedule 5.16, 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 5.16. Except as set forth on Schedule 5.16, all of such
leases included on Schedule 5.16 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.
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5.17 INSURANCE. The COMPANY has delivered to METALS (i) an accurate list
as of the Balance Sheet Date of all insurance policies carried by the COMPANY,
(ii) an accurate list of all insurance loss runs or workers compensation claims
received for the past three (3) policy years and (iii) true, complete and
correct copies of all insurance policies currently in effect. 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. All of such insurance policies are currently in full force and
effect and shall, to the best knowledge of the COMPANY, remain in full force and
effect through the Funding and Consummation Date. Since January 1, 1994, no
insurance carried by the COMPANY has been canceled by the insurer and the
COMPANY has not been denied coverage.
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS. The
COMPANY has delivered to METALS an accurate list (which is set forth on Schedule
5.18) 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. The COMPANY has provided to METALS
true, complete and correct copies of any employment agreements for persons
listed on Schedule 5.18. Since the Balance Sheet Date, there have been no
material 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 5.18, (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
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employees nor has the COMPANY experienced any labor interruptions over the past
three years. The COMPANY believes its relationship with employees to be good.
5.19 EMPLOYEE PLANS. The STOCKHOLDERS have delivered to METALS an accurate
schedule (Schedule 5.19) showing all employee benefit plans of COMPANY
(including COMPANY's Subsidiaries), including all employment agreements and
other agreements or arrangements 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 5.19,
COMPANY (including the COMPANY's Subsidiaries) does not sponsor, maintain or
contribute to any plan program, fund or arrangement that constitutes an
"employee pension benefit plan," nor has COMPANY or any Subsidiary 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. Neither COMPANY
nor any Subsidiary has sponsored, maintained or contributed to any employee
pension benefit plan other than the plans set forth on Schedule 5.19, nor is
COMPANY or any Subsidiary 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 COMPANY's or any Subsidiary's employees.
Neither the COMPANY nor any Subsidiary is now, or will as a result of its
past activities become, liable to the Pension Benefit Guaranty Corporation or to
any multiemployer employee pension benefit plan under the provisions of Title IV
of ERISA for any amounts which would have a Material Adverse Effect on the
COMPANY.
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All employee benefit plans listed on Schedule 5.19 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 or any Subsidiary with
respect to any plan listed on Schedule 5.19 have either been fulfilled in their
entirety or are fully reflected on the balance sheet of the COMPANY as of the
Balance Sheet Date.
5.20 COMPLIANCE WITH ERISA. All such plans listed on Schedule 5.19 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 such determination letters are
included as part of Schedule 5.19 hereof. Except as disclosed on Schedule 5.20,
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 5.19 hereof.
Neither STOCKHOLDERS, any such plan listed in Schedule 5.19, nor COMPANY
(including the COMPANY's Subsidiaries) has engaged in any transaction prohibited
under the provisions of Section 4975 of the Code or Section 406 of ERISA. No
such Plan listed in Schedule 5.19 has incurred an accumulated funding
deficiency, as defined in Section 412(a) of the Code and Section 302(1) of
ERISA; and COMPANY (including the COMPANY's Subsidiaries) has not incurred any
liability for excise tax or penalty due to the Internal Revenue Service nor any
liability to the Pension Benefit Guaranty Corporation. The STOCKHOLDERS further
represent that except as set forth on Schedule 5.19 hereto:
(i) 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;
(ii) no such plan listed in Schedule 5.19 subject to the provisions
of Title IV of ERISA has been terminated;
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(iii) 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 5.19;
(iv) COMPANY (including the COMPANY's Subsidiaries) has not incurred
liability under Section 4062 of ERISA; and
(v) To their best knowledge, circumstances exist pursuant to which
the COMPANY could have any direct or indirect liability whatsoever
(including, but not limited to, any liability to any multiemployer 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.
5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedule 5.21 or 5.13, 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 which would have a Material Adverse Effect; and except to
the extent set forth on Schedule 5.10 or 5.13, there are no material claims,
actions, suits or proceedings, pending or, to the knowledge of the COMPANY,
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 any of them
and no notice of any claim, action, suit or proceeding, whether pending or
threatened, has been received by the COMPANY. 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, orders, approvals, variances, rules and regulations,
including all such orders and other governmental approvals set forth on
Schedules 5.12 and 5.13, except where any such noncompliance, individually or in
the aggregate, would not have a Material Adverse Effect.
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5.22 TAXES. COMPANY (including the COMPANY's 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; and except as
set forth on Schedule 5.22, there are no examinations in progress or claims
pending against any of them for federal, state and other taxes (including
penalties and interest) for any period or periods prior to and including the
Balance Sheet Date and no notice of any claim for taxes, whether pending or
threatened, has been received. All tax, including interest and penalties
(whether or not shown on any tax return) owed by the COMPANY or any of the
COMPANY's Subsidiaries has been paid. The amounts shown as accruals for taxes on
the COMPANY Financial Statements are sufficient for the payment of all taxes of
the kinds indicated (including penalties and interest) for all fiscal periods
ended on or before that date. Copies of (i) any tax examinations, (ii)
extensions of statutory limitations and (iii) the federal and local income tax
returns and franchise tax returns of COMPANY (including the COMPANY
Subsidiaries) for their last three (3) fiscal years, or such shorter period of
time as any of them shall have existed, are attached hereto as Schedule 5.22 or
have otherwise been delivered to METALS. The COMPANY has a taxable year ended
December 31. 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.
5.23 NO VIOLATIONS; CONSENTS, ETC. The COMPANY is not in violation of any
Charter Document. Neither the COMPANY nor, to the best knowledge of the COMPANY,
any other party thereto, is in default under any lease, instrument, agreement,
license, or permit set forth on Schedule 5.12, 5.13, 5.14, 5.15 or 5.16, or any
other material agreement to which it is a party or by which its properties are
bound (the "Material Documents") in any manner that could result in a Material
Adverse Effect; and, except as set forth in Schedule 5.23, (a) the rights and
benefits of the COMPANY under the Material Documents will not be materially
adversely affected by the transactions contemplated hereby and (b) 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
material violation or breach or constitute a default under, any of the terms or
provisions
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of the Material Documents or the Charter Documents. Except as set forth on
Schedule 5.23, 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. Except as set forth on Schedule 5.23, none of the
Material Documents prohibits the use or publication by the COMPANY, METALS or
NEWCO 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, METALS,
NEWCO or any Other Founding Company.
5.24 GOVERNMENT CONTRACTS. Except as set forth on Schedule 5.24, the
COMPANY is not now a party to any governmental contracts subject to price
redetermination or renegotiation.
5.25 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
on Schedule 5.25 or as otherwise contemplated hereby, 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
except for distributions that would have been permitted after the date
hereof under Section 7.3(iii) hereof;
(v) any material increase in the compensation, bonus, sales
commissions or fee arrangement payable or to become payable by the COMPANY
to any of its officers,
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directors, STOCKHOLDERS, employees, consultants or agents, except for
ordinary and customary bonuses and salary increases for employees in
accordance with past practice;
(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 STOCKHOLDERS 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 other distribution of property or assets by the COMPANY
other than in the ordinary course of business and other than distributions
of real estate and other assets as permitted by this Agreement (including
the Schedules hereto).
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5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The COMPANY has delivered to
METALS an accurate schedule (which is set forth on Schedule 5.26) as of the date
of the 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; and
(iv) the name of each person authorized to draw thereon or have
access thereto. Schedule 5.26 also sets forth the name of each person,
corporation, firm or other entity holding a general or special power of
attorney from the COMPANY and a description of the terms of such power.
5.27 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by the COMPANY and the performance of the transactions contemplated herein have
been duly and validly authorized by the Board of Directors of the COMPANY and
this Agreement has been duly and validly authorized by all necessary corporate
action and is a legal, valid and binding obligation of the COMPANY.
5.28 RELATIONS WITH GOVERNMENTS. Except for political contributions made
in a lawful manner which, in the aggregate, do not exceed $10,000 per year, the
COMPANY has not over the past five (5) years made, offered or agreed to offer
anything of value to any governmental official, political party or candidate for
government office nor has it 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. If political contributions made by the
COMPANY have exceeded $10,000 per year for each year in which any STOCKHOLDER
has been a stockholder of the COMPANY, each contribution in the amount of $5,000
or more shall be described on Schedule 5.28.
5.29 DISCLOSURE. (a) This Agreement, including the Annexes and Schedules
hereto, and the completed Director and Officer Questionnaires and the completed
S-1 Questionnaire furnished to METALS by the COMPANY and the STOCKHOLDERS in
connection herewith, do not contain
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an untrue statement of a material fact or omit to state a material fact
necessary to make the statements herein and therein, in light of the
circumstances under which they were made, not misleading; provided, however,
that the foregoing does not apply to statements contained in or omitted from any
of such documents made or omitted in reliance upon information furnished in
writing by METALS. If, prior to the 25th day after the date of the final
prospectus of METALS utilized in connection with the IPO, the COMPANY or the
STOCKHOLDERS become aware of any fact or circumstance which would affect the
accuracy of a representation or warranty of COMPANY or STOCKHOLDERS in this
Agreement in any material respect, the COMPANY and the STOCKHOLDERS shall
immediately give notice of such fact or circumstance to METALS. However, subject
to the provisions of Section 7.8, such notification shall not relieve either the
COMPANY or the STOCKHOLDERS of their respective obligations under this
Agreement, and, subject to the provisions of Section 7.8, at the sole option of
METALS, the truth and accuracy of any and all warranties and representations of
the COMPANY, or on behalf of the COMPANY and of STOCKHOLDERS at the date of this
Agreement and on the Closing Date and on the Funding and Consummation Date,
shall be a precondition to the consummation of this transaction.
(b) The COMPANY and the STOCKHOLDERS acknowledge and agree (i)
that there exists no firm commitment, binding agreement, or promise or other
assurance of any kind, whether express or implied, oral or written, that a
Registration Statement will become effective or that the IPO pursuant thereto
will occur at a particular price or within a particular range of prices or occur
at all; (ii) that neither METALS or any of its officers, directors, agents or
representatives nor any Underwriter shall have any liability to the COMPANY, the
STOCKHOLDERS or any other person affiliated or associated with the COMPANY for
any failure of the Registration Statement to become effective, the IPO to occur
at a particular price or within a particular range of prices or to occur at all;
and (iii) that the decision of STOCKHOLDERS to enter into this Agreement, or to
vote in favor of or consent to the proposed Merger, has been or will be made
independent of, and without reliance upon, any statements, opinions or other
communications, or due diligence investigations which have been or will be made
or performed by any prospective Underwriter, relative to METALS
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or the prospective IPO. METALS agrees, however, to use all reasonable efforts to
consummate the METALS Plan of Organization and IPO as contemplated hereby.
5.30 PROHIBITED ACTIVITIES. Except as set forth on Schedule 5.30, 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.
(B) REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS
Each STOCKHOLDER severally represents and warrants that the
representations and warranties set forth below are true as of the date of this
Agreement and, subject to Section 7.8 hereof, shall be true at the time of
Closing and on the Funding and Consummation Date, and that the representations
and warranties set forth in Sections 5.31 and 5.32 shall survive until the first
anniversary of the Funding and Consummation Date, which shall be the Expiration
Date for purposes of Sections 5.31 and 5.32.
5.31 AUTHORITY; OWNERSHIP. Such STOCKHOLDER has the full legal right,
power and authority to enter into this Agreement. Such STOCKHOLDER owns
beneficially and of record all of the shares of the COMPANY stock identified on
Annex II as being owned by such STOCKHOLDER, and, except as set forth on
Schedule 5.31, such COMPANY Stock is owned free and clear of all liens,
encumbrances and claims of every kind.
5.32 PREEMPTIVE RIGHTS. Such STOCKHOLDER does not have, or hereby waives,
any preemptive or other right to acquire shares of COMPANY Stock or METALS Stock
that such STOCKHOLDER has or may have had. Nothing herein, however, shall limit
or restrict the rights of any STOCKHOLDER to acquire METALS Stock pursuant to
(i) this Agreement or (ii) any option granted by METALS.
5.33 NO INTENTION TO DISPOSE OF METALS STOCK. No STOCKHOLDER is under any
binding commitment or contract to sell, exchange or otherwise dispose of shares
of METALS Stock received as described in Section 3.1.
6. REPRESENTATIONS OF METALS AND NEWCO
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METALS and NEWCO jointly and severally represent and warrant that
all of the following representations and warranties in this Section 6 are true
at the date of this Agreement and, subject to Section 7.8 hereof, shall be true
at the time of Closing and the Funding and Consummation Date, and that such
representations and warranties shall survive the Funding and Consummation Date
for a period of twelve months (the last day of such period being the "Expiration
Date"), except that (i) the warranties and representations set forth in Section
6.14 hereof shall survive until such time as the limitations period has run for
all tax periods ended on or prior to the Funding and Consummation Date, which
shall be deemed to be the Expiration Date for Section 6.14 and (ii) solely for
purposes of determining whether a claim for indemnification under Section
11.2(iv) hereof has been made on a timely basis, and solely to the extent that
in connection with the IPO, any of the STOCKHOLDERS actually incurs liability
under the 1933 Act, the 1934 Act, or any other Federal or state securities laws,
the representations and warranties set forth herein shall survive until the
expiration of any applicable limitations period, which shall be deemed to be the
Expiration Date for such purposes.
6.1 DUE ORGANIZATION. METALS and NEWCO are each corporations duly
organized, validly existing and in good standing under the laws of the State of
Delaware, 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 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. True,
complete and correct copies of the Certificate of Incorporation and By-laws,
each as proposed to be amended, of METALS and NEWCO (the "METALS Charter
Documents") are all attached hereto as Annex IV.
6.2 AUTHORIZATION. (i) The respective representatives 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 consummate the
Merger. All corporate acts and other proceedings required to have been taken by
METALS and NEWCO to authorize the execution,
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delivery and performance of this Agreement and the consummation of the Merger
have been duly and properly taken.
6.3 CAPITAL STOCK OF METALS AND NEWCO. The authorized capital stock of
METALS and NEWCO is as set forth in Sections 1.4(ii) and (iii), respectively.
All of the issued and outstanding shares of the capital stock of NEWCO are owned
by METALS and all of the issued and outstanding shares of the capital stock of
METALS are owned by the persons set forth on Annex III hereof, in each case,
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 METALS and NEWCO have been duly
authorized and validly issued, are fully paid and nonassessable, are owned of
record and beneficially by METALS and the persons set forth on Annex III,
respectively, and further, such shares were offered, issued, sold and delivered
by METALS and NEWCO in compliance with all applicable state and Federal laws
concerning the issuance of securities. Further, none of such shares were issued
in violation of the preemptive rights of any past or present stockholder of
METALS or NEWCO.
6.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except for the
Other Agreements and except as set forth on Schedule 6.4, (i) no option,
warrant, call, conversion right or commitment of any kind exists which obligates
METALS or NEWCO to issue any of their respective authorized but unissued capital
stock; and (ii) neither METALS nor NEWCO has any obligation (contingent or
otherwise) to purchase, redeem or otherwise acquire any of its equity securities
or any interests therein or to pay any dividend or make any distribution in
respect thereof. Schedule 6.4 also includes complete and accurate copies of all
stock option or stock purchase plans, including a list, accurate as of the date
hereof, of all outstanding options, warrants or other rights to acquire shares
of the stock of METALS.
6.5 SUBSIDIARIES. NEWCO has no subsidiaries. METALS has no subsidiaries
except for NEWCO and each of the companies identified as "NEWCO" in each of the
Other Agreements. Except as set forth in the preceding sentence, neither METALS
nor NEWCO presently owns, of record or beneficially, or controls, directly or
indirectly, any capital stock, securities convertible into
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capital stock or any other equity interest in any corporation, association or
business entity, and neither METALS nor NEWCO, directly or indirectly, is a
participant in any joint venture, partnership or other non-corporate entity.
6.6 FINANCIAL STATEMENTS. Included in the Draft Registration Statement are
copies of the following financial statements (the "METALS Financial Statements")
of METALS, which reflect the results of its operations from inception in July
1996: METALS's audited Balance Sheet as of December 31, 1996. Such METALS
Financial Statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
indicated (except as noted thereon). Such Balance Sheet presents fairly the
financial position of METALS as of such date.
6.7 LIABILITIES AND OBLIGATIONS. Except as set forth on Schedule 6.7,
METALS and NEWCO have no material liabilities, contingent or otherwise, except
as set forth in or contemplated by this Agreement and the Other Agreements and
except for fees incurred in connection with the transactions contemplated hereby
and thereby.
6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedule 6.8, neither METALS nor NEWCO is 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 either of them which would have a Material Adverse Effect; and
except to the extent set forth in Schedule 6.8, there are no material claims,
actions, suits or proceedings, pending or, to the knowledge of METALS or NEWCO,
threatened against or affecting, METALS or NEWCO, 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
either of them and no notice of any claim, action, suit or proceeding, whether
pending or threatened, has been received. METALS and NEWCO have conducted and
are conducting their respective businesses in substantial compliance with the
requirements, standards, criteria and conditions set forth in applicable
Federal, state and local statutes, ordinances, permits, licenses,
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orders, approvals, variances, rules and regulations and are not in violation of
any of the foregoing which would have a Material Adverse Effect.
6.9 NO VIOLATIONS. Neither METALS nor NEWCO is in violation of any METALS
Charter Document. None of METALS, NEWCO, or, to the knowledge of METALS and
NEWCO, any other party thereto, is in default under any lease, instrument,
agreement, license, or permit to which METALS or NEWCO is a party, or by which
METALS or NEWCO, or any of their respective properties, are bound (collectively,
the "METALS Documents"); and (a) the rights and benefits of METALS and NEWCO
under the METALS Documents will not be adversely affected by the transactions
contemplated hereby and (b) the execution and delivery of this Agreement by
METALS and NEWCO and the performance of their obligations hereunder do not, and
the consummation of the transactions contemplated hereby and compliance with the
terms hereof will not, conflict with, or result in any violation or default
(with or without notice or lapse of time, or both), under or give rise to a
right of termination, cancellation, or acceleration of any obligation or to loss
of a material benefit under, or result in the creation of any lien upon any of
the assets of METALS or any NEWCO under, any provision of (i) the Certificate of
Incorporation or Bylaws of METALS or the comparable governing instruments of any
NEWCO, (ii) any note, bond, mortgage, indenture or deed of trust or any license,
lease, contract, commitment, agreement or arrangement to which METALS and any
NEWCO is a party or by which any of their respective properties or assets are
bound or (iii) any judgment, order, decree or law, ordinance, rule or
regulation, applicable to METALS or any NEWCO or their respective properties or
assets. 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 material violation or breach or constitute a default under, any of
the terms or provisions of the METALS Documents or the METALS Charter Documents.
Except as set forth on Schedule 6.9, none of the METALS 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
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contemplated hereby will not give rise to any right to termination, cancellation
or acceleration or loss of any right or benefit.
6.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by METALS and NEWCO and the performance of the transactions contemplated herein
have been duly and validly authorized by the respective 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.
6.11 METALS STOCK. At the time of issuance thereof and delivery to the
STOCKHOLDERS, the METALS Stock to be delivered to the STOCKHOLDERS pursuant to
this Agreement will constitute valid and legally issued shares of METALS, fully
paid and nonassessable, and with the exception of restrictions upon resale set
forth in Sections 15 and 16 hereof, will be identical in all substantive
respects (which do not include the form of certificate upon which it is printed
or the presence or absence of a CUSIP number on any such certificate) to the
METALS Stock issued and outstanding as of the date hereof by reason of the
provisions of the Delaware GCL. The METALS Stock issued and delivered to the
STOCKHOLDERS shall at the time of such issuance and delivery be free and clear
of any liens, claims or encumbrances of any kind or character. The shares of
METALS Stock to be issued to the STOCKHOLDERS pursuant to this Agreement will
not be registered under the 1933 Act, except as provided in Section 17 hereof.
6.12 NO SIDE AGREEMENTS. Neither METALS nor NEWCO has entered or will
enter into any agreement with any of the Founding Companies or any of the
stockholders of the Founding Companies or METALS other than the Other Agreements
and the agreements contemplated by each of the Other Agreements, including the
employment agreements, leases and Indemnification Agreements referred to herein
or entered into in connection with the transactions contemplated hereby and
thereby.
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. METALS was formed in
July 1996 and has conducted limited operations since that time. Neither METALS
nor NEWCO has conducted any material business since the date of its inception,
except in connection with this
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Agreement, the Other Agreements and the IPO. Neither METALS nor NEWCO owns or
has at any time owned any real property or any material personal property or is
a party to any other agreement, except as listed on Schedule 6.13 and except
that METALS is a party to the Other Agreements and the agreements contemplated
thereby and to such agreements as will be filed as Exhibits to the Registration
Statement.
6.14 TAXES. METALS and NEWCO have 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; and except as set forth on Schedule 6.14,
there are no examinations in progress or claims against METALS for federal,
state and other taxes (including penalties and interest) for any period or
periods prior to and including the Balance Sheet Date and no notice of any claim
for taxes, whether pending or threatened, has been received. All taxes which
METALS or any NEWCO has been required to collect or withhold have been duly and
timely collected and withheld and have been set aside in accounts for such
purposes, or have been duly and timely paid to the proper governmental
authority. All tax, including interest and penalties (whether or not shown on
any tax return) owed by METALS, any member of an affiliated or consolidated
group which includes or included METALS, or with respect to any payment made or
deemed made by METALS herein has been paid. The amounts shown as accruals for
taxes on METALS Financial Statements are sufficient for the payment of all taxes
of the kinds indicated (including penalties and interest) for all fiscal periods
ended on or before that date. Copies of any (i) tax examinations, (ii)
extensions of statutory limitations, (iii) federal and local income tax returns
and franchise tax returns of METALS for the year ended December 31, 1996, are
attached hereto as Schedule 6.14. Except as set forth in Schedule 6.14, METALS
and NEWCO have not entered into any tax sharing agreement or similar
arrangement. METALS is not an investment company as defined in Section 351(e)(1)
of the Code.
6.15 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
in the Draft Registration Statement delivered to the STOCKHOLDERS, and except as
contemplated by this Agreement and the Other Agreements, there has not been:
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(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of METALS or
NEWCO;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
METALS or NEWCO;
(iii) any change in the authorized capital of METALS or NEWCO or
their outstanding securities or any change in their 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 METALS or
NEWCO;
(v) any work interruptions, labor grievances or claims filed, or any
event or condition of any character, materially adversely affecting the
business of METALS or NEWCO;
(vi) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of METALS or NEWCO to any person;
(vii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to METALS or NEWCO;
(viii) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property
or rights of METALS or NEWCO or requiring consent of any party to the
transfer and assignment of any such assets, property or rights;
(ix) any waiver of any material rights or claims of METALS or NEWCO;
(x) any amendment or termination of any material contract,
agreement, license, permit or other right to which METALS or NEWCO is a
party;
(xi) any transaction by METALS or NEWCO outside the ordinary course
of its business;
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(xii) any other distribution of property or assets by METALS or
NEWCO other than in the ordinary course of business.
6.16 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by METALS and NEWCO and the performance of the transactions contemplated herein
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.
6.17 DISCLOSURE. The Draft Registration Statement delivered to the COMPANY
and the STOCKHOLDERS, together with this Agreement and the information furnished
to the COMPANY and the STOCKHOLDERS in connection herewith, does not contain an
untrue statement of a material fact or omit to state a material fact necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading; provided, however, that the foregoing does not apply
to statements contained in or omitted from any of such documents made or omitted
in reliance upon information furnished by the COMPANY or the STOCKHOLDERS.
6.18 PRIVATE OFFERING. (a) Neither METALS, any of its affiliates nor
anyone on its or their behalf, has issued, sold, or offered any securities of
METALS to any person under circumstances that would cause the issuance and sale
of the METALS Stock to the STOCKHOLDERS pursuant to this Agreement, to be
subject to the registration requirements of the 1933 Act.
(b) The offering of shares of METALS Stock pursuant to the METALS Plan of
Organization has been made in compliance with applicable federal and state
securities laws.
7. COVENANTS PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION; DUE DILIGENCE. (a) Between the date of this
Agreement and the Funding and Consummation Date, the COMPANY will afford to the
officers and authorized representatives of METALS and the Other Founding
Companies access to all of the COMPANY's sites, properties, books and records
and will furnish METALS with such additional financial and
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operating data and other information as to the business and properties of the
COMPANY as METALS or the Other Founding Companies may from time to time
reasonably request. The COMPANY will cooperate with METALS and the Other
Founding Companies, 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, NEWCO, the
STOCKHOLDERS and the COMPANY will treat all information obtained in connection
with the negotiation and performance of this Agreement or the due diligence
investigations conducted with respect to the Other Founding Companies as
confidential in accordance with the provisions of Section 14 hereof. In
addition, METALS will cause each of the Other Founding Companies to enter into a
provision similar to this Section 7.1 requiring each such Other Founding
Company, its stockholders, directors, officers, representatives, employees and
agents to keep confidential any information obtained by such Other Founding
Company.
(b) Between the date of this Agreement and the Funding and Consummation
Date, METALS will afford to the officers and authorized representatives of the
COMPANY access to all of METALS's and NEWCO's sites, properties, books and
records and will furnish the COMPANY with such additional financial and
operating data and other information as to the business and properties of METALS
and NEWCO as the COMPANY may from time to time reasonably request. METALS and
NEWCO will cooperate with the COMPANY, 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. The
COMPANY will cause all information obtained in connection with the negotiation
and performance of this Agreement to be treated as confidential in accordance
with the provisions of Section 14 hereof.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Funding and Consummation Date, the COMPANY will, except as set
forth on Schedule 7.2:
(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;
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(ii) use all reasonable efforts to 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) use all reasonable efforts to 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;
(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; and
(viii) maintain or reduce present salaries and commission levels for
all officers, directors, employees and agents except for ordinary and
customary bonus and salary increases for employees in accordance with past
practices.
7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3, between
the date hereof and the Funding and Consummation Date, the COMPANY will not,
without prior written consent of METALS, which consent 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 other than in
connection with the exercise of options or warrants listed in Schedule
5.4;
(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 for distributions in the amount of estimated taxes payable by the
STOCKHOLDERS on S corporation earnings (if any) of the COMPANY for the
period from the Balance Sheet Date to the Closing Date and specified on
Schedule 7.3 hereto, and any other distributions of Accumulated
Adjustments Accounts amounts specified on Schedule 7.3 hereto, it being
understood and agreed that any such distributions in excess of such
estimated taxes shall result in a corresponding dollar for dollar decrease
in the amount of cash otherwise payable to the STOCKHOLDERS as part of the
Merger consideration hereunder;
(iv) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditures, except if it is in
the normal course of business (consistent with past practice) or involves
an amount not in excess of $100,000;
(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 $50,000 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 course of business
(the liens set forth in clause (2) being referred to herein as "Statutory
Liens"), or (3) liens set forth on Schedule 5.10 and/or 5.15 hereto;
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(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business and other
than distributions of real estate and other assets as permitted in this
Agreement (including the Schedules hereto);
(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;
(ix) waive any material rights or claims of the COMPANY, provided
that the COMPANY may negotiate and adjust bills and accounts in the course
of good faith disputes with customers in a manner consistent with past
practice, provided, further, that such adjustments shall not be deemed to
be included in Schedule 5.11 unless specifically listed thereon;
(x) amend or terminate any material agreement, permit, license or
other right of the COMPANY; or
(xi) enter into any other transaction outside the ordinary course of
its business or prohibited hereunder.
7.4 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 Funding and Consummation 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 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 of the COMPANY.
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7.5 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 on Schedule 7.5 with proof that any required notice has been
sent.
7.6 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 listed on Schedule
9.12 hereto and (ii) any existing agreement between the COMPANY and any
STOCKHOLDER, on or prior to the Funding and Consummation Date provided that
nothing herein shall prohibit or prevent the COMPANY from paying (either prior
to or on the Closing Date) notes or other obligations from the COMPANY to the
STOCKHOLDERS in accordance with the terms thereof, which terms have been
disclosed to METALS. Such termination agreements are listed on Schedule 7.6 and
copies thereof shall be attached thereto.
7.7 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. METALS and NEWCO 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 or NEWCO contained herein to be untrue or inaccurate in any material
respect at or prior to the Closing and (ii) any material failure of METALS or
NEWCO 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 7.7 shall not be deemed to (i) modify the representations or
warranties hereunder of the party delivering such notice, which modification may
only be made pursuant to Section 7.8, (ii)
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modify the conditions set forth in Sections 8 and 9, or (iii) limit or otherwise
affect the remedies available hereunder to the party receiving such notice.
7.8 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 24 hours prior to the
anticipated effectiveness of the Registration Statement to supplement or amend
promptly the Schedules 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, provided however,
that supplements and amendments to Schedules 5.10, 5.11, 5.14 and 5.15 shall
only have to be delivered at the Closing Date, unless such Schedule is to be
amended to reflect an event occurring other than in the ordinary course of
business. Notwithstanding the foregoing sentence, no amendment or supplement to
a Schedule prepared by the COMPANY that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect may be made unless METALS
and a majority of the Founding Companies other than the COMPANY consent to such
amendment or supplement; and provided further, that no amendment or supplement
to a Schedule prepared by METALS or NEWCO that constitutes or reflects an event
or occurrence that would have a Material Adverse Effect may be made unless a
majority of the Founding Companies consent to such amendment or supplement. For
all purposes of this Agreement, including without limitation for purposes of
determining whether the conditions set forth in Sections 8.1 and 9.1 have been
fulfilled, the Schedules hereto shall be deemed to be the Schedules as amended
or supplemented pursuant to this Section 7.8. In the event that one of the Other
Founding Companies seeks to amend or supplement a Schedule pursuant to Section
7.8 of one of the Other Agreements, and such amendment or supplement constitutes
or reflects an event or occurrence that would have a Material Adverse Effect on
such Other Founding Company, METALS shall give the COMPANY notice promptly after
it has knowledge thereof. If METALS and a majority of the Founding Companies
consent to such amendment or supplement, which consent shall have been deemed
given by METALS or any Founding Company if no response is received within 24
hours following receipt of notice of such amendment or supplement (or sooner
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if required by the circumstances under which such consent is requested), but the
COMPANY does not give its consent, the COMPANY may terminate this Agreement
pursuant to Section 12.1(iv) hereof. In the event that the COMPANY seeks to
amend or supplement a Schedule pursuant to this Section 7.8, and METALS and a
majority of the Other Founding Companies do not consent to such amendment or
supplement, this Agreement shall be deemed terminated by mutual consent as set
forth in Section 12.1(i) hereof. In the event that METALS or NEWCO seeks to
amend or supplement a Schedule pursuant to this Section 7.8 and a majority of
the Founding Companies do not consent to such amendment or supplement, this
Agreement shall be deemed terminated by mutual consent as set forth in Section
12.1(i) hereof. No party to this Agreement shall be liable to any other party if
this Agreement shall be terminated pursuant to the provisions of this Section
7.8. No amendment of or supplement to a Schedule shall be made later than 24
hours prior to the anticipated effectiveness of the Registration Statement.
7.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The COMPANY and
STOCKHOLDERS shall furnish or cause to be furnished to METALS and the
Underwriters all of the information concerning the COMPANY and the STOCKHOLDERS
required for inclusion in, and will cooperate with METALS and the Underwriters
in the preparation of, the Registration Statement and the prospectus included
therein (including audited and unaudited financial statements, prepared in
accordance with generally accepted accounting principles, in form suitable for
inclusion in the Registration Statement). The COMPANY and the STOCKHOLDERS agree
promptly to advise METALS if at any time during the period in which a prospectus
relating to the offering is required to be delivered under the Securities Act,
any information contained in the prospectus concerning the COMPANY or the
STOCKHOLDERS becomes incorrect or incomplete in any material respect, and to
provide the information needed to correct such inaccuracy. Insofar as the
information relates solely to the COMPANY or the STOCKHOLDERS, the COMPANY
represents and warrants as to such information with respect to itself, and each
Stockholder represents and warrants, as to such information with respect to the
COMPANY and himself or herself, that the Registration Statement will not include
an untrue statement of a material fact or omit to state a
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material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
7.10 FINAL FINANCIAL STATEMENTS. The COMPANY shall provide prior to the
Funding and Consummation Date, and METALS shall have had sufficient time to
review the unaudited consolidated balance sheets of the COMPANY as of the end of
all fiscal quarters following the Balance Sheet Date, and the unaudited
consolidated statement of income, cash flows and retained earnings of the
COMPANY for all fiscal quarters ended after the Balance Sheet Date, disclosing
no material adverse change in the financial condition of the COMPANY or the
results of its operations from the financial statements as of the Balance Sheet
Date. Such financial statements shall have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods indicated (except as noted therein). Except as noted in
such financial statements, all of such financial statements will present fairly
the results of operations of the COMPANY for the periods indicated therein.
7.11 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.
7.12 AUTHORIZED CAPITAL. Prior to the Funding and Consummation Date,
METALS shall maintain its authorized capital stock as set forth in the
Registration Statement filed with the SEC except for such changes in authorized
capital stock as are made to respond to comments made by the SEC or requirements
of any exchange or automated trading system for which application is made to
register the METALS Stock and any changes necessary or advisable in order to
permit the delivery of the opinion contemplated by Section 8.12 hereof.
7.13 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. 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
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Hart-Scott Act, (ii) such compliance by the STOCKHOLDERS and the COMPANY shall
be deemed a condition precedent in addition to the conditions precedent set
forth in Section 9 of this Agreement, and such compliance by METALS and NEWCO
shall be deemed a condition precedent in addition to the conditions precedent
set forth in Section 8 of 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. The
obligation of each party to consummate the transactions contemplated by this
Agreement is subject to the expiration or termination of the waiting period
under the Hart-Scott Act, if applicable.
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. The obligations of
the STOCKHOLDERS and the COMPANY with respect to actions to be taken on the
Funding and Consummation Date are subject to the satisfaction or waiver on or
prior to the Funding and Consummation Date of the conditions set forth in
Sections 8.1, 8.5, 8.8, 8.9 and 8.12. As of the Closing Date or, with respect to
the conditions set forth in Sections 8.1, 8.5, 8.8, 8.9 and 8.12, as of the
Funding and Consummation Date, if any such conditions have 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 Funding and Consummation 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 of METALS and NEWCO contained in Section 6 hereof.
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
representations and warranties of METALS and NEWCO contained in Section 6 shall
be true and
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correct in all material respects as of the Closing Date and the Funding and
Consummation 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 and NEWCO on or before the Closing Date
and the Funding and Consummation Date shall have been duly complied with and
performed in all material respects; and certificates to the foregoing effect
dated the Closing Date and the Funding and Consummation Date, respectively, 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.
The STOCKHOLDERS and the COMPANY shall be satisfied that the Registration
Statement and the prospectus forming a part thereof, including any amendments
thereof or supplements thereto, shall not contain any untrue statement of a
material fact, or omit to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, provided
that the condition contained in this sentence shall be deemed satisfied if the
COMPANY or STOCKHOLDERS shall have failed to inform METALS in writing prior to
the effectiveness of the Registration Statement of the existence of an untrue
statement of a material fact or the omission of such a statement of a material
fact.
8.3 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO 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 management of the COMPANY deems it inadvisable to proceed with the
transactions hereunder.
8.4 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
V.
8.5 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC and the underwriters named therein shall have
agreed to acquire on a firm commitment basis, subject to the conditions set
forth in the underwriting agreement, on terms such
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that the aggregate value of the cash and the number of shares of METALS Stock to
be received by the STOCKHOLDERS is not less than the Minimum Value set forth on
Annex I.
8.6 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 and no action
or proceeding shall have been instituted or threatened to restrain or prohibit
the Merger and no governmental agency or body shall have taken any other action
or made any request of COMPANY as a result of which COMPANY deems it inadvisable
to proceed with the transactions hereunder.
8.7 GOOD STANDING CERTIFICATES. METALS and NEWCO each shall have delivered
to the COMPANY a certificate, dated as of a date no later than ten days prior to
the Closing Date, duly issued by the Delaware Secretary of State and in each
state in which METALS or NEWCO is authorized to do business, showing that each
of METALS and NEWCO is in good standing and authorized to do business and that
all state franchise and/or income tax returns and taxes for METALS and NEWCO,
respectively, for all periods prior to the Closing have been filed and paid.
8.8 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall have
occurred with respect to METALS or NEWCO which would constitute a Material
Adverse Effect.
8.9 CLOSING OF IPO. The closing of the sale of the METALS Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
8.10 SECRETARY'S CERTIFICATE. The COMPANY shall have received a
certificate or certificates, dated the Closing Date and signed by the secretary
of METALS and of NEWCO, certifying the truth and correctness of attached copies
of the METALS's and NEWCO's respective Certificates of Incorporation (including
amendments thereto), By-Laws (including amendments thereto), and resolutions of
the boards of directors and, if required, the stockholders of METALS and NEWCO
approving METALS's and NEWCO's entering into this Agreement and the consummation
of the transactions contemplated hereby.
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8.11 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule 9.12
shall have been afforded the opportunity to enter into an employment agreement
substantially in the form of Annex VII hereto.
8.12 TAX MATTERS. The STOCKHOLDERS shall have received an opinion of
Arthur Andersen LLP that the METALS Plan of Organization will qualify as a
tax-free transfer of property under Section 351 of the Code and that the
STOCKHOLDERS will not recognize gain to the extent the STOCKHOLDERS exchange
stock of the COMPANY for METALS stock (but not cash or other property) pursuant
to the METALS Plan of Organization.
9. 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. The obligations of METALS and
NEWCO with respect to actions to be taken on the Funding and Consummation Date
are subject to the satisfaction or waiver on or prior to the Funding and
Consummation Date of the conditions set forth in Sections 9.1, 9.4 and 9.13. As
of the Closing Date or, with respect to the conditions set forth in Sections
9.1, 9.4 and 9.13, as of the Funding and Consummation Date, if any such
conditions have not been satisfied, METALS and NEWCO shall have the right to
terminate this Agreement, or waive any such condition, but no such waiver shall
be deemed to affect the survival of the representations and warranties contained
in Section 5 hereof.
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 and the Funding and Consummation 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
or the Funding and Consummation Date, as the case may be, shall have been duly
performed or complied with in all material respects; and the STOCKHOLDERS shall
have delivered
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to METALS certificates dated the Closing Date and the Funding and Consummation
Date, respectively, and signed by them to such effect.
9.2 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of METALS as a result of which the
management of METALS deems it inadvisable to proceed with the transactions
hereunder.
9.3 SECRETARY'S CERTIFICATE. METALS shall have received a certificate,
dated the Closing Date and signed by the secretary of the COMPANY, certifying
the truth and correctness of attached copies of the COMPANY's Certificate of
Incorporation (including amendments thereto), By-Laws (including amendments
thereto), and resolutions of the board of directors and the STOCKHOLDERS
approving the COMPANY's entering into this Agreement and the consummation of the
transactions contemplated hereby.
9.4 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 covered by insurance, which
change, loss or damage materially affects or impairs the ability of the COMPANY
to conduct its business.
9.5 STOCKHOLDERS' RELEASE. The STOCKHOLDERS shall have delivered to METALS
an instrument dated the Closing Date which shall be effective only upon the
occurrence of the Funding and Consummation 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 (x) items
specifically identified on Schedules 5.10 and 5.15 as being claims of or
obligations to the STOCKHOLDERS, (y) continuing obligations to STOCKHOLDERS
relating to their employment by the COMPANY and (z) obligations arising under
this Agreement or the transactions contemplated hereby. In the event that the
Funding and
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Consummation Date does not occur, then the release instrument referenced herein
shall be void and of no further force or effect.
9.6 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.
9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth on
Schedule 9.7, all existing agreements between the COMPANY and the STOCKHOLDERS
(and entities controlled by the STOCKHOLDERS) shall have been canceled effective
prior to or as of the Funding and Consummation Date.
9.8 OPINION OF COUNSEL. METALS shall have received an opinion from Counsel
to the COMPANY and the STOCKHOLDERS, dated the Closing Date, substantially in
the form annexed hereto as Annex VI.
9.9 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 5.23 shall have been obtained;
and no action or proceeding shall have been instituted or threatened to restrain
or prohibit the Merger 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.
9.10 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
COMPANY's state of incorporation and, unless waived by METALS, 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.
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9.11 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC.
9.12 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule 9.12
shall enter into an employment agreement substantially in the form of Annex VII
hereto.
9.13 CLOSING OF IPO. The closing of the sale of the METALS Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
9.14 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.
10. COVENANTS OF METALS AND THE STOCKHOLDERS AFTER CLOSING
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS. METALS
shall use its best efforts to have the STOCKHOLDERS released from any and all
guarantees on any indebtedness that they personally guaranteed and from any and
all pledges of assets that they pledged to secure such indebtedness for the
benefit of the COMPANY, with all such guarantees on indebtedness being assumed
by METALS. In the event that METALS cannot obtain such releases from the lenders
of any such guaranteed indebtedness on or prior to 120 days subsequent to the
Funding and Consummation Date, METALS shall promptly pay off or otherwise
refinance or retire such indebtedness. From and after the Funding and
Consummation Date and until such time as all of such indebtedness is paid off,
refinanced or retired, METALS shall maintain unencumbered funds in amounts
sufficient to provide for such pay off, refinancing or retirement, provided that
METALS may use such funds for other purposes, in its sole discretion, with the
prior written consent of each STOCKHOLDER who has not as of that time been
released from his or her guarantee as described above and whose indebtedness as
described above has not as of that time been paid off, refinanced or retired.
10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as contemplated
by this Agreement or the Registration Statement, after the Funding and
Consummation Date, METALS shall
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not and shall not permit any of its subsidiaries to undertake any act that would
jeopardize the tax-free status of the organization, including without
limitation:
(a) the retirement or reacquisition, directly or indirectly, of all
or part of the METALS Stock issued in connection with the transactions
contemplated hereby; or
(b) the entering into of financial arrangements for the benefit of
the STOCKHOLDERS.
10.3 PREPARATION AND FILING OF TAX RETURNS.
(i) The COMPANY, if possible, or otherwise the STOCKHOLDERS shall
file or cause to be filed all federal income Tax Returns of any Acquired
Party for all taxable periods that end on or before the Funding and
Consummation Date, and shall permit METALS to review all such Tax Returns
prior to such filings. Unless the COMPANY is a C corporation, the
STOCKHOLDERS shall pay or cause to be paid all Tax liabilities (in excess
of all amounts already paid with respect thereto or properly accrued or
reserved with respect thereto on the COMPANY Financial Statements) shown
by such Returns to be due.
(ii) METALS shall file or cause to be filed all separate Returns of,
or that include, any Acquired Party for all taxable periods ending after
the Funding and Consummation Date.
(iii) Each party hereto shall, and shall cause its subsidiaries and
affiliates to, provide to each of the other parties hereto such
cooperation and information as any of them reasonably may request in
filing any 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. Such cooperation and
information shall include providing copies of all relevant portions of
relevant Returns, together with relevant accompanying schedules and
relevant work papers, relevant documents relating to rulings or other
determinations by Taxing Authorities and relevant records concerning the
ownership and Tax basis of property, which such party may possess. Each
party shall make its employees reasonably available on a mutually
convenient basis at its cost to provide explanation of any documents or
information so provided. Subject to the preceding sentence,
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each party required to file Returns pursuant to this Agreement shall bear
all costs of filing such Returns.
(iv) Each of the COMPANY, NEWCO, METALS and each STOCKHOLDER shall
comply with the tax reporting requirements of Section 1.351-3 of the
Treasury Regulations promulgated under the Code, and treat the transaction
as a tax-free contribution under Section 351(a) of the Code subject to
gain, if any, recognized on the receipt of cash or other property under
Section 351(b) of the Code subject to gain, if any, recognized on the
receipt of cash or other property under Section 351(b) of the Code.
10.4 DIRECTORS. The persons named in the Draft Registration Statement
shall be appointed as directors and elected as officers of METALS, as and to the
extent set forth in the Draft Registration Statement, promptly following the
Funding and Consummation Date. This provision shall not imply that the
STOCKHOLDERS have any power or duty to elect officers of METALS.
10.5 PRESERVATION OF EMPLOYEE BENEFIT PLANS. Following the Funding and
Consummation Date, METALS shall use all reasonable efforts to permit the COMPANY
to maintain all health insurance, life insurance, 401(k) plan and other employee
benefit plans in effect at the COMPANY, unless any such change is (a) approved
by a vote of at least two-thirds of the members of the Board of Directors of
METALS, or (b) required by applicable laws or regulations, including the
antidiscriminatory provisions of ERISA and the related regulations. In the event
that any such changes (other than changes so approved by the Board of Directors
of METALS) are required, subject to applicable law, METALS shall permit the
COMPANY to implement alternative benefits that provide the affected employees of
the COMPANY with an undiminished aggregate level of benefits. On the Funding and
Consummation Date, the employees of the COMPANY will be the employees of the
Surviving Corporation (provided that this provision is for purposes of
clarifying that the Merger, in and of itself, will not have any impact on the
employment status of any employee and provided, further that this provision
shall not in any way limit the management rights of the Surviving Corporation or
METALS to assess workforce needs and make appropriate adjustments
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as necessary or desirable within their discretion subject to applicable laws and
collective bargaining agreements).
11. INDEMNIFICATION
The STOCKHOLDERS, METALS and NEWCO each make the following covenants that
are applicable to them, respectively:
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. The STOCKHOLDERS
covenant and agree that they, jointly and severally, will indemnify, defend,
protect and hold harmless METALS, NEWCO, the COMPANY and the Surviving
Corporation at all times, from and after the date of this Agreement until the
Expiration Date (provided that for purposes of Section 11.1(iii) below, the
Expiration Date shall be the date on which the applicable statute of limitations
expires), 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) incurred by METALS, NEWCO, the COMPANY or the Surviving
Corporation as a result of or arising from (i) any breach of the representations
and warranties of the STOCKHOLDERS or the COMPANY set forth herein or on the
schedules or certificates delivered in connection herewith, (ii) any breach of
any agreement on the part of the STOCKHOLDERS or the COMPANY under this
Agreement, or (iii) any liability under the 1933 Act, the 1934 Act or other
Federal or state law or regulation, at common law or otherwise, arising out of
or based upon any untrue statement or alleged untrue statement of a material
fact relating to the COMPANY or the STOCKHOLDERS, and provided to METALS or its
counsel by the COMPANY or the STOCKHOLDERS (but in the case of the STOCKHOLDERS,
only if such statement was provided in writing) contained in the Registration
Statement or any prospectus forming a part thereof, or any amendment thereof or
supplement thereto, or arising out of or based upon any omission or alleged
omission to state therein a material fact relating to the COMPANY or the
STOCKHOLDERS required to be stated therein or necessary to make the statements
therein not misleading, provided, however, that such indemnity shall not inure
to the benefit of METALS,
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NEWCO, the COMPANY or the Surviving Corporation to the extent that such untrue
statement (or alleged untrue statement) was made in, or omission (or alleged
omission) occurred in, any preliminary prospectus and the STOCKHOLDERS provided,
in writing, corrected information to METALS counsel and to METALS for inclusion
in the final prospectus, and such information was not so included or properly
delivered, and provided further, that no STOCKHOLDER shall be liable for any
indemnification obligation pursuant to this Section 11.1 to the extent
attributable to a breach of any representation, warranty or agreement made
herein individually by any other STOCKHOLDER.
METALS and NEWCO acknowledge and agree that other than the representations
and warranties of COMPANY or STOCKHOLDERS specifically contained in this
Agreement, there are no representations or warranties of COMPANY or
STOCKHOLDERS, either express or implied, with respect to the transactions
contemplated by this Agreement, the COMPANY or its assets, liabilities and
business.
METALS and any NEWCO further acknowledge and agree that, should the
Closing occur, their sole and exclusive remedy with respect to any and all
claims relating to this Agreement and the transactions contemplated in this
Agreement, shall be pursuant to the indemnification provisions set forth in this
Section 11. METALS and NEWCO hereby waive, from and after the Closing, to the
fullest extent permitted under applicable law, any and all rights, claims and
causes of action they or any indemnified person may have against the COMPANY or
any STOCKHOLDER relating to this Agreement or the transactions arising under or
based upon any federal, state, local or foreign statute, law, rule, regulation
or otherwise.
11.2 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 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) incurred by the
STOCKHOLDERS as a result of or arising from (i) any breach by METALS or NEWCO of
their
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representations and warranties set forth herein or on the schedules or
certificates attached hereto, (ii) any breach of any agreement on the part of
METALS or NEWCO under this Agreement, (iii) any liabilities which the
STOCKHOLDERS may incur due to METALS's or NEWCO's failure to be responsible for
the liabilities and obligations of the COMPANY as provided in Section 1 hereof
(except to the extent that METALS or NEWCO has claims against the STOCKHOLDERS
by reason of such liabilities); or (iv) any liability under the 1933 Act, the
1934 Act or other Federal or state law or regulation, at common law or
otherwise, arising out of or based upon any untrue statement or alleged untrue
statement of a material fact relating to METALS, NEWCO or any of the Other
Founding Companies contained in any preliminary prospectus, the Registration
Statement or any prospectus forming a part thereof, or any amendment thereof or
supplement thereto, or arising out of or based upon any omission or alleged
omission to state therein a material fact relating to METALS or NEWCO or any of
the Other Founding Companies required to be stated therein or necessary to make
the statements therein not misleading.
11.3 THIRD PERSON CLAIMS. Promptly after any party hereto (hereinafter 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, the Indemnified Party shall, as a
condition precedent to a claim with respect thereto being made against any party
obligated to provide indemnification pursuant to Section 11.1 or 11.2 hereof
(hereinafter the "Indemnifying Party"), give the Indemnifying Party written
notice of such claim or the commencement of such action or proceeding. Such
notice shall state the nature and the basis of such claim and a reasonable
estimate of the amount thereof. The Indemnifying Party shall have the right to
defend and settle, at its own expense and by its own counsel, any such matter so
long as the Indemnifying Party pursues the same in good faith and diligently,
provided that the Indemnifying Party shall not settle any criminal proceeding
without the written consent of the Indemnified Party. If the Indemnifying Party
undertakes to defend or settle, it shall promptly notify the Indemnified Party
of its intention to do so, and the Indemnified Party shall cooperate with the
Indemnifying Party and its counsel in the defense thereof and in any settlement
thereof. Such cooperation shall include,
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but shall not be limited to, furnishing the Indemnifying Party with any books,
records or information reasonably requested by the Indemnifying Party that are
in the Indemnified Party's possession or control. All Indemnified Parties shall
use the same counsel, which shall be the counsel selected by Indemnifying Party,
provided that if counsel to the Indemnifying Party shall have a conflict of
interest that prevents counsel for the Indemnifying Party from representing
Indemnified Party, Indemnified Party shall have the right to participate in such
matter through counsel of its own choosing and Indemnifying Party will reimburse
the Indemnified Party for the reasonable expenses of its counsel. After the
Indemnifying Party has notified the Indemnified Party of its intention to
undertake to defend or settle any such asserted liability, and for so long as
the Indemnifying Party diligently pursues such defense, the Indemnifying Party
shall not be liable for any additional legal expenses incurred by the
Indemnified Party in connection with any defense or settlement of such asserted
liability, except (i) as set forth in the preceding sentence and (ii) to the
extent such participation is requested by the Indemnifying Party, in which event
the Indemnified Party shall be reimbursed by the Indemnifying Party for
reasonable additional legal expenses and out-of-pocket expenses. If the
Indemnifying Party desires to accept a final and complete settlement of any such
Third Person claim and the Indemnified Party refuses to consent to such
settlement, then the Indemnifying Party's liability under this Section with
respect to such Third Person claim shall be limited to the amount so offered in
settlement by said Third Person. Upon agreement as to such settlement between
said Third Person and the Indemnifying Party, the Indemnifying Party shall, in
exchange for a complete release from the Indemnified Party, promptly pay to the
Indemnified Party the amount agreed to in such settlement and the Indemnified
Party shall, from that moment on, bear full responsibility for any additional
costs of defense which it subsequently incurs with respect to such claim and all
additional costs of settlement or judgment. If the Indemnifying Party does not
undertake to defend such matter to which the Indemnified Party is entitled to
indemnification hereunder, or fails diligently to pursue such defense, the
Indemnified Party may undertake such defense through counsel of its choice, at
the cost and expense of the Indemnifying Party, and the Indemnified Party may
settle such matter, and the Indemnifying Party shall reimburse the
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Indemnified Party for the amount paid in such settlement and any other
liabilities or expenses incurred by the Indemnified Party in connection
therewith, provided, however, that under no circumstances shall the Indemnified
Party settle any Third Person claim without the written consent of the
Indemnifying Party, which consent shall not be unreasonably withheld or delayed.
All settlements hereunder shall effect a complete release of the Indemnified
Party, unless the Indemnified Party otherwise agrees in writing. The parties
hereto will make appropriate adjustments for insurance proceeds in determining
the amount of any indemnification obligation under this Section.
11.4 EXCLUSIVE REMEDY. The indemnification provided for in this Section 11
shall (except as prohibited by ERISA) be the exclusive remedy in any action
seeking damages or any other form of monetary relief brought by any party to
this Agreement against another party, provided that, nothing herein shall be
construed to limit the right of a party, in a proper case, to seek injunctive
relief for a breach of this Agreement. Any indemnity payment under this Section
11 shall be treated as an adjustment to the exchange consideration for tax
purposes unless a final determination (which shall include the execution of a
Form 870-AD or successor form) with respect to the indemnified party or any of
its affiliate causes any such payment not to be treated as an adjustment to the
exchange consideration for U.S. Federal Income Tax purposes.
11.5 LIMITATIONS ON INDEMNIFICATION. METALS, NEWCO, the Surviving
Corporation and the other persons or entities indemnified pursuant to Section
11.1 or 11.2 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 the greater of (a) 1.0% of the sum of (i) the cash
paid to STOCKHOLDERS plus (ii) the value of the METALS Stock delivered to
STOCKHOLDERS (calculated as provided in this Section 11.5) or (b) $50,000 (the
"Indemnification Threshold"). STOCKHOLDERS shall not assert any claim for
indemnification hereunder against METALS or NEWCO until such time as, and solely
to the extent that, the aggregate of all claims which STOCKHOLDERS may have
against METALS or NEWCO shall exceed $50,000.
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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 related to a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement, no STOCKHOLDER shall be
liable under this Section 11 for an amount which exceeds the amount of proceeds
received by such STOCKHOLDER in connection with the Merger. For purposes of
calculating the value of the METALS Stock received by a STOCKHOLDER, METALS
Stock shall be valued at its initial public offering price as set forth in the
Registration Statement. It is hereby understood and agreed that a STOCKHOLDER
may satisfy an indemnification obligation through payment of a combination of
stock and cash in proportion equal to the proportion of stock and cash received
by such STOCKHOLDER in connection with the Merger, valued as described
immediately above.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION.This Agreement may be terminated at any time prior to the
Funding and Consummation Date solely:
(i) by mutual consent of the boards of directors of METALS and the
COMPANY;
(ii) by the STOCKHOLDERS or the COMPANY (acting through its board of
directors), on the one hand, or by METALS (acting through its board of
directors), on the other hand, if the transactions contemplated by this
Agreement to take place at the Closing shall not have been consummated by
December 31, 1997, 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 Funding and Consummation Date;
(iii) by the STOCKHOLDERS or COMPANY, on the one hand, or by METALS, on
the other hand, if a material breach or default shall be made by the other party
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 on or before the Funding and Consummation Date or by the STOCKHOLDERS
or the COMPANY, if the conditions set forth in Section 8 hereof have
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not been satisfied or waived as of the Closing Date or the Funding and
Consummation Date, as applicable, or by METALS, if the conditions set forth in
Section 9 hereof have not been satisfied or waived as of the Closing Date or the
Funding and Consummation Date, as applicable;
(iv) pursuant to Section 7.8 hereof; or
(v) pursuant to Section 4 hereof.
12.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in Section
7.8 hereof, 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.
13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES. The STOCKHOLDERS will not, for a period of
five (5) years following the Funding and Consummation 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 metals
processing, metals fabricating and/or specialty metals business, including
brokering, manufacturing and distribution services, in direct competition with
METALS or any of the subsidiaries thereof, within 200 miles of where the COMPANY
or any of its subsidiaries conducted business prior to the effectiveness of the
Merger (the "Territory");
(ii) call upon any person who is, at that time, within the Territory, an
employee of METALS (including the subsidiaries thereof) in a sales
representative or managerial capacity for the purpose or with the intent of
enticing such employee away from or out of the employ of METALS (including the
subsidiaries thereof), provided that each STOCKHOLDER shall be permitted to call
upon and hire any member of his or her immediate family;
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(iii) call upon any person or entity which is, at that time, or which has
been, within one (1) year prior to the Funding and Consummation Date, a customer
of METALS (including the subsidiaries thereof), of the COMPANY or of any of the
Other Founding Companies within the Territory for the purpose of soliciting or
selling products or services in direct competition with METALS within the
Territory;
(iv) call upon any prospective acquisition candidate, on any STOCKHOLDER's
own behalf or on behalf of any competitor in the metals processing, metals
fabricating and/or specialty metals business, including brokering, manufacturing
and distribution services, which candidate, to the actual knowledge of such
STOCKHOLDER after due inquiry, was called upon by METALS (including the
subsidiaries thereof) or for which, to the actual knowledge of such STOCKHOLDER
after due inquiry, METALS (or any subsidiary thereof) made an acquisition
analysis, for the purpose of acquiring such entity; or
(v) disclose customers, whether in existence or proposed, of the COMPANY
to any person, firm, partnership, corporation or business for any reason or
purpose whatsoever except to the extent that the COMPANY has in the past
disclosed such information to the public for valid business reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit any STOCKHOLDER 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.
13.2 DAMAGES. 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 and restraining orders.
13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this Section 13 impose a reasonable restraint on the
STOCKHOLDERS in light of the activities
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and business of METALS (including the subsidiaries thereof) on the date of the
execution of this Agreement and the current plans of METALS.
13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13 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.
13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13 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 (including the subsidiaries 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 13, during which the agreements
and covenants of each STOCKHOLDER made in this Section 13 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 13. The covenants
contained in Section 13 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.
13.6 MATERIALITY. The COMPANY and the STOCKHOLDERS hereby agree that this
covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. 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, the Other Founding Companies,
and/or METALS, such as operational policies, and pricing and cost policies that
are valuable, special and unique assets of the
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COMPANY's, the Other Founding Companies' and/or METALS's respective businesses.
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 METALS or the Surviving
Corporation and (c) to counsel and other advisers, provided that such advisers
(other than counsel) agree to the confidentiality provisions of this Section
14.1, 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 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, or (iii) the disclosing party
reasonably believes that such disclosure is required in connection with the
defense of a lawsuit against the disclosing party. 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 an injunction 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.
In the event the transactions contemplated by this Agreement are not
consummated, STOCKHOLDERS shall have none of the above-mentioned restrictions on
their ability to disseminate confidential information with respect to the
COMPANY.
14.2 METALS AND NEWCO. METALS and NEWCO recognize and acknowledge that
they had in the past and currently have access to certain confidential
information of the COMPANY, such as operational policies, and pricing and cost
policies that are valuable, special and unique assets of the COMPANY's business.
METALS and NEWCO agree that, prior to the Closing, or if the Transactions
contemplated by this Agreement are not consummated, 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 the COMPANY, (b) to counsel and
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other advisers, provided that such advisers (other than counsel) agree to the
confidentiality provisions of this Section 14.1, (c) to the Other Founding
Companies and their representatives pursuant to Section 7.1(a), unless (i) such
information becomes known to the public generally through no fault of METALS or
NEWCO, (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), METALS and NEWCO shall, if possible, give prior
written notice thereof to the COMPANY and the STOCKHOLDERS and provide the
COMPANY and the STOCKHOLDERS with the opportunity to contest such disclosure, or
(iii) the disclosing party reasonably believes that such disclosure is required
in connection with the defense of a lawsuit against the disclosing party, and
(d) to the public to the extent necessary or advisable in connection with the
filing of the Registration Statement and the IPO and the securities laws
applicable thereto and to the operation of METALS as a publicly held entity
after the IPO. In the event of a breach or threatened breach by METALS or NEWCO
of the provisions of this Section, the COMPANY and the STOCKHOLDERS shall be
entitled to an injunction restraining METALS and NEWCO from disclosing, in whole
or in part, such confidential information. Nothing herein shall be construed as
prohibiting the COMPANY and the STOCKHOLDERS from pursuing any other available
remedy for such breach or threatened breach, including the recovery of damages.
14.3 DAMAGES. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Section 14.1 and 14.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach by any of them of the foregoing covenants, the covenant may be
enforced against the other parties by injunctions and restraining orders.
14.4 SURVIVAL. The obligations of the parties under this Article 14 shall
survive the termination of this Agreement for a period of five years from the
Funding and Consummation Date.
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15. TRANSFER RESTRICTIONS
15.1 TRANSFER RESTRICTIONS. Unless otherwise agreed by METALS, except for
transfers to immediate family members who agree to be bound by the restrictions
set forth in this Section 15.1 (or trusts for the benefit of the STOCKHOLDERS or
family members, the trustees of which so agree), for a period of one year from
the Closing, except pursuant to Section 17 hereof, none of the STOCKHOLDERS
shall sell, assign, exchange, transfer, encumber, pledge, distribute, appoint,
or otherwise dispose of any shares of METALS Stock as described in Section 3.1
received by the STOCKHOLDERS in the Merger. The certificates evidencing the
METALS Stock delivered to the STOCKHOLDERS pursuant to Section 3 of this
Agreement will bear a legend substantially in the form set forth below and
containing such other information as METALS may deem necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED
OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE,
ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT
OR OTHER DISPOSITION PRIOR TO [FIRST ANNIVERSARY OF CLOSING DATE]. UPON THE
WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE
THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER AGENT)
AFTER THE DATE SPECIFIED ABOVE.
16. FEDERAL SECURITIES ACT REPRESENTATIONS
16.1 COMPLIANCE WITH LAW. The STOCKHOLDERS acknowledge that the shares of
METALS Stock to be delivered to the STOCKHOLDERS pursuant to this Agreement have
not been and will not be registered under the 1933 Act (except as provided in
Section 17 hereof) and therefore
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may not be resold without compliance with the 1933 Act. The METALS Stock to be
acquired by such STOCKHOLDERS pursuant to this Agreement is being acquired
solely for their own respective accounts, for investment purposes only, and with
no present intention of distributing, selling or otherwise disposing of it in
connection with a distribution. The STOCKHOLDERS covenant, warrant and represent
that none of the shares of METALS Stock issued to such STOCKHOLDERS will be
offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all of the applicable provisions
of the 1933 Act and the rules and regulations of the SEC. All the METALS Stock
shall bear the following legend in addition to the legend required under Section
15 of this Agreement: THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE
TRANSFERRED IF THE HOLDER HEREOF COMPLIES WITH THE ACT AND APPLICABLE SECURITIES
LAW.
16.2 ECONOMIC RISK; SOPHISTICATION. The STOCKHOLDERS are able to bear the
economic risk of an investment in the METALS Stock to be acquired pursuant to
this Agreement and can afford to sustain a total loss of such investment and
have such knowledge and experience in financial and business matters that they
are capable of evaluating the merits and risks of the proposed investment in the
METALS Stock. The STOCKHOLDERS party hereto have 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 current and proposed officers
and directors of METALS, the plans for the operations of the business of METALS,
the business, operations and financial condition of the Founding Companies other
than the COMPANY, and any plans for additional acquisitions and the like. The
STOCKHOLDERS have asked any and all questions in the nature described in the
preceding sentence and all questions have been answered to their satisfaction.
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17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. 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 shelf
registration of shares to be used as consideration for acquisitions of
additional businesses by METALS and (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 all of the 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) which
any such STOCKHOLDER requests, provided that METALS shall have the right to
reduce the number of shares included in such registration to the extent that
inclusion of such shares could, in the written opinion of tax counsel to METALS
or its independent auditors, jeopardize the status of the transactions
contemplated hereby and by the Registration Statement as a tax-free organization
under Section 351 of the Code. In addition, if METALS is advised in writing in
good faith by any managing underwriter of an underwritten offering of the
securities being offered pursuant to any registration statement under this
Section 17.1 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, provided,
that, for each such offering made by METALS after the IPO, such reduction shall
be made first by reducing the number of shares to be sold by persons other than
METALS, the STOCKHOLDERS and the stockholders of the Other Founding Companies
(collectively, the STOCKHOLDERS and the stockholders of the other Founding
Companies being referred to herein as the "Founding
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Stockholders"), and thereafter, if a further reduction is required, by reducing
the number of shares to be sold by the Founding Stockholders.
17.2 DEMAND REGISTRATION RIGHTS. At any time after the date one year after
the Closing and prior to the date three years after the Closing, the holders of
a majority of the shares of METALS Stock issued to the Founding Stockholders
pursuant to this Agreement and the Other Agreements 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 the shares of METALS Stock issued to the
STOCKHOLDERS pursuant to this Agreement and the Other Agreements (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 Founding Stockholders (a
"Demand Registration"). Within ten (10) days of the receipt of such request,
METALS shall give written notice of such request to all other Founding
Stockholders and shall, as soon as practicable but in no event later than 45
days after notice from any STOCKHOLDER, file and use its best efforts to cause
to become effective a registration statement covering all such shares. METALS
shall be obligated to effect only one Demand Registration for all Founding
Stockholders and will keep such Demand Registration current and effective for
not less than 120 days (or such shorter period as is required to sell all of the
shares registered thereby).
Notwithstanding the foregoing paragraph, following any such a demand, a
majority of METALS's 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 Founding 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, no registration of the
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Founding Stockholders' METALS Stock shall be initiated under this Section 17.2
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 Founding Stockholders the right to participate in such public
offering pursuant to, and subject to, Section 17.1 hereof.
17.3 REGISTRATION PROCEDURES. Whenever METALS is required to register
shares of METALS Stock pursuant to Sections 17.1 and 17.2, 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 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;
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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 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 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
Article 17 (including all registration, filing, qualification, legal, printer
and accounting fees, but excluding underwriting commissions and discounts),
shall be borne by METALS.
17.4 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.
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(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
17.5 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 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.
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17.5 UNDERWRITING AGREEMENT. In connection with each registration pursuant
to Sections 17.1 and 17.2 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.
17.6 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 understood and defined in Rule 144 under the 1933 Act for
a period of four years beginning 90 days following the effective date of
the Registration Statement;
(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 at any
time after it has become subject to such reporting requirements; 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 (at any time from and after 90 days following the
effective date of the Registration Statement, and of the 1933 Act and the
1934 Act (any time after it has become subject to such reporting
requirements), 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.
18. GENERAL
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18.1 COOPERATION. The COMPANY, STOCKHOLDERS, METALS and NEWCO shall each
deliver or cause to be delivered to the other on the Funding and Consummation
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 Funding and Consummation 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 Funding and Consummation Date.
18.2 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.
18.3 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, NEWCO 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, NEWCO and
METALS, acting through their respective officers or trustees, duly authorized by
their respective Boards of Directors. Any disclosure made on any Schedule
delivered pursuant hereto shall be deemed to have been disclosed for purposes of
any other Schedule required hereby, provided that the COMPANY shall make a good
faith effort to cross reference disclosure, as necessary or advisable, between
related Schedules.
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18.4 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.
18.5 BROKERS AND AGENTS. Except as disclosed on Schedule 18.5, 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.
18.6 EXPENSES. Whether or not the transactions herein contemplated shall
be consummated, METALS will pay the fees, expenses and disbursements of METALS
and its agents, representatives, accountants and counsel incurred in connection
with the subject matter of this Agreement and any amendments thereto, including
all costs and expenses incurred in the performance and compliance with all
conditions to be performed by METALS under this Agreement, including the fees
and expenses of Arthur Andersen, LLP, Bracewell & Patterson, L.L.P., and any
other person or entity retained by METALS or by Notre Capital Ventures II,
L.L.C., and the costs of preparing the Registration Statement. 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 Merger, other than Transfer Taxes, if any, imposed by the
State of Delaware. 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 Section 2 hereof. The
STOCKHOLDERS acknowledge that the risks of the transactions contemplated hereby
include tax risks, with respect to which the STOCKHOLDERS are relying solely on
the opinion contemplated by Section 8.12 hereof.
18.7 NOTICES. All notices of communication 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
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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.
(a) If to METALS, or NEWCO, addressed to them at: Metals USA, Inc.
4801 Woodway, Suite 300E
Houston, Texas 77056
Attn: J. Michael Kirksey
with copies to:
Thomas W. Adkins
Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana Street, Suite 2900
Houston, Texas 77002-2781
(b) If to the STOCKHOLDERS, addressed to them at their addresses set
forth on Annex II, with copies to:
Christopher S. Collins
Andrews & Kurth, L.L.P.
4200 Texas Commerce Tower
Houston, Texas 77002
and to:
Mr. Richard Morgan
Stevens, McGee, Morgan, Lennon & O'Quinn
P. O. Drawer 59
Wilmington, NC 28402
Tele: (910)763-3666
Fax: (910) 251-9562
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(c) If to the COMPANY, addressed to it at:
Queensboro Steel Corporation
2925 Highway 421 North
Wilmington, NC 28401
Attn: Mark Alper, President
Tele: (910) 763-6237
Fax: (910) 763-9788
with copies to:
Metals USA, Inc.
4801 Woodway, Suite 300E
Houston, TX 77056
Attn: J. Michael Kirksey
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Delaware.
18.9 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 Expiration Date.
18.10 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.
18.11 TIME. Time is of the essence with respect to this Agreement.
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18.12 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.
18.13 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.
18.14 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
18.15 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived only with the
written consent of METALS, NEWCO, the COMPANY and STOCKHOLDERS who hold or who
will hold at least 50% of the METALS Stock issued or to be issued upon
consummation of the Merger. Any amendment or waiver effected in accordance with
this Section 18.15 shall be binding upon each of the parties hereto, any other
person receiving METALS Stock in connection with the Merger and each future
holder of such METALS Stock.
18.16 SPECIAL LIMITATION. Notwithstanding anything else to the contrary
herein, the provisions of Article 13 hereof shall not prevent any of the
STOCKHOLDERS from owning, controlling, and/or participating in any of the
affairs of Southern Metals Recycling, Inc. in any capacity; and in no way shall
prevent Southern Metals Recycling, Inc. from engaging in the brokering,
processing, manufacturing, purchase, and sale of recyclables, and/or any other
aspect of the scrap metal and recycling business.
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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: Art French
Title: Chief Executive Officer
QUEENSBORO STEEL I ACQUISITION CORP.
By: ________________________________
Name: J. Michael Kirksey
Title: President
QUEENSBORO STEEL CORPORATION
By: ________________________________
Name: ___________________________
Title: __________________________
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STOCKHOLDERS:
CLASS A VOTING COMMON STOCK:
__________________________________________
Mark Alper
Trustee for Michael Alper
under an agreement dated September 17, 1992
__________________________________________
Mark Alper
Trustee for Mark Alper
under an agreement dated September 17, 1992
__________________________________________
Mark Alper
Trustee for Steven Alper
under an agreement dated September 17, 1992
__________________________________________
Jonathan Alper
__________________________________________
Franklin Block
Trustees for Marilyn Davidson under
Irrevocable Trust Agreement dated
December 1, 1992
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__________________________________________
Jonathan Alper
__________________________________________
Franklin Block
Trustees for Jonathan Alper under
Irrevocable Trust Agreement dated
December 1, 1992
__________________________________________
Jonathan Alper
__________________________________________
Franklin Block
Trustees for Barbara Behar under
Irrevocable Trust Agreement dated
December 1, 1992
CLASS B NON-VOTING COMMON STOCK:
__________________________________________
Mark Alper
__________________________________________
Steven Alper
__________________________________________
Michael Alper
__________________________________________
Jonathan Alper
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__________________________________________
Marilyn Alper Davidson
__________________________________________
Barbara Alper Behar
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ANNEX I
TO THE AGREEMENT
AND PLAN OF REORGANIZATION
DATED AS OF APRIL 30, 1997
BY AND AMONG
METALS USA, INC.
AND THE OTHER PARTIES NAMED THEREIN
CONSIDERATION TO BE PAID TO THE STOCKHOLDERS
Aggregate consideration to be paid to the STOCKHOLDERS:
$24,447,853.20 in cash and the value of outstanding Common Stock of Metals
(assuming an offering price of $13.00 per share), consisting of 1,587,810 shares
of Metals Stock and $3,806,323.21 in cash, it being agreed that the actual
amount of all cash payments described in this Annex I will depend on the actual
initial offering price of the Common Stock of Metals in the IPO, and may be more
or less than $13.00 per share; provided, however that such price shall not be
less than $8.00 per share.
Consideration to be paid to each STOCKHOLDER:
---------------------------------------------
Shares of Common Cash
Stockholder Stock of Metals ($)
- ----------- ------------ ------------
Mark Alper, Trustee for Michael Alper ............ 50,751 121,659.50
Mark Alper, Trustee for Mark Alper ............... 50,751 121,659.50
Mark Alper. Trustee for Steven Alper ............. 50,751 121,659.50
Jonathan Alper & Franklin Block,
Trustee for Marilyn Laufer ...................... 50,751 121,659.50
Jonathan Alper & Franklin Block,
Trustee for Jonathan Alper ...................... 50,751 121,659.50
Jonathan Alper & Franklin Block,
Trustee for Barbara Behar ....................... 50,751 121,659.50
Mark Alper ....................................... 213,884 512,727.70
Steven Alper ..................................... 213,884 512,727.70
Michael Alper .................................... 213,884 512,727.70
Jonathan Alper ................................... 213,884 512,727.70
Marilyn Alper Laufer ............................. 213,884 512,727.70
Barbara Alper Behar .............................. 213,884 512,727.70
------------ ------------
1,587,810 3,806,323.20
============ ============
MINIMUM VALUE:$ 18,146,371 (based on a price of $8.00 per share)
============
EXHIBIT 10.6
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF ORGANIZATION
dated as of the 30th day of April, 1997
by and among
METALS USA, INC.
SOUTHERN ALLOY ACQUISITION CORP.
(a subsidiary of Metals USA, Inc.)
SOUTHERN ALLOY OF AMERICA, INC.
and
the STOCKHOLDERS named herein
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<PAGE>
TABLE OF CONTENTS
Page
1. THE MERGER.............................................................6
1.1 Delivery and Filing of Articles of Merger........................6
1.2 Effective Time of the Merger.....................................6
1.3 Certificate of Incorporation, By-laws and
Board of Directors of Surviving Corporation......................6
1.4 Certain Information With Respect to the
Capital Stock of the COMPANY, METALS and NEWCO...................7
1.5 Effect of Merger.................................................7
2. CONVERSION OF STOCK....................................................9
2.1 Manner of Conversion.............................................9
3. DELIVERY OF MERGER CONSIDERATION......................................10
4. CLOSING...............................................................10
5. REPRESENTATIONS AND WARRANTIES OF COMPANY
AND STOCKHOLDERS......................................................12
(A) Representations and Warranties of
COMPANY and STOCKHOLDERS..................................12
5.1 Due Organization................................................12
5.2 Authorization...................................................13
5.3 Capital Stock of the COMPANY....................................13
5.4 Transactions in Capital Stock, Organization Accounting..........13
5.5 No Bonus Shares.................................................14
5.6 Subsidiaries....................................................14
5.7 Predecessor Status; etc.........................................14
5.8 Spin-off by the COMPANY.........................................15
5.9 Financial Statements............................................15
5.10 Liabilities and Obligations.....................................15
5.11 Accounts and Notes Receivable...................................16
5.12 Permits and Intangibles.........................................17
5.13 Environmental Matters...........................................17
5.14 Personal Property...............................................18
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5.15 Significant Customers; Material Contracts and Commitments.......19
5.16 Real Property...................................................20
5.17 Insurance.......................................................21
5.18 Compensation; Employment Agreements; Organized Labor Matters....21
5.19 Employee Plans..................................................22
5.20 Compliance with ERISA...........................................23
5.21 Conformity with Law; Litigation.................................24
5.22 Taxes...........................................................25
5.23 No Violations; Consents, Etc....................................25
5.24 Government Contracts............................................26
5.25 Absence of Changes..............................................26
5.26 Deposit Accounts; Powers of Attorney............................28
5.27 Validity of Obligations.........................................28
5.28 Relations with Governments......................................28
5.29 Disclosure......................................................29
5.30 Prohibited Activities...........................................30
(B) Representations and Warranties of STOCKHOLDERS......30
5.31 Authority; Ownership............................................30
5.32 Preemptive Rights...............................................31
5.33 No Intention to Dispose of METALS Stock.........................31
6. REPRESENTATIONS OF METALS and NEWCO...................................31
6.1 Due Organization................................................31
6.2 Authorization...................................................32
6.3 Capital Stock of METALS and NEWCO...............................32
6.4 Transactions in Capital Stock, Organization Accounting..........33
6.5 Subsidiaries....................................................33
6.6 Financial Statements............................................33
6.7 Liabilities and Obligations.....................................33
6.8 Conformity with Law; Litigation.................................34
6.9 No Violations...................................................34
6.10 Validity of Obligations.........................................35
6.11 METALS Stock....................................................35
6.12 No Side Agreements..............................................36
6.13 Business; Real Property; Material Agreements....................36
6.14 Taxes...........................................................36
6.15 Absence of Changes..............................................37
6.16 Validity of Obligations.........................................38
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6.17 Disclosure......................................................38
6.18 Private Offering................................................39
7. COVENANTS PRIOR TO CLOSING............................................39
7.1 Access and Cooperation; Due Diligence...........................39
7.2 Conduct of Business Pending Closing.............................40
7.3 Prohibited Activities...........................................41
7.4 No Shop.........................................................43
7.5 Notice to Bargaining Agents.....................................43
7.6 Agreements......................................................43
7.7 Notification of Certain Matters.................................44
7.8 Amendment of Schedules..........................................44
7.9 Cooperation in Preparation of Registration Statement............46
7.10 Final Financial Statements......................................46
7.11 Further Assurances..............................................47
7.12 Authorized Capital..............................................47
7.13 Compliance with the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 (the "Hart-Scott Act").......47
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF
STOCKHOLDERS AND COMPANY..............................................48
8.1 Representations and Warranties; Performance of Obligations......48
8.2 Satisfaction....................................................49
8.3 No Litigation...................................................49
8.4 Opinion of Counsel..............................................49
8.5 Registration Statement..........................................49
8.6 Consents and Approvals..........................................50
8.7 Good Standing Certificates......................................50
8.8 No Material Adverse Change......................................50
8.9 Closing of IPO..................................................50
8.10 Secretary's Certificate.........................................50
8.11 Employment Agreements...........................................51
8.12 Tax Matters.....................................................51
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF METALS AND NEWCO...............51
9.1 Representations and Warranties; Performance of Obligations......51
9.2 No Litigation...................................................52
9.3 Secretary's Certificate.........................................52
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9.4 No Material Adverse Effect......................................52
9.5 STOCKHOLDERS' Release...........................................52
9.6 Satisfaction....................................................53
9.7 Termination of Related Party Agreements.........................53
9.8 Opinion of Counsel..............................................53
9.9 Consents and Approvals..........................................53
9.10 Good Standing Certificates......................................53
9.11 Registration Statement..........................................54
9.12 Employment Agreements...........................................54
9.13 Closing of IPO..................................................54
9.14 FIRPTA Certificate..............................................54
10. COVENANTS OF METALS AND THE STOCKHOLDERS AFTER CLOSING................54
10.1 Release From Guarantees; Repayment of Certain Obligations.......54
10.2 Preservation of Tax and Accounting Treatment....................55
10.3 Preparation and Filing of Tax Returns...........................55
10.4 Directors.......................................................56
10.5 Preservation of Employee Benefit Plans..........................56
11. INDEMNIFICATION.......................................................57
11.1 General Indemnification by the STOCKHOLDERS.....................57
11.2 Indemnification by METALS.......................................59
11.3 Third Person Claims.............................................59
11.4 Exclusive Remedy................................................61
11.5 Limitations on Indemnification..................................62
12. TERMINATION OF AGREEMENT..............................................62
12.1 Termination.....................................................62
12.2 Liabilities in Event of Termination.............................63
13. NONCOMPETITION........................................................64
13.1 Prohibited Activities...........................................64
13.2 Damages.........................................................65
13.3 Reasonable Restraint............................................65
13.4 Severability; Reformation.......................................65
13.5 Independent Covenant............................................66
13.6 Materiality.....................................................66
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<PAGE>
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION..............................66
14.1 STOCKHOLDERS....................................................66
14.2 METALS AND NEWCO................................................67
14.3 Damages.........................................................68
14.4 Survival........................................................68
15. TRANSFER RESTRICTIONS.................................................68
15.1 Transfer Restrictions...........................................68
16. FEDERAL SECURITIES ACT REPRESENTATIONS................................69
16.1 Compliance with Law.............................................69
16.2 Economic Risk; Sophistication...................................70
17. REGISTRATION RIGHTS...................................................70
17.1 Piggyback Registration Rights...................................70
17.2 Demand Registration Rights......................................71
17.3 Registration Procedures.........................................73
17.4 Indemnification.................................................74
17.5 Underwriting Agreement..........................................75
17.6 Rule 144 Reporting..............................................76
18. GENERAL...............................................................76
18.1 Cooperation.....................................................76
18.2 Successors and Assigns..........................................77
18.3 Entire Agreement................................................77
18.4 Counterparts....................................................77
18.5 Brokers and Agents..............................................78
18.6 Expenses........................................................78
18.7 Notices.........................................................78
18.8 Governing Law...................................................80
18.9 Survival of Representations and Warranties......................80
18.10 Exercise of Rights and Remedies.................................80
18.11 Time............................................................81
18.12 Reformation and Severability....................................81
18.13 Remedies Cumulative.............................................81
18.14 Captions........................................................81
18.15 Amendments and Waivers..........................................81
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ANNEXES
Annex I - Consideration to Be Paid to Stockholders
Annex II - Stockholders and Stock Ownership of the Company
Annex III - Stockholders and Stock Ownership of Metals
Annex IV - Certificate of Incorporation and By-Laws of Metals and Newco
Annex V - Form of Opinion of Counsel to Metals
Annex VI - Form of Opinion of Counsel to Company and Stockholders
Annex VII - Form of Key Employee Employment Agreement
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SCHEDULES
5.1 Due Organization
5.2 Authorization
5.3 Capital Stock of the COMPANY
5.4 Transactions in Capital Stock, Organization Accounting
5.5 No Bonus Shares
5.6 Subsidiaries
5.7 Predecessor Status; etc
5.8 Spin-off by the COMPANY
5.9 Financial Statements
5.10 Liabilities and Obligations
5.11 Accounts and Notes Receivable
5.12 Permits and Intangibles
5.13 Environmental Matters
5.14 Personal Property
5.15 Significant Customers; Material Contracts and Commitments
5.16 Real Property
5.17 Insurance
5.18 Compensation; Employment Agreements; Organized Labor Matters
5.19 Employee Plans
5.20 Compliance with ERISA
5.21 Conformity with Law; Litigation
5.22 Taxes
5.23 No Violations, Consents, etc.
5.24 Government Contracts
5.25 Absence of Changes
5.26 Deposit Accounts; Powers of Attorney
5.28 Relations with Governments
5.30 Prohibited Activities
5.31 Authority; Ownership
6.4 Transactions in Capital Stock, Organization Accounting
6.7 Liabilities and Obligations
6.8 Conformity with Law; Litigation
6.9 No Violations
6.13 Business; Real Property; Material Agreements
6.14 Taxes
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7.2 Conduct of Business Pending Closing
7.3 Prohibited Activities
7.5 Notice to Bargaining Agents
9.12 Employment Agreements
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<PAGE>
AGREEMENT AND PLAN OF ORGANIZATION
THIS AGREEMENT AND PLAN OF ORGANIZATION (the "Agreement") is made as of
the 30th day of April, 1997, by and among METALS USA, Inc., a Delaware
corporation ("METALS"), SOUTHERN ALLOY ACQUISITION CORP., a Delaware corporation
("NEWCO"), SOUTHERN ALLOY OF AMERICA, INC., a North Carolina corporation (the
"COMPANY"), and (i) RICHARD W. VIRTUE, (ii) CHRISTOPHER F. VIRTUE, (iii) WILLIAM
BARTLEY EDGE, and (iv) GREGORY L. ALCORN (the "STOCKHOLDERS"). The STOCKHOLDERS
are all the stockholders of the COMPANY.
WHEREAS, NEWCO is a corporation duly organized and existing under
the laws of the State of Delaware, having been incorporated on April 23,
1997, solely for the purpose of completing the transactions set forth
herein, and is a wholly-owned subsidiary of METALS, a corporation
organized and existing under the laws of the State of Delaware;
WHEREAS, the respective Boards of Directors of NEWCO and the COMPANY
(which together are hereinafter collectively referred to as "Constituent
Corporations") deem it advisable and in the best interests of the
Constituent Corporations and their respective stockholders that NEWCO
merge with and into the COMPANY pursuant to this Agreement and the
applicable provisions of the laws of the States of Delaware and the State
of Incorporation;
WHEREAS, METALS is entering into other separate agreements
substantially similar to this Agreement (the "Other Agreements"), each of
which is entitled "Agreement and Plan of Organization," with each of the
Other Founding Companies (as defined herein) and their respective
stockholders in order to acquire additional metals processing, metals
fabricating and specialty metals companies;
WHEREAS, this Agreement and the Other Agreements constitute the
"METALS Plan of Organization;"
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WHEREAS, the STOCKHOLDERS and the Boards of Directors and the
stockholders of METALS, each of the Other Founding Companies and each of
the subsidiaries of METALS that are parties to the Other Agreements have
approved and adopted the METALS Plan of Organization as an integrated plan
pursuant to which the STOCKHOLDERS and the stockholders of each of the
other Founding Companies will transfer the capital stock of each of the
Founding Companies to METALS and the stockholders of each of the other
Founding Companies will acquire the stock of METALS (but not cash or other
property) as a tax-free transfer of property under Section 351 of the
Internal Revenue Code of 1986, as amended;
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the Board of Directors of the
COMPANY has approved this Agreement as part of the METALS Plan of
Organization in order to transfer the capital stock of the COMPANY to
METALS;
WHEREAS, unless the context otherwise requires, capitalized terms
used in this Agreement or in any schedule attached hereto and not
otherwise defined shall have the following meanings for all purposes of
this Agreement:
"1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Acquired Party" means the COMPANY, any subsidiary and any member of a
Relevant Group.
"Acquisition Companies" shall mean NEWCO and each of the other Delaware
companies wholly-owned by METALS prior to the Funding and Consummation Date.
"Affiliates" has the meaning set forth in Section 5.8.
"Articles of Merger" shall mean those Articles or Certificates of Merger
with respect to the Merger in such forms as may be required by the laws of the
State of Delaware and the State of Incorporation.
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"Balance Sheet Date" shall mean December 31, 1996.
"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
"COMPANY" has the meaning set forth in the first paragraph of this
Agreement.
"COMPANY Stock" has the meaning set forth in Section 2.1.
"Constituent Corporations" has the meaning set forth in the second recital
of this Agreement.
"Draft Registration Statement" means the draft dated April 25, 1997 of the
Registration Statement, and any corrections thereto and supplemental information
delivered by METALS to the COMPANY for delivery to the STOCKHOLDERS prior to the
time this Agreement is delivered to METALS.
"Effective Time of the Merger" shall mean the time as of which the Merger
becomes effective, which shall, in any case, occur on the Funding and
Consummation Date.
"Environmental Laws" has the meaning set forth in Section 5.13.
"Expiration Date" has the meaning set forth in Section 5(A).
"Founding Companies" means:
Affiliated Metals Company, a Missouri corporation;
Interstate Steel Supply Company, a Pennsylvania corporation,
Interstate Steel Supply Company of Pittsburgh, a Pennsylvania
corporation, Interstate Steel Supply Company of Maryland, a
Maryland corporation, and Interstate Steel Processing Company,
a Pennsylvania corporation;
Queensboro Steel Corporation, a North Carolina corporation;
Southern Alloy of America, Inc., a North Carolina corporation;
Steel Service Systems, Inc., a Wisconsin corporation;
Texas Aluminum Industries, Inc., a Texas corporation ("TAI"),
Cornerstone Metals Corporation, a Nevada corporation,
Cornerstone Building Products, Inc., a Nevada corporation,
Cornerstone Aluminum Company, Inc., a Nevada
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<PAGE>
corporation, and Cornerstone Patio Concepts, L.L.C., a Nevada
limited liability company (collectively, such entities other
than TAI being herein called the "Cornerstone Companies");
Uni-Steel Incorporated, an Oklahoma corporation; and
Williams Steel & Supply Co., Inc., a Wisconsin corporation.
"Funding and Consummation Date" has the meaning set forth in
Section 4.
"IPO" means the initial public offering of METALS Stock pursuant to the
Registration Statement as referenced in Section 9.13.
"Material Adverse Effect" has the meaning set forth in Section 5.1.
"Material Documents" has the meaning set forth in Section 5.23.
"Merger" means the merger of NEWCO with and into the COMPANY pursuant to
this Agreement and the applicable provisions of the laws of the State of
Delaware and the laws of the State of Incorporation.
"METALS" has the meaning set forth in the first paragraph of this
Agreement.
"METALS Charter Documents" has the meaning set forth in Section 6.1.
"METALS Stock" means the common stock, par value $.01 per share, of
METALS.
"NEWCO" has the meaning set forth in the first paragraph of this
Agreement.
"NEWCO STOCK" means the common stock, par value $.01 per share, of NEWCO.
"Other Founding Companies" means all of the Founding Companies other than
the Company.
"Plans" has the meaning set forth in Section 5.19.
"Pricing" means the date of determination by METALS and the Underwriters
of the public offering price of the shares of METALS Stock in the IPO; the
parties hereto contemplate that the Pricing shall take place on the Closing
Date.
"Qualified Plans" has the meaning set forth in Section 5.20.
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<PAGE>
"Registration Statement" means that certain registration statement on Form
S-1 to be filed with the SEC covering the shares of METALS Stock to be issued in
the IPO and all amendments thereto.
"Relevant Group" means the COMPANY and any affiliated, combined,
consolidated, unitary or similar group of which the COMPANY is or was a member.
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
"Schedule" means each Schedule attached hereto, which shall reference the
relevant sections of this Agreement, on which parties hereto disclose
information as part of their respective representations, warranties and
covenants.
"SEC" means the United States Securities and Exchange Commission.
"State of Incorporation" means the State of North Carolina.
"STOCKHOLDERS" has the meaning set forth in the first paragraph of this
Agreement.
"Surviving Corporation" shall mean the COMPANY as the surviving party in
the Merger.
"Tax" or "Taxes" means all federal, state, local or foreign net or gross
income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, withholding, employment, excise, property, deed, stamp, alternative
or add on minimum, or other taxes, assessments, duties, fees, levies or other
governmental charges, whether disputed or not, together with any interest,
penalties, additions to tax or additional amounts with respect thereto.
"Underwriters" means the prospective underwriters identified in the
Registration Statement.
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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1. THE MERGER
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER. The Constituent
Corporations will cause the Articles of Merger to be signed, verified and placed
in escrow under the control of METALS to be held for filing with the Secretary
of State of the State of Delaware and the Secretary of State of the State of
Incorporation on the Funding and Consummation Date.
1.2 EFFECTIVE TIME OF THE MERGER. At the Effective Time of the Merger,
NEWCO shall be merged with and into the COMPANY in accordance with the Articles
of Merger, the separate existence of NEWCO shall cease, the COMPANY shall be the
surviving party in the Merger and the COMPANY is sometimes hereinafter referred
to as the Surviving Corporation. The Merger will be effected in a single
transaction.
1.3 CERTIFICATE OF INCORPORATION, BY-LAWS AND BOARD OF DIRECTORS OF
SURVIVING CORPORATION. At the Effective Time of the Merger:
(i) the Certificate of Incorporation of the COMPANY then in effect
shall be the Certificate of Incorporation of the Surviving Corporation
until changed as provided by law;
(ii) the By-laws of NEWCO then in effect shall become the By-laws of
the Surviving Corporation; and subsequent to the Effective Time of the
Merger, such By-laws shall be the By-laws of the Surviving Corporation
until they shall thereafter be duly amended (and such By-laws shall be
amended, if necessary, to comply with applicable state law);
(iii) the Board of Directors of the Surviving Corporation shall
consist of the persons who are on the Board of Directors of the COMPANY
immediately prior to the Effective Time of the Merger, provided that J.
Michael Kirksey shall be elected as a director of the Surviving
Corporation effective as of the Effective Time of the Merger; the Board of
Directors of the Surviving Corporation shall hold office subject to the
provisions of the laws of the State of Incorporation and of the
Certificate of Incorporation and By-laws of the Surviving Corporation; and
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(iv) the officers of the COMPANY immediately prior to the Effective
Time of the Merger shall continue as the officers of the Surviving
Corporation in the same capacity or capacities, and effective upon the
Effective Time of the Merger J. Michael Kirksey shall be appointed as a
vice president of the Surviving Corporation and Terry L. Freeman 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 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE COMPANY,
METALS AND NEWCO. The respective designations and numbers of outstanding shares
and voting rights of each class of outstanding capital stock of the COMPANY,
METALS and NEWCO 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 5.3 hereto;
(ii) immediately prior to the Closing Date and the Funding and
Consummation Date, the authorized capital stock of METALS will consist of
50,000,000 shares of METALS Stock, of which the number of issued and
outstanding shares will be set forth in the Registration Statement, and
5,000,000 shares of preferred stock, $.01 par value, of which no shares
will be issued and outstanding, and a number of shares of Restricted
Voting Common Stock, $.01 par value (the "Restricted Common Stock"), to be
determined by METALS in good faith, all of which will be issued and
outstanding except as otherwise set forth in the Registration Statement;
and
(iii) as of the date of this Agreement, the authorized capital stock
of NEWCO consists of 1,000 shares of NEWCO Stock, of which one hundred
(100) shares are issued and outstanding.
1.5 EFFECT OF MERGER. At the Effective Time of the Merger, the effect of
the Merger shall be as provided in the applicable provisions of the General
Corporation Law of the State of Delaware
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(the "Delaware GCL") and the law of the State of Incorporation. Except as herein
specifically set forth, the identity, existence, purposes, powers, objects,
franchises, privileges, rights and immunities of the COMPANY shall continue
unaffected and unimpaired by the Merger and the corporate franchises, existence
and rights of NEWCO shall be merged with and into the COMPANY, and the COMPANY,
as the Surviving Corporation, shall be fully vested therewith. At the Effective
Time of the Merger, the separate existence of NEWCO 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 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 interest therein,
whether by deed or otherwise, under the laws of the State of Incorporation
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.
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2. CONVERSION OF STOCK
2.1 MANNER OF CONVERSION. The manner of converting the shares of (i)
outstanding capital stock of the COMPANY ("COMPANY Stock") and (ii) NEWCO Stock,
issued and outstanding immediately prior to the Effective Time of the Merger,
respectively, into shares of (x) METALS Stock and cash and (y) common stock of
the Surviving Corporation, respectively, shall be as follows:
As of the Effective Time of the Merger:
(i) all of the shares of COMPANY Stock issued and outstanding
immediately prior to the Effective Time of the Merger, by virtue of the
Merger and without any action on the part of the holder thereof,
automatically shall be deemed to represent (1) the right to receive the
number of shares of METALS Stock set forth on Annex I hereto with respect
to such holder and (2) the right to receive the amount of cash set forth
on Annex I hereto with respect to such holder;
(ii) all shares of COMPANY Stock 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 of the Merger, shall, by virtue of the Merger
and without any action on the part of METALS, automatically be converted
into one fully paid and non-assessable share of common stock of the
Surviving Corporation which shall constitute all of the issued and
outstanding shares of common stock of the Surviving Corporation
immediately after the Effective Time of the Merger.
All METALS Stock received by the STOCKHOLDERS pursuant to this Agreement
shall, except for restrictions on resale or transfer described in Sections 15
and 16 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 GCL. All
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METALS Stock received by the STOCKHOLDERS shall be issued and delivered to the
STOCKHOLDERS free and clear of any liens, claims or encumbrances of any kind or
nature. All voting rights of such METALS Stock received by the STOCKHOLDERS
shall be fully exercisable by the STOCKHOLDERS and the STOCKHOLDERS shall not be
deprived nor restricted in exercising those rights. At the Effective Time of the
Merger, METALS shall have no class of capital stock issued and outstanding other
than the METALS Stock and the Restricted Voting Common Stock.
3. DELIVERY OF MERGER CONSIDERATION
3.1 On the Funding and Consummation Date the STOCKHOLDERS, 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 and the amount of cash described on Annex I hereto, said
cash to be payable by certified check.
3.2 The STOCKHOLDERS shall deliver to METALS at the Closing the
certificates representing COMPANY Stock, duly endorsed in blank by the
STOCKHOLDERS, or accompanied by blank stock powers, and with all necessary
transfer tax and other revenue stamps, acquired at the STOCKHOLDERS' expense,
affixed and canceled. The STOCKHOLDERS agree 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.
4. CLOSING
At or prior to the Pricing, the parties shall take all actions necessary
to prepare to (i) effect the Merger (including the execution of the Articles of
Merger which shall be placed in escrow under the control of METALS for filing
with the appropriate authorities on the Funding and Consummation Date) and (ii)
effect the conversion and delivery of shares referred to in Section 3
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hereof; provided, that such actions shall not include the actual completion of
the Merger or the conversion and delivery of the shares and certified check(s)
referred to in Section 3 hereof, each of which actions shall only be taken upon
the Funding and Consummation Date as herein provided. The escrow agreement
relating to the Articles of Merger shall provide that in the event that there is
no Funding and Consummation Date and this Agreement automatically terminates as
provided in this Section 4 the Articles of Merger shall not be filed and shall
be returned to the STOCKHOLDERS. The taking of the actions described in clauses
(i) and (ii) above (the "Closing") shall take place on the closing date (the
"Closing Date") at the offices of Bracewell & Patterson, L.L.P., South Tower
Pennzoil Place, 711 Louisiana, Suite 2900, Houston, Texas 77002. On the Funding
and Consummation Date (x) the Articles of Merger shall be filed with the
appropriate state authorities so that they shall be, as early as practicable on
the Funding and Consummation Date, effective and the Merger shall thereby be
effected, (y) all transactions contemplated by this Agreement, including the
conversion and delivery of shares, the delivery of a certified check or checks
in an amount equal to the cash portion of the consideration which the
STOCKHOLDERS shall be entitled to receive pursuant to the Merger referred to in
Section 3 hereof and (z) the closing with respect to the IPO shall occur and be
completed. The date on which the actions described in the preceding clauses (x),
(y) and (z) occurs shall be referred to as the "Funding and Consummation Date."
Except as otherwise provided in Section 12 hereof, during the period from the
Closing Date to the Funding and Consummation Date, this Agreement may only be
terminated by the parties if the underwriting agreement in respect of the IPO is
terminated pursuant to the terms of such agreement. This Agreement shall also in
any event automatically terminate if the Funding and Consummation Date has not
occurred within 10 business days of the Closing Date. Time is of the essence.
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5. REPRESENTATIONS AND WARRANTIES OF COMPANY AND STOCKHOLDERS
(A) REPRESENTATIONS AND WARRANTIES OF COMPANY AND STOCKHOLDERS.
Each of the COMPANY and the STOCKHOLDERS jointly and severally represent
and warrant that all of the following representations and warranties in this
Section 5(A) are true at the date of this Agreement and, subject to Section 7.8
hereof, shall be true at the time of Closing and the Funding and Consummation
Date, and that such representations and warranties shall survive the Funding and
Consummation Date for a period of twelve months (the last day of such period
being the "Expiration Date"), except that the warranties and representations set
forth in Section 5.22 hereof shall survive until such time as the limitations
period has run for all tax periods ended on or prior to the Funding and
Consummation Date, which shall be deemed to be the Expiration Date for Section
5.22. For purposes of this Section 5, the term COMPANY shall mean and refer to
the COMPANY and all of its subsidiaries.
5.1 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 the 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 (i) as set forth on Schedule 5.1 or (ii) 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 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 5.1. The stock records of the COMPANY,
as heretofore made available to METALS, are correct and complete in all material
respects. There
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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 complete in all
material 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, power and
authority to enter into this Agreement and the Merger. The most recent
resolutions adopted by the Board of Directors of the COMPANY and the most recent
resolutions adopted by the STOCKHOLDERS, all of which are dated no earlier than
ten business days prior to the date hereof, approve this Agreement and the
transactions contemplated hereby in all respects, and copies of all such
resolutions, certified by the Secretary or an Assistant Secretary of the COMPANY
as being in full force and effect on the date hereof, are attached hereto as
Schedule 5.2.
5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the
COMPANY is as set forth on Schedule 5.3. All of the issued and outstanding
shares of the capital stock of the COMPANY are owned by the STOCKHOLDERS in the
amounts set forth in Annex II. Each STOCKHOLDER, severally, represents and
warrants that except as set forth on Schedule 5.3, the shares of capital stock
of the COMPANY owned by such STOCKHOLDER 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, are owned of record and beneficially by the
STOCKHOLDERS and further, such shares were offered, issued, sold and delivered
by the COMPANY in compliance with all applicable state and Federal laws
concerning the issuance of securities. Further, none of such shares were issued
in violation of any preemptive rights of any past or present stockholder.
5.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except as set
forth on Schedule 5.4, the COMPANY has not acquired any COMPANY Stock since
January 1, 1995. Except as set forth on Schedule 5.4, (i) no option, warrant,
call, conversion right or commitment of
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any kind exists which obligates the COMPANY to issue any of its authorized but
unissued capital stock; (ii) the COMPANY has no obligation (contingent or
otherwise) to purchase, redeem or otherwise acquire any of its equity securities
or any interests therein or to pay any dividend or make any distribution in
respect thereof; and (iii) neither the voting stock structure of the COMPANY nor
the relative ownership of shares among any of its respective stockholders has
been altered or changed in contemplation of the Merger and/or the METALS Plan of
Organization. Schedule 5.4 also includes a complete and accurate list of all
stock option or stock purchase plans, including a list of all outstanding
options, warrants or other rights to acquire shares of the COMPANY's stock and
copies of such plans have been delivered to METALS or are attached to Schedule
5.4.
5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of the
shares of COMPANY Stock was issued pursuant to awards, grants or bonuses in
contemplation of the Merger or the METALS Plan of Organization.
5.6 SUBSIDIARIES. Except as set forth on Schedule 5.6, the COMPANY has no
subsidiaries. Except as set forth in Schedule 5.6 and except for any
corporations or entities with respect to which the COMPANY owns less than 1% of
the issued and outstanding stock, the COMPANY does not presently 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 business entity nor is the COMPANY, directly or
indirectly, a participant in any joint venture, partnership or other
non-corporate entity.
5.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 5.7 is a listing of all
names of all predecessor companies of the COMPANY, including the names of any
entities acquired by the COMPANY (by stock purchase, merger or otherwise) or
owned by the COMPANY or from whom the COMPANY previously acquired material
assets, in any case, from the earliest date upon which any STOCKHOLDER acquired
his or her stock in any COMPANY. Except as disclosed on Schedule 5.7, the
COMPANY has not been, within such period of time, a subsidiary or division of
another corporation or a part of an acquisition which was later rescinded.
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5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8, there
has not been any sale, spin-off or split-up of material assets of either the
COMPANY or any other person or entity that directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under common
control with, the COMPANY ("Affiliates") since January 1, 1995.
5.9 FINANCIAL STATEMENTS. Attached hereto as Schedule 5.9 are copies of
the following financial statements (the "COMPANY Financial Statements") of the
COMPANY: the COMPANY's audited Balance Sheets as of December 31, 1996, 1995 and
1994, and Statements of Income and Retained Earnings, and Statement of Cash
Flows for each of the three years in the period ended December 31, 1996
(December 31, 1996 being hereinafter referred to as the "Balance Sheet Date").
Such Financial Statements have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods indicated (except as noted thereon or on Schedule 5.9). Except as set
forth on Schedule 5.9, such Balance Sheets present fairly in all material
respects the financial position of the COMPANY as of the dates indicated
thereon, and such Statements of Income, Stockholders Equity and Cash Flows
present fairly in all material respects the results of operations for the
periods indicated thereon.
5.10 LIABILITIES AND OBLIGATIONS. The COMPANY has delivered to METALS an
accurate list (which is set forth on Schedule 5.10) as of the Balance Sheet Date
of (i) all liabilities of the COMPANY of a nature that they are required in
accordance with GAAP to be reflected on a balance sheet and which are not
reflected on the balance sheet of the COMPANY at the Balance Sheet Date or
otherwise reflected in the COMPANY Financial Statements at the Balance Sheet
Date, and which are not disclosed on any of the other Schedules to this
Agreement and which would have a Material Adverse Effect on the COMPANY, and
(ii) all loan agreements, indemnity or guaranty agreements, bonds, mortgages,
pledges or other security agreements to which the COMPANY is a party or by which
its properties may be bound. Except as set forth on Schedule 5.10, to the best
knowledge of the COMPANY, since the Balance Sheet Date the COMPANY has not
incurred any material liabilities of any kind, character or description, whether
accrued, absolute, secured or
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unsecured, contingent or otherwise, other than liabilities incurred in the
ordinary course of business. The COMPANY has also delivered to METALS on
Schedule 5.10, in the case of those contingent liabilities related to pending or
threatened litigation, or other liabilities which are not fixed, a good faith
and reasonable estimate of the maximum amount which the COMPANY reasonably
expects will be payable and the amount, if any, accrued or reserved for each
such potential liability on the COMPANY's Financial Statements. For each such
contingent liability or liability for which the amount is not fixed or is
contested, the COMPANY has provided to METALS the following information:
(i) a summary description of the liability together with the
following:
(a) copies of all relevant documentation relating thereto;
(b) amounts claimed and any other action or relief sought; and
(c) name of claimant and all other parties to the claim, suit
or proceeding;
(ii) the name of each court or agency before which such claim, suit
or proceeding is pending; and
(iii) the date such claim, suit or proceeding was instituted; and
(iv) a good faith and reasonable estimate of the maximum amount, if
any, which is likely to become payable with respect to each such
liability. If no estimate is provided, the estimate shall for purposes of
this Agreement be deemed to be zero.
5.11 ACCOUNTS AND NOTES RECEIVABLE. The COMPANY has delivered to METALS an
accurate list (which is set forth on Schedule 5.11) of the accounts and notes
receivable of the COMPANY, as of the Balance Sheet Date, including any such
amounts which are not reflected in the balance sheet as of the Balance Sheet
Date, and including receivables from and advances to employees and the
STOCKHOLDERS. Except to the extent reflected on Schedule 5.11, such accounts,
notes and other receivables are collectible in the amounts shown on Schedule
5.11, net of reserves reflected in the balance sheet as of the Balance Sheet
Date.
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5.12 PERMITS AND INTANGIBLES. The COMPANY or its employees, as
appropriate, hold all licenses, franchises, permits and other governmental
authorizations ("Licenses") the absence of any of which could have a Material
Adverse Effect on the Company's business, and the COMPANY has delivered to
METALS an accurate list and summary description (which is set forth on Schedule
5.12) of all such Licenses, including any 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
5.13). At or prior to the Closing, all such trademarks, trade names, patents,
patent applications, copyrights and other intellectual property will be assigned
or licensed to the COMPANY for no additional consideration. To the best
knowledge of the COMPANY, the Licenses and other rights listed on Schedules 5.12
and 5.13 are valid, and the COMPANY has not received any notice that any person
intends to cancel, terminate or not renew any such License or other right. The
COMPANY has conducted and is conducting its business in compliance with the
requirements, standards, criteria and conditions set forth in the Licenses and
other rights listed on Schedules 5.12 and 5.13 and is not in violation of any of
the foregoing except where such non-compliance or violation would not have a
Material Adverse Effect on the COMPANY. Except as specifically provided in
Schedule 5.12, 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 or other rights.
5.13 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 5.13, and
except where any failure to comply or action would not have a Material Adverse
Effect, (i) 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
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limitation, Environmental Laws relating to air, water, land and the generation,
storage, use, handling, transportation, treatment or disposal of Hazardous
Wastes and Hazardous Substances (as such terms are defined in any applicable
Environmental Law), as well as petroleum and petroleum products (collectively
"Hazardous Materials"); (ii) the COMPANY has obtained and adhered to all
necessary permits and other approvals necessary to treat, transport, store,
dispose of and otherwise handle Hazardous Materials, a list of all of which
permits and approvals is set forth on Schedule 5.13, 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
Materials have been treated, stored, disposed of or otherwise handled; (iii)
there have been no releases or threats of releases (as these terms are defined
in Environmental Laws) of any Hazardous Materials at, from, in or on any
property owned or operated by the COMPANY except as permitted by Environmental
Laws; (iv) the COMPANY knows of no on-site or off-site location to which the
COMPANY has transported or disposed of Hazardous Materials or arranged for the
transportation of Hazardous Materials, which site 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, METALS or NEWCO for
any clean-up cost, remedial work, damage to natural resources, property damage
or personal injury, including, but not limited to, any claim under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended; and (v) to the best knowledge of the COMPANY, the COMPANY has no
contingent liability in connection with any release of any Hazardous Materials
into the environment; provided, however, that the representation set forth in
this clause (v) shall not be deemed to limit in any way the representations and
warranties set forth in clauses (i) - (iv) of this Section 5.13.
5.14 PERSONAL PROPERTY. The COMPANY has delivered to METALS an accurate
list (which is set forth on Schedule 5.14) of (x) all personal property material
to the operations of the COMPANY included (or that will be included) in
"depreciable plant, property and equipment" on the balance sheet of the COMPANY,
(y) all other personal property owned by the COMPANY with
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an individual value in excess of $50,000 (i) as of the Balance Sheet Date and
(ii) acquired since the Balance Sheet Date and (z) all material leases and
agreements in respect of personal property, including, in the case of each of
(x), (y) and (z), (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.
Except as set forth on Schedule 5.14, (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 5.14, (ii) all of the personal
property listed on Schedule 5.14 is in good working order and condition,
ordinary wear and tear excepted and (iii) all leases and agreements included on
Schedule 5.14 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.
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. The
COMPANY has delivered to METALS an accurate list (which is set forth on Schedule
5.15) of (i) all significant customers, it being understood and agreed that a
"significant customer," for purposes of this Section 5.15, means a customer (or
person or entity) representing 5% or more of the COMPANY's annual revenues for
its most recently completed fiscal year. Except to the extent set forth on
Schedule 5.15, 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.
The COMPANY has listed on Schedule 5.15 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),
other than agreements listed on Schedule 5.10, 5.14 or 5.16, (a) in existence as
of the Balance Sheet Date and (b) entered into since the Balance Sheet Date, and
in each case has delivered true, complete and correct copies of such agreements
to METALS. The COMPANY has also indicated on
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Schedule 5.15 a summary description of all plans or projects involving the
opening of new operations, expansion of existing operations, the acquisition of
any personal property, business or assets requiring, in any event, the payment
of more than $50,000 by the COMPANY during any 12- month period.
5.16 REAL PROPERTY. Schedule 5.16 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. Except as set forth
on Schedule 5.16, any such real property owned by the COMPANY will be sold or
distributed by the COMPANY and leased back by the COMPANY on terms no less
favorable to the COMPANY than those available from an unaffiliated party and
otherwise reasonably acceptable to METALS at or prior to the Closing Date. The
COMPANY has good and insurable title to any real property owned by it that is
not shown on Schedule 5.16 as property intended to be sold or distributed prior
to the Closing Date, subject to no mortgage, pledge, lien, conditional sales
agreement, encumbrance or charge, except for:
(i) liens reflected on Schedules 5.10 or 5.16 as securing specified
liabilities (with respect to which no material default exists);
(ii) liens for current taxes not yet payable and assessments not in
default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other exceptions to
title which do not adversely affect the current use of the property.
True, complete and correct copies of all leases and agreements in respect
of such real property leased by the COMPANY are attached to Schedule 5.16, 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 5.16. Except as set forth on Schedule 5.16, all of such
leases included on Schedule 5.16 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.
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5.17 INSURANCE. The COMPANY has delivered to METALS (i) an accurate list
as of the Balance Sheet Date of all insurance policies carried by the COMPANY,
(ii) an accurate list of all insurance loss runs or workers compensation claims
received for the past three (3) policy years and (iii) true, complete and
correct copies of all insurance policies currently in effect. 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. All of such insurance policies are currently in full force and
effect and shall, to the best knowledge of the COMPANY, remain in full force and
effect through the Funding and Consummation Date. Since January 1, 1994, no
insurance carried by the COMPANY has been canceled by the insurer and the
COMPANY has not been denied coverage.
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS. The
COMPANY has delivered to METALS an accurate list (which is set forth on Schedule
5.18) 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. The COMPANY has provided to METALS
true, complete and correct copies of any employment agreements for persons
listed on Schedule 5.18. Since the Balance Sheet Date, there have been no
material 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 5.18, (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
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employees nor has the COMPANY experienced any labor interruptions over the past
three years. The COMPANY believes its relationship with employees to be good.
5.19 EMPLOYEE PLANS. The STOCKHOLDERS have delivered to METALS an accurate
schedule (Schedule 5.19) showing all employee benefit plans of COMPANY
(including COMPANY's Subsidiaries), including all employment agreements and
other agreements or arrangements 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 5.19,
COMPANY (including the COMPANY's Subsidiaries) does not sponsor, maintain or
contribute to any plan program, fund or arrangement that constitutes an
"employee pension benefit plan," nor has COMPANY or any Subsidiary 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. Neither COMPANY
nor any Subsidiary has sponsored, maintained or contributed to any employee
pension benefit plan other than the plans set forth on Schedule 5.19, nor is
COMPANY or any Subsidiary 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 COMPANY's or any Subsidiary's employees.
Neither the COMPANY nor any Subsidiary is now, or will as a result of its
past activities become, liable to the Pension Benefit Guaranty Corporation or to
any multiemployer employee pension benefit plan under the provisions of Title IV
of ERISA for any amounts which would have a Material Adverse Effect on the
COMPANY.
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All employee benefit plans listed on Schedule 5.19 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 or any Subsidiary with
respect to any plan listed on Schedule 5.19 have either been fulfilled in their
entirety or are fully reflected on the balance sheet of the COMPANY as of the
Balance Sheet Date.
5.20 COMPLIANCE WITH ERISA. All such plans listed on Schedule 5.19 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 such determination letters are
included as part of Schedule 5.19 hereof. Except as disclosed on Schedule 5.20,
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 5.19 hereof.
Neither STOCKHOLDERS, any such plan listed in Schedule 5.19, nor COMPANY
(including the COMPANY's Subsidiaries) has engaged in any transaction prohibited
under the provisions of Section 4975 of the Code or Section 406 of ERISA. No
such Plan listed in Schedule 5.19 has incurred an accumulated funding
deficiency, as defined in Section 412(a) of the Code and Section 302(1) of
ERISA; and COMPANY (including the COMPANY's Subsidiaries) has not incurred any
liability for excise tax or penalty due to the Internal Revenue Service nor any
liability to the Pension Benefit Guaranty Corporation. The STOCKHOLDERS further
represent that except as set forth on Schedule 5.19 hereto:
(i) 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;
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(ii) no such plan listed in Schedule 5.19 subject to the provisions
of Title IV of ERISA has been terminated;
(iii) 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 5.19;
(iv) COMPANY (including the COMPANY's Subsidiaries) has not incurred
liability under Section 4062 of ERISA; and
(v) To their best knowledge, circumstances exist pursuant to which
the COMPANY could have any direct or indirect liability whatsoever
(including, but not limited to, any liability to any multiemployer 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.
5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedule 5.21 or 5.13, 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 which would have a Material Adverse Effect; and except to
the extent set forth on Schedule 5.10 or 5.13, there are no material claims,
actions, suits or proceedings, pending or, to the knowledge of the COMPANY,
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 any of them
and no notice of any claim, action, suit or proceeding, whether pending or
threatened, has been received by the COMPANY. 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, orders, approvals, variances, rules and
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regulations, including all such orders and other governmental approvals set
forth on Schedules 5.12 and 5.13, except where any such noncompliance,
individually or in the aggregate, would not have a Material Adverse Effect.
5.22 TAXES. COMPANY (including the COMPANY's 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; and except as
set forth on Schedule 5.22, there are no examinations in progress or claims
pending against any of them for federal, state and other taxes (including
penalties and interest) for any period or periods prior to and including the
Balance Sheet Date and no notice of any claim for taxes, whether pending or
threatened, has been received. All tax, including interest and penalties
(whether or not shown on any tax return) owed by the COMPANY or any of the
COMPANY's Subsidiaries has been paid. The amounts shown as accruals for taxes on
the COMPANY Financial Statements are sufficient for the payment of all taxes of
the kinds indicated (including penalties and interest) for all fiscal periods
ended on or before that date. Copies of (i) any tax examinations, (ii)
extensions of statutory limitations and (iii) the federal and local income tax
returns and franchise tax returns of COMPANY (including the COMPANY
Subsidiaries) for their last three (3) fiscal years, or such shorter period of
time as any of them shall have existed, are attached hereto as Schedule 5.22 or
have otherwise been delivered to METALS. The COMPANY has a taxable year ended
December 31. 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.
5.23 NO VIOLATIONS; CONSENTS, ETC. The COMPANY is not in violation of any
Charter Document. Neither the COMPANY nor, to the best knowledge of the COMPANY,
any other party thereto, is in default under any lease, instrument, agreement,
license, or permit set forth on Schedule 5.12, 5.13, 5.14, 5.15 or 5.16, or any
other material agreement to which it is a party or by which its properties are
bound (the "Material Documents") in any manner that could result in a Material
Adverse Effect; and, except as set forth in Schedule 5.23, (a) the rights and
benefits of the
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COMPANY under the Material Documents will not be materially adversely affected
by the transactions contemplated hereby and (b) 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 material violation or
breach or constitute a default under, any of the terms or provisions of the
Material Documents or the Charter Documents. Except as set forth on Schedule
5.23, 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. Except as set forth on Schedule 5.23, none of the Material
Documents prohibits the use or publication by the COMPANY, METALS or NEWCO 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, METALS, NEWCO or any
Other Founding Company.
5.24 GOVERNMENT CONTRACTS. Except as set forth on Schedule 5.24, the
COMPANY is not now a party to any governmental contracts subject to price
redetermination or renegotiation.
5.25 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
on Schedule 5.25 or as otherwise contemplated hereby, 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;
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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
except for distributions that would have been permitted after the date
hereof under Section 7.3(iii) hereof;
(v) any material 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, except for ordinary and customary bonuses and salary increases for
employees in accordance with past practice;
(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 STOCKHOLDERS 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;
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(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 other distribution of property or assets by the COMPANY
other than in the ordinary course of business and other than distributions
of real estate and other assets as permitted by this Agreement (including
the Schedules hereto).
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The COMPANY has delivered to
METALS an accurate schedule (which is set forth on Schedule 5.26) as of the date
of the 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; and
(iv) the name of each person authorized to draw thereon or have
access thereto. Schedule 5.26 also sets forth the name of each person,
corporation, firm or other entity holding a general or special power of
attorney from the COMPANY and a description of the terms of such power.
5.27 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by the COMPANY and the performance of the transactions contemplated herein have
been duly and validly authorized by the Board of Directors of the COMPANY and
this Agreement has been duly and validly authorized by all necessary corporate
action and is a legal, valid and binding obligation of the COMPANY.
5.28 RELATIONS WITH GOVERNMENTS. Except for political contributions made
in a lawful manner which, in the aggregate, do not exceed $10,000 per year, the
COMPANY has not over the past five (5) years made, offered or agreed to offer
anything of value to any governmental official, political party or candidate for
government office nor has it otherwise taken any action which would
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cause the COMPANY to be in violation of the Foreign Corrupt Practices Act of
1977, as amended or any law of similar effect. If political contributions made
by the COMPANY have exceeded $10,000 per year for each year in which any
STOCKHOLDER has been a stockholder of the COMPANY, each contribution in the
amount of $5,000 or more shall be described on Schedule 5.28.
5.29 DISCLOSURE. (a) This Agreement, including the Annexes and Schedules
hereto, and the completed Director and Officer Questionnaires and the completed
S-1 Questionnaire furnished to METALS by the COMPANY and the STOCKHOLDERS in
connection herewith, do not contain an untrue statement of a material fact or
omit to state a material fact necessary to make the statements herein and
therein, in light of the circumstances under which they were made, not
misleading; provided, however, that the foregoing does not apply to statements
contained in or omitted from any of such documents made or omitted in reliance
upon information furnished in writing by METALS. If, prior to the 25th day after
the date of the final prospectus of METALS utilized in connection with the IPO,
the COMPANY or the STOCKHOLDERS become aware of any fact or circumstance which
would affect the accuracy of a representation or warranty of COMPANY or
STOCKHOLDERS in this Agreement in any material respect, the COMPANY and the
STOCKHOLDERS shall immediately give notice of such fact or circumstance to
METALS. However, subject to the provisions of Section 7.8, such notification
shall not relieve either the COMPANY or the STOCKHOLDERS of their respective
obligations under this Agreement, and, subject to the provisions of Section 7.8,
at the sole option of METALS, the truth and accuracy of any and all warranties
and representations of the COMPANY, or on behalf of the COMPANY and of
STOCKHOLDERS at the date of this Agreement and on the Closing Date and on the
Funding and Consummation Date, shall be a precondition to the consummation of
this transaction.
(b) The COMPANY and the STOCKHOLDERS acknowledge and agree (i)
that there exists no firm commitment, binding agreement, or promise or other
assurance of any kind, whether express or implied, oral or written, that a
Registration Statement will become effective or that the IPO pursuant thereto
will occur at a particular price or within a particular range of prices
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or occur at all; (ii) that neither METALS or any of its officers, directors,
agents or representatives nor any Underwriter shall have any liability to the
COMPANY, the STOCKHOLDERS or any other person affiliated or associated with the
COMPANY for any failure of the Registration Statement to become effective, the
IPO to occur at a particular price or within a particular range of prices or to
occur at all; and (iii) that the decision of STOCKHOLDERS to enter into this
Agreement, or to vote in favor of or consent to the proposed Merger, has been or
will be made independent of, and without reliance upon, any statements, opinions
or other communications, or due diligence investigations which have been or will
be made or performed by any prospective Underwriter, relative to METALS or the
prospective IPO. METALS agrees, however, to use all reasonable efforts to
consummate the METALS Plan of Organization and IPO as contemplated hereby.
5.30 PROHIBITED ACTIVITIES. Except as set forth on Schedule 5.30, 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.
(B) REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS
Each STOCKHOLDER severally represents and warrants that the
representations and warranties set forth below are true as of the date of this
Agreement and, subject to Section 7.8 hereof, shall be true at the time of
Closing and on the Funding and Consummation Date, and that the representations
and warranties set forth in Sections 5.31 and 5.32 shall survive until the first
anniversary of the Funding and Consummation Date, which shall be the Expiration
Date for purposes of Sections 5.31 and 5.32.
5.31 AUTHORITY; OWNERSHIP. Such STOCKHOLDER has the full legal right,
power and authority to enter into this Agreement. Such STOCKHOLDER owns
beneficially and of record all of the shares of the COMPANY stock identified on
Annex II as being owned by such STOCKHOLDER, and, except as set forth on
Schedule 5.31, such COMPANY Stock is owned free and clear of all liens,
encumbrances and claims of every kind.
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5.32 PREEMPTIVE RIGHTS. Such STOCKHOLDER does not have, or hereby waives,
any preemptive or other right to acquire shares of COMPANY Stock or METALS Stock
that such STOCKHOLDER has or may have had. Nothing herein, however, shall limit
or restrict the rights of any STOCKHOLDER to acquire METALS Stock pursuant to
(i) this Agreement or (ii) any option granted by METALS.
5.33 NO INTENTION TO DISPOSE OF METALS STOCK. No STOCKHOLDER is under any
binding commitment or contract to sell, exchange or otherwise dispose of shares
of METALS Stock received as described in Section 3.1.
6. REPRESENTATIONS OF METALS AND NEWCO
METALS and NEWCO jointly and severally represent and warrant that
all of the following representations and warranties in this Section 6 are true
at the date of this Agreement and, subject to Section 7.8 hereof, shall be true
at the time of Closing and the Funding and Consummation Date, and that such
representations and warranties shall survive the Funding and Consummation Date
for a period of twelve months (the last day of such period being the "Expiration
Date"), except that (i) the warranties and representations set forth in Section
6.14 hereof shall survive until such time as the limitations period has run for
all tax periods ended on or prior to the Funding and Consummation Date, which
shall be deemed to be the Expiration Date for Section 6.14 and (ii) solely for
purposes of determining whether a claim for indemnification under Section
11.2(iv) hereof has been made on a timely basis, and solely to the extent that
in connection with the IPO, any of the STOCKHOLDERS actually incurs liability
under the 1933 Act, the 1934 Act, or any other Federal or state securities laws,
the representations and warranties set forth herein shall survive until the
expiration of any applicable limitations period, which shall be deemed to be the
Expiration Date for such purposes.
6.1 DUE ORGANIZATION. METALS and NEWCO are each corporations duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and each has the
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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 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. True, complete and correct
copies of the Certificate of Incorporation and By-laws, each as proposed to be
amended, of METALS and NEWCO (the "METALS Charter Documents") are all attached
hereto as Annex IV.
6.2 AUTHORIZATION. (i) The respective representatives 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 consummate the
Merger. All corporate acts and other proceedings required to have been taken by
METALS and NEWCO to authorize the execution, delivery and performance of this
Agreement and the consummation of the Merger have been duly and properly taken.
6.3 CAPITAL STOCK OF METALS AND NEWCO. The authorized capital stock of
METALS and NEWCO is as set forth in Sections 1.4(ii) and (iii), respectively.
All of the issued and outstanding shares of the capital stock of NEWCO are owned
by METALS and all of the issued and outstanding shares of the capital stock of
METALS are owned by the persons set forth on Annex III hereof, in each case,
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 METALS and NEWCO have been duly
authorized and validly issued, are fully paid and nonassessable, are owned of
record and beneficially by METALS and the persons set forth on Annex III,
respectively, and further, such shares were offered, issued, sold and delivered
by METALS and NEWCO in compliance with all applicable state and Federal laws
concerning the issuance of securities. Further, none of such shares were issued
in violation of the preemptive rights of any past or present stockholder of
METALS or NEWCO.
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6.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except for the
Other Agreements and except as set forth on Schedule 6.4, (i) no option,
warrant, call, conversion right or commitment of any kind exists which obligates
METALS or NEWCO to issue any of their respective authorized but unissued capital
stock; and (ii) neither METALS nor NEWCO has any obligation (contingent or
otherwise) to purchase, redeem or otherwise acquire any of its equity securities
or any interests therein or to pay any dividend or make any distribution in
respect thereof. Schedule 6.4 also includes complete and accurate copies of all
stock option or stock purchase plans, including a list, accurate as of the date
hereof, of all outstanding options, warrants or other rights to acquire shares
of the stock of METALS.
6.5 SUBSIDIARIES. NEWCO has no subsidiaries. METALS has no subsidiaries
except for NEWCO and each of the companies identified as "NEWCO" in each of the
Other Agreements. Except as set forth in the preceding sentence, neither METALS
nor NEWCO presently owns, of record or beneficially, or controls, directly or
indirectly, any capital stock, securities convertible into capital stock or any
other equity interest in any corporation, association or business entity, and
neither METALS nor NEWCO, directly or indirectly, is a participant in any joint
venture, partnership or other non-corporate entity.
6.6 FINANCIAL STATEMENTS. Included in the Draft Registration Statement are
copies of the following financial statements (the "METALS Financial Statements")
of METALS, which reflect the results of its operations from inception in July
1996: METALS's audited Balance Sheet as of December 31, 1996. Such METALS
Financial Statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
indicated (except as noted thereon). Such Balance Sheet presents fairly the
financial position of METALS as of such date.
6.7 LIABILITIES AND OBLIGATIONS. Except as set forth on Schedule 6.7,
METALS and NEWCO have no material liabilities, contingent or otherwise, except
as set forth in or contemplated
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by this Agreement and the Other Agreements and except for fees incurred in
connection with the transactions contemplated hereby and thereby.
6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedule 6.8, neither METALS nor NEWCO is 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 either of them which would have a Material Adverse Effect; and
except to the extent set forth in Schedule 6.8, there are no material claims,
actions, suits or proceedings, pending or, to the knowledge of METALS or NEWCO,
threatened against or affecting, METALS or NEWCO, 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
either of them and no notice of any claim, action, suit or proceeding, whether
pending or threatened, has been received. METALS and NEWCO have conducted and
are conducting their respective businesses 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 and are not in violation of any of
the foregoing which would have a Material Adverse Effect.
6.9 NO VIOLATIONS. Neither METALS nor NEWCO is in violation of any METALS
Charter Document. None of METALS, NEWCO, or, to the knowledge of METALS and
NEWCO, any other party thereto, is in default under any lease, instrument,
agreement, license, or permit to which METALS or NEWCO is a party, or by which
METALS or NEWCO, or any of their respective properties, are bound (collectively,
the "METALS Documents"); and (a) the rights and benefits of METALS and NEWCO
under the METALS Documents will not be adversely affected by the transactions
contemplated hereby and (b) the execution and delivery of this Agreement by
METALS and NEWCO and the performance of their obligations hereunder do not, and
the consummation of the transactions contemplated hereby and compliance with the
terms hereof will not, conflict with, or result in any violation or default
(with or without notice or lapse of time, or
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both), under or give rise to a right of termination, cancellation, or
acceleration of any obligation or to loss of a material benefit under, or result
in the creation of any lien upon any of the assets of METALS or any NEWCO under,
any provision of (i) the Certificate of Incorporation or Bylaws of METALS or the
comparable governing instruments of any NEWCO, (ii) any note, bond, mortgage,
indenture or deed of trust or any license, lease, contract, commitment,
agreement or arrangement to which METALS and any NEWCO is a party or by which
any of their respective properties or assets are bound or (iii) any judgment,
order, decree or law, ordinance, rule or regulation, applicable to METALS or any
NEWCO or their respective properties or assets. 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 material violation or
breach or constitute a default under, any of the terms or provisions of the
METALS Documents or the METALS Charter Documents. Except as set forth on
Schedule 6.9, none of the METALS 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.
6.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by METALS and NEWCO and the performance of the transactions contemplated herein
have been duly and validly authorized by the respective 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.
6.11 METALS STOCK. At the time of issuance thereof and delivery to the
STOCKHOLDERS, the METALS Stock to be delivered to the STOCKHOLDERS pursuant to
this Agreement will constitute valid and legally issued shares of METALS, fully
paid and nonassessable, and with the exception of restrictions upon resale set
forth in Sections 15 and 16 hereof, will be identical in all substantive
respects (which do not include the form of certificate upon which it is
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printed or the presence or absence of a CUSIP number on any such certificate) to
the METALS Stock issued and outstanding as of the date hereof by reason of the
provisions of the Delaware GCL. The METALS Stock issued and delivered to the
STOCKHOLDERS shall at the time of such issuance and delivery be free and clear
of any liens, claims or encumbrances of any kind or character. The shares of
METALS Stock to be issued to the STOCKHOLDERS pursuant to this Agreement will
not be registered under the 1933 Act, except as provided in Section 17 hereof.
6.12 NO SIDE AGREEMENTS. Neither METALS nor NEWCO has entered or will
enter into any agreement with any of the Founding Companies or any of the
stockholders of the Founding Companies or METALS other than the Other Agreements
and the agreements contemplated by each of the Other Agreements, including the
employment agreements, leases and Indemnification Agreements referred to herein
or entered into in connection with the transactions contemplated hereby and
thereby.
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. METALS was formed in
July 1996 and has conducted limited operations since that time. Neither METALS
nor NEWCO has conducted any material business since the date of its inception,
except in connection with this Agreement, the Other Agreements and the IPO.
Neither METALS nor NEWCO owns or has at any time owned any real property or any
material personal property or is a party to any other agreement, except as
listed on Schedule 6.13 and except that METALS is a party to the Other
Agreements and the agreements contemplated thereby and to such agreements as
will be filed as Exhibits to the Registration Statement.
6.14 TAXES.METALS and NEWCO have 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; and except as set forth on Schedule 6.14, there
are no examinations in progress or claims against METALS for federal, state and
other taxes (including penalties and interest) for any period or periods prior
to and including the Balance Sheet Date and no notice of any claim for taxes,
whether pending or threatened, has been received. All taxes which METALS or any
NEWCO has been
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required to collect or withhold have been duly and timely collected and withheld
and have been set aside in accounts for such purposes, or have been duly and
timely paid to the proper governmental authority. All tax, including interest
and penalties (whether or not shown on any tax return) owed by METALS, any
member of an affiliated or consolidated group which includes or included METALS,
or with respect to any payment made or deemed made by METALS herein has been
paid. The amounts shown as accruals for taxes on METALS Financial Statements are
sufficient for the payment of all taxes of the kinds indicated (including
penalties and interest) for all fiscal periods ended on or before that date.
Copies of any (i) tax examinations, (ii) extensions of statutory limitations,
(iii) federal and local income tax returns and franchise tax returns of METALS
for the year ended December 31, 1996, are attached hereto as Schedule 6.14.
Except as set forth in Schedule 6.14, METALS and NEWCO have not entered into any
tax sharing agreement or similar arrangement. METALS is not an investment
company as defined in Section 351(e)(1) of the Code.
6.15 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
in the Draft Registration Statement delivered to the STOCKHOLDERS, and except as
contemplated by this Agreement and the Other Agreements, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of METALS or
NEWCO;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
METALS or NEWCO;
(iii) any change in the authorized capital of METALS or NEWCO or
their outstanding securities or any change in their 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 METALS or
NEWCO;
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(v) any work interruptions, labor grievances or claims filed, or any
event or condition of any character, materially adversely affecting the
business of METALS or NEWCO;
(vi) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of METALS or NEWCO to any person;
(vii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to METALS or NEWCO;
(viii) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property
or rights of METALS or NEWCO or requiring consent of any party to the
transfer and assignment of any such assets, property or rights;
(ix) any waiver of any material rights or claims of METALS or NEWCO;
(x) any amendment or termination of any material contract,
agreement, license, permit or other right to which METALS or NEWCO is a
party;
(xi) any transaction by METALS or NEWCO outside the ordinary course
of its business;
(xii) any other distribution of property or assets by METALS or
NEWCO other than in the ordinary course of business.
6.16 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by METALS and NEWCO and the performance of the transactions contemplated herein
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.
6.17 DISCLOSURE. The Draft Registration Statement delivered to the COMPANY
and the STOCKHOLDERS, together with this Agreement and the information furnished
to the COMPANY and the STOCKHOLDERS in connection herewith, does not contain an
untrue statement of a
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material fact or omit to state a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; provided, however, that the foregoing does not apply to statements
contained in or omitted from any of such documents made or omitted in reliance
upon information furnished by the COMPANY or the STOCKHOLDERS.
6.18 PRIVATE OFFERING. (a) Neither METALS, any of its affiliates nor
anyone on its or their behalf, has issued, sold, or offered any securities of
METALS to any person under circumstances that would cause the issuance and sale
of the METALS Stock to the STOCKHOLDERS pursuant to this Agreement, to be
subject to the registration requirements of the 1933 Act.
(b) The offering of shares of METALS Stock pursuant to the METALS Plan of
Organization has been made in compliance with applicable federal and state
securities laws.
7. COVENANTS PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION; DUE DILIGENCE. (a) Between the date of this
Agreement and the Funding and Consummation Date, the COMPANY will afford to the
officers and authorized representatives of METALS and the Other Founding
Companies 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 or
the Other Founding Companies may from time to time reasonably request. The
COMPANY will cooperate with METALS and the Other Founding Companies, 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, NEWCO, the STOCKHOLDERS and the
COMPANY will treat all information obtained in connection with the negotiation
and performance of this Agreement or the due diligence investigations conducted
with respect to the Other Founding Companies as confidential in accordance with
the provisions of Section 14 hereof. In addition, METALS will cause each of the
Other Founding Companies to enter
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into a provision similar to this Section 7.1 requiring each such Other Founding
Company, its stockholders, directors, officers, representatives, employees and
agents to keep confidential any information obtained by such Other Founding
Company.
(b) Between the date of this Agreement and the Funding and Consummation
Date, METALS will afford to the officers and authorized representatives of the
COMPANY access to all of METALS's and NEWCO's sites, properties, books and
records and will furnish the COMPANY with such additional financial and
operating data and other information as to the business and properties of METALS
and NEWCO as the COMPANY may from time to time reasonably request. METALS and
NEWCO will cooperate with the COMPANY, 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. The
COMPANY will cause all information obtained in connection with the negotiation
and performance of this Agreement to be treated as confidential in accordance
with the provisions of Section 14 hereof.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Funding and Consummation Date, the COMPANY will, except as set
forth on Schedule 7.2:
(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) use all reasonable efforts to 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;
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(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) use all reasonable efforts to 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;
(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; and
(viii) maintain or reduce present salaries and commission levels for
all officers, directors, employees and agents except for ordinary and
customary bonus and salary increases for employees in accordance with past
practices.
7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3, between
the date hereof and the Funding and Consummation Date, the COMPANY will not,
without prior written consent of METALS, which consent will not be unreasonably
withheld:
(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 other than in
connection with the exercise of options or warrants listed in Schedule
5.4;
(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 for distributions in the amount of estimated taxes payable by the
STOCKHOLDERS on S corporation earnings (if any) of the COMPANY for the
period from the Balance Sheet Date to the Closing Date and specified on
Schedule 7.3
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hereto, and any other distributions of Accumulated Adjustments Accounts
amounts specified on Schedule 7.3 hereto, it being understood and agreed
that any such distributions in excess of such estimated taxes shall result
in a corresponding dollar for dollar decrease in the amount of cash
otherwise payable to the STOCKHOLDERS as part of the Merger consideration
hereunder;
(iv) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditures, except if it is in
the normal course of business (consistent with past practice) or involves
an amount not in excess of $100,000;
(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 $50,000 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 course of business
(the liens set forth in clause (2) being referred to herein as "Statutory
Liens"), or (3) liens set forth on Schedule 5.10 and/or 5.15 hereto;
(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business and other
than distributions of real estate and other assets as permitted in this
Agreement (including the Schedules hereto);
(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;
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(ix) waive any material rights or claims of the COMPANY, provided
that the COMPANY may negotiate and adjust bills and accounts in the course
of good faith disputes with customers in a manner consistent with past
practice, provided, further, that such adjustments shall not be deemed to
be included in Schedule 5.11 unless specifically listed thereon;
(x) amend or terminate any material agreement, permit, license or
other right of the COMPANY; or
(xi) enter into any other transaction outside the ordinary course of
its business or prohibited hereunder.
7.4 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 Funding and Consummation 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 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 of the COMPANY.
7.5 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 on Schedule 7.5 with proof that any required notice has been
sent.
7.6 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 listed on Schedule
9.12 hereto and (ii) any
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existing agreement between the COMPANY and any STOCKHOLDER, on or prior to the
Funding and Consummation Date provided that nothing herein shall prohibit or
prevent the COMPANY from paying (either prior to or on the Closing Date) notes
or other obligations from the COMPANY to the STOCKHOLDERS in accordance with the
terms thereof, which terms have been disclosed to METALS. Such termination
agreements are listed on Schedule 7.6 and copies thereof shall be attached
thereto.
7.7 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. METALS and NEWCO 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 or NEWCO contained herein to be untrue or inaccurate in any material
respect at or prior to the Closing and (ii) any material failure of METALS or
NEWCO 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 7.7 shall not be deemed to (i) modify the representations or
warranties hereunder of the party delivering such notice, which modification may
only be made pursuant to Section 7.8, (ii) modify the conditions set forth in
Sections 8 and 9, or (iii) limit or otherwise affect the remedies available
hereunder to the party receiving such notice.
7.8 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 24 hours prior to the
anticipated effectiveness of the Registration Statement to supplement or amend
promptly the Schedules hereto with respect to any matter
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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, provided however, that supplements and amendments to Schedules 5.10,
5.11, 5.14 and 5.15 shall only have to be delivered at the Closing Date, unless
such Schedule is to be amended to reflect an event occurring other than in the
ordinary course of business. Notwithstanding the foregoing sentence, no
amendment or supplement to a Schedule prepared by the COMPANY that constitutes
or reflects an event or occurrence that would have a Material Adverse Effect may
be made unless METALS and a majority of the Founding Companies other than the
COMPANY consent to such amendment or supplement; and provided further, that no
amendment or supplement to a Schedule prepared by METALS or NEWCO that
constitutes or reflects an event or occurrence that would have a Material
Adverse Effect may be made unless a majority of the Founding Companies consent
to such amendment or supplement. For all purposes of this Agreement, including
without limitation for purposes of determining whether the conditions set forth
in Sections 8.1 and 9.1 have been fulfilled, the Schedules hereto shall be
deemed to be the Schedules as amended or supplemented pursuant to this Section
7.8. In the event that one of the Other Founding Companies seeks to amend or
supplement a Schedule pursuant to Section 7.8 of one of the Other Agreements,
and such amendment or supplement constitutes or reflects an event or occurrence
that would have a Material Adverse Effect on such Other Founding Company, METALS
shall give the COMPANY notice promptly after it has knowledge thereof. If METALS
and a majority of the Founding Companies consent to such amendment or
supplement, which consent shall have been deemed given by METALS or any Founding
Company if no response is received within 24 hours following receipt of notice
of such amendment or supplement (or sooner if required by the circumstances
under which such consent is requested), but the COMPANY does not give its
consent, the COMPANY may terminate this Agreement pursuant to Section 12.1(iv)
hereof. In the event that the COMPANY seeks to amend or supplement a Schedule
pursuant to this Section 7.8, and METALS and a majority of the Other Founding
Companies do not consent to such amendment or supplement, this Agreement shall
be deemed terminated by mutual consent as set
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forth in Section 12.1(i) hereof. In the event that METALS or NEWCO seeks to
amend or supplement a Schedule pursuant to this Section 7.8 and a majority of
the Founding Companies do not consent to such amendment or supplement, this
Agreement shall be deemed terminated by mutual consent as set forth in Section
12.1(i) hereof. No party to this Agreement shall be liable to any other party if
this Agreement shall be terminated pursuant to the provisions of this Section
7.8. No amendment of or supplement to a Schedule shall be made later than 24
hours prior to the anticipated effectiveness of the Registration Statement.
7.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The COMPANY and
STOCKHOLDERS shall furnish or cause to be furnished to METALS and the
Underwriters all of the information concerning the COMPANY and the STOCKHOLDERS
required for inclusion in, and will cooperate with METALS and the Underwriters
in the preparation of, the Registration Statement and the prospectus included
therein (including audited and unaudited financial statements, prepared in
accordance with generally accepted accounting principles, in form suitable for
inclusion in the Registration Statement). The COMPANY and the STOCKHOLDERS agree
promptly to advise METALS if at any time during the period in which a prospectus
relating to the offering is required to be delivered under the Securities Act,
any information contained in the prospectus concerning the COMPANY or the
STOCKHOLDERS becomes incorrect or incomplete in any material respect, and to
provide the information needed to correct such inaccuracy. Insofar as the
information relates solely to the COMPANY or the STOCKHOLDERS, the COMPANY
represents and warrants as to such information with respect to itself, and each
Stockholder represents and warrants, as to such information with respect to the
COMPANY and himself or herself, that the Registration Statement will not include
an untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
7.10 FINAL FINANCIAL STATEMENTS. The COMPANY shall provide prior to the
Funding and Consummation Date, and METALS shall have had sufficient time to
review the unaudited
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consolidated balance sheets of the COMPANY as of the end of all fiscal quarters
following the Balance Sheet Date, and the unaudited consolidated statement of
income, cash flows and retained earnings of the COMPANY for all fiscal quarters
ended after the Balance Sheet Date, disclosing no material adverse change in the
financial condition of the COMPANY or the results of its operations from the
financial statements as of the Balance Sheet Date. Such financial statements
shall have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods indicated
(except as noted therein). Except as noted in such financial statements, all of
such financial statements will present fairly the results of operations of the
COMPANY for the periods indicated therein.
7.11 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.
7.12 AUTHORIZED CAPITAL. Prior to the Funding and Consummation Date,
METALS shall maintain its authorized capital stock as set forth in the
Registration Statement filed with the SEC except for such changes in authorized
capital stock as are made to respond to comments made by the SEC or requirements
of any exchange or automated trading system for which application is made to
register the METALS Stock and any changes necessary or advisable in order to
permit the delivery of the opinion contemplated by Section 8.12 hereof.
7.13 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. 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 compliance by the STOCKHOLDERS and the COMPANY
shall be deemed a condition precedent in addition to the conditions precedent
set forth in Section 9 of this Agreement, and such compliance by METALS and
NEWCO shall be deemed a condition precedent in addition
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to the conditions precedent set forth in Section 8 of 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. The obligation of each party to consummate the transactions
contemplated by this Agreement is subject to the expiration or termination of
the waiting period under the Hart-Scott Act, if applicable.
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. The obligations of
the STOCKHOLDERS and the COMPANY with respect to actions to be taken on the
Funding and Consummation Date are subject to the satisfaction or waiver on or
prior to the Funding and Consummation Date of the conditions set forth in
Sections 8.1, 8.5, 8.8, 8.9 and 8.12. As of the Closing Date or, with respect to
the conditions set forth in Sections 8.1, 8.5, 8.8, 8.9 and 8.12, as of the
Funding and Consummation Date, if any such conditions have 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 Funding and Consummation 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 of METALS and NEWCO contained in Section 6 hereof.
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
representations and warranties of METALS and NEWCO contained in Section 6 shall
be true and correct in all material respects as of the Closing Date and the
Funding and Consummation Date as though such representations and warranties had
been made as of that time; all of the terms, covenants
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and conditions of this Agreement to be complied with and performed by METALS and
NEWCO on or before the Closing Date and the Funding and Consummation Date shall
have been duly complied with and performed in all material respects; and
certificates to the foregoing effect dated the Closing Date and the Funding and
Consummation Date, respectively, 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.
The STOCKHOLDERS and the COMPANY shall be satisfied that the Registration
Statement and the prospectus forming a part thereof, including any amendments
thereof or supplements thereto, shall not contain any untrue statement of a
material fact, or omit to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, provided
that the condition contained in this sentence shall be deemed satisfied if the
COMPANY or STOCKHOLDERS shall have failed to inform METALS in writing prior to
the effectiveness of the Registration Statement of the existence of an untrue
statement of a material fact or the omission of such a statement of a material
fact.
8.3 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO 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 management of the COMPANY deems it inadvisable to proceed with the
transactions hereunder.
8.4 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
V.
8.5 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC and the underwriters named therein shall have
agreed to acquire on a firm commitment basis, subject to the conditions set
forth in the underwriting agreement, on terms such
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that the aggregate value of the cash and the number of shares of METALS Stock to
be received by the STOCKHOLDERS is not less than the Minimum Value set forth on
Annex I.
8.6 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 and no action
or proceeding shall have been instituted or threatened to restrain or prohibit
the Merger and no governmental agency or body shall have taken any other action
or made any request of COMPANY as a result of which COMPANY deems it inadvisable
to proceed with the transactions hereunder.
8.7 GOOD STANDING CERTIFICATES. METALS and NEWCO each shall have delivered
to the COMPANY a certificate, dated as of a date no later than ten days prior to
the Closing Date, duly issued by the Delaware Secretary of State and in each
state in which METALS or NEWCO is authorized to do business, showing that each
of METALS and NEWCO is in good standing and authorized to do business and that
all state franchise and/or income tax returns and taxes for METALS and NEWCO,
respectively, for all periods prior to the Closing have been filed and paid.
8.8 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall have
occurred with respect to METALS or NEWCO which would constitute a Material
Adverse Effect.
8.9 CLOSING OF IPO. The closing of the sale of the METALS Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
8.10 SECRETARY'S CERTIFICATE. The COMPANY shall have received a
certificate or certificates, dated the Closing Date and signed by the secretary
of METALS and of NEWCO, certifying the truth and correctness of attached copies
of the METALS's and NEWCO's respective Certificates of Incorporation (including
amendments thereto), By-Laws (including amendments thereto), and resolutions of
the boards of directors and, if required, the stockholders of METALS and NEWCO
approving METALS's and NEWCO's entering into this Agreement and the consummation
of the transactions contemplated hereby.
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8.11 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule 9.12
shall have been afforded the opportunity to enter into an employment agreement
substantially in the form of Annex VII hereto.
8.12 TAX MATTERS. The STOCKHOLDERS shall have received an opinion of
Arthur Andersen LLP that the METALS Plan of Organization will qualify as a
tax-free transfer of property under Section 351 of the Code and that the
STOCKHOLDERS will not recognize gain to the extent the STOCKHOLDERS exchange
stock of the COMPANY for METALS stock (but not cash or other property) pursuant
to the METALS Plan of Organization.
9. 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. The obligations of METALS and
NEWCO with respect to actions to be taken on the Funding and Consummation Date
are subject to the satisfaction or waiver on or prior to the Funding and
Consummation Date of the conditions set forth in Sections 9.1, 9.4 and 9.13. As
of the Closing Date or, with respect to the conditions set forth in Sections
9.1, 9.4 and 9.13, as of the Funding and Consummation Date, if any such
conditions have not been satisfied, METALS and NEWCO shall have the right to
terminate this Agreement, or waive any such condition, but no such waiver shall
be deemed to affect the survival of the representations and warranties contained
in Section 5 hereof.
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 and the Funding and Consummation 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
or the Funding and Consummation Date, as the case may be, shall have been duly
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performed or complied with in all material respects; and the STOCKHOLDERS shall
have delivered to METALS certificates dated the Closing Date and the Funding and
Consummation Date, respectively, and signed by them to such effect.
9.2 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of METALS as a result of which the
management of METALS deems it inadvisable to proceed with the transactions
hereunder.
9.3 SECRETARY'S CERTIFICATE. METALS shall have received a certificate,
dated the Closing Date and signed by the secretary of the COMPANY, certifying
the truth and correctness of attached copies of the COMPANY's Certificate of
Incorporation (including amendments thereto), By-Laws (including amendments
thereto), and resolutions of the board of directors and the STOCKHOLDERS
approving the COMPANY's entering into this Agreement and the consummation of the
transactions contemplated hereby.
9.4 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 covered by insurance, which
change, loss or damage materially affects or impairs the ability of the COMPANY
to conduct its business.
9.5 STOCKHOLDERS' RELEASE. The STOCKHOLDERS shall have delivered to METALS
an instrument dated the Closing Date which shall be effective only upon the
occurrence of the Funding and Consummation 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 (x) items
specifically identified on Schedules 5.10 and 5.15 as being claims of or
obligations to the STOCKHOLDERS, (y) continuing obligations to STOCKHOLDERS
relating to their employment by the COMPANY and (z) obligations arising
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under this Agreement or the transactions contemplated hereby. In the event that
the Funding and Consummation Date does not occur, then the release instrument
referenced herein shall be void and of no further force or effect.
9.6 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.
9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth on
Schedule 9.7, all existing agreements between the COMPANY and the STOCKHOLDERS
(and entities controlled by the STOCKHOLDERS) shall have been canceled effective
prior to or as of the Funding and Consummation Date.
9.8 OPINION OF COUNSEL. METALS shall have received an opinion from Counsel
to the COMPANY and the STOCKHOLDERS, dated the Closing Date, substantially in
the form annexed hereto as Annex VI.
9.9 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 5.23 shall have been obtained;
and no action or proceeding shall have been instituted or threatened to restrain
or prohibit the Merger 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.
9.10 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
COMPANY's state of incorporation and, unless waived by METALS, 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
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income tax returns and taxes for the COMPANY for all periods prior to the
Closing have been filed and paid.
9.11 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC.
9.12 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule 9.12
shall enter into an employment agreement substantially in the form of Annex VII
hereto.
9.13 CLOSING OF IPO. The closing of the sale of the METALS Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
9.14 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.
10. COVENANTS OF METALS AND THE STOCKHOLDERS AFTER CLOSING
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS. METALS
shall use its best efforts to have the STOCKHOLDERS released from any and all
guarantees on any indebtedness that they personally guaranteed and from any and
all pledges of assets that they pledged to secure such indebtedness for the
benefit of the COMPANY, with all such guarantees on indebtedness being assumed
by METALS. In the event that METALS cannot obtain such releases from the lenders
of any such guaranteed indebtedness on or prior to 120 days subsequent to the
Funding and Consummation Date, METALS shall promptly pay off or otherwise
refinance or retire such indebtedness. From and after the Funding and
Consummation Date and until such time as all of such indebtedness is paid off,
refinanced or retired, METALS shall maintain unencumbered funds in amounts
sufficient to provide for such pay off, refinancing or retirement, provided that
METALS may use such funds for other purposes, in its sole discretion, with the
prior written consent of each STOCKHOLDER who has not as of that time been
released from his or her guarantee as described
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above and whose indebtedness as described above has not as of that time been
paid off, refinanced or retired.
10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as contemplated
by this Agreement or the Registration Statement, after the Funding and
Consummation Date, METALS shall not and shall not permit any of its subsidiaries
to undertake any act that would jeopardize the tax-free status of the
organization, including without limitation:
(a) the retirement or reacquisition, directly or indirectly, of all
or part of the METALS Stock issued in connection with the transactions
contemplated hereby; or
(b) the entering into of financial arrangements for the benefit of
the STOCKHOLDERS.
10.3 PREPARATION AND FILING OF TAX RETURNS.
(i) The COMPANY, if possible, or otherwise the STOCKHOLDERS shall
file or cause to be filed all federal income Tax Returns of any Acquired
Party for all taxable periods that end on or before the Funding and
Consummation Date, and shall permit METALS to review all such Tax Returns
prior to such filings. Unless the COMPANY is a C corporation, the
STOCKHOLDERS shall pay or cause to be paid all Tax liabilities (in excess
of all amounts already paid with respect thereto or properly accrued or
reserved with respect thereto on the COMPANY Financial Statements) shown
by such Returns to be due.
(ii) METALS shall file or cause to be filed all separate Returns of,
or that include, any Acquired Party for all taxable periods ending after
the Funding and Consummation Date.
(iii) Each party hereto shall, and shall cause its subsidiaries and
affiliates to, provide to each of the other parties hereto such
cooperation and information as any of them reasonably may request in
filing any 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. Such cooperation and
information shall include providing copies of all relevant portions of
relevant Returns, together with relevant
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accompanying schedules and relevant work papers, relevant documents
relating to rulings or other determinations by Taxing Authorities and
relevant records concerning the ownership and Tax basis of property, which
such party may possess. Each party shall make its employees reasonably
available on a mutually convenient basis at its cost to provide
explanation of any documents or information so provided. Subject to the
preceding sentence, each party required to file Returns pursuant to this
Agreement shall bear all costs of filing such Returns.
(iv) Each of the COMPANY, NEWCO, METALS and each STOCKHOLDER shall
comply with the tax reporting requirements of Section 1.351-3 of the
Treasury Regulations promulgated under the Code, and treat the transaction
as a tax-free contribution under Section 351(a) of the Code subject to
gain, if any, recognized on the receipt of cash or other property under
Section 351(b) of the Code subject to gain, if any, recognized on the
receipt of cash or other property under Section 351(b) of the Code. 10.4
DIRECTORS. The persons named in the Draft Registration Statement shall be
appointed
as directors and elected as officers of METALS, as and to the extent set forth
in the Draft Registration Statement, promptly following the Funding and
Consummation Date. This provision shall not imply that the STOCKHOLDERS have any
power or duty to elect officers of METALS.
10.5 PRESERVATION OF EMPLOYEE BENEFIT PLANS. Following the Funding and
Consummation Date, METALS shall use all reasonable efforts to permit the COMPANY
to maintain all health insurance, life insurance, 401(k) plan and other employee
benefit plans in effect at the COMPANY, unless any such change is (a) approved
by a vote of at least two-thirds of the members of the Board of Directors of
METALS, or (b) required by applicable laws or regulations, including the
antidiscriminatory provisions of ERISA and the related regulations. In the event
that any such changes (other than changes so approved by the Board of Directors
of METALS) are required, subject to applicable law, METALS shall permit the
COMPANY to implement alternative benefits that provide the affected employees of
the COMPANY with an undiminished aggregate level of
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benefits. On the Funding and Consummation Date, the employees of the COMPANY
will be the employees of the Surviving Corporation (provided that this provision
is for purposes of clarifying that the Merger, in and of itself, will not have
any impact on the employment status of any employee and provided, further that
this provision shall not in any way limit the management rights of the Surviving
Corporation or METALS to assess workforce needs and make appropriate adjustments
as necessary or desirable within their discretion subject to applicable laws and
collective bargaining agreements).
11. INDEMNIFICATION
The STOCKHOLDERS, METALS and NEWCO each make the following covenants that
are applicable to them, respectively:
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. The STOCKHOLDERS
covenant and agree that they, jointly and severally, will indemnify, defend,
protect and hold harmless METALS, NEWCO, the COMPANY and the Surviving
Corporation at all times, from and after the date of this Agreement until the
Expiration Date (provided that for purposes of Section 11.1(iii) below, the
Expiration Date shall be the date on which the applicable statute of limitations
expires), 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) incurred by METALS, NEWCO, the COMPANY or the Surviving
Corporation as a result of or arising from (i) any breach of the representations
and warranties of the STOCKHOLDERS or the COMPANY set forth herein or on the
schedules or certificates delivered in connection herewith, (ii) any breach of
any agreement on the part of the STOCKHOLDERS or the COMPANY under this
Agreement, or (iii) any liability under the 1933 Act, the 1934 Act or other
Federal or state law or regulation, at common law or otherwise, arising out of
or based upon any untrue statement or alleged untrue statement of a material
fact relating to the COMPANY or the STOCKHOLDERS, and provided to METALS or its
counsel by the
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COMPANY or the STOCKHOLDERS (but in the case of the STOCKHOLDERS, only if such
statement was provided in writing) contained in the Registration Statement or
any prospectus forming a part thereof, or any amendment thereof or supplement
thereto, or arising out of or based upon any omission or alleged omission to
state therein a material fact relating to the COMPANY or the STOCKHOLDERS
required to be stated therein or necessary to make the statements therein not
misleading, provided, however, that such indemnity shall not inure to the
benefit of METALS, NEWCO, the COMPANY or the Surviving Corporation to the extent
that such untrue statement (or alleged untrue statement) was made in, or
omission (or alleged omission) occurred in, any preliminary prospectus and the
STOCKHOLDERS provided, in writing, corrected information to METALS counsel and
to METALS for inclusion in the final prospectus, and such information was not so
included or properly delivered, and provided further, that no STOCKHOLDER shall
be liable for any indemnification obligation pursuant to this Section 11.1 to
the extent attributable to a breach of any representation, warranty or agreement
made herein individually by any other STOCKHOLDER.
METALS and NEWCO acknowledge and agree that other than the representations
and warranties of COMPANY or STOCKHOLDERS specifically contained in this
Agreement, there are no representations or warranties of COMPANY or
STOCKHOLDERS, either express or implied, with respect to the transactions
contemplated by this Agreement, the COMPANY or its assets, liabilities and
business.
METALS and any NEWCO further acknowledge and agree that, should the
Closing occur, their sole and exclusive remedy with respect to any and all
claims relating to this Agreement and the transactions contemplated in this
Agreement, shall be pursuant to the indemnification provisions set forth in this
Section 11. METALS and NEWCO hereby waive, from and after the Closing, to the
fullest extent permitted under applicable law, any and all rights, claims and
causes of action they or any indemnified person may have against the COMPANY or
any STOCKHOLDER relating to this
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Agreement or the transactions arising under or based upon any federal, state,
local or foreign statute, law, rule, regulation or otherwise.
11.2 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 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) incurred by the
STOCKHOLDERS as a result of or arising from (i) any breach by METALS or NEWCO of
their representations and warranties set forth herein or on the schedules or
certificates attached hereto, (ii) any breach of any agreement on the part of
METALS or NEWCO under this Agreement, (iii) any liabilities which the
STOCKHOLDERS may incur due to METALS's or NEWCO's failure to be responsible for
the liabilities and obligations of the COMPANY as provided in Section 1 hereof
(except to the extent that METALS or NEWCO has claims against the STOCKHOLDERS
by reason of such liabilities); or (iv) any liability under the 1933 Act, the
1934 Act or other Federal or state law or regulation, at common law or
otherwise, arising out of or based upon any untrue statement or alleged untrue
statement of a material fact relating to METALS, NEWCO or any of the Other
Founding Companies contained in any preliminary prospectus, the Registration
Statement or any prospectus forming a part thereof, or any amendment thereof or
supplement thereto, or arising out of or based upon any omission or alleged
omission to state therein a material fact relating to METALS or NEWCO or any of
the Other Founding Companies required to be stated therein or necessary to make
the statements therein not misleading.
11.3 THIRD PERSON CLAIMS. Promptly after any party hereto (hereinafter 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, the Indemnified Party shall, as a
condition precedent to a claim with respect thereto being made against any party
obligated to provide indemnification pursuant to Section 11.1 or 11.2 hereof
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(hereinafter the "Indemnifying Party"), give the Indemnifying Party written
notice of such claim or the commencement of such action or proceeding. Such
notice shall state the nature and the basis of such claim and a reasonable
estimate of the amount thereof. The Indemnifying Party shall have the right to
defend and settle, at its own expense and by its own counsel, any such matter so
long as the Indemnifying Party pursues the same in good faith and diligently,
provided that the Indemnifying Party shall not settle any criminal proceeding
without the written consent of the Indemnified Party. If the Indemnifying Party
undertakes to defend or settle, it shall promptly notify the Indemnified Party
of its intention to do so, and the Indemnified Party shall cooperate with the
Indemnifying Party and its counsel in the defense thereof and in any settlement
thereof. Such cooperation shall include, but shall not be limited to, furnishing
the Indemnifying Party with any books, records or information reasonably
requested by the Indemnifying Party that are in the Indemnified Party's
possession or control. All Indemnified Parties shall use the same counsel, which
shall be the counsel selected by Indemnifying Party, provided that if counsel to
the Indemnifying Party shall have a conflict of interest that prevents counsel
for the Indemnifying Party from representing Indemnified Party, Indemnified
Party shall have the right to participate in such matter through counsel of its
own choosing and Indemnifying Party will reimburse the Indemnified Party for the
reasonable expenses of its counsel. After the Indemnifying Party has notified
the Indemnified Party of its intention to undertake to defend or settle any such
asserted liability, and for so long as the Indemnifying Party diligently pursues
such defense, the Indemnifying Party shall not be liable for any additional
legal expenses incurred by the Indemnified Party in connection with any defense
or settlement of such asserted liability, except (i) as set forth in the
preceding sentence and (ii) to the extent such participation is requested by the
Indemnifying Party, in which event the Indemnified Party shall be reimbursed by
the Indemnifying Party for reasonable additional legal expenses and
out-of-pocket expenses. If the Indemnifying Party desires to accept a final and
complete settlement of any such Third Person claim and the Indemnified Party
refuses to consent to such settlement, then the Indemnifying Party's liability
under this Section with respect to such Third Person claim shall be
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limited to the amount so offered in settlement by said Third Person. Upon
agreement as to such settlement between said Third Person and the Indemnifying
Party, the Indemnifying Party shall, in exchange for a complete release from the
Indemnified Party, promptly pay to the Indemnified Party the amount agreed to in
such settlement and the Indemnified Party shall, from that moment on, bear full
responsibility for any additional costs of defense which it subsequently incurs
with respect to such claim and all additional costs of settlement or judgment.
If the Indemnifying Party does not undertake to defend such matter to which the
Indemnified Party is entitled to indemnification hereunder, or fails diligently
to pursue such defense, the Indemnified Party may undertake such defense through
counsel of its choice, at the cost and expense of the Indemnifying Party, and
the Indemnified Party may settle such matter, and the Indemnifying Party shall
reimburse the Indemnified Party for the amount paid in such settlement and any
other liabilities or expenses incurred by the Indemnified Party in connection
therewith, provided, however, that under no circumstances shall the Indemnified
Party settle any Third Person claim without the written consent of the
Indemnifying Party, which consent shall not be unreasonably withheld or delayed.
All settlements hereunder shall effect a complete release of the Indemnified
Party, unless the Indemnified Party otherwise agrees in writing. The parties
hereto will make appropriate adjustments for insurance proceeds in determining
the amount of any indemnification obligation under this Section.
11.4 EXCLUSIVE REMEDY. The indemnification provided for in this Section 11
shall (except as prohibited by ERISA) be the exclusive remedy in any action
seeking damages or any other form of monetary relief brought by any party to
this Agreement against another party, provided that, nothing herein shall be
construed to limit the right of a party, in a proper case, to seek injunctive
relief for a breach of this Agreement. Any indemnity payment under this Section
11 shall be treated as an adjustment to the exchange consideration for tax
purposes unless a final determination (which shall include the execution of a
Form 870-AD or successor form) with respect to the indemnified
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party or any of its affiliate causes any such payment not to be treated as an
adjustment to the exchange consideration for U.S. Federal Income Tax purposes.
11.5 LIMITATIONS ON INDEMNIFICATION. METALS, NEWCO, the Surviving
Corporation and the other persons or entities indemnified pursuant to Section
11.1 or 11.2 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 the greater of (a) 1.0% of the sum of (i) the cash
paid to STOCKHOLDERS plus (ii) the value of the METALS Stock delivered to
STOCKHOLDERS (calculated as provided in this Section 11.5) or (b) $50,000 (the
"Indemnification Threshold"). STOCKHOLDERS shall not assert any claim for
indemnification hereunder against METALS or NEWCO until such time as, and solely
to the extent that, the aggregate of all claims which STOCKHOLDERS may have
against METALS or NEWCO shall exceed $50,000.
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 related to a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement, no STOCKHOLDER shall be
liable under this Section 11 for an amount which exceeds the amount of proceeds
received by such STOCKHOLDER in connection with the Merger. For purposes of
calculating the value of the METALS Stock received by a STOCKHOLDER, METALS
Stock shall be valued at its initial public offering price as set forth in the
Registration Statement. It is hereby understood and agreed that a STOCKHOLDER
may satisfy an indemnification obligation through payment of a combination of
stock and cash in proportion equal to the proportion of stock and cash received
by such STOCKHOLDER in connection with the Merger, valued as described
immediately above.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION.This Agreement may be terminated at any time prior to the
Funding and Consummation Date solely:
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(i) by mutual consent of the boards of directors of METALS and the
COMPANY;
(ii) by the STOCKHOLDERS or the COMPANY (acting through its board of
directors), on the one hand, or by METALS (acting through its board of
directors), on the other hand, if the transactions contemplated by this
Agreement to take place at the Closing shall not have been consummated by
December 31, 1997, 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 Funding and Consummation Date;
(iii) by the STOCKHOLDERS or COMPANY, on the one hand, or by METALS, on
the other hand, if a material breach or default shall be made by the other party
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 on or before the Funding and Consummation Date or by the STOCKHOLDERS
or the COMPANY, if the conditions set forth in Section 8 hereof have not been
satisfied or waived as of the Closing Date or the Funding and Consummation Date,
as applicable, or by METALS, if the conditions set forth in Section 9 hereof
have not been satisfied or waived as of the Closing Date or the Funding and
Consummation Date, as applicable;
(iv) pursuant to Section 7.8 hereof; or
(v) pursuant to Section 4 hereof.
12.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in Section
7.8 hereof, 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.
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13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES. The STOCKHOLDERS will not, for a period of
five (5) years following the Funding and Consummation 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 metals
processing, metals fabricating and/or specialty metals business, including
brokering, manufacturing and distribution services, in direct competition with
METALS or any of the subsidiaries thereof, within 200 miles of where the COMPANY
or any of its subsidiaries conducted business prior to the effectiveness of the
Merger (the "Territory");
(ii) call upon any person who is, at that time, within the Territory, an
employee of METALS (including the subsidiaries thereof) in a sales
representative or managerial capacity for the purpose or with the intent of
enticing such employee away from or out of the employ of METALS (including the
subsidiaries thereof), provided that each STOCKHOLDER shall be permitted to call
upon and hire any member of his or her immediate family;
(iii) call upon any person or entity which is, at that time, or which has
been, within one (1) year prior to the Funding and Consummation Date, a customer
of METALS (including the subsidiaries thereof), of the COMPANY or of any of the
Other Founding Companies within the Territory for the purpose of soliciting or
selling products or services in direct competition with METALS within the
Territory;
(iv) call upon any prospective acquisition candidate, on any STOCKHOLDER's
own behalf or on behalf of any competitor in the metals processing, metals
fabricating and/or specialty metals business, including brokering, manufacturing
and distribution services, which candidate, to the actual knowledge of such
STOCKHOLDER after due inquiry, was called upon by METALS (including the
subsidiaries thereof) or for which, to the actual knowledge of such STOCKHOLDER
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after due inquiry, METALS (or any subsidiary thereof) made an acquisition
analysis, for the purpose of acquiring such entity; or
(v) disclose customers, whether in existence or proposed, of the COMPANY
to any person, firm, partnership, corporation or business for any reason or
purpose whatsoever except to the extent that the COMPANY has in the past
disclosed such information to the public for valid business reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit any STOCKHOLDER 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.
13.2 DAMAGES. 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 and restraining orders.
13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this Section 13 impose a reasonable restraint on the
STOCKHOLDERS in light of the activities and business of METALS (including the
subsidiaries thereof) on the date of the execution of this Agreement and the
current plans of METALS.
13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13 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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13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13 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 (including the subsidiaries 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 13, during which the agreements
and covenants of each STOCKHOLDER made in this Section 13 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 13. The covenants
contained in Section 13 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.
13.6 MATERIALITY. The COMPANY and the STOCKHOLDERS hereby agree that this
covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. 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, the Other Founding Companies,
and/or METALS, such as operational policies, and pricing and cost policies that
are valuable, special and unique assets of the COMPANY's, the Other Founding
Companies' and/or METALS's respective businesses. 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 METALS or the Surviving Corporation and
(c) to counsel and other advisers, provided that such advisers (other than
counsel) agree to the confidentiality provisions of this Section 14.1, unless
(i)
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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 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, or (iii) the disclosing party
reasonably believes that such disclosure is required in connection with the
defense of a lawsuit against the disclosing party. 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 an injunction 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.
In the event the transactions contemplated by this Agreement are not
consummated, STOCKHOLDERS shall have none of the above-mentioned restrictions on
their ability to disseminate confidential information with respect to the
COMPANY.
14.2 METALS AND NEWCO. METALS and NEWCO recognize and acknowledge that
they had in the past and currently have access to certain confidential
information of the COMPANY, such as operational policies, and pricing and cost
policies that are valuable, special and unique assets of the COMPANY's business.
METALS and NEWCO agree that, prior to the Closing, or if the Transactions
contemplated by this Agreement are not consummated, 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 the COMPANY, (b) to counsel and other advisers, provided that
such advisers (other than counsel) agree to the confidentiality provisions of
this Section 14.1, (c) to the Other Founding Companies and their representatives
pursuant to Section 7.1(a), unless (i) such information becomes known to the
public generally through no fault of METALS or NEWCO, (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),
METALS and NEWCO shall, if possible, give prior written notice thereof
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to the COMPANY and the STOCKHOLDERS and provide the COMPANY and the STOCKHOLDERS
with the opportunity to contest such disclosure, or (iii) the disclosing party
reasonably believes that such disclosure is required in connection with the
defense of a lawsuit against the disclosing party, and (d) to the public to the
extent necessary or advisable in connection with the filing of the Registration
Statement and the IPO and the securities laws applicable thereto and to the
operation of METALS as a publicly held entity after the IPO. In the event of a
breach or threatened breach by METALS or NEWCO of the provisions of this
Section, the COMPANY and the STOCKHOLDERS shall be entitled to an injunction
restraining METALS and NEWCO from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting the
COMPANY and the STOCKHOLDERS from pursuing any other available remedy for such
breach or threatened breach, including the recovery of damages.
14.3 DAMAGES. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Section 14.1 and 14.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach by any of them of the foregoing covenants, the covenant may be
enforced against the other parties by injunctions and restraining orders.
14.4 SURVIVAL. The obligations of the parties under this Article 14 shall
survive the termination of this Agreement for a period of five years from the
Funding and Consummation Date.
15. TRANSFER RESTRICTIONS
15.1 TRANSFER RESTRICTIONS. Unless otherwise agreed by METALS, except for
transfers to immediate family members who agree to be bound by the restrictions
set forth in this Section 15.1 (or trusts for the benefit of the STOCKHOLDERS or
family members, the trustees of which so agree), for a period of one year from
the Closing, except pursuant to Section 17 hereof, none of the STOCKHOLDERS
shall sell, assign, exchange, transfer, encumber, pledge, distribute, appoint,
or otherwise dispose of any shares of METALS Stock as described in Section 3.1
received by the
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STOCKHOLDERS in the Merger. The certificates evidencing the METALS Stock
delivered to the STOCKHOLDERS pursuant to Section 3 of this Agreement will bear
a legend substantially in the form set forth below and containing such other
information as METALS may deem necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED
OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE,
ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT
OR OTHER DISPOSITION PRIOR TO [FIRST ANNIVERSARY OF CLOSING DATE]. UPON THE
WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE
THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER AGENT)
AFTER THE DATE SPECIFIED ABOVE.
16. FEDERAL SECURITIES ACT REPRESENTATIONS
16.1 COMPLIANCE WITH LAW. The STOCKHOLDERS acknowledge that the shares of
METALS Stock to be delivered to the STOCKHOLDERS pursuant to this Agreement have
not been and will not be registered under the 1933 Act (except as provided in
Section 17 hereof) and therefore may not be resold without compliance with the
1933 Act. The METALS Stock to be acquired by such STOCKHOLDERS pursuant to this
Agreement is being acquired solely for their own respective accounts, for
investment purposes only, and with no present intention of distributing, selling
or otherwise disposing of it in connection with a distribution. The STOCKHOLDERS
covenant, warrant and represent that none of the shares of METALS Stock issued
to such STOCKHOLDERS will be offered, sold, assigned, pledged, hypothecated,
transferred or otherwise
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disposed of except after full compliance with all of the applicable provisions
of the 1933 Act and the rules and regulations of the SEC. All the METALS Stock
shall bear the following legend in addition to the legend required under Section
15 of this Agreement:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF THE HOLDER
HEREOF COMPLIES WITH THE ACT AND APPLICABLE SECURITIES LAW.
16.2 ECONOMIC RISK; SOPHISTICATION. The STOCKHOLDERS are able to bear the
economic risk of an investment in the METALS Stock to be acquired pursuant to
this Agreement and can afford to sustain a total loss of such investment and
have such knowledge and experience in financial and business matters that they
are capable of evaluating the merits and risks of the proposed investment in the
METALS Stock. The STOCKHOLDERS party hereto have 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 current and proposed officers
and directors of METALS, the plans for the operations of the business of METALS,
the business, operations and financial condition of the Founding Companies other
than the COMPANY, and any plans for additional acquisitions and the like. The
STOCKHOLDERS have asked any and all questions in the nature described in the
preceding sentence and all questions have been answered to their satisfaction.
17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. 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 shelf
registration of shares to be used as consideration for acquisitions of
additional businesses by METALS and (ii) registrations relating to employee
benefit
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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 all of the 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) which
any such STOCKHOLDER requests, provided that METALS shall have the right to
reduce the number of shares included in such registration to the extent that
inclusion of such shares could, in the written opinion of tax counsel to METALS
or its independent auditors, jeopardize the status of the transactions
contemplated hereby and by the Registration Statement as a tax-free organization
under Section 351 of the Code. In addition, if METALS is advised in writing in
good faith by any managing underwriter of an underwritten offering of the
securities being offered pursuant to any registration statement under this
Section 17.1 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, provided,
that, for each such offering made by METALS after the IPO, such reduction shall
be made first by reducing the number of shares to be sold by persons other than
METALS, the STOCKHOLDERS and the stockholders of the Other Founding Companies
(collectively, the STOCKHOLDERS and the stockholders of the other Founding
Companies being referred to herein as the "Founding Stockholders"), and
thereafter, if a further reduction is required, by reducing the number of shares
to be sold by the Founding Stockholders.
17.2 DEMAND REGISTRATION RIGHTS. At any time after the date one year after
the Closing and prior to the date three years after the Closing, the holders of
a majority of the shares of METALS Stock issued to the Founding Stockholders
pursuant to this Agreement and the Other Agreements
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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 the shares of METALS
Stock issued to the STOCKHOLDERS pursuant to this Agreement and the Other
Agreements (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 Founding
Stockholders (a "Demand Registration"). Within ten (10) days of the receipt of
such request, METALS shall give written notice of such request to all other
Founding Stockholders and shall, as soon as practicable but in no event later
than 45 days after notice from any STOCKHOLDER, file and use its best efforts to
cause to become effective a registration statement covering all such shares.
METALS shall be obligated to effect only one Demand Registration for all
Founding Stockholders and will keep such Demand Registration current and
effective for not less than 120 days (or such shorter period as is required to
sell all of the shares registered thereby).
Notwithstanding the foregoing paragraph, following any such a demand, a
majority of METALS's 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 Founding 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, no registration of the Founding Stockholders'
METALS Stock shall be initiated under this Section 17.2 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
Founding Stockholders the right to participate in such public offering pursuant
to, and subject to, Section 17.1 hereof.
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17.3 REGISTRATION PROCEDURES. Whenever METALS is required to register
shares of METALS Stock pursuant to Sections 17.1 and 17.2, 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 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
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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 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 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
Article 17 (including all registration, filing, qualification, legal, printer
and accounting fees, but excluding underwriting commissions and discounts),
shall be borne by METALS.
17.4 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
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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 17.5 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 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.
17.5 UNDERWRITING AGREEMENT. In connection with each registration pursuant
to Sections 17.1 and 17.2 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
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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.
17.6 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 understood and defined in Rule 144 under the 1933 Act for
a period of four years beginning 90 days following the effective date of
the Registration Statement;
(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 at any
time after it has become subject to such reporting requirements; 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 (at any time from and after 90 days following the
effective date of the Registration Statement, and of the 1933 Act and the
1934 Act (any time after it has become subject to such reporting
requirements), 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.
18. GENERAL
18.1 COOPERATION. The COMPANY, STOCKHOLDERS, METALS and NEWCO shall each
deliver or cause to be delivered to the other on the Funding and Consummation
Date, and at such other times and places as shall be reasonably agreed to, such
additional instruments as the other
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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 Funding and Consummation 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 Funding and
Consummation Date.
18.2 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.
18.3 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, NEWCO 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, NEWCO and
METALS, acting through their respective officers or trustees, duly authorized by
their respective Boards of Directors. Any disclosure made on any Schedule
delivered pursuant hereto shall be deemed to have been disclosed for purposes of
any other Schedule required hereby, provided that the COMPANY shall make a good
faith effort to cross reference disclosure, as necessary or advisable, between
related Schedules.
18.4 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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18.5 BROKERS AND AGENTS. Except as disclosed on Schedule 18.5, 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.
18.6 EXPENSES. Whether or not the transactions herein contemplated shall
be consummated, METALS will pay the fees, expenses and disbursements of METALS
and its agents, representatives, accountants and counsel incurred in connection
with the subject matter of this Agreement and any amendments thereto, including
all costs and expenses incurred in the performance and compliance with all
conditions to be performed by METALS under this Agreement, including the fees
and expenses of Arthur Andersen, LLP, Bracewell & Patterson, L.L.P., and any
other person or entity retained by METALS or by Notre Capital Ventures II,
L.L.C., and the costs of preparing the Registration Statement. 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 Merger, other than Transfer Taxes, if any, imposed by the
State of Delaware. 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 Section 2 hereof. The
STOCKHOLDERS acknowledge that the risks of the transactions contemplated hereby
include tax risks, with respect to which the STOCKHOLDERS are relying solely on
the opinion contemplated by Section 8.12 hereof.
18.7 NOTICES. All notices of communication 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.
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(a) If to METALS, or NEWCO, addressed to them at: Metals USA, Inc.
4801 Woodway, Suite 300E
Houston, Texas 77056
Attn: J. Michael Kirksey
with copies to:
Thomas W. Adkins
Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana Street, Suite 2900
Houston, Texas 77002-2781
(b) If to the STOCKHOLDERS, addressed to them at their addresses set
forth on Annex II, with copies to:
Christopher S. Collins
Andrews & Kurth, L.L.P.
4200 Texas Commerce Tower
Houston, Texas 77002
and to:
Smith, Helms, Mullers & Moore, L.L.P.
214 North Church Street
Charlotte, NC 28237
Attn: Michael Marr
Chris Nesbitt
Tele: (704) 343-2174
Fax: (704) 358-0252
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(c) If to the COMPANY, addressed to it at:
Southern Alloy of America, Inc.
P. O. Box 1150
Salisbury, NC 28145
STREET ADDRESS:
770 Cedar Springs Rd.
Salisbury, NC 28147
Attn: Bart Edge, President
Tele: (704) 637-1906
Fax: (704) 637-7650
with copies to:
Metals USA, Inc.
4801 Woodway, Suite 300E
Houston, TX 77056
Attn: J. Michael Kirksey
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Delaware.
18.9 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 Expiration Date.
18.10 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.
18.11 TIME. Time is of the essence with respect to this Agreement.
18.12 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.
18.13 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.
18.14 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
18.15 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived only with the
written consent of METALS, NEWCO, the COMPANY and STOCKHOLDERS who hold or who
will hold at least 50% of the METALS Stock issued or to be issued upon
consummation of the Merger. Any amendment or waiver effected in accordance with
this Section 18.15 shall be binding upon each of the parties hereto, any other
person receiving METALS Stock in connection with the Merger and each future
holder of such METALS Stock.
18.16 SPECIAL LIMITATIONS. The STOCKHOLDERS include Christopher F. Virtue
and Gregory L. Alcorn (Collectively, the "SPECIAL STOCKHOLDERS").
Notwithstanding anything else herein to the contrary, neither of the SPECIAL
STOCKHOLDERS makes any of the representations and warranties set forth in
Article 5 hereof except with respect to their ownership of COMPANY Stock free
and clear of any liens, claims and encumbrances.
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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/ ART FRENCH
Name: Art French
Title: Chief Executive Officer
SOUTHERN ALLOY ACQUISITION CORP.
By:/S/ J. MICHAEL KIRKSEY
Name: J. Michael Kirksey
Title: President
SOUTHERN ALLOY OF AMERICA, INC.
By:/S/ WILLIAM BARTLEY EDGE
Name: WILLIAM BARTLEY EDGE
Title: PRESIDENT/CEO
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STOCKHOLDERS:
/S/ RICHARD W. VIRTURE
Richard W. Virtue
/S/ CHRISTOPHER F. VIRTUE
Christopher F. Virtue
/S/ WILLIAM BARTLEY EDGE
William Bartley Edge
/S/ GREGORY L. ALCORN
Gregory L. Alcorn
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SCHEDULE 6.4
None except as described in the Registration Statement.
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SCHEDULE 6.7
None except as described in the Registration Statement.
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SCHEDULE 6.8
None.
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SCHEDULE 6.9
None.
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SCHEDULE 6.13
None.
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SCHEDULE 6.14
None.
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SCHEDULE 9.12
TAI/CORNERSTONE GROUP
KEY EMPLOYEES
Bothwell, Charles
Brang, Steve
Brown, Ron
Caswell, Greg
Farrington, Tim
Grigg, Danny
Hart, Jim
Hebert, Larry
Hedrick, Dan
Hinkle, Dan
Killian, Todd
Montgomer, Monte
Peusch, Kathy
Poag, Joe
Raney, Claud
Stickney, Mike
Thomas, Ted
WILLIAMS STEEL & SUPPLY CO., INC.
Peterson, Les
Petz, Joe
Weber, Dave
UNI-STEEL
Pray, James
AFFILIATED METALS
Zimmerman, Robert
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STEEL SERVICE SYSTEMS, INC.
Frawley, Charles
Longo, Vince
Van Handel, Mark
Doveala, Craig
McCluskey, Robert
Russell, Ferrell
SOUTHERN ALLOY
Trainor, Joe
Lewis, Jim
Chelini, Ben
QUEENSBORO
Bissette, Anita
Bolton, James
Applegate, Charles
Kiger, Milton
Wiltrout, LaVern
INTERSTATE STEEL
Everett, Don
Riley, Dave
Sarle, William
Curry, Thomas
Kindness, George
Collins, James
Urban, James
Magasko, Jack
Smith, Charles
Terrels, Paul
Toole, Steve
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ANNEX I
TO THE AGREEMENT
AND PLAN OF REORGANIZATION
DATED AS OF APRIL 30, 1997
BY AND AMONG
METALS USA, INC.
AND THE OTHER PARTIES NAMED THEREIN
CONSIDERATION TO BE PAID TO THE STOCKHOLDERS
Aggregate consideration to be paid to the STOCKHOLDERS
$11,716,559.40 in cash and the value of outstanding Common Stock of Metals
(assuming an offering price of $13.00 per share), consisting of 648,525 shares
of Metals Stock and $3,285,734.40 in cash, it being agreed that the actual
amount of all cash payments described in this Annex I will depend on the actual
initial offering price of the Common Stock of Metals in the IPO, and may be more
or less than $13.00 per share; provided, however that such price shall not be
less than $8.00 per share.
Consideration to be paid to each STOCKHOLDER:
---------------------------------------------
Shares of Common Merger
Stockholder Stock of Metals Cash
- ----------- ------------- -------------
Richard W. Virtue ............................ 358,210 1,995,739.16
Christopher F. Virtue ........................ 178,862 996,498.98
William Bartley Edge ......................... 68,997 45,829.58
Gregory L. Alcorn ............................ 44,456 247,666.68
------------- -------------
648,525 3,285,734.40
============= =============
MINIMUM VALUE: $ 7,210,190 (based on a price of $8.00 per share)
===========
Total non-tax related AAA distributions: None
================
EXHIBIT 10.7
AGREEMENT AND PLAN OF ORGANIZATION
dated as of the 30th day of April, 1997
by and among
METALS USA, INC.
STEEL SERVICE SYSTEMS ACQUISITION CORP.
(a subsidiary of Metals USA, Inc.)
STEEL SERVICE SYSTEMS, INC.
and
the STOCKHOLDERS named herein
<PAGE>
TABLE OF CONTENTS
Page
1. THE MERGER.............................................................6
1.1 Delivery and Filing of Articles of Merger........................6
1.2 Effective Time of the Merger.....................................6
1.3 Certificate of Incorporation, By-laws and
Board of Directors of Surviving Corporation......................6
1.4 Certain Information With Respect to the
Capital Stock of the COMPANY, METALS and NEWCO...................7
1.5 Effect of Merger.................................................7
2. CONVERSION OF STOCK....................................................9
2.1 Manner of Conversion.............................................9
3. DELIVERY OF MERGER CONSIDERATION......................................10
4. CLOSING...............................................................10
5. REPRESENTATIONS AND WARRANTIES OF COMPANY
AND STOCKHOLDERS......................................................12
(A) Representations and Warranties of
COMPANY and STOCKHOLDERS..................................12
5.1 Due Organization................................................12
5.2 Authorization...................................................13
5.3 Capital Stock of the COMPANY....................................13
5.4 Transactions in Capital Stock, Organization Accounting..........13
5.5 No Bonus Shares.................................................14
5.6 Subsidiaries....................................................14
5.7 Predecessor Status; etc.........................................14
5.8 Spin-off by the COMPANY.........................................15
5.9 Financial Statements............................................15
5.10 Liabilities and Obligations.....................................15
5.11 Accounts and Notes Receivable...................................16
5.12 Permits and Intangibles.........................................17
5.13 Environmental Matters...........................................17
5.14 Personal Property...............................................18
5.15 Significant Customers; Material Contracts and Commitments.......19
5.16 Real Property...................................................20
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5.17 Insurance.......................................................21
5.18 Compensation; Employment Agreements; Organized Labor Matters....21
5.19 Employee Plans..................................................22
5.20 Compliance with ERISA...........................................23
5.21 Conformity with Law; Litigation.................................24
5.22 Taxes...........................................................25
5.23 No Violations; Consents, Etc....................................25
5.24 Government Contracts............................................26
5.25 Absence of Changes..............................................26
5.26 Deposit Accounts; Powers of Attorney............................28
5.27 Validity of Obligations.........................................28
5.28 Relations with Governments......................................29
5.29 Disclosure......................................................29
5.30 Prohibited Activities...........................................30
(B) Representations and Warranties of STOCKHOLDERS......30
5.31 Authority; Ownership............................................30
5.32 Preemptive Rights...............................................31
5.33 No Intention to Dispose of METALS Stock.........................31
6. REPRESENTATIONS OF METALS and NEWCO...................................31
6.1 Due Organization................................................32
6.2 Authorization...................................................32
6.3 Capital Stock of METALS and NEWCO...............................32
6.4 Transactions in Capital Stock, Organization Accounting..........33
6.5 Subsidiaries....................................................33
6.6 Financial Statements............................................33
6.7 Liabilities and Obligations.....................................34
6.8 Conformity with Law; Litigation.................................34
6.9 No Violations...................................................34
6.10 Validity of Obligations.........................................35
6.11 METALS Stock....................................................35
6.12 No Side Agreements..............................................36
6.13 Business; Real Property; Material Agreements....................36
6.14 Taxes...........................................................36
6.15 Absence of Changes..............................................37
6.16 Validity of Obligations.........................................38
6.17 Disclosure......................................................39
6.18 Private Offering................................................39
7. COVENANTS PRIOR TO CLOSING............................................39
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7.1 Access and Cooperation; Due Diligence...........................39
7.2 Conduct of Business Pending Closing.............................40
7.3 Prohibited Activities...........................................41
7.4 No Shop.........................................................43
7.5 Notice to Bargaining Agents.....................................43
7.6 Agreements......................................................44
7.7 Notification of Certain Matters.................................44
7.8 Amendment of Schedules..........................................45
7.9 Cooperation in Preparation of Registration Statement............46
7.10 Final Financial Statements......................................47
7.11 Further Assurances..............................................47
7.12 Authorized Capital..............................................47
7.13 Compliance with the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 (the "Hart-Scott Act").......47
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF
STOCKHOLDERS AND COMPANY..............................................48
8.1 Representations and Warranties; Performance of Obligations......49
8.2 Satisfaction....................................................49
8.3 No Litigation...................................................49
8.4 Opinion of Counsel..............................................49
8.5 Registration Statement..........................................50
8.6 Consents and Approvals..........................................50
8.7 Good Standing Certificates......................................50
8.8 No Material Adverse Change......................................50
8.9 Closing of IPO..................................................50
8.10 Secretary's Certificate.........................................50
8.11 Employment Agreements...........................................51
8.12 Tax Matters.....................................................51
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF METALS AND NEWCO...............51
9.1 Representations and Warranties; Performance of Obligations......51
9.2 No Litigation...................................................52
9.3 Secretary's Certificate.........................................52
9.4 No Material Adverse Effect......................................52
9.5 STOCKHOLDERS' Release...........................................52
9.6 Satisfaction....................................................53
9.7 Termination of Related Party Agreements.........................53
9.8 Opinion of Counsel..............................................53
9.9 Consents and Approvals..........................................53
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9.10 Good Standing Certificates......................................53
9.11 Registration Statement..........................................54
9.12 Employment Agreements...........................................54
9.13 Closing of IPO..................................................54
9.14 FIRPTA Certificate..............................................54
10. COVENANTS OF METALS AND THE STOCKHOLDERS AFTER CLOSING................54
10.1 Release From Guarantees; Repayment of Certain Obligations.......54
10.2 Preservation of Tax and Accounting Treatment....................55
10.3 Preparation and Filing of Tax Returns...........................55
10.4 Directors.......................................................56
10.5 Preservation of Employee Benefit Plans..........................56
11. INDEMNIFICATION.......................................................57
11.1 General Indemnification by the STOCKHOLDERS.....................57
11.2 Indemnification by METALS.......................................59
11.3 Third Person Claims.............................................59
11.4 Exclusive Remedy................................................61
11.5 Limitations on Indemnification..................................62
12. TERMINATION OF AGREEMENT..............................................62
12.1 Termination.....................................................62
12.2 Liabilities in Event of Termination.............................63
13. NONCOMPETITION........................................................64
13.1 Prohibited Activities...........................................64
13.2 Damages.........................................................65
13.3 Reasonable Restraint............................................65
13.4 Severability; Reformation.......................................65
13.5 Independent Covenant............................................66
13.6 Materiality.....................................................66
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION..............................66
14.1 STOCKHOLDERS....................................................66
14.2 METALS AND NEWCO................................................67
14.3 Damages.........................................................68
14.4 Survival........................................................68
15. TRANSFER RESTRICTIONS.................................................68
15.1 Transfer Restrictions...........................................68
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16. FEDERAL SECURITIES ACT REPRESENTATIONS................................69
16.1 Compliance with Law.............................................69
16.2 Economic Risk; Sophistication...................................70
17. REGISTRATION RIGHTS...................................................70
17.1 Piggyback Registration Rights...................................70
17.2 Demand Registration Rights......................................71
17.3 Registration Procedures.........................................73
17.4 Indemnification.................................................74
17.5 Underwriting Agreement..........................................75
17.6 Rule 144 Reporting..............................................76
18. GENERAL...............................................................76
18.1 Cooperation.....................................................76
18.2 Successors and Assigns..........................................77
18.3 Entire Agreement................................................77
18.4 Counterparts....................................................77
18.5 Brokers and Agents..............................................78
18.6 Expenses........................................................78
18.7 Notices.........................................................78
18.8 Governing Law...................................................80
18.9 Survival of Representations and Warranties......................80
18.10 Exercise of Rights and Remedies.................................80
18.11 Time............................................................81
18.12 Reformation and Severability....................................81
18.13 Remedies Cumulative.............................................81
18.14 Captions........................................................81
18.15 Amendments and Waivers..........................................81
18.16 Special Limitation..............................................81
ANNEXES
Annex I - Consideration to Be Paid to Stockholders
Annex II - Stockholders and Stock Ownership of the Company
Annex III - Stockholders and Stock Ownership of Metals
Annex IV - Certificate of Incorporation and By-Laws of Metals and Newco
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Annex V - Form of Opinion of Counsel to Metals
Annex VI - Form of Opinion of Counsel to Company and Stockholders
Annex VII - Form of Key Employee Employment Agreement
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SCHEDULES
5.1 Due Organization
5.2 Authorization
5.3 Capital Stock of the COMPANY
5.4 Transactions in Capital Stock, Organization Accounting
5.5 No Bonus Shares
5.6 Subsidiaries
5.7 Predecessor Status; etc
5.8 Spin-off by the COMPANY
5.9 Financial Statements
5.10 Liabilities and Obligations
5.11 Accounts and Notes Receivable
5.12 Permits and Intangibles
5.13 Environmental Matters
5.14 Personal Property
5.15 Significant Customers; Material Contracts and Commitments
5.16 Real Property
5.17 Insurance
5.18 Compensation; Employment Agreements; Organized Labor Matters
5.19 Employee Plans
5.20 Compliance with ERISA
5.21 Conformity with Law; Litigation
5.22 Taxes
5.23 No Violations, Consents, etc.
5.24 Government Contracts
5.25 Absence of Changes
5.26 Deposit Accounts; Powers of Attorney
5.28 Relations with Governments
5.30 Prohibited Activities
5.31 Authority; Ownership
6.4 Transactions in Capital Stock, Organization Accounting
6.7 Liabilities and Obligations
6.8 Conformity with Law; Litigation
6.9 No Violations
6.13 Business; Real Property; Material Agreements
6.14 Taxes
7.2 Conduct of Business Pending Closing
7.3 Prohibited Activities
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7.5 Notice to Bargaining Agents
9.12 Employment Agreements
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AGREEMENT AND PLAN OF ORGANIZATION
THIS AGREEMENT AND PLAN OF ORGANIZATION (the "Agreement") is made as of
the 30th day of April, 1997, by and among METALS USA, Inc., a Delaware
corporation ("METALS"), STEEL SERVICE SYSTEMS ACQUISITION CORP., a Delaware
corporation ("NEWCO"), STEEL SERVICE SYSTEMS, INC., a Wisconsin corporation (the
"COMPANY"), and (i) CRAIG R. DOVEALA, (ii) FRANCIS X. PISCHEL, (iii) ROBERT J.
McCLUSKEY, and (iv) FERRELL H. RUSSELL (the "STOCKHOLDERS"). The STOCKHOLDERS
are all the stockholders of the COMPANY.
WHEREAS, NEWCO is a corporation duly organized and existing under
the laws of the State of Delaware, having been incorporated on April 23,
1997, solely for the purpose of completing the transactions set forth
herein, and is a wholly-owned subsidiary of METALS, a corporation
organized and existing under the laws of the State of Delaware;
WHEREAS, the respective Boards of Directors of NEWCO and the COMPANY
(which together are hereinafter collectively referred to as "Constituent
Corporations") deem it advisable and in the best interests of the
Constituent Corporations and their respective stockholders that NEWCO
merge with and into the COMPANY pursuant to this Agreement and the
applicable provisions of the laws of the States of Delaware and the State
of Incorporation;
WHEREAS, METALS is entering into other separate agreements
substantially similar to this Agreement (the "Other Agreements"), each of
which is entitled "Agreement and Plan of Organization," with each of the
Other Founding Companies (as defined herein) and their respective
stockholders in order to acquire additional metals processing, metals
fabricating and specialty metals companies;
WHEREAS, this Agreement and the Other Agreements constitute the
"METALS Plan of Organization;"
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WHEREAS, the STOCKHOLDERS and the Boards of Directors and the
stockholders of METALS, each of the Other Founding Companies and each of
the subsidiaries of METALS that are parties to the Other Agreements have
approved and adopted the METALS Plan of Organization as an integrated plan
pursuant to which the STOCKHOLDERS and the stockholders of each of the
other Founding Companies will transfer the capital stock of each of the
Founding Companies to METALS and the stockholders of each of the other
Founding Companies will acquire the stock of METALS (but not cash or other
property) as a tax-free transfer of property under Section 351 of the
Internal Revenue Code of 1986, as amended;
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the Board of Directors of the
COMPANY has approved this Agreement as part of the METALS Plan of
Organization in order to transfer the capital stock of the COMPANY to
METALS;
WHEREAS, unless the context otherwise requires, capitalized terms
used in this Agreement or in any schedule attached hereto and not
otherwise defined shall have the following meanings for all purposes of
this Agreement:
"1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Acquired Party" means the COMPANY, any subsidiary and any member of a
Relevant Group.
"Acquisition Companies" shall mean NEWCO and each of the other Delaware
companies wholly-owned by METALS prior to the Funding and Consummation Date.
"Affiliates" has the meaning set forth in Section 5.8.
"Articles of Merger" shall mean those Articles or Certificates of Merger
with respect to the Merger in such forms as may be required by the laws of the
State of Delaware and the State of Incorporation.
"Balance Sheet Date" shall mean December 31, 1996.
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"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
"COMPANY" has the meaning set forth in the first paragraph of this
Agreement.
"COMPANY Stock" has the meaning set forth in Section 2.1.
"Constituent Corporations" has the meaning set forth in the second recital
of this Agreement.
"Draft Registration Statement" means the draft dated April 25, 1997 of the
Registration Statement, and any corrections thereto and supplemental information
delivered by METALS to the COMPANY for delivery to the STOCKHOLDERS prior to the
time this Agreement is delivered to METALS.
"Effective Time of the Merger" shall mean the time as of which the Merger
becomes effective, which shall, in any case, occur on the Funding and
Consummation Date.
"Environmental Laws" has the meaning set forth in Section 5.13.
"Expiration Date" has the meaning set forth in Section 5(A).
"Founding Companies" means:
Affiliated Metals Company, a Missouri corporation;
Interstate Steel Supply Company, a Pennsylvania corporation,
Interstate Steel Supply Company of Pittsburgh, a Pennsylvania
corporation, Interstate Steel Supply Company of Maryland, a
Maryland corporation, and Interstate Steel Processing Company,
a Pennsylvania corporation;
Queensboro Steel Corporation, a North Carolina corporation;
Southern Alloy of America, Inc., a North Carolina corporation;
Steel Service Systems, Inc., a Wisconsin corporation;
Texas Aluminum Industries, Inc., a Texas corporation, Cornerstone
Metals Corporation, a Nevada corporation, Cornerstone Building
Products, Inc., a Nevada corporation, Cornerstone Aluminum
Company, Inc., a Nevada corporation, and Cornerstone Patio
Concepts, L.L.C., a Nevada limited liability company;
Uni-Steel Incorporated, an Oklahoma corporation; and
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Williams Steel & Supply Co., Inc., a Wisconsin corporation.
"Funding and Consummation Date" has the meaning set forth in Section 4.
"IPO" means the initial public offering of METALS Stock pursuant to the
Registration Statement as referenced in Section 9.13.
"Material Adverse Effect" has the meaning set forth in Section 5.1.
"Material Documents" has the meaning set forth in Section 5.23.
"Merger" means the merger of NEWCO with and into the COMPANY pursuant to
this Agreement and the applicable provisions of the laws of the State of
Delaware and the laws of the State of Incorporation.
"METALS" has the meaning set forth in the first paragraph of this
Agreement.
"METALS Charter Documents" has the meaning set forth in Section 6.1.
"METALS Stock" means the common stock, par value $.01 per share, of
METALS.
"NEWCO" has the meaning set forth in the first paragraph of this
Agreement.
"NEWCO STOCK" means the common stock, par value $.01 per share, of NEWCO.
"Other Founding Companies" means all of the Founding Companies other than
the Company.
"Plans" has the meaning set forth in Section 5.19.
"Pricing" means the date of determination by METALS and the Underwriters
of the public offering price of the shares of METALS Stock in the IPO; the
parties hereto contemplate that the Pricing shall take place on the Closing
Date.
"Qualified Plans" has the meaning set forth in Section 5.20.
"Registration Statement" means that certain registration statement on Form
S-1 to be filed with the SEC covering the shares of METALS Stock to be issued in
the IPO and all amendments thereto.
"Relevant Group" means the COMPANY and any affiliated, combined,
consolidated, unitary or similar group of which the COMPANY is or was a member.
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"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
"Schedule" means each Schedule attached hereto, which shall reference the
relevant sections of this Agreement, on which parties hereto disclose
information as part of their respective representations, warranties and
covenants.
"SEC" means the United States Securities and Exchange Commission.
"State of Incorporation" means the State of Wisconsin.
"STOCKHOLDERS" has the meaning set forth in the first paragraph of this
Agreement.
"Surviving Corporation" shall mean the COMPANY as the surviving party in
the Merger.
"Tax" or "Taxes" means all federal, state, local or foreign net or gross
income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, withholding, employment, excise, property, deed, stamp, alternative
or add on minimum, or other taxes, assessments, duties, fees, levies or other
governmental charges, whether disputed or not, together with any interest,
penalties, additions to tax or additional amounts with respect thereto.
"Underwriters" means the prospective underwriters identified in the
Registration Statement.
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:
1. THE MERGER
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER. The Constituent
Corporations will cause the Articles of Merger to be signed, verified and placed
in escrow under the control of METALS to be held for filing with the Secretary
of State of the State of Delaware and the Secretary of State of the State of
Incorporation on the Funding and Consummation Date.
1.2 EFFECTIVE TIME OF THE MERGER. At the Effective Time of the Merger,
NEWCO shall be merged with and into the COMPANY in accordance with the Articles
of Merger, the separate existence of NEWCO shall cease, the COMPANY shall be the
surviving party in the Merger and the
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COMPANY is sometimes hereinafter referred to as the Surviving Corporation. The
Merger will be effected in a single transaction.
1.3 CERTIFICATE OF INCORPORATION, BY-LAWS AND BOARD OF DIRECTORS OF
SURVIVING CORPORATION. At the Effective Time of the Merger:
(i) the Certificate of Incorporation of the COMPANY then in effect
shall be the Certificate of Incorporation of the Surviving Corporation
until changed as provided by law;
(ii) the By-laws of NEWCO then in effect shall become the By-laws of
the Surviving Corporation; and subsequent to the Effective Time of the
Merger, such By-laws shall be the By-laws of the Surviving Corporation
until they shall thereafter be duly amended (and such By-laws shall be
amended, if necessary, to comply with applicable state law);
(iii) the Board of Directors of the Surviving Corporation shall
consist of the persons who are on the Board of Directors of the COMPANY
immediately prior to the Effective Time of the Merger, provided that J.
Michael Kirksey shall be elected as a director of the Surviving
Corporation effective as of the Effective Time of the Merger; the Board of
Directors of the Surviving Corporation shall hold office subject to the
provisions of the laws of the State of Incorporation 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 of the Merger shall continue as the officers of the Surviving
Corporation in the same capacity or capacities, and effective upon the
Effective Time of the Merger J. Michael Kirksey shall be appointed as a
vice president of the Surviving Corporation and Terry L. Freeman 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 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE COMPANY,
METALS AND NEWCO. The respective designations and numbers of outstanding shares
and
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voting rights of each class of outstanding capital stock of the COMPANY, METALS
and NEWCO 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 5.3 hereto;
(ii) immediately prior to the Closing Date and the Funding and
Consummation Date, the authorized capital stock of METALS will consist of
50,000,000 shares of METALS Stock, of which the number of issued and
outstanding shares will be set forth in the Registration Statement, and
5,000,000 shares of preferred stock, $.01 par value, of which no shares
will be issued and outstanding, and a number of shares of Restricted
Voting Common Stock, $.01 par value (the "Restricted Common Stock"), to be
determined by METALS in good faith, all of which will be issued and
outstanding except as otherwise set forth in the Registration Statement;
and
(iii) as of the date of this Agreement, the authorized capital stock
of NEWCO consists of 1,000 shares of NEWCO Stock, of which one hundred
(100) shares are issued and outstanding.
1.5 EFFECT OF MERGER. At the Effective Time of the Merger, the effect of
the Merger shall be as provided in the applicable provisions of the General
Corporation Law of the State of Delaware (the "Delaware GCL") and the law of the
State of Incorporation. Except as herein specifically set forth, the identity,
existence, purposes, powers, objects, franchises, privileges, rights and
immunities of the COMPANY shall continue unaffected and unimpaired by the Merger
and the corporate franchises, existence and rights of NEWCO shall be merged with
and into the COMPANY, and the COMPANY, as the Surviving Corporation, shall be
fully vested therewith. At the Effective Time of the Merger, the separate
existence of NEWCO 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
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or belonging to or due to the COMPANY and NEWCO shall 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 interest therein, whether by deed or otherwise, under the laws of the
State of Incorporation 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.
2. CONVERSION OF STOCK
2.1 MANNER OF CONVERSION. The manner of converting the shares of (i)
outstanding capital stock of the COMPANY ("COMPANY Stock") and (ii) NEWCO Stock,
issued and outstanding immediately prior to the Effective Time of the Merger,
respectively, into shares of (x) METALS Stock and cash and (y) common stock of
the Surviving Corporation, respectively, shall be as follows:
As of the Effective Time of the Merger:
(i) all of the shares of COMPANY Stock issued and outstanding
immediately prior to the Effective Time of the Merger, by virtue of the
Merger and without any action on the part of the holder thereof,
automatically shall be deemed to represent (1) the right to receive the
number of shares of METALS Stock set forth on Annex I hereto with respect
to
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such holder and (2) the right to receive the amount of cash set forth on
Annex I hereto with respect to such holder;
(ii) all shares of COMPANY Stock 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 of the Merger, shall, by virtue of the Merger
and without any action on the part of METALS, automatically be converted
into one fully paid and non-assessable share of common stock of the
Surviving Corporation which shall constitute all of the issued and
outstanding shares of common stock of the Surviving Corporation
immediately after the Effective Time of the Merger.
All METALS Stock received by the STOCKHOLDERS pursuant to this Agreement
shall, except for restrictions on resale or transfer described in Sections 15
and 16 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 GCL. All METALS Stock received
by the STOCKHOLDERS shall be issued and delivered to the STOCKHOLDERS free and
clear of any liens, claims or encumbrances of any kind or nature. All voting
rights of such METALS Stock received by the STOCKHOLDERS shall be fully
exercisable by the STOCKHOLDERS and the STOCKHOLDERS shall not be deprived nor
restricted in exercising those rights. At the Effective Time of the Merger,
METALS shall have no class of capital stock issued and outstanding other than
the METALS Stock and the Restricted Voting Common Stock.
3. DELIVERY OF MERGER CONSIDERATION
3.1 On the Funding and Consummation Date the STOCKHOLDERS, who are the
holders of all outstanding certificates representing shares of COMPANY Stock,
shall, upon surrender of such
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certificates, receive the respective number of shares of METALS Stock and the
amount of cash described on Annex I hereto, said cash to be payable by certified
check.
3.2 The STOCKHOLDERS shall deliver to METALS at the Closing the
certificates representing COMPANY Stock, duly endorsed in blank by the
STOCKHOLDERS, or accompanied by blank stock powers, and with all necessary
transfer tax and other revenue stamps, acquired at the STOCKHOLDERS' expense,
affixed and canceled. The STOCKHOLDERS agree 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.
4. CLOSING
At or prior to the Pricing, the parties shall take all actions necessary
to prepare to (i) effect the Merger (including the execution of the Articles of
Merger which shall be placed in escrow under the control of METALS for filing
with the appropriate authorities on the Funding and Consummation Date) and (ii)
effect the conversion and delivery of shares referred to in Section 3 hereof;
provided, that such actions shall not include the actual completion of the
Merger or the conversion and delivery of the shares and certified check(s)
referred to in Section 3 hereof, each of which actions shall only be taken upon
the Funding and Consummation Date as herein provided. The escrow agreement
relating to the Articles of Merger shall provide that in the event that there is
no Funding and Consummation Date and this Agreement automatically terminates as
provided in this Section 4 the Articles of Merger shall not be filed and shall
be returned to the STOCKHOLDERS. The taking of the actions described in clauses
(i) and (ii) above (the "Closing") shall take place on the closing date (the
"Closing Date") at the offices of Bracewell & Patterson, L.L.P., South Tower
Pennzoil Place, 711 Louisiana, Suite 2900, Houston, Texas 77002. On the Funding
and Consummation Date (x) the Articles of Merger shall be filed with the
appropriate state authorities so that they shall be, as early as practicable on
the Funding and Consummation Date, effective and the Merger shall thereby be
effected, (y) all transactions contemplated by this
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Agreement, including the conversion and delivery of shares, the delivery of a
certified check or checks in an amount equal to the cash portion of the
consideration which the STOCKHOLDERS shall be entitled to receive pursuant to
the Merger referred to in Section 3 hereof and (z) the closing with respect to
the IPO shall occur and be completed. The date on which the actions described in
the preceding clauses (x), (y) and (z) occurs shall be referred to as the
"Funding and Consummation Date." Except as otherwise provided in Section 12
hereof, during the period from the Closing Date to the Funding and Consummation
Date, this Agreement may only be terminated by the parties if the underwriting
agreement in respect of the IPO is terminated pursuant to the terms of such
agreement. This Agreement shall also in any event automatically terminate if the
Funding and Consummation Date has not occurred within 10 business days of the
Closing Date. Time is of the essence.
5. REPRESENTATIONS AND WARRANTIES OF COMPANY AND STOCKHOLDERS
(A) REPRESENTATIONS AND WARRANTIES OF COMPANY AND STOCKHOLDERS.
Each of the COMPANY and the STOCKHOLDERS jointly and severally represent
and warrant that all of the following representations and warranties in this
Section 5(A) are true at the date of this Agreement and, subject to Section 7.8
hereof, shall be true at the time of Closing and the Funding and Consummation
Date, and that such representations and warranties shall survive the Funding and
Consummation Date for a period of twelve months (the last day of such period
being the "Expiration Date"), except that the warranties and representations set
forth in Section 5.22 hereof shall survive until such time as the limitations
period has run for all tax periods ended on or prior to the Funding and
Consummation Date, which shall be deemed to be the Expiration Date for Section
5.22. For purposes of this Section 5, the term COMPANY shall mean and refer to
the COMPANY and all of its subsidiaries.
5.1 DUE ORGANIZATION. The COMPANY is a corporation duly organized and
validly existing under the laws of the State of Incorporation, and has the
requisite power and authority to carry on its business as it is now being
conducted, and is not delinquent in the payment of any
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franchise or similar tax. 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 (i) as set forth on Schedule 5.1 or (ii) 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 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 5.1. The stock records of the COMPANY,
as heretofore made available to METALS, 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 complete in all material 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, power and
authority to enter into this Agreement and the Merger. The most recent
resolutions adopted by the Board of Directors of the COMPANY and the most recent
resolutions adopted by the STOCKHOLDERS, all of which are dated no earlier than
ten business days prior to the date hereof, approve this Agreement and the
transactions contemplated hereby in all respects, and copies of all such
resolutions, certified by the Secretary or an Assistant Secretary of the COMPANY
as being in full force and effect on the date hereof, are attached hereto as
Schedule 5.2.
5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the
COMPANY is as set forth on Schedule 5.3. All of the issued and outstanding
shares of the capital stock of the COMPANY are owned by the STOCKHOLDERS in the
amounts set forth in Annex II. Each STOCKHOLDER, severally, represents and
warrants that except as set forth on Schedule 5.3, the shares of capital stock
of the COMPANY owned by such STOCKHOLDER are owned free and clear
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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, are owned of record and beneficially
by the STOCKHOLDERS and further, such shares were offered, issued, sold and
delivered by the COMPANY in compliance with all applicable state and Federal
laws concerning the issuance of securities. Further, none of such shares were
issued in violation of any preemptive rights of any past or present stockholder.
5.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except as set
forth on Schedule 5.4, the COMPANY has not acquired any COMPANY Stock since
January 1, 1995. Except as set forth on Schedule 5.4, (i) no option, warrant,
call, conversion right or commitment of any kind exists which obligates the
COMPANY to issue any of its authorized but unissued capital stock; (ii) the
COMPANY has no obligation (contingent or otherwise) to purchase, redeem or
otherwise acquire any of its equity securities or any interests therein or to
pay any dividend or make any distribution in respect thereof; and (iii) neither
the voting stock structure of the COMPANY nor the relative ownership of shares
among any of its respective stockholders has been altered or changed in
contemplation of the Merger and/or the METALS Plan of Organization. Schedule 5.4
also includes a complete and accurate list of all stock option or stock purchase
plans, including a list of all outstanding options, warrants or other rights to
acquire shares of the COMPANY's stock and copies of such plans have been
delivered to METALS or are attached to Schedule 5.4.
5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of the
shares of COMPANY Stock was issued pursuant to awards, grants or bonuses in
contemplation of the Merger or the METALS Plan of Organization.
5.6 SUBSIDIARIES. Except as set forth on Schedule 5.6, the COMPANY has no
subsidiaries. Except as set forth in Schedule 5.6 and except for any
corporations or entities with respect to which the COMPANY owns less than 1% of
the issued and outstanding stock, the COMPANY does not presently 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,
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association or business entity nor is the COMPANY, directly or indirectly, a
participant in any joint venture, partnership or other non-corporate entity.
5.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 5.7 is a listing of all
names of all predecessor companies of the COMPANY, including the names of any
entities acquired by the COMPANY (by stock purchase, merger or otherwise) or
owned by the COMPANY or from whom the COMPANY previously acquired material
assets, in any case, from the earliest date upon which any STOCKHOLDER acquired
his or her stock in any COMPANY. Except as disclosed on Schedule 5.7, the
COMPANY has not been, within such period of time, a subsidiary or division of
another corporation or a part of an acquisition which was later rescinded.
5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8, there
has not been any sale, spin-off or split-up of material assets of either the
COMPANY or any other person or entity that directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under common
control with, the COMPANY ("Affiliates") since January 1, 1995.
5.9 FINANCIAL STATEMENTS. Attached hereto as Schedule 5.9 are copies of
the following financial statements (the "COMPANY Financial Statements") of the
COMPANY: the COMPANY's Balance Sheets as of December 31, 1996 and 1995, and
Statements of Income, Stockholders' Equity and Cash Flows for each of the two
years in the period ended December 31, 1996 (December 31, 1996 being hereinafter
referred to as the "Balance Sheet Date"). Such Financial Statements have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods indicated (except as noted thereon or
on Schedule 5.9). Except as set forth on Schedule 5.9, such Balance Sheets
present fairly in all material respects the financial position of the COMPANY as
of the dates indicated thereon, and such Statements of Income, Stockholders
Equity and Cash Flows present fairly in all material respects the results of
operations for the periods indicated thereon.
5.10 LIABILITIES AND OBLIGATIONS. The COMPANY has delivered to METALS an
accurate list (which is set forth on Schedule 5.10) as of the Balance Sheet Date
of (i) all liabilities of the COMPANY of a nature that they are required in
accordance with GAAP to be reflected on a
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balance sheet and which are not reflected on the balance sheet of the COMPANY at
the Balance Sheet Date or otherwise reflected in the COMPANY Financial
Statements at the Balance Sheet Date, and which are not disclosed on any of the
other Schedules to this Agreement and which would have a Material Adverse Effect
on the COMPANY, and (ii) all loan agreements, indemnity or guaranty agreements,
bonds, mortgages, pledges or other security agreements to which the COMPANY is a
party or by which its properties may be bound. Except as set forth on Schedule
5.10, to the best knowledge of the COMPANY, since the Balance Sheet Date the
COMPANY has not incurred any material liabilities of any kind, character or
description, whether accrued, absolute, secured or unsecured, contingent or
otherwise, other than liabilities incurred in the ordinary course of business.
The COMPANY has also delivered to METALS on Schedule 5.10, in the case of those
contingent liabilities related to pending or threatened litigation, or other
liabilities which are not fixed, a good faith and reasonable estimate of the
maximum amount which the COMPANY reasonably expects will be payable and the
amount, if any, accrued or reserved for each such potential liability on the
COMPANY's Financial Statements. For each such contingent liability or liability
for which the amount is not fixed or is contested, the COMPANY has provided to
METALS the following information:
(i) a summary description of the liability together with the
following: (a) copies of all relevant documentation relating
thereto; (b) amounts claimed and any other action or relief
sought; and (c) name of claimant and all other parties to the
claim, suit or proceeding;
(ii) the name of each court or agency before which such claim, suit
or proceeding is pending; and
(iii) the date such claim, suit or proceeding was instituted; and
(iv) a good faith and reasonable estimate of the maximum amount, if
any, which
is likely to become payable with respect to each such liability. If no
estimate is provided, the estimate shall for purposes of this Agreement be
deemed to be zero.
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5.11 ACCOUNTS AND NOTES RECEIVABLE. The COMPANY has delivered to METALS an
accurate list (which is set forth on Schedule 5.11) of the accounts and notes
receivable of the COMPANY, as of the Balance Sheet Date, including any such
amounts which are not reflected in the balance sheet as of the Balance Sheet
Date, and including receivables from and advances to employees and the
STOCKHOLDERS. Except to the extent reflected on Schedule 5.11, such accounts,
notes and other receivables are collectible in the amounts shown on Schedule
5.11, net of reserves reflected in the balance sheet as of the Balance Sheet
Date.
5.12 PERMITS AND INTANGIBLES. The COMPANY or its employees, as
appropriate, hold all licenses, franchises, permits and other governmental
authorizations ("Licenses") the absence of any of which could have a Material
Adverse Effect on the Company's business, and the COMPANY has delivered to
METALS an accurate list and summary description (which is set forth on Schedule
5.12) of all such Licenses, including any 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
5.13). At or prior to the Closing, all such trademarks, trade names, patents,
patent applications, copyrights and other intellectual property will be assigned
or licensed to the COMPANY for no additional consideration. To the best
knowledge of the COMPANY, the Licenses and other rights listed on Schedules 5.12
and 5.13 are valid, and the COMPANY has not received any notice that any person
intends to cancel, terminate or not renew any such License or other right. The
COMPANY has conducted and is conducting its business in compliance with the
requirements, standards, criteria and conditions set forth in the Licenses and
other rights listed on Schedules 5.12 and 5.13 and is not in violation of any of
the foregoing except where such non-compliance or violation would not have a
Material Adverse Effect on the COMPANY. Except as specifically provided in
Schedule 5.12, 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 or other rights.
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5.13 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 5.13, and
except where any failure to comply or action would not have a Material Adverse
Effect, (i) 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 and Hazardous Substances (as such terms are defined
in any applicable Environmental Law), as well as petroleum and petroleum
products (collectively "Hazardous Materials"); (ii) the COMPANY has obtained and
adhered to all necessary permits and other approvals necessary to treat,
transport, store, dispose of and otherwise handle Hazardous Materials, a list of
all of which permits and approvals is set forth on Schedule 5.13, 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 Materials have been treated, stored, disposed of or otherwise
handled; (iii) there have been no releases or threats of releases (as these
terms are defined in Environmental Laws) of any Hazardous Materials at, from, in
or on any property owned or operated by the COMPANY except as permitted by
Environmental Laws; (iv) the COMPANY knows of no on-site or off-site location to
which the COMPANY has transported or disposed of Hazardous Materials or arranged
for the transportation of Hazardous Materials, which site 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, METALS or
NEWCO for any clean-up cost, remedial work, damage to natural resources,
property damage or personal injury, including, but not limited to, any claim
under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended; and (v) to the best knowledge of the COMPANY, the COMPANY
has no contingent liability in connection with any release of any Hazardous
Materials into the environment; provided, however, that the representation set
forth in
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this clause (v) shall not be deemed to limit in any way the representations and
warranties set forth in clauses (i) - (iv) of this Section 5.13.
5.14 PERSONAL PROPERTY. The COMPANY has delivered to METALS an accurate
list (which is set forth on Schedule 5.14) of (x) all personal property material
to the operations of the COMPANY included (or that will be included) in
"depreciable plant, property and equipment" on the balance sheet of the COMPANY,
(y) all other personal property owned by the COMPANY with an individual value in
excess of $50,000 (i) as of the Balance Sheet Date and (ii) acquired since the
Balance Sheet Date and (z) all material leases and agreements in respect of
personal property, including, in the case of each of (x), (y) and (z), (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. Except as set forth on Schedule
5.14, (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 5.14, (ii) all of the personal property listed on Schedule
5.14 is in good working order and condition, ordinary wear and tear excepted and
(iii) all leases and agreements included on Schedule 5.14 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.
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. The
COMPANY has delivered to METALS an accurate list (which is set forth on Schedule
5.15) of (i) all significant customers, it being understood and agreed that a
"significant customer," for purposes of this Section 5.15, means a customer (or
person or entity) representing 5% or more of the COMPANY's annual revenues for
its most recently completed fiscal year. Except to the extent set forth on
Schedule 5.15, 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.
The COMPANY has listed on Schedule 5.15 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
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(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), other than agreements listed
on Schedule 5.10, 5.14 or 5.16, (a) in existence as of the Balance Sheet Date
and (b) entered into since the Balance Sheet Date, and in each case has
delivered true, complete and correct copies of such agreements to METALS. The
COMPANY has also indicated on Schedule 5.15 a summary description of all plans
or projects involving the opening of new operations, expansion of existing
operations, the acquisition of any personal property, business or assets
requiring, in any event, the payment of more than $50,000 by the COMPANY during
any 12-month period.
5.16 REAL PROPERTY. Schedule 5.16 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. Except as set forth
on Schedule 5.16, any such real property owned by the COMPANY will be sold or
distributed by the COMPANY and leased back by the COMPANY on terms no less
favorable to the COMPANY than those available from an unaffiliated party and
otherwise reasonably acceptable to METALS at or prior to the Closing Date. The
COMPANY has good and insurable title to any real property owned by it that is
not shown on Schedule 5.16 as property intended to be sold or distributed prior
to the Closing Date, subject to no mortgage, pledge, lien, conditional sales
agreement, encumbrance or charge, except for:
(i) liens reflected on Schedules 5.10 or 5.16 as securing specified
liabilities (with respect to which no material default exists);
(ii) liens for current taxes not yet payable and assessments not in
default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other exceptions to
title which do not adversely affect the current use of the property.
True, complete and correct copies of all leases and agreements in respect
of such real property leased by the COMPANY are attached to Schedule 5.16, and
an indication as to which such properties, if any, are currently owned, or were
formerly owned, by STOCKHOLDERS or affiliates
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of the COMPANY or STOCKHOLDERS is included in Schedule 5.16. Except as set forth
on Schedule 5.16, all of such leases included on Schedule 5.16 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.
5.17 INSURANCE. The COMPANY has delivered to METALS (i) an accurate list
as of the Balance Sheet Date of all insurance policies carried by the COMPANY,
(ii) an accurate list of all insurance loss runs or workers compensation claims
received for the past three (3) policy years and (iii) true, complete and
correct copies of all insurance policies currently in effect. 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. All of such insurance policies are currently in full force and
effect and shall, to the best knowledge of the COMPANY, remain in full force and
effect through the Funding and Consummation Date. Since January 1, 1994, no
insurance carried by the COMPANY has been canceled by the insurer and the
COMPANY has not been denied coverage.
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS. The
COMPANY has delivered to METALS an accurate list (which is set forth on Schedule
5.18) 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. The COMPANY has provided to METALS
true, complete and correct copies of any employment agreements for persons
listed on Schedule 5.18. Since the Balance Sheet Date, there have been no
material 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 5.18, (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
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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 nor has the COMPANY
experienced any labor interruptions over the past three years. The COMPANY
believes its relationship with employees to be good.
5.19 EMPLOYEE PLANS. The STOCKHOLDERS have delivered to METALS an accurate
schedule (Schedule 5.19) showing all employee benefit plans of COMPANY
(including COMPANY's Subsidiaries), including all employment agreements and
other agreements or arrangements 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 5.19,
COMPANY (including the COMPANY's Subsidiaries) does not sponsor, maintain or
contribute to any plan program, fund or arrangement that constitutes an
"employee pension benefit plan," nor has COMPANY or any Subsidiary 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. Neither COMPANY
nor any Subsidiary has sponsored, maintained or contributed to any employee
pension benefit plan other than the plans set forth on Schedule 5.19, nor is
COMPANY or any Subsidiary 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 COMPANY's or any Subsidiary's employees.
Neither the COMPANY nor any Subsidiary is now, or will as a result of its
past activities become, liable to the Pension Benefit Guaranty Corporation or to
any multiemployer employee
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pension benefit plan under the provisions of Title IV of ERISA for any amounts
which would have a Material Adverse Effect on the COMPANY.
All employee benefit plans listed on Schedule 5.19 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 or any Subsidiary with
respect to any plan listed on Schedule 5.19 have either been fulfilled in their
entirety or are fully reflected on the balance sheet of the COMPANY as of the
Balance Sheet Date.
5.20 COMPLIANCE WITH ERISA. All such plans listed on Schedule 5.19 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 such determination letters are
included as part of Schedule 5.19 hereof. Except as disclosed on Schedule 5.20,
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 5.19 hereof.
Neither STOCKHOLDERS, any such plan listed in Schedule 5.19, nor COMPANY
(including the COMPANY's Subsidiaries) has engaged in any transaction prohibited
under the provisions of Section 4975 of the Code or Section 406 of ERISA. No
such Plan listed in Schedule 5.19 has incurred an accumulated funding
deficiency, as defined in Section 412(a) of the Code and Section 302(1) of
ERISA; and COMPANY (including the COMPANY's Subsidiaries) has not incurred any
liability for excise tax or penalty due to the Internal Revenue Service nor any
liability to the Pension Benefit Guaranty Corporation. The STOCKHOLDERS further
represent that except as set forth on Schedule 5.19 hereto:
(i) 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;
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(ii) no such plan listed in Schedule 5.19 subject to the provisions
of Title IV of ERISA has been terminated;
(iii) 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 5.19;
(iv) COMPANY (including the COMPANY's Subsidiaries) has not incurred
liability under Section 4062 of ERISA; and
(v) To their best knowledge, circumstances exist pursuant to which
the COMPANY could have any direct or indirect liability whatsoever
(including, but not limited to, any liability to any multiemployer 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.
5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedule 5.21 or 5.13, 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 which would have a Material Adverse Effect; and except to
the extent set forth on Schedule 5.10 or 5.13, there are no material claims,
actions, suits or proceedings, pending or, to the knowledge of the COMPANY,
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 any of them
and no notice of any claim, action, suit or proceeding, whether pending or
threatened, has been received by the COMPANY. 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, orders, approvals, variances, rules and regulations,
including all such orders and other governmental approvals set forth on
Schedules 5.12
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and 5.13, except where any such noncompliance, individually or in the aggregate,
would not have a Material Adverse Effect.
5.22 TAXES. COMPANY (including the COMPANY's 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; and except as
set forth on Schedule 5.22, there are no examinations in progress or claims
pending against any of them for federal, state and other taxes (including
penalties and interest) for any period or periods prior to and including the
Balance Sheet Date and no notice of any claim for taxes, whether pending or
threatened, has been received. All tax, including interest and penalties
(whether or not shown on any tax return) owed by the COMPANY or any of the
COMPANY's Subsidiaries has been paid. The amounts shown as accruals for taxes on
the COMPANY Financial Statements are sufficient for the payment of all taxes of
the kinds indicated (including penalties and interest) for all fiscal periods
ended on or before that date. Copies of (i) any tax examinations, (ii)
extensions of statutory limitations and (iii) the federal and local income tax
returns and franchise tax returns of COMPANY (including the COMPANY
Subsidiaries) for their last three (3) fiscal years, or such shorter period of
time as any of them shall have existed, are attached hereto as Schedule 5.22 or
have otherwise been delivered to METALS. The COMPANY has a taxable year ended
December 31. 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.
5.23 NO VIOLATIONS; CONSENTS, ETC. The COMPANY is not in violation of any
Charter Document. Neither the COMPANY nor, to the best knowledge of the COMPANY,
any other party thereto, is in default under any lease, instrument, agreement,
license, or permit set forth on Schedule 5.12, 5.13, 5.14, 5.15 or 5.16, or any
other material agreement to which it is a party or by which its properties are
bound (the "Material Documents") in any manner that could result in a Material
Adverse Effect; and, except as set forth in Schedule 5.23, (a) the rights and
benefits of the COMPANY under the Material Documents will not be materially
adversely affected by the transactions contemplated hereby and (b) the execution
of this Agreement and the performance of
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the obligations hereunder and the consummation of the transactions contemplated
hereby will not result in any material violation or breach or constitute a
default under, any of the terms or provisions of the Material Documents or the
Charter Documents. Except as set forth on Schedule 5.23, 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. Except as
set forth on Schedule 5.23, none of the Material Documents prohibits the use or
publication by the COMPANY, METALS or NEWCO 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, METALS, NEWCO or any Other Founding Company.
5.24 GOVERNMENT CONTRACTS. Except as set forth on Schedule 5.24, the
COMPANY is not now a party to any governmental contracts subject to price
redetermination or renegotiation.
5.25 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
on Schedule 5.25 or as otherwise contemplated hereby, 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
except for distributions that would have been permitted after the date
hereof under Section 7.3(iii) hereof;
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(v) any material 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, except for ordinary and customary bonuses and salary increases for
employees in accordance with past practice;
(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 STOCKHOLDERS 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
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(xv) any other distribution of property or assets by the COMPANY
other than in the ordinary course of business and other than distributions
of real estate and other assets as permitted by this Agreement (including
the Schedules hereto).
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The COMPANY has delivered to
METALS an accurate schedule (which is set forth on Schedule 5.26) as of the date
of the 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; and
(iv) the name of each person authorized to draw thereon or have
access thereto. Schedule 5.26 also sets forth the name of each person,
corporation, firm or other entity holding a general or special power of
attorney from the COMPANY and a description of the terms of such power.
5.27 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by the COMPANY and the performance of the transactions contemplated herein have
been duly and validly authorized by the Board of Directors of the COMPANY and
this Agreement has been duly and validly authorized by all necessary corporate
action and is a legal, valid and binding obligation of the COMPANY.
5.28 RELATIONS WITH GOVERNMENTS. Except for political contributions made
in a lawful manner which, in the aggregate, do not exceed $10,000 per year, the
COMPANY has not over the past five (5) years made, offered or agreed to offer
anything of value to any governmental official, political party or candidate for
government office nor has it 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. If political contributions made by the
COMPANY have exceeded $10,000 per year for each year in which any STOCKHOLDER
has been a stockholder of the COMPANY, each contribution in the amount of $5,000
or more shall be described on Schedule 5.28.
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5.29 DISCLOSURE. (a) This Agreement, including the Annexes and Schedules
hereto, and the completed Director and Officer Questionnaires and the completed
S-1 Questionnaire furnished to METALS by the COMPANY and the STOCKHOLDERS in
connection herewith, do not contain an untrue statement of a material fact or
omit to state a material fact necessary to make the statements herein and
therein, in light of the circumstances under which they were made, not
misleading; provided, however, that the foregoing does not apply to statements
contained in or omitted from any of such documents made or omitted in reliance
upon information furnished in writing by METALS. If, prior to the 25th day after
the date of the final prospectus of METALS utilized in connection with the IPO,
the COMPANY or the STOCKHOLDERS become aware of any fact or circumstance which
would affect the accuracy of a representation or warranty of COMPANY or
STOCKHOLDERS in this Agreement in any material respect, the COMPANY and the
STOCKHOLDERS shall immediately give notice of such fact or circumstance to
METALS. However, subject to the provisions of Section 7.8, such notification
shall not relieve either the COMPANY or the STOCKHOLDERS of their respective
obligations under this Agreement, and, subject to the provisions of Section 7.8,
at the sole option of METALS, the truth and accuracy of any and all warranties
and representations of the COMPANY, or on behalf of the COMPANY and of
STOCKHOLDERS at the date of this Agreement and on the Closing Date and on the
Funding and Consummation Date, shall be a precondition to the consummation of
this transaction.
(b) The COMPANY and the STOCKHOLDERS acknowledge and agree (i)
that there exists no firm commitment, binding agreement, or promise or other
assurance of any kind, whether express or implied, oral or written, that a
Registration Statement will become effective or that the IPO pursuant thereto
will occur at a particular price or within a particular range of prices or occur
at all; (ii) that neither METALS or any of its officers, directors, agents or
representatives nor any Underwriter shall have any liability to the COMPANY, the
STOCKHOLDERS or any other person affiliated or associated with the COMPANY for
any failure of the Registration Statement to become effective, the IPO to occur
at a particular price or within a particular range of prices or to occur at all;
and (iii) that the decision of STOCKHOLDERS to enter into this Agreement, or to
vote
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in favor of or consent to the proposed Merger, has been or will be made
independent of, and without reliance upon, any statements, opinions or other
communications, or due diligence investigations which have been or will be made
or performed by any prospective Underwriter, relative to METALS or the
prospective IPO. METALS agrees, however, to use all reasonable efforts to
consummate the METALS Plan of Organization and IPO as contemplated hereby.
5.30 PROHIBITED ACTIVITIES. Except as set forth on Schedule 5.30, 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.
(B) REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS
Each STOCKHOLDER severally represents and warrants that the
representations and warranties set forth below are true as of the date of this
Agreement and, subject to Section 7.8 hereof, shall be true at the time of
Closing and on the Funding and Consummation Date, and that the representations
and warranties set forth in Sections 5.31 and 5.32 shall survive until the first
anniversary of the Funding and Consummation Date, which shall be the Expiration
Date for purposes of Sections 5.31 and 5.32.
5.31 AUTHORITY; OWNERSHIP. Such STOCKHOLDER has the full legal right,
power and authority to enter into this Agreement. Such STOCKHOLDER owns
beneficially and of record all of the shares of the COMPANY stock identified on
Annex II as being owned by such STOCKHOLDER, and, except as set forth on
Schedule 5.31, such COMPANY Stock is owned free and clear of all liens,
encumbrances and claims of every kind.
5.32 PREEMPTIVE RIGHTS. Such STOCKHOLDER does not have, or hereby waives,
any preemptive or other right to acquire shares of COMPANY Stock or METALS Stock
that such STOCKHOLDER has or may have had. Nothing herein, however, shall limit
or restrict the rights of any STOCKHOLDER to acquire METALS Stock pursuant to
(i) this Agreement or (ii) any option granted by METALS.
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5.33 NO INTENTION TO DISPOSE OF METALS STOCK. No STOCKHOLDER is under any
binding commitment or contract to sell, exchange or otherwise dispose of shares
of METALS Stock received as described in Section 3.1.
6. REPRESENTATIONS OF METALS AND NEWCO
METALS and NEWCO jointly and severally represent and warrant that
all of the following representations and warranties in this Section 6 are true
at the date of this Agreement and, subject to Section 7.8 hereof, shall be true
at the time of Closing and the Funding and Consummation Date, and that such
representations and warranties shall survive the Funding and Consummation Date
for a period of twelve months (the last day of such period being the "Expiration
Date"), except that (i) the warranties and representations set forth in Section
6.14 hereof shall survive until such time as the limitations period has run for
all tax periods ended on or prior to the Funding and Consummation Date, which
shall be deemed to be the Expiration Date for Section 6.14 and (ii) solely for
purposes of determining whether a claim for indemnification under Section
11.2(iv) hereof has been made on a timely basis, and solely to the extent that
in connection with the IPO, any of the STOCKHOLDERS actually incurs liability
under the 1933 Act, the 1934 Act, or any other Federal or state securities laws,
the representations and warranties set forth herein shall survive until the
expiration of any applicable limitations period, which shall be deemed to be the
Expiration Date for such purposes.
6.1 DUE ORGANIZATION. METALS and NEWCO are each corporations duly
organized, validly existing and in good standing under the laws of the State of
Delaware, 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 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. True,
complete and correct copies of the Certificate of Incorporation and By-laws,
each as proposed to be amended, of METALS and NEWCO (the "METALS Charter
Documents") are all attached hereto as Annex IV.
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6.2 AUTHORIZATION. (i) The respective representatives 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 consummate the
Merger. All corporate acts and other proceedings required to have been taken by
METALS and NEWCO to authorize the execution, delivery and performance of this
Agreement and the consummation of the Merger have been duly and properly taken.
6.3 CAPITAL STOCK OF METALS AND NEWCO. The authorized capital stock of
METALS and NEWCO is as set forth in Sections 1.4(ii) and (iii), respectively.
All of the issued and outstanding shares of the capital stock of NEWCO are owned
by METALS and all of the issued and outstanding shares of the capital stock of
METALS are owned by the persons set forth on Annex III hereof, in each case,
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 METALS and NEWCO have been duly
authorized and validly issued, are fully paid and nonassessable, are owned of
record and beneficially by METALS and the persons set forth on Annex III,
respectively, and further, such shares were offered, issued, sold and delivered
by METALS and NEWCO in compliance with all applicable state and Federal laws
concerning the issuance of securities. Further, none of such shares were issued
in violation of the preemptive rights of any past or present stockholder of
METALS or NEWCO.
6.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except for the
Other Agreements and except as set forth on Schedule 6.4, (i) no option,
warrant, call, conversion right or commitment of any kind exists which obligates
METALS or NEWCO to issue any of their respective authorized but unissued capital
stock; and (ii) neither METALS nor NEWCO has any obligation (contingent or
otherwise) to purchase, redeem or otherwise acquire any of its equity securities
or any interests therein or to pay any dividend or make any distribution in
respect thereof. Schedule 6.4 also includes complete and accurate copies of all
stock option or stock purchase plans,
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including a list, accurate as of the date hereof, of all outstanding options,
warrants or other rights to acquire shares of the stock of METALS.
6.5 SUBSIDIARIES. NEWCO has no subsidiaries. METALS has no subsidiaries
except for NEWCO and each of the companies identified as "NEWCO" in each of the
Other Agreements. Except as set forth in the preceding sentence, neither METALS
nor NEWCO presently owns, of record or beneficially, or controls, directly or
indirectly, any capital stock, securities convertible into capital stock or any
other equity interest in any corporation, association or business entity, and
neither METALS nor NEWCO, directly or indirectly, is a participant in any joint
venture, partnership or other non-corporate entity.
6.6 FINANCIAL STATEMENTS. Included in the Draft Registration Statement are
copies of the following financial statements (the "METALS Financial Statements")
of METALS, which reflect the results of its operations from inception in July
1996: METALS's audited Balance Sheet as of December 31, 1996. Such METALS
Financial Statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
indicated (except as noted thereon). Such Balance Sheet presents fairly the
financial position of METALS as of such date.
6.7 LIABILITIES AND OBLIGATIONS. Except as set forth on Schedule 6.7,
METALS and NEWCO have no material liabilities, contingent or otherwise, except
as set forth in or contemplated by this Agreement and the Other Agreements and
except for fees incurred in connection with the transactions contemplated hereby
and thereby.
6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedule 6.8, neither METALS nor NEWCO is 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 either of them which would have a Material Adverse Effect; and
except to the extent set forth in Schedule 6.8, there are no material claims,
actions, suits or proceedings, pending or, to the knowledge of METALS or NEWCO,
threatened against or affecting, METALS or NEWCO, at law or in equity, or before
or by any Federal, state, municipal or other
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governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over either of them and no notice of any claim, action, suit
or proceeding, whether pending or threatened, has been received. METALS and
NEWCO have conducted and are conducting their respective businesses 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 and are not in
violation of any of the foregoing which would have a Material Adverse Effect.
6.9 NO VIOLATIONS. Neither METALS nor NEWCO is in violation of any METALS
Charter Document. None of METALS, NEWCO, or, to the knowledge of METALS and
NEWCO, any other party thereto, is in default under any lease, instrument,
agreement, license, or permit to which METALS or NEWCO is a party, or by which
METALS or NEWCO, or any of their respective properties, are bound (collectively,
the "METALS Documents"); and (a) the rights and benefits of METALS and NEWCO
under the METALS Documents will not be adversely affected by the transactions
contemplated hereby and (b) the execution and delivery of this Agreement by
METALS and NEWCO and the performance of their obligations hereunder do not, and
the consummation of the transactions contemplated hereby and compliance with the
terms hereof will not, conflict with, or result in any violation or default
(with or without notice or lapse of time, or both), under or give rise to a
right of termination, cancellation, or acceleration of any obligation or to loss
of a material benefit under, or result in the creation of any lien upon any of
the assets of METALS or any NEWCO under, any provision of (i) the Certificate of
Incorporation or Bylaws of METALS or the comparable governing instruments of any
NEWCO, (ii) any note, bond, mortgage, indenture or deed of trust or any license,
lease, contract, commitment, agreement or arrangement to which METALS and any
NEWCO is a party or by which any of their respective properties or assets are
bound or (iii) any judgment, order, decree or law, ordinance, rule or
regulation, applicable to METALS or any NEWCO or their respective properties or
assets. 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 material violation or breach or constitute a default under, any of
the
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terms or provisions of the METALS Documents or the METALS Charter Documents.
Except as set forth on Schedule 6.9, none of the METALS 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.
6.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by METALS and NEWCO and the performance of the transactions contemplated herein
have been duly and validly authorized by the respective 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.
6.11 METALS STOCK. At the time of issuance thereof and delivery to the
STOCKHOLDERS, the METALS Stock to be delivered to the STOCKHOLDERS pursuant to
this Agreement will constitute valid and legally issued shares of METALS, fully
paid and nonassessable, and with the exception of restrictions upon resale set
forth in Sections 15 and 16 hereof, will be identical in all substantive
respects (which do not include the form of certificate upon which it is printed
or the presence or absence of a CUSIP number on any such certificate) to the
METALS Stock issued and outstanding as of the date hereof by reason of the
provisions of the Delaware GCL. The METALS Stock issued and delivered to the
STOCKHOLDERS shall at the time of such issuance and delivery be free and clear
of any liens, claims or encumbrances of any kind or character. The shares of
METALS Stock to be issued to the STOCKHOLDERS pursuant to this Agreement will
not be registered under the 1933 Act, except as provided in Section 17 hereof.
6.12 NO SIDE AGREEMENTS. Neither METALS nor NEWCO has entered or will
enter into any agreement with any of the Founding Companies or any of the
stockholders of the Founding Companies or METALS other than the Other Agreements
and the agreements contemplated by each of the Other Agreements, including the
employment agreements, leases and Indemnification
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Agreements referred to herein or entered into in connection with the
transactions contemplated hereby and thereby.
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. METALS was formed in
July 1996 and has conducted limited operations since that time. Neither METALS
nor NEWCO has conducted any material business since the date of its inception,
except in connection with this Agreement, the Other Agreements and the IPO.
Neither METALS nor NEWCO owns or has at any time owned any real property or any
material personal property or is a party to any other agreement, except as
listed on Schedule 6.13 and except that METALS is a party to the Other
Agreements and the agreements contemplated thereby and to such agreements as
will be filed as Exhibits to the Registration Statement.
6.14 TAXES. METALS and NEWCO have 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; and except as set forth on Schedule 6.14,
there are no examinations in progress or claims against METALS for federal,
state and other taxes (including penalties and interest) for any period or
periods prior to and including the Balance Sheet Date and no notice of any claim
for taxes, whether pending or threatened, has been received. All taxes which
METALS or any NEWCO has been required to collect or withhold have been duly and
timely collected and withheld and have been set aside in accounts for such
purposes, or have been duly and timely paid to the proper governmental
authority. All tax, including interest and penalties (whether or not shown on
any tax return) owed by METALS, any member of an affiliated or consolidated
group which includes or included METALS, or with respect to any payment made or
deemed made by METALS herein has been paid. The amounts shown as accruals for
taxes on METALS Financial Statements are sufficient for the payment of all taxes
of the kinds indicated (including penalties and interest) for all fiscal periods
ended on or before that date. Copies of any (i) tax examinations, (ii)
extensions of statutory limitations, (iii) federal and local income tax returns
and franchise tax returns of METALS for the year ended December 31, 1996, are
attached hereto as Schedule 6.14. Except as set forth in
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Schedule 6.14, METALS and NEWCO have not entered into any tax sharing agreement
or similar arrangement. METALS is not an investment company as defined in
Section 351(e)(1) of the Code.
6.15 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
in the Draft Registration Statement delivered to the STOCKHOLDERS, and except as
contemplated by this Agreement and the Other Agreements, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of METALS or
NEWCO;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
METALS or NEWCO;
(iii) any change in the authorized capital of METALS or NEWCO or
their outstanding securities or any change in their 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 METALS or
NEWCO;
(v) any work interruptions, labor grievances or claims filed, or any
event or condition of any character, materially adversely affecting the
business of METALS or NEWCO;
(vi) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of METALS or NEWCO to any person;
(vii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to METALS or NEWCO;
(viii) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property
or rights of METALS or NEWCO or requiring consent of any party to the
transfer and assignment of any such assets, property or rights;
(ix) any waiver of any material rights or claims of METALS or NEWCO;
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(x) any amendment or termination of any material contract,
agreement, license, permit or other right to which METALS or NEWCO is a
party;
(xi) any transaction by METALS or NEWCO outside the ordinary course
of its business;
(xii) any other distribution of property or assets by METALS or
NEWCO other than in the ordinary course of business.
6.16 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by METALS and NEWCO and the performance of the transactions contemplated herein
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.
6.17 DISCLOSURE. The Draft Registration Statement delivered to the COMPANY
and the STOCKHOLDERS, together with this Agreement and the information furnished
to the COMPANY and the STOCKHOLDERS in connection herewith, does not contain an
untrue statement of a material fact or omit to state a material fact necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading; provided, however, that the foregoing does not apply
to statements contained in or omitted from any of such documents made or omitted
in reliance upon information furnished by the COMPANY or the STOCKHOLDERS.
6.18 PRIVATE OFFERING. (a) Neither METALS, any of its affiliates nor
anyone on its or their behalf, has issued, sold, or offered any securities of
METALS to any person under circumstances that would cause the issuance and sale
of the METALS Stock to the STOCKHOLDERS pursuant to this Agreement, to be
subject to the registration requirements of the 1933 Act.
(b) The offering of shares of METALS Stock pursuant to the METALS Plan of
Organization has been made in compliance with applicable federal and state
securities laws.
7. COVENANTS PRIOR TO CLOSING
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7.1 ACCESS AND COOPERATION; DUE DILIGENCE. (a) Between the date of this
Agreement and the Funding and Consummation Date, the COMPANY will afford to the
officers and authorized representatives of METALS and the Other Founding
Companies 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 or
the Other Founding Companies may from time to time reasonably request. The
COMPANY will cooperate with METALS and the Other Founding Companies, 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, NEWCO, the STOCKHOLDERS and the
COMPANY will treat all information obtained in connection with the negotiation
and performance of this Agreement or the due diligence investigations conducted
with respect to the Other Founding Companies as confidential in accordance with
the provisions of Section 14 hereof. In addition, METALS will cause each of the
Other Founding Companies to enter into a provision similar to this Section 7.1
requiring each such Other Founding Company, its stockholders, directors,
officers, representatives, employees and agents to keep confidential any
information obtained by such Other Founding Company.
(b) Between the date of this Agreement and the Funding and Consummation
Date, METALS will afford to the officers and authorized representatives of the
COMPANY access to all of METALS's and NEWCO's sites, properties, books and
records and will furnish the COMPANY with such additional financial and
operating data and other information as to the business and properties of METALS
and NEWCO as the COMPANY may from time to time reasonably request. METALS and
NEWCO will cooperate with the COMPANY, 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. The
COMPANY will cause all information obtained in connection with the negotiation
and performance of this Agreement to be treated as confidential in accordance
with the provisions of Section 14 hereof.
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7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Funding and Consummation Date, the COMPANY will, except as set
forth on Schedule 7.2:
(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) use all reasonable efforts to 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) use all reasonable efforts to 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;
(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; and
(viii) maintain or reduce present salaries and commission levels for
all officers, directors, employees and agents except for ordinary and
customary bonus and salary increases for employees in accordance with past
practices.
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7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3, between
the date hereof and the Funding and Consummation Date, the COMPANY will not,
without prior written consent of METALS, which consent will not be unreasonably
withheld:
(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 other than in
connection with the exercise of options or warrants listed in Schedule
5.4;
(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 for distributions in the amount of estimated taxes payable by the
STOCKHOLDERS on S corporation earnings (if any) of the COMPANY for the
period from the Balance Sheet Date to the Closing Date and specified on
Schedule 7.3 hereto, and any other distributions of Accumulated
Adjustments Accounts amounts specified on Schedule 7.3 hereto, it being
understood and agreed that any such distributions in excess of such
estimated taxes shall result in a corresponding dollar for dollar decrease
in the amount of cash otherwise payable to the STOCKHOLDERS as part of the
Merger consideration hereunder;
(iv) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditures, except if it is in
the normal course of business (consistent with past practice) or involves
an amount not in excess of $100,000;
(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 $50,000 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,
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mechanics', workers', repairmen's, employees' or other like liens arising
in the ordinary course of business (the liens set forth in clause (2)
being referred to herein as "Statutory Liens"), or (3) liens set forth on
Schedule 5.10 and/or 5.15 hereto;
(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business and other
than distributions of real estate and other assets as permitted in this
Agreement (including the Schedules hereto);
(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;
(ix) waive any material rights or claims of the COMPANY, provided
that the COMPANY may negotiate and adjust bills and accounts in the course
of good faith disputes with customers in a manner consistent with past
practice, provided, further, that such adjustments shall not be deemed to
be included in Schedule 5.11 unless specifically listed thereon;
(x) amend or terminate any material agreement, permit, license or
other right of the COMPANY; or
(xi) enter into any other transaction outside the ordinary course of
its business or prohibited hereunder.
7.4 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 Funding and Consummation 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 or its
authorized agents relating to, any acquisition or purchase of all or a
material amount of the assets of, or
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any equity interest in, the COMPANY or a merger, consolidation or business
combination of the COMPANY.
7.5 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 on Schedule 7.5 with proof that any required notice has been
sent.
7.6 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 listed on Schedule
9.12 hereto and (ii) any existing agreement between the COMPANY and any
STOCKHOLDER, on or prior to the Funding and Consummation Date provided that
nothing herein shall prohibit or prevent the COMPANY from paying (either prior
to or on the Closing Date) notes or other obligations from the COMPANY to the
STOCKHOLDERS in accordance with the terms thereof, which terms have been
disclosed to METALS. Such termination agreements are listed on Schedule 7.6 and
copies thereof shall be attached thereto.
7.7 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. METALS and NEWCO 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 or NEWCO contained herein to be untrue or inaccurate in any material
respect at or prior to the Closing and (ii) any material failure of METALS or
NEWCO 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
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this Section 7.7 shall not be deemed to (i) modify the representations or
warranties hereunder of the party delivering such notice, which modification may
only be made pursuant to Section 7.8, (ii) modify the conditions set forth in
Sections 8 and 9, or (iii) limit or otherwise affect the remedies available
hereunder to the party receiving such notice.
7.8 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 24 hours prior to the
anticipated effectiveness of the Registration Statement to supplement or amend
promptly the Schedules 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, provided however,
that supplements and amendments to Schedules 5.10, 5.11, 5.14 and 5.15 shall
only have to be delivered at the Closing Date, unless such Schedule is to be
amended to reflect an event occurring other than in the ordinary course of
business. Notwithstanding the foregoing sentence, no amendment or supplement to
a Schedule prepared by the COMPANY that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect may be made unless METALS
and a majority of the Founding Companies other than the COMPANY consent to such
amendment or supplement; and provided further, that no amendment or supplement
to a Schedule prepared by METALS or NEWCO that constitutes or reflects an event
or occurrence that would have a Material Adverse Effect may be made unless a
majority of the Founding Companies consent to such amendment or supplement. For
all purposes of this Agreement, including without limitation for purposes of
determining whether the conditions set forth in Sections 8.1 and 9.1 have been
fulfilled, the Schedules hereto shall be deemed to be the Schedules as amended
or supplemented pursuant to this Section 7.8. In the event that one of the Other
Founding Companies seeks to amend or supplement a Schedule pursuant to Section
7.8 of one of the Other Agreements, and such amendment or supplement constitutes
or reflects an event or occurrence that would have a Material Adverse Effect on
such Other Founding Company, METALS shall give the COMPANY notice promptly after
it has knowledge thereof. If METALS and a majority of the Founding Companies
consent to such amendment or supplement,
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which consent shall have been deemed given by METALS or any Founding Company if
no response is received within 24 hours following receipt of notice of such
amendment or supplement (or sooner if required by the circumstances under which
such consent is requested), but the COMPANY does not give its consent, the
COMPANY may terminate this Agreement pursuant to Section 12.1(iv) hereof. In the
event that the COMPANY seeks to amend or supplement a Schedule pursuant to this
Section 7.8, and METALS and a majority of the Other Founding Companies do not
consent to such amendment or supplement, this Agreement shall be deemed
terminated by mutual consent as set forth in Section 12.1(i) hereof. In the
event that METALS or NEWCO seeks to amend or supplement a Schedule pursuant to
this Section 7.8 and a majority of the Founding Companies do not consent to such
amendment or supplement, this Agreement shall be deemed terminated by mutual
consent as set forth in Section 12.1(i) hereof. No party to this Agreement shall
be liable to any other party if this Agreement shall be terminated pursuant to
the provisions of this Section 7.8. No amendment of or supplement to a Schedule
shall be made later than 24 hours prior to the anticipated effectiveness of the
Registration Statement.
7.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The COMPANY and
STOCKHOLDERS shall furnish or cause to be furnished to METALS and the
Underwriters all of the information concerning the COMPANY and the STOCKHOLDERS
required for inclusion in, and will cooperate with METALS and the Underwriters
in the preparation of, the Registration Statement and the prospectus included
therein (including audited and unaudited financial statements, prepared in
accordance with generally accepted accounting principles, in form suitable for
inclusion in the Registration Statement). The COMPANY and the STOCKHOLDERS agree
promptly to advise METALS if at any time during the period in which a prospectus
relating to the offering is required to be delivered under the Securities Act,
any information contained in the prospectus concerning the COMPANY or the
STOCKHOLDERS becomes incorrect or incomplete in any material respect, and to
provide the information needed to correct such inaccuracy. Insofar as the
information relates solely to the COMPANY or the STOCKHOLDERS, the COMPANY
represents and warrants as to such information with respect to itself, and each
Stockholder represents and
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warrants, as to such information with respect to the COMPANY and himself or
herself, that the Registration Statement will not include an untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
7.10 FINAL FINANCIAL STATEMENTS. The COMPANY shall provide prior to the
Funding and Consummation Date, and METALS shall have had sufficient time to
review the unaudited consolidated balance sheets of the COMPANY as of the end of
all fiscal quarters following the Balance Sheet Date, and the unaudited
consolidated statement of income, cash flows and retained earnings of the
COMPANY for all fiscal quarters ended after the Balance Sheet Date, disclosing
no material adverse change in the financial condition of the COMPANY or the
results of its operations from the financial statements as of the Balance Sheet
Date. Such financial statements shall have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods indicated (except as noted therein). Except as noted in
such financial statements, all of such financial statements will present fairly
the results of operations of the COMPANY for the periods indicated therein.
7.11 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.
7.12 AUTHORIZED CAPITAL. Prior to the Funding and Consummation Date,
METALS shall maintain its authorized capital stock as set forth in the
Registration Statement filed with the SEC except for such changes in authorized
capital stock as are made to respond to comments made by the SEC or requirements
of any exchange or automated trading system for which application is made to
register the METALS Stock and any changes necessary or advisable in order to
permit the delivery of the opinion contemplated by Section 8.12 hereof.
7.13 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
compliance by the STOCKHOLDERS and the COMPANY shall be deemed a condition
precedent in addition to the conditions precedent set forth in Section 9 of this
Agreement, and such compliance by METALS and NEWCO shall be deemed a condition
precedent in addition to the conditions precedent set forth in Section 8 of 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. The obligation of each party to
consummate the transactions contemplated by this Agreement is subject to the
expiration or termination of the waiting period under the Hart-Scott Act, if
applicable.
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. The obligations of
the STOCKHOLDERS and the COMPANY with respect to actions to be taken on the
Funding and Consummation Date are subject to the satisfaction or waiver on or
prior to the Funding and Consummation Date of the conditions set forth in
Sections 8.1, 8.5, 8.8, 8.9 and 8.12. As of the Closing Date or, with respect to
the conditions set forth in Sections 8.1, 8.5, 8.8, 8.9 and 8.12, as of the
Funding and Consummation Date, if any such conditions have 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 Funding and Consummation 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 of METALS and NEWCO contained in Section 6 hereof.
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8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
representations and warranties of METALS and NEWCO contained in Section 6 shall
be true and correct in all material respects as of the Closing Date and the
Funding and Consummation 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 and NEWCO on or before the
Closing Date and the Funding and Consummation Date shall have been duly complied
with and performed in all material respects; and certificates to the foregoing
effect dated the Closing Date and the Funding and Consummation Date,
respectively, 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.
The STOCKHOLDERS and the COMPANY shall be satisfied that the Registration
Statement and the prospectus forming a part thereof, including any amendments
thereof or supplements thereto, shall not contain any untrue statement of a
material fact, or omit to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, provided
that the condition contained in this sentence shall be deemed satisfied if the
COMPANY or STOCKHOLDERS shall have failed to inform METALS in writing prior to
the effectiveness of the Registration Statement of the existence of an untrue
statement of a material fact or the omission of such a statement of a material
fact.
8.3 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO 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 management of the COMPANY deems it inadvisable to proceed with the
transactions hereunder.
8.4 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
V.
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8.5 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC and the underwriters named therein shall have
agreed to acquire on a firm commitment basis, subject to the conditions set
forth in the underwriting agreement, on terms such that the aggregate value of
the cash and the number of shares of METALS Stock to be received by the
STOCKHOLDERS is not less than the Minimum Value set forth on Annex I.
8.6 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 and no action
or proceeding shall have been instituted or threatened to restrain or prohibit
the Merger and no governmental agency or body shall have taken any other action
or made any request of COMPANY as a result of which COMPANY deems it inadvisable
to proceed with the transactions hereunder.
8.7 GOOD STANDING CERTIFICATES. METALS and NEWCO each shall have delivered
to the COMPANY a certificate, dated as of a date no later than ten days prior to
the Closing Date, duly issued by the Delaware Secretary of State and in each
state in which METALS or NEWCO is authorized to do business, showing that each
of METALS and NEWCO is in good standing and authorized to do business and that
all state franchise and/or income tax returns and taxes for METALS and NEWCO,
respectively, for all periods prior to the Closing have been filed and paid.
8.8 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall have
occurred with respect to METALS or NEWCO which would constitute a Material
Adverse Effect.
8.9 CLOSING OF IPO. The closing of the sale of the METALS Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
8.10 SECRETARY'S CERTIFICATE. The COMPANY shall have received a
certificate or certificates, dated the Closing Date and signed by the secretary
of METALS and of NEWCO, certifying the truth and correctness of attached copies
of the METALS's and NEWCO's respective Certificates of Incorporation (including
amendments thereto), By-Laws (including amendments thereto), and resolutions of
the boards of directors and, if required, the stockholders of METALS and
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NEWCO approving METALS's and NEWCO's entering into this Agreement and the
consummation of the transactions contemplated hereby.
8.11 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule 9.12
shall have been afforded the opportunity to enter into an employment agreement
substantially in the form of Annex VII hereto.
8.12 TAX MATTERS. The STOCKHOLDERS shall have received an opinion of
Arthur Andersen LLP that the METALS Plan of Organization will qualify as a
tax-free transfer of property under Section 351 of the Code and that the
STOCKHOLDERS will not recognize gain to the extent the STOCKHOLDERS exchange
stock of the COMPANY for METALS stock (but not cash or other property) pursuant
to the METALS Plan of Organization.
9. 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. The obligations of METALS and
NEWCO with respect to actions to be taken on the Funding and Consummation Date
are subject to the satisfaction or waiver on or prior to the Funding and
Consummation Date of the conditions set forth in Sections 9.1, 9.4 and 9.13. As
of the Closing Date or, with respect to the conditions set forth in Sections
9.1, 9.4 and 9.13, as of the Funding and Consummation Date, if any such
conditions have not been satisfied, METALS and NEWCO shall have the right to
terminate this Agreement, or waive any such condition, but no such waiver shall
be deemed to affect the survival of the representations and warranties contained
in Section 5 hereof.
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 and the Funding and Consummation 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
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Closing Date or the Funding and Consummation 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 the Funding and Consummation Date, respectively, and signed by them to such
effect.
9.2 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of METALS as a result of which the
management of METALS deems it inadvisable to proceed with the transactions
hereunder.
9.3 SECRETARY'S CERTIFICATE. METALS shall have received a certificate,
dated the Closing Date and signed by the secretary of the COMPANY, certifying
the truth and correctness of attached copies of the COMPANY's Certificate of
Incorporation (including amendments thereto), By-Laws (including amendments
thereto), and resolutions of the board of directors and the STOCKHOLDERS
approving the COMPANY's entering into this Agreement and the consummation of the
transactions contemplated hereby.
9.4 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 covered by insurance, which
change, loss or damage materially affects or impairs the ability of the COMPANY
to conduct its business.
9.5 STOCKHOLDERS' RELEASE. The STOCKHOLDERS shall have delivered to METALS
an instrument dated the Closing Date which shall be effective only upon the
occurrence of the Funding and Consummation 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 (x) items
specifically identified on Schedules 5.10 and 5.15 as being claims of or
obligations to the STOCKHOLDERS, (y) continuing obligations to STOCKHOLDERS
relating to their employment by the COMPANY and (z) obligations arising
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under this Agreement or the transactions contemplated hereby. In the event that
the Funding and Consummation Date does not occur, then the release instrument
referenced herein shall be void and of no further force or effect.
9.6 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.
9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth on
Schedule 9.7, all existing agreements between the COMPANY and the STOCKHOLDERS
(and entities controlled by the STOCKHOLDERS) shall have been canceled effective
prior to or as of the Funding and Consummation Date.
9.8 OPINION OF COUNSEL. METALS shall have received an opinion from Counsel
to the COMPANY and the STOCKHOLDERS, dated the Closing Date, substantially in
the form annexed hereto as Annex VI.
9.9 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 5.23 shall have been obtained;
and no action or proceeding shall have been instituted or threatened to restrain
or prohibit the Merger 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.
9.10 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
COMPANY's state of incorporation and, unless waived by METALS, 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.
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9.11 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC.
9.12 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule 9.12
shall enter into an employment agreement substantially in the form of Annex VII
hereto.
9.13 CLOSING OF IPO. The closing of the sale of the METALS Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
9.14 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.
10. COVENANTS OF METALS AND THE STOCKHOLDERS AFTER CLOSING
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS. METALS
shall use its best efforts to have the STOCKHOLDERS released from any and all
guarantees on any indebtedness that they personally guaranteed and from any and
all pledges of assets that they pledged to secure such indebtedness for the
benefit of the COMPANY, with all such guarantees on indebtedness being assumed
by METALS. In the event that METALS cannot obtain such releases from the lenders
of any such guaranteed indebtedness on or prior to 120 days subsequent to the
Funding and Consummation Date, METALS shall promptly pay off or otherwise
refinance or retire such indebtedness. From and after the Funding and
Consummation Date and until such time as all of such indebtedness is paid off,
refinanced or retired, METALS shall maintain unencumbered funds in amounts
sufficient to provide for such pay off, refinancing or retirement, provided that
METALS may use such funds for other purposes, in its sole discretion, with the
prior written consent of each STOCKHOLDER who has not as of that time been
released from his or her guarantee as described above and whose indebtedness as
described above has not as of that time been paid off, refinanced or retired.
10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as contemplated
by this Agreement or the Registration Statement, after the Funding and
Consummation Date, METALS shall
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not and shall not permit any of its subsidiaries to undertake any act that would
jeopardize the tax-free status of the organization, including without
limitation:
(a) the retirement or reacquisition, directly or indirectly, of all
or part of the METALS Stock issued in connection with the transactions
contemplated hereby; or
(b) the entering into of financial arrangements for the benefit of
the STOCKHOLDERS.
10.3 PREPARATION AND FILING OF TAX RETURNS.
(i) The COMPANY, if possible, or otherwise the STOCKHOLDERS shall
file or cause to be filed all federal income Tax Returns of any Acquired
Party for all taxable periods that end on or before the Funding and
Consummation Date, and shall permit METALS to review all such Tax Returns
prior to such filings. Unless the COMPANY is a C corporation, the
STOCKHOLDERS shall pay or cause to be paid all Tax liabilities (in excess
of all amounts already paid with respect thereto or properly accrued or
reserved with respect thereto on the COMPANY Financial Statements) shown
by such Returns to be due.
(ii) METALS shall file or cause to be filed all separate Returns of,
or that include, any Acquired Party for all taxable periods ending after
the Funding and Consummation Date.
(iii) Each party hereto shall, and shall cause its subsidiaries and
affiliates to, provide to each of the other parties hereto such
cooperation and information as any of them reasonably may request in
filing any 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. Such cooperation and
information shall include providing copies of all relevant portions of
relevant Returns, together with relevant accompanying schedules and
relevant work papers, relevant documents relating to rulings or other
determinations by Taxing Authorities and relevant records concerning the
ownership and Tax basis of property, which such party may possess. Each
party shall make its employees reasonably available on a mutually
convenient basis at its cost to provide explanation of any documents or
information so provided. Subject to the preceding sentence,
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each party required to file Returns pursuant to this Agreement shall bear
all costs of filing such Returns.
(iv) Each of the COMPANY, NEWCO, METALS and each STOCKHOLDER shall
comply with the tax reporting requirements of Section 1.351-3 of the
Treasury Regulations promulgated under the Code, and treat the transaction
as a tax-free contribution under Section 351(a) of the Code subject to
gain, if any, recognized on the receipt of cash or other property under
Section 351(b) of the Code subject to gain, if any, recognized on the
receipt of cash or other property under Section 351(b) of the Code.
10.4 DIRECTORS. The persons named in the Draft Registration Statement
shall be appointed as directors and elected as officers of METALS, as and to the
extent set forth in the Draft Registration Statement, promptly following the
Funding and Consummation Date. This provision shall not imply that the
STOCKHOLDERS have any power or duty to elect officers of METALS.
10.5 PRESERVATION OF EMPLOYEE BENEFIT PLANS. Following the Funding and
Consummation Date, METALS shall use all reasonable efforts to permit the COMPANY
to maintain all health insurance, life insurance, 401(k) plan and other employee
benefit plans in effect at the COMPANY, unless any such change is (a) approved
by a vote of at least two-thirds of the members of the Board of Directors of
METALS, or (b) required by applicable laws or regulations, including the
antidiscriminatory provisions of ERISA and the related regulations. In the event
that any such changes (other than changes so approved by the Board of Directors
of METALS) are required, subject to applicable law, METALS shall permit the
COMPANY to implement alternative benefits that provide the affected employees of
the COMPANY with an undiminished aggregate level of benefits. On the Funding and
Consummation Date, the employees of the COMPANY will be the employees of the
Surviving Corporation (provided that this provision is for purposes of
clarifying that the Merger, in and of itself, will not have any impact on the
employment status of any employee and provided, further that this provision
shall not in any way limit the management rights of the Surviving Corporation or
METALS to assess workforce needs and make appropriate adjustments
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as necessary or desirable within their discretion subject to applicable laws and
collective bargaining agreements).
11. INDEMNIFICATION
The STOCKHOLDERS, METALS and NEWCO each make the following covenants that
are applicable to them, respectively:
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. The STOCKHOLDERS
covenant and agree that they, jointly and severally, will indemnify, defend,
protect and hold harmless METALS, NEWCO, the COMPANY and the Surviving
Corporation at all times, from and after the date of this Agreement until the
Expiration Date (provided that for purposes of Section 11.1(iii) below, the
Expiration Date shall be the date on which the applicable statute of limitations
expires), 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) incurred by METALS, NEWCO, the COMPANY or the Surviving
Corporation as a result of or arising from (i) any breach of the representations
and warranties of the STOCKHOLDERS or the COMPANY set forth herein or on the
schedules or certificates delivered in connection herewith, (ii) any breach of
any agreement on the part of the STOCKHOLDERS or the COMPANY under this
Agreement, or (iii) any liability under the 1933 Act, the 1934 Act or other
Federal or state law or regulation, at common law or otherwise, arising out of
or based upon any untrue statement or alleged untrue statement of a material
fact relating to the COMPANY or the STOCKHOLDERS, and provided to METALS or its
counsel by the COMPANY or the STOCKHOLDERS (but in the case of the STOCKHOLDERS,
only if such statement was provided in writing) contained in the Registration
Statement or any prospectus forming a part thereof, or any amendment thereof or
supplement thereto, or arising out of or based upon any omission or alleged
omission to state therein a material fact relating to the COMPANY or the
STOCKHOLDERS required to be stated therein or necessary to make the statements
therein not misleading, provided, however, that such indemnity shall not inure
to the benefit of METALS,
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NEWCO, the COMPANY or the Surviving Corporation to the extent that such untrue
statement (or alleged untrue statement) was made in, or omission (or alleged
omission) occurred in, any preliminary prospectus and the STOCKHOLDERS provided,
in writing, corrected information to METALS counsel and to METALS for inclusion
in the final prospectus, and such information was not so included or properly
delivered, and provided further, that no STOCKHOLDER shall be liable for any
indemnification obligation pursuant to this Section 11.1 to the extent
attributable to a breach of any representation, warranty or agreement made
herein individually by any other STOCKHOLDER.
METALS and NEWCO acknowledge and agree that other than the representations
and warranties of COMPANY or STOCKHOLDERS specifically contained in this
Agreement, there are no representations or warranties of COMPANY or
STOCKHOLDERS, either express or implied, with respect to the transactions
contemplated by this Agreement, the COMPANY or its assets, liabilities and
business.
METALS and any NEWCO further acknowledge and agree that, should the
Closing occur, their sole and exclusive remedy with respect to any and all
claims relating to this Agreement and the transactions contemplated in this
Agreement, shall be pursuant to the indemnification provisions set forth in this
Section 11. METALS and NEWCO hereby waive, from and after the Closing, to the
fullest extent permitted under applicable law, any and all rights, claims and
causes of action they or any indemnified person may have against the COMPANY or
any STOCKHOLDER relating to this Agreement or the transactions arising under or
based upon any federal, state, local or foreign statute, law, rule, regulation
or otherwise.
11.2 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 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) incurred by the
STOCKHOLDERS as a result of or arising from (i) any breach by METALS or NEWCO of
their
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representations and warranties set forth herein or on the schedules or
certificates attached hereto, (ii) any breach of any agreement on the part of
METALS or NEWCO under this Agreement, (iii) any liabilities which the
STOCKHOLDERS may incur due to METALS's or NEWCO's failure to be responsible for
the liabilities and obligations of the COMPANY as provided in Section 1 hereof
(except to the extent that METALS or NEWCO has claims against the STOCKHOLDERS
by reason of such liabilities); or (iv) any liability under the 1933 Act, the
1934 Act or other Federal or state law or regulation, at common law or
otherwise, arising out of or based upon any untrue statement or alleged untrue
statement of a material fact relating to METALS, NEWCO or any of the Other
Founding Companies contained in any preliminary prospectus, the Registration
Statement or any prospectus forming a part thereof, or any amendment thereof or
supplement thereto, or arising out of or based upon any omission or alleged
omission to state therein a material fact relating to METALS or NEWCO or any of
the Other Founding Companies required to be stated therein or necessary to make
the statements therein not misleading.
11.3 THIRD PERSON CLAIMS. Promptly after any party hereto (hereinafter 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, the Indemnified Party shall, as a
condition precedent to a claim with respect thereto being made against any party
obligated to provide indemnification pursuant to Section 11.1 or 11.2 hereof
(hereinafter the "Indemnifying Party"), give the Indemnifying Party written
notice of such claim or the commencement of such action or proceeding. Such
notice shall state the nature and the basis of such claim and a reasonable
estimate of the amount thereof. The Indemnifying Party shall have the right to
defend and settle, at its own expense and by its own counsel, any such matter so
long as the Indemnifying Party pursues the same in good faith and diligently,
provided that the Indemnifying Party shall not settle any criminal proceeding
without the written consent of the Indemnified Party. If the Indemnifying Party
undertakes to defend or settle, it shall promptly notify the Indemnified Party
of its intention to do so, and the Indemnified Party shall cooperate with the
Indemnifying Party and its counsel in the defense thereof and in any settlement
thereof. Such cooperation shall include,
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but shall not be limited to, furnishing the Indemnifying Party with any books,
records or information reasonably requested by the Indemnifying Party that are
in the Indemnified Party's possession or control. All Indemnified Parties shall
use the same counsel, which shall be the counsel selected by Indemnifying Party,
provided that if counsel to the Indemnifying Party shall have a conflict of
interest that prevents counsel for the Indemnifying Party from representing
Indemnified Party, Indemnified Party shall have the right to participate in such
matter through counsel of its own choosing and Indemnifying Party will reimburse
the Indemnified Party for the reasonable expenses of its counsel. After the
Indemnifying Party has notified the Indemnified Party of its intention to
undertake to defend or settle any such asserted liability, and for so long as
the Indemnifying Party diligently pursues such defense, the Indemnifying Party
shall not be liable for any additional legal expenses incurred by the
Indemnified Party in connection with any defense or settlement of such asserted
liability, except (i) as set forth in the preceding sentence and (ii) to the
extent such participation is requested by the Indemnifying Party, in which event
the Indemnified Party shall be reimbursed by the Indemnifying Party for
reasonable additional legal expenses and out-of-pocket expenses. If the
Indemnifying Party desires to accept a final and complete settlement of any such
Third Person claim and the Indemnified Party refuses to consent to such
settlement, then the Indemnifying Party's liability under this Section with
respect to such Third Person claim shall be limited to the amount so offered in
settlement by said Third Person. Upon agreement as to such settlement between
said Third Person and the Indemnifying Party, the Indemnifying Party shall, in
exchange for a complete release from the Indemnified Party, promptly pay to the
Indemnified Party the amount agreed to in such settlement and the Indemnified
Party shall, from that moment on, bear full responsibility for any additional
costs of defense which it subsequently incurs with respect to such claim and all
additional costs of settlement or judgment. If the Indemnifying Party does not
undertake to defend such matter to which the Indemnified Party is entitled to
indemnification hereunder, or fails diligently to pursue such defense, the
Indemnified Party may undertake such defense through counsel of its choice, at
the cost and expense of the Indemnifying Party, and the Indemnified Party may
settle such matter, and the Indemnifying Party shall reimburse the
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Indemnified Party for the amount paid in such settlement and any other
liabilities or expenses incurred by the Indemnified Party in connection
therewith, provided, however, that under no circumstances shall the Indemnified
Party settle any Third Person claim without the written consent of the
Indemnifying Party, which consent shall not be unreasonably withheld or delayed.
All settlements hereunder shall effect a complete release of the Indemnified
Party, unless the Indemnified Party otherwise agrees in writing. The parties
hereto will make appropriate adjustments for insurance proceeds in determining
the amount of any indemnification obligation under this Section.
11.4 EXCLUSIVE REMEDY. The indemnification provided for in this Section 11
shall (except as prohibited by ERISA) be the exclusive remedy in any action
seeking damages or any other form of monetary relief brought by any party to
this Agreement against another party, provided that, nothing herein shall be
construed to limit the right of a party, in a proper case, to seek injunctive
relief for a breach of this Agreement. Any indemnity payment under this Section
11 shall be treated as an adjustment to the exchange consideration for tax
purposes unless a final determination (which shall include the execution of a
Form 870-AD or successor form) with respect to the indemnified party or any of
its affiliate causes any such payment not to be treated as an adjustment to the
exchange consideration for U.S. Federal Income Tax purposes.
11.5 LIMITATIONS ON INDEMNIFICATION. METALS, NEWCO, the Surviving
Corporation and the other persons or entities indemnified pursuant to Section
11.1 or 11.2 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 the greater of (a) 1.0% of the sum of (i) the cash
paid to STOCKHOLDERS plus (ii) the value of the METALS Stock delivered to
STOCKHOLDERS (calculated as provided in this Section 11.5) or (b) $50,000 (the
"Indemnification Threshold"). STOCKHOLDERS shall not assert any claim for
indemnification hereunder against METALS or NEWCO until such time as, and solely
to the extent that, the aggregate of all claims which STOCKHOLDERS may have
against METALS or NEWCO shall exceed $50,000.
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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 related to a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement, no STOCKHOLDER shall be
liable under this Section 11 for an amount which exceeds the amount of proceeds
received by such STOCKHOLDER in connection with the Merger. For purposes of
calculating the value of the METALS Stock received by a STOCKHOLDER, METALS
Stock shall be valued at its initial public offering price as set forth in the
Registration Statement. It is hereby understood and agreed that a STOCKHOLDER
may satisfy an indemnification obligation through payment of a combination of
stock and cash in proportion equal to the proportion of stock and cash received
by such STOCKHOLDER in connection with the Merger, valued as described
immediately above.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION.This Agreement may be terminated at any time prior to the
Funding and Consummation Date solely:
(i) by mutual consent of the boards of directors of METALS and the
COMPANY;
(ii) by the STOCKHOLDERS or the COMPANY (acting through its board of
directors), on the one hand, or by METALS (acting through its board of
directors), on the other hand, if the transactions contemplated by this
Agreement to take place at the Closing shall not have been consummated by
December 31, 1997, 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 Funding and Consummation Date;
(iii) by the STOCKHOLDERS or COMPANY, on the one hand, or by METALS, on
the other hand, if a material breach or default shall be made by the other party
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 on or before the Funding and Consummation Date or by the STOCKHOLDERS
or the COMPANY, if the conditions set forth in Section 8 hereof have
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not been satisfied or waived as of the Closing Date or the Funding and
Consummation Date, as applicable, or by METALS, if the conditions set forth in
Section 9 hereof have not been satisfied or waived as of the Closing Date or the
Funding and Consummation Date, as applicable;
(iv) pursuant to Section 7.8 hereof; or
(v) pursuant to Section 4 hereof.
12.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in Section
7.8 hereof, 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.
13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES. The STOCKHOLDERS will not, for a period of
five (5) years following the Funding and Consummation 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 metals
processing, metals fabricating and/or specialty metals business, including
brokering, manufacturing and distribution services, in direct competition with
METALS or any of the subsidiaries thereof, within 200 miles of where the COMPANY
or any of its subsidiaries conducted business prior to the effectiveness of the
Merger (the "Territory");
(ii) call upon any person who is, at that time, within the Territory, an
employee of METALS (including the subsidiaries thereof) in a sales
representative or managerial capacity for the purpose or with the intent of
enticing such employee away from or out of the employ of METALS (including the
subsidiaries thereof), provided that each STOCKHOLDER shall be permitted to call
upon and hire any member of his or her immediate family;
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(iii) call upon any person or entity which is, at that time, or which has
been, within one (1) year prior to the Funding and Consummation Date, a customer
of METALS (including the subsidiaries thereof), of the COMPANY or of any of the
Other Founding Companies within the Territory for the purpose of soliciting or
selling products or services in direct competition with METALS within the
Territory;
(iv) call upon any prospective acquisition candidate, on any STOCKHOLDER's
own behalf or on behalf of any competitor in the metals processing, metals
fabricating and/or specialty metals business, including brokering, manufacturing
and distribution services, which candidate, to the actual knowledge of such
STOCKHOLDER after due inquiry, was called upon by METALS (including the
subsidiaries thereof) or for which, to the actual knowledge of such STOCKHOLDER
after due inquiry, METALS (or any subsidiary thereof) made an acquisition
analysis, for the purpose of acquiring such entity; or
(v) disclose customers, whether in existence or proposed, of the COMPANY
to any person, firm, partnership, corporation or business for any reason or
purpose whatsoever except to the extent that the COMPANY has in the past
disclosed such information to the public for valid business reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit any STOCKHOLDER 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.
13.2 DAMAGES. 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 and restraining orders.
13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this Section 13 impose a reasonable restraint on the
STOCKHOLDERS in light of the activities
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and business of METALS (including the subsidiaries thereof) on the date of the
execution of this Agreement and the current plans of METALS.
13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13 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.
13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13 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 (including the subsidiaries 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 13, during which the agreements
and covenants of each STOCKHOLDER made in this Section 13 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 13. The covenants
contained in Section 13 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.
13.6 MATERIALITY. The COMPANY and the STOCKHOLDERS hereby agree that this
covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. 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, the Other Founding Companies,
and/or METALS, such as operational policies, and pricing and cost policies that
are valuable, special and unique assets of the
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COMPANY's, the Other Founding Companies' and/or METALS's respective businesses.
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 METALS or the Surviving
Corporation and (c) to counsel and other advisers, provided that such advisers
(other than counsel) agree to the confidentiality provisions of this Section
14.1, 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 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, or (iii) the disclosing party
reasonably believes that such disclosure is required in connection with the
defense of a lawsuit against the disclosing party. 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 an injunction 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.
In the event the transactions contemplated by this Agreement are not
consummated, STOCKHOLDERS shall have none of the above-mentioned restrictions on
their ability to disseminate confidential information with respect to the
COMPANY.
14.2 METALS AND NEWCO. METALS and NEWCO recognize and acknowledge that
they had in the past and currently have access to certain confidential
information of the COMPANY, such as operational policies, and pricing and cost
policies that are valuable, special and unique assets of the COMPANY's business.
METALS and NEWCO agree that, prior to the Closing, or if the Transactions
contemplated by this Agreement are not consummated, 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 the COMPANY, (b) to counsel and
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other advisers, provided that such advisers (other than counsel) agree to the
confidentiality provisions of this Section 14.1, (c) to the Other Founding
Companies and their representatives pursuant to Section 7.1(a), unless (i) such
information becomes known to the public generally through no fault of METALS or
NEWCO, (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), METALS and NEWCO shall, if possible, give prior
written notice thereof to the COMPANY and the STOCKHOLDERS and provide the
COMPANY and the STOCKHOLDERS with the opportunity to contest such disclosure, or
(iii) the disclosing party reasonably believes that such disclosure is required
in connection with the defense of a lawsuit against the disclosing party, and
(d) to the public to the extent necessary or advisable in connection with the
filing of the Registration Statement and the IPO and the securities laws
applicable thereto and to the operation of METALS as a publicly held entity
after the IPO. In the event of a breach or threatened breach by METALS or NEWCO
of the provisions of this Section, the COMPANY and the STOCKHOLDERS shall be
entitled to an injunction restraining METALS and NEWCO from disclosing, in whole
or in part, such confidential information. Nothing herein shall be construed as
prohibiting the COMPANY and the STOCKHOLDERS from pursuing any other available
remedy for such breach or threatened breach, including the recovery of damages.
14.3 DAMAGES. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Section 14.1 and 14.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach by any of them of the foregoing covenants, the covenant may be
enforced against the other parties by injunctions and restraining orders.
14.4 SURVIVAL. The obligations of the parties under this Article 14 shall
survive the termination of this Agreement for a period of five years from the
Funding and Consummation Date.
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15. TRANSFER RESTRICTIONS
15.1 TRANSFER RESTRICTIONS. Unless otherwise agreed by METALS, except for
transfers to immediate family members who agree to be bound by the restrictions
set forth in this Section 15.1 (or trusts for the benefit of the STOCKHOLDERS or
family members, the trustees of which so agree), for a period of one year from
the Closing, except pursuant to Section 17 hereof, none of the STOCKHOLDERS
shall sell, assign, exchange, transfer, encumber, pledge, distribute, appoint,
or otherwise dispose of any shares of METALS Stock as described in Section 3.1
received by the STOCKHOLDERS in the Merger. The certificates evidencing the
METALS Stock delivered to the STOCKHOLDERS pursuant to Section 3 of this
Agreement will bear a legend substantially in the form set forth below and
containing such other information as METALS may deem necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED
OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE,
ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT
OR OTHER DISPOSITION PRIOR TO [FIRST ANNIVERSARY OF CLOSING DATE]. UPON THE
WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE
THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER AGENT)
AFTER THE DATE SPECIFIED ABOVE.
16. FEDERAL SECURITIES ACT REPRESENTATIONS
16.1 COMPLIANCE WITH LAW. The STOCKHOLDERS acknowledge that the shares of
METALS Stock to be delivered to the STOCKHOLDERS pursuant to this Agreement have
not been and will not be registered under the 1933 Act (except as provided in
Section 17 hereof) and therefore
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may not be resold without compliance with the 1933 Act. The METALS Stock to be
acquired by such STOCKHOLDERS pursuant to this Agreement is being acquired
solely for their own respective accounts, for investment purposes only, and with
no present intention of distributing, selling or otherwise disposing of it in
connection with a distribution. The STOCKHOLDERS covenant, warrant and represent
that none of the shares of METALS Stock issued to such STOCKHOLDERS will be
offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all of the applicable provisions
of the 1933 Act and the rules and regulations of the SEC. All the METALS Stock
shall bear the following legend in addition to the legend required under Section
15 of this Agreement:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF THE HOLDER
HEREOF COMPLIES WITH THE ACT AND APPLICABLE SECURITIES LAW.
16.2 ECONOMIC RISK; SOPHISTICATION. The STOCKHOLDERS are able to bear the
economic risk of an investment in the METALS Stock to be acquired pursuant to
this Agreement and can afford to sustain a total loss of such investment and
have such knowledge and experience in financial and business matters that they
are capable of evaluating the merits and risks of the proposed investment in the
METALS Stock. The STOCKHOLDERS party hereto have 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 current and proposed officers
and directors of METALS, the plans for the operations of the business of METALS,
the business, operations and financial condition of the Founding Companies other
than the COMPANY, and any plans for additional acquisitions and the like. The
STOCKHOLDERS have asked any and all questions in the nature described in the
preceding sentence and all questions have been answered to their satisfaction.
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17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. 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 shelf
registration of shares to be used as consideration for acquisitions of
additional businesses by METALS and (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 all of the 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) which
any such STOCKHOLDER requests, provided that METALS shall have the right to
reduce the number of shares included in such registration to the extent that
inclusion of such shares could, in the written opinion of tax counsel to METALS
or its independent auditors, jeopardize the status of the transactions
contemplated hereby and by the Registration Statement as a tax-free organization
under Section 351 of the Code. In addition, if METALS is advised in writing in
good faith by any managing underwriter of an underwritten offering of the
securities being offered pursuant to any registration statement under this
Section 17.1 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, provided,
that, for each such offering made by METALS after the IPO, such reduction shall
be made first by reducing the number of shares to be sold by persons other than
METALS, the STOCKHOLDERS and the stockholders of the Other Founding Companies
(collectively, the STOCKHOLDERS and the stockholders of the other Founding
Companies being referred to herein as the "Founding
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Stockholders"), and thereafter, if a further reduction is required, by reducing
the number of shares to be sold by the Founding Stockholders.
17.2 DEMAND REGISTRATION RIGHTS. At any time after the date one year after
the Closing and prior to the date three years after the Closing, the holders of
a majority of the shares of METALS Stock issued to the Founding Stockholders
pursuant to this Agreement and the Other Agreements 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 the shares of METALS Stock issued to the
STOCKHOLDERS pursuant to this Agreement and the Other Agreements (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 Founding Stockholders (a
"Demand Registration"). Within ten (10) days of the receipt of such request,
METALS shall give written notice of such request to all other Founding
Stockholders and shall, as soon as practicable but in no event later than 45
days after notice from any STOCKHOLDER, file and use its best efforts to cause
to become effective a registration statement covering all such shares. METALS
shall be obligated to effect only one Demand Registration for all Founding
Stockholders and will keep such Demand Registration current and effective for
not less than 120 days (or such shorter period as is required to sell all of the
shares registered thereby).
Notwithstanding the foregoing paragraph, following any such a demand, a
majority of METALS's 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 Founding 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, no registration of the
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Founding Stockholders' METALS Stock shall be initiated under this Section 17.2
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 Founding Stockholders the right to participate in such public
offering pursuant to, and subject to, Section 17.1 hereof.
17.3 REGISTRATION PROCEDURES. Whenever METALS is required to register
shares of METALS Stock pursuant to Sections 17.1 and 17.2, 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 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;
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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 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 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
Article 17 (including all registration, filing, qualification, legal, printer
and accounting fees, but excluding underwriting commissions and discounts),
shall be borne by METALS.
17.4 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.
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(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
17.5 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 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.
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17.5 UNDERWRITING AGREEMENT. In connection with each registration pursuant
to Sections 17.1 and 17.2 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.
17.6 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 understood and defined in Rule 144 under the 1933 Act for
a period of four years beginning 90 days following the effective date of
the Registration Statement;
(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 at any
time after it has become subject to such reporting requirements; 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 (at any time from and after 90 days following the
effective date of the Registration Statement, and of the 1933 Act and the
1934 Act (any time after it has become subject to such reporting
requirements), 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.
18. GENERAL
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18.1 COOPERATION. The COMPANY, STOCKHOLDERS, METALS and NEWCO shall each
deliver or cause to be delivered to the other on the Funding and Consummation
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 Funding and Consummation 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 Funding and Consummation Date.
18.2 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.
18.3 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, NEWCO 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, NEWCO and
METALS, acting through their respective officers or trustees, duly authorized by
their respective Boards of Directors. Any disclosure made on any Schedule
delivered pursuant hereto shall be deemed to have been disclosed for purposes of
any other Schedule required hereby, provided that the COMPANY shall make a good
faith effort to cross reference disclosure, as necessary or advisable, between
related Schedules.
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18.4 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.
18.5 BROKERS AND AGENTS. Except as disclosed on Schedule 18.5, 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.
18.6 EXPENSES. Whether or not the transactions herein contemplated shall
be consummated, METALS will pay the fees, expenses and disbursements of METALS
and its agents, representatives, accountants and counsel incurred in connection
with the subject matter of this Agreement and any amendments thereto, including
all costs and expenses incurred in the performance and compliance with all
conditions to be performed by METALS under this Agreement, including the fees
and expenses of Arthur Andersen, LLP, Bracewell & Patterson, L.L.P., and any
other person or entity retained by METALS or by Notre Capital Ventures II,
L.L.C., and the costs of preparing the Registration Statement. 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 Merger, other than Transfer Taxes, if any, imposed by the
State of Delaware. 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 Section 2 hereof. The
STOCKHOLDERS acknowledge that the risks of the transactions contemplated hereby
include tax risks, with respect to which the STOCKHOLDERS are relying solely on
the opinion contemplated by Section 8.12 hereof.
18.7 NOTICES. All notices of communication 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
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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.
(a) If to METALS, or NEWCO, addressed to them at: Metals USA, Inc.
4801 Woodway, Suite 300E
Houston, Texas 77056
Attn: J. Michael Kirksey
with copies to:
Thomas W. Adkins
Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana Street, Suite 2900
Houston, Texas 77002-2781
(b) If to the STOCKHOLDERS, addressed to them at their addresses set
forth on Annex II, with copies to:
Christopher S. Collins
Andrews & Kurth, L.L.P.
4200 Texas Commerce Tower
Houston, Texas 77002
and to:
Donald Rintleman
Whyte, Herschback, Dudek, S.C.
111 East Wisconsin Avenue
Milwaukee, WI 53202
Tele: (414) 223-5049
Fax: (414) 223-5000
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(c) If to the COMPANY, addressed to it at:
Steel Service Systems, Inc.
301 Industrial Drive
Horicon, WI 53032
Attn: Craig Doveala
Tele: (800) 253-6772
Fax: (414) 485-9775
with copies to:
Metals USA, Inc.
4801 Woodway, Suite 300E
Houston, TX 77056
Attn: J. Michael Kirksey
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Delaware.
18.9 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 Expiration Date.
18.10 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.
18.11 TIME. Time is of the essence with respect to this Agreement.
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18.12 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.
18.13 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.
18.14 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
18.15 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived only with the
written consent of METALS, NEWCO, the COMPANY and STOCKHOLDERS who hold or who
will hold at least 50% of the METALS Stock issued or to be issued upon
consummation of the Merger. Any amendment or waiver effected in accordance with
this Section 18.15 shall be binding upon each of the parties hereto, any other
person receiving METALS Stock in connection with the Merger and each future
holder of such METALS Stock.
18.16 SPECIAL LIMITATION. Francis X. Pischel is one of the STOCKHOLDERS.
Notwithstanding anything else herein to the contrary, all of the representations
and warranties set forth in Article 5 hereof or elsewhere in this Agreement made
by the STOCKHOLDERS are, with respect solely to Mr. Pischel, qualified by and
limited to Mr. Pischel's actual knowledge of the matters so represented or
warranted, except for the representations in Article 5 addressing ownership of
the COMPANY STOCK by Mr. Pischel free and clear of any liens, claims and
encumbrances. In addition, none of the provisions of Articles 13 or 14 hereof
shall apply to Mr. Pischel. The parties hereto acknowledge that neither the
COMPANY nor Mr. Pischel intend by the execution and delivery of this Agreement
to waive any claim either of them may have against the other; it being
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understood and agreed that each shall release all claims against the other only
at the Closing, and that such releases shall be of no force or effect in the
event that the Funding and Consummation Date fails to occur.
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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: Art French
Title: Chief Executive Officer
STEEL SERVICE SYSTEMS ACQUISITION CORP.
By: ________________________________
Name: J. Michael Kirksey
Title: President
STEEL SERVICE SYSTEMS, INC.
By: ________________________________
Name: ___________________________
Title: __________________________
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STOCKHOLDERS:
____________________________________
Craig R. Doveala
____________________________________
Francis X. Pischel
____________________________________
Robert J. McCluskey
____________________________________
Ferrell H. Russell
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ANNEX I
TO THE AGREEMENT
AND PLAN OF REORGANIZATION
DATED AS OF APRIL 30, 1997
BY AND AMONG
METALS USA, INC.
AND THE OTHER PARTIES NAMED THEREIN
CONSIDERATION TO BE PAID TO THE STOCKHOLDERS
Aggregate consideration to be paid to the STOCKHOLDERS:
$12,264,082.20 in cash and the value of outstanding Common Stock of Metals
(assuming an offering price of $13.00 per share), consisting of 742,794 shares
of Metals Stock and $2,607,760.20 in cash, it being agreed that the actual
amount of all cash payments described in this Annex I will depend on the actual
initial offering price of the Common Stock of Metals in the IPO, and may be more
or less than $13.00 per share; provided, however that such price shall not be
less than $8.00 per share.
Consideration to be paid to each STOCKHOLDER:
---------------------------------------------
Shares of Common Merger
Stockholder Stock of Metals Cash
- ----------- ------------- -------------
Craig R. Doveala ........................... 309,497 1,086,573.25
Francis X. Pischel ......................... 232,123 814,926.69
Robert J. McCluskey ........................ 116,062 407,456.84
Ferrell H. Russell ......................... 85,112 298,803.42
------------- -------------
742,794 2,607,760.20
============= =============
MINIMUM VALUE: $ 8,489,035 (based on a price of $8.00 per share)
===========
Total non-tax related AAA distributions: 1,530,600.00
============
EXHIBIT 10.8
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF ORGANIZATION
dated as of the 30th day of April, 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.
(each a subsidiary of Metals USA, Inc.)
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 herein
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<PAGE>
TABLE OF CONTENTS
Page
1. THE MERGER.............................................................6
1.1 Delivery and Filing of Articles of Merger........................6
1.2 Effective Time of the Merger.....................................6
1.3 Certificate of Incorporation, By-laws and Board of
Directors of Surviving Corporation...............................6
1.4 Certain Information With Respect to the Capital Stock
of the COMPANY, METALS and NEWCO.................................7
1.5 Effect of Merger.................................................8
2. CONVERSION OF STOCK....................................................9
2.1 Manner of Conversion.............................................9
3. DELIVERY OF MERGER CONSIDERATION......................................10
4. CLOSING...............................................................11
5. REPRESENTATIONS AND WARRANTIES OF COMPANY
AND STOCKHOLDERS......................................................12
(A) Representations and Warranties of COMPANY and
STOCKHOLDERS..............................................12
5.1 Due Organization................................................12
5.2 Authorization...................................................13
5.3 Capital Stock of the COMPANY....................................13
5.4 Transactions in Capital Stock, Organization Accounting..........14
5.5 No Bonus Shares.................................................14
5.6 Subsidiaries....................................................14
5.7 Predecessor Status; etc.........................................15
5.8 Spin-off by the COMPANY.........................................15
5.9 Financial Statements............................................15
5.10 Liabilities and Obligations.....................................16
5.11 Accounts and Notes Receivable...................................17
5.12 Permits and Intangibles.........................................17
5.13 Environmental Matters...........................................18
5.14 Personal Property...............................................19
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5.15 Significant Customers; Material Contracts and Commitments.......19
5.16 Real Property...................................................20
5.17 Insurance.......................................................21
5.18 Compensation; Employment Agreements; Organized Labor Matters....21
5.19 Employee Plans..................................................22
5.20 Compliance with ERISA...........................................23
5.21 Conformity with Law; Litigation.................................25
5.22 Taxes...........................................................25
5.23 No Violations; Consents, Etc....................................26
5.24 Government Contracts............................................27
5.25 Absence of Changes..............................................27
5.26 Deposit Accounts; Powers of Attorney............................28
5.27 Validity of Obligations.........................................29
5.28 Relations with Governments......................................29
5.29 Disclosure......................................................29
5.30 Prohibited Activities...........................................30
(B) Representations and Warranties of STOCKHOLDERS......31
5.31 Authority; Ownership............................................31
5.32 Preemptive Rights...............................................31
5.33 No Intention to Dispose of METALS Stock.........................31
6. REPRESENTATIONS OF METALS and NEWCO...................................31
6.1 Due Organization................................................32
6.2 Authorization...................................................32
6.3 Capital Stock of METALS and NEWCO...............................33
6.4 Transactions in Capital Stock, Organization Accounting..........33
6.5 Subsidiaries....................................................33
6.6 Financial Statements............................................34
6.7 Liabilities and Obligations.....................................34
6.8 Conformity with Law; Litigation.................................34
6.9 No Violations...................................................35
6.10 Validity of Obligations.........................................36
6.11 METALS Stock....................................................36
6.12 No Side Agreements..............................................36
6.13 Business; Real Property; Material Agreements....................36
6.14 Taxes...........................................................37
6.15 Absence of Changes..............................................38
6.16 Validity of Obligations.........................................39
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6.17 Disclosure......................................................39
6.18 Private Offering................................................39
7. COVENANTS PRIOR TO CLOSING............................................40
7.1 Access and Cooperation; Due Diligence...........................40
7.2 Conduct of Business Pending Closing.............................41
7.3 Prohibited Activities...........................................42
7.4 No Shop.........................................................43
7.5 Notice to Bargaining Agents.....................................44
7.6 Agreements......................................................44
7.7 Notification of Certain Matters.................................44
7.8 Amendment of Schedules..........................................45
7.9 Cooperation in Preparation of Registration Statement............46
7.10 Final Financial Statements......................................47
7.11 Further Assurances..............................................48
7.12 Authorized Capital..............................................48
7.13 Compliance with the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 (the "Hart-Scott Act").......48
7.14 Environmental Indemnity.........................................48
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF
STOCKHOLDERS AND COMPANY..............................................49
8.1 Representations and Warranties; Performance of Obligations......49
8.2 Satisfaction....................................................50
8.3 No Litigation...................................................50
8.4 Opinion of Counsel..............................................50
8.5 Registration Statement..........................................50
8.6 Consents and Approvals..........................................50
8.7 Good Standing Certificates......................................51
8.8 No Material Adverse Change......................................51
8.9 Closing of IPO..................................................51
8.10 Secretary's Certificate.........................................51
8.11 Employment Agreements...........................................51
8.12 Tax Matters.....................................................51
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF METALS AND NEWCO...............52
9.1 Representations and Warranties; Performance of Obligations......52
9.2 No Litigation...................................................52
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9.3 Secretary's Certificate.........................................53
9.4 No Material Adverse Effect......................................53
9.5 STOCKHOLDERS' Release...........................................53
9.6 Satisfaction....................................................54
9.7 Termination of Related Party Agreements.........................54
9.8 Opinion of Counsel..............................................54
9.9 Consents and Approvals..........................................54
9.10 Good Standing Certificates......................................54
9.11 Registration Statement..........................................54
9.12 Employment Agreements...........................................55
9.13 Closing of IPO..................................................55
9.14 FIRPTA Certificate..............................................55
10. COVENANTS OF METALS AND THE STOCKHOLDERS AFTER CLOSING................55
10.1 Release From Guarantees; Repayment of Certain Obligations.......55
10.2 Preservation of Tax and Accounting Treatment....................55
10.3 Preparation and Filing of Tax Returns...........................56
10.4 Directors.......................................................57
10.5 Preservation of Employee Benefit Plans..........................57
11. INDEMNIFICATION.......................................................58
11.1 General Indemnification by the STOCKHOLDERS.....................58
11.2 Indemnification by METALS.......................................59
11.3 Third Person Claims.............................................60
11.4 Exclusive Remedy................................................62
11.5 Limitations on Indemnification..................................62
12. TERMINATION OF AGREEMENT..............................................63
12.1 Termination.....................................................63
12.2 Liabilities in Event of Termination.............................64
13. NONCOMPETITION........................................................64
13.1 Prohibited Activities...........................................64
13.2 Damages.........................................................66
13.3 Reasonable Restraint............................................66
13.4 Severability; Reformation.......................................66
13.5 Independent Covenant............................................66
13.6 Materiality.....................................................67
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14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION..............................67
14.1 STOCKHOLDERS....................................................67
14.2 METALS AND NEWCO................................................68
14.3 Damages.........................................................69
14.4 Survival........................................................69
15. TRANSFER RESTRICTIONS.................................................69
15.1 Transfer Restrictions...........................................69
16. FEDERAL SECURITIES ACT REPRESENTATIONS................................70
16.1 Compliance with Law.............................................70
16.2 Economic Risk; Sophistication...................................71
17. REGISTRATION RIGHTS...................................................71
17.1 Piggyback Registration Rights...................................71
17.2 Demand Registration Rights......................................72
17.3 Registration Procedures.........................................73
17.4 Indemnification.................................................75
17.5 Underwriting Agreement..........................................76
17.6 Rule 144 Reporting..............................................76
18. GENERAL...............................................................77
18.1 Cooperation.....................................................77
18.2 Successors and Assigns..........................................78
18.3 Entire Agreement................................................78
18.4 Counterparts....................................................78
18.5 Brokers and Agents..............................................78
18.6 Expenses........................................................78
18.7 Notices.........................................................79
18.8 Governing Law...................................................80
18.9 Survival of Representations and Warranties......................81
18.10 Exercise of Rights and Remedies.................................81
18.11 Time............................................................81
18.12 Reformation and Severability....................................81
18.13 Remedies Cumulative.............................................81
18.14 Captions........................................................81
18.15 Amendments and Waivers..........................................81
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18.16 Special Limitations.............................................82
18.17 Special Provisions Regarding CPC................................82
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APPPENDIX
Appendix I - Mergers
ANNEXES
Annex I - Consideration to Be Paid to Stockholders
Annex II - Stockholders and Stock Ownership of the Company
Annex III - Stockholders and Stock Ownership of Metals
Annex IV - Certificate of Incorporation and By-Laws of Metals and Newco
Annex V - Form of Opinion of Counsel to Metals
Annex VI - Form of Opinion of Counsel to Company and Stockholders
Annex VII - Form of Key Employee Employment Agreement
Annex VIII - Form of Indemnification Agreement
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SCHEDULES
5.1 Due Organization
5.2 Authorization
5.3 Capital Stock of the COMPANY
5.4 Transactions in Capital Stock, Organization Accounting
5.5 No Bonus Shares
5.6 Subsidiaries
5.7 Predecessor Status; etc
5.8 Spin-off by the COMPANY
5.9 Financial Statements
5.10 Liabilities and Obligations
5.11 Accounts and Notes Receivable
5.12 Permits and Intangibles
5.13 Environmental Matters
5.14 Personal Property
5.15 Significant Customers; Material Contracts and Commitments
5.16 Real Property
5.17 Insurance
5.18 Compensation; Employment Agreements; Organized Labor Matters
5.19 Employee Plans
5.20 Compliance with ERISA
5.21 Conformity with Law; Litigation
5.22 Taxes
5.23 No Violations, Consents, etc.
5.24 Government Contracts
5.25 Absence of Changes
5.26 Deposit Accounts; Powers of Attorney
5.28 Relations with Governments
5.30 Prohibited Activities
5.31 Authority; Ownership
6.4 Transactions in Capital Stock, Organization Accounting
6.7 Liabilities and Obligations
6.8 Conformity with Law; Litigation
6.9 No Violations
6.13 Business; Real Property; Material Agreements
6.14 Taxes
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7.2 Conduct of Business Pending Closing
7.3 Prohibited Activities
7.5 Notice to Bargaining Agents
9.12 Employment Agreements
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AGREEMENT AND PLAN OF ORGANIZATION
THIS AGREEMENT AND PLAN OF ORGANIZATION (the "Agreement") is made as of
the 30th day of April, 1997, by and among METALS USA, Inc., a Delaware
corporation ("METALS"), TEXAS ALUMINUM I ACQUISITION CORP., TEXAS ALUMINUM II
ACQUISITION CORP., TEXAS ALUMINUM III ACQUISITION CORP., TEXAS ALUMINUM IV
ACQUISITION CORP., and TEXAS ALUMINUM V ACQUISITION CORP., each of which is a
Delaware corporation (collectively "NEWCO", and individually "each NEWCO"), and
TEXAS ALUMINUM INDUSTRIES, INC., a Texas corporation, CORNERSTONE METALS
CORPORATION, a Nevada corporation, CORNERSTONE BUILDING PRODUCTS, INC., a Nevada
corporation, CORNERSTONE ALUMINUM COMPANY, INC., a Nevada corporation and
CORNERSTONE PATIO CONCEPTS, L.L.C., a Nevada limited liability company
(collectively, the "COMPANY", and individually, "each COMPANY"), and the
STOCKHOLDERS identified on the signature pages hereto (the "STOCKHOLDERS").
Except as set forth in Section 18.16 hereof, the STOCKHOLDERS are all the
stockholders of the COMPANY.
WHEREAS, each NEWCO is a corporation duly organized and existing
under the laws of the State of Delaware, having been incorporated on April
23, 1997, solely for the purpose of completing the transactions set forth
herein, and is a wholly-owned subsidiary of METALS, a corporation
organized and existing under the laws of the State of Delaware;
WHEREAS, the respective Boards of Directors of each NEWCO and each
COMPANY (which together are hereinafter collectively referred to as
"Constituent Corporations") deem it advisable and in the best interests of
the Constituent Corporations and their respective stockholders that each
NEWCO merge with and into each COMPANY as set forth on Appendix I hereto
pursuant to this Agreement and the applicable provisions of the laws of
the States of Delaware and the States of Incorporation;
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WHEREAS, METALS is entering into other separate agreements
substantially similar to this Agreement (the "Other Agreements"), each of
which is entitled "Agreement and Plan of Organization," with each of the
Other Founding Companies (as defined herein) and their respective
stockholders in order to acquire additional metals processing, metals
fabricating and specialty metals companies;
WHEREAS, this Agreement and the Other Agreements constitute the
"METALS Plan of Organization;"
WHEREAS, the STOCKHOLDERS and the Boards of Directors and the
stockholders of METALS, each of the Other Founding Companies and each of
the subsidiaries of METALS that are parties to the Other Agreements have
approved and adopted the METALS Plan of Organization as an integrated plan
pursuant to which the STOCKHOLDERS and the stockholders of each of the
other Founding Companies will transfer the capital stock of each of the
Founding Companies to METALS and the stockholders of each of the other
Founding Companies will acquire the stock of METALS (but not cash or other
property) as a tax-free transfer of property under Section 351 of the
Internal Revenue Code of 1986, as amended;
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the Board of Directors of each
COMPANY has approved this Agreement as part of the METALS Plan of
Organization in order to transfer the capital stock of each COMPANY to
METALS;
WHEREAS, unless the context otherwise requires, capitalized terms
used in this Agreement or in any schedule attached hereto and not
otherwise defined shall have the following meanings for all purposes of
this Agreement:
"1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
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"Acquired Party" means the COMPANY, any subsidiary and any member of a
Relevant Group.
"Acquisition Companies" shall mean NEWCO and each of the other Delaware
companies wholly-owned by METALS prior to the Funding and Consummation Date.
"Affiliates" has the meaning set forth in Section 5.8.
"Articles of Merger" shall mean those Articles or Certificates of Merger
with respect to the Merger in such forms as may be required by the laws of the
State of Delaware and the States of Incorporation.
"Balance Sheet Date" shall mean December 31, 1996.
"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
"COMPANY" has the meaning set forth in the first paragraph of this
Agreement.
"COMPANY Stock" has the meaning set forth in Section 2.1.
"Constituent Corporations" has the meaning set forth in the second recital
of this Agreement.
"CPC" means Cornerstone Patio Concepts, L.L.C.
"Draft Registration Statement" means the draft dated April 25, 1997 of the
Registration Statement, and any corrections thereto and supplemental information
delivered by METALS to the COMPANY for delivery to the STOCKHOLDERS prior to the
time this Agreement is delivered to METALS.
"Effective Time of the Merger" shall mean the time as of which the Merger
becomes effective, which shall, in any case, occur on the Funding and
Consummation Date.
"Environmental Laws" has the meaning set forth in Section 5.13.
"Expiration Date" has the meaning set forth in Section 5(A).
"Founding Companies" means:
Affiliated Metals Company, a Missouri corporation;
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Interstate Steel Supply Company, a Pennsylvania corporation,
Interstate Steel Supply Company of Pittsburgh, a Pennsylvania
corporation, Interstate Steel Supply Company of Maryland, a
Maryland corporation, and Interstate Steel Processing Company,
a Pennsylvania corporation;
Queensboro Steel Corporation, a North Carolina corporation;
Southern Alloy of America, Inc., a North Carolina corporation;
Steel Service Systems, Inc., a Wisconsin corporation;
Texas Aluminum Industries, Inc., a Texas corporation ("TAI"),
Cornerstone Metals Corporation, a Nevada corporation,
Cornerstone Building Products, Inc., a Nevada corporation,
Cornerstone Aluminum Company, Inc., a Nevada corporation, and
Cornerstone Patio Concepts, L.L.C., a Nevada limited liability
company (collectively, such entities other than TAI being
herein called the "Cornerstone Companies");
Uni-Steel Incorporated, an Oklahoma corporation; and
Williams Steel & Supply Co., Inc., a Wisconsin corporation.
"Funding and Consummation Date" has the meaning set forth in
Section 4.
"IPO" means the initial public offering of METALS Stock pursuant to the
Registration Statement as referenced in Section 9.13.
"Material Adverse Effect" has the meaning set forth in Section 5.1.
"Material Documents" has the meaning set forth in Section 5.23.
"Merger" means the merger of each NEWCO with and into each COMPANY as set
forth on Appendix I hereto pursuant to this Agreement and the applicable
provisions of the laws of the State of Delaware and the laws of the States of
Incorporation.
"METALS" has the meaning set forth in the first paragraph of this
Agreement.
"METALS Charter Documents" has the meaning set forth in Section 6.1.
"METALS Stock" means the common stock, par value $.01 per share, of
METALS.
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"NEWCO" has the meaning set forth in the first paragraph of this
Agreement.
"NEWCO STOCK" means the common stock, par value $.01 per share, of NEWCO.
"Other Founding Companies" means all of the Founding Companies other than
the Company.
"Plans" has the meaning set forth in Section 5.19.
"Pricing" means the date of determination by METALS and the Underwriters
of the public offering price of the shares of METALS Stock in the IPO; the
parties hereto contemplate that the Pricing shall take place on the Closing
Date.
"Qualified Plans" has the meaning set forth in Section 5.20.
"Registration Statement" means that certain registration statement on Form
S-1 to be filed with the SEC covering the shares of METALS Stock to be issued in
the IPO and all amendments thereto.
"Relevant Group" means the COMPANY and any affiliated, combined,
consolidated, unitary or similar group of which the COMPANY is or was a member.
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
"Schedule" means each Schedule attached hereto, which shall reference the
relevant sections of this Agreement, on which parties hereto disclose
information as part of their respective representations, warranties and
covenants.
"SEC" means the United States Securities and Exchange Commission.
"States of Incorporation" means the States of Texas and Nevada.
"STOCKHOLDERS" has the meaning set forth in the first paragraph of this
Agreement.
"Surviving Corporation" shall mean each COMPANY as the surviving party in
each Merger.
"Tax" or "Taxes" means all federal, state, local or foreign net or gross
income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, withholding, employment, excise, property, deed, stamp, alternative
or add on minimum, or other taxes, assessments, duties, fees,
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levies or other governmental charges, whether disputed or not, together with any
interest, penalties, additions to tax or additional amounts with respect
thereto.
"Underwriters" means the prospective underwriters identified in the
Registration Statement.
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:
1. THE MERGER
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER. The Constituent
Corporations will cause the Articles of Merger to be signed, verified and placed
in escrow under the control of METALS to be held for filing with the Secretary
of State of the State of Delaware and the Secretary of State of the States of
Incorporation on the Funding and Consummation Date.
1.2 EFFECTIVE TIME OF THE MERGER. At the Effective Time of the Merger,
each NEWCO shall be merged with and into each COMPANY as set forth in Appendix I
hereto in accordance with the Articles of Merger, the separate existence of each
NEWCO shall cease, each COMPANY shall be the surviving party in the Merger and
each COMPANY is sometimes hereinafter referred to as the Surviving Corporation.
The Merger will be effected in a single transaction.
1.3 CERTIFICATE OF INCORPORATION, BY-LAWS AND BOARD OF DIRECTORS OF
SURVIVING CORPORATION. At the Effective Time of the Merger:
(i) the Certificate of Incorporation of each COMPANY then in effect
shall be the Certificate of Incorporation of the respective Surviving
Corporation until changed as provided by law;
(ii) the By-laws of each NEWCO then in effect shall become the
By-laws of the respective Surviving Corporation; and subsequent to the
Effective Time of the Merger, such By-laws shall be the By-laws of the
Surviving Corporation until they shall thereafter be duly
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amended (and such By-laws shall be amended, if necessary, to comply with
applicable state law);
(iii) except with respect to CPC, the Board of Directors of the
respective Surviving Corporation shall consist of the persons who are on
the Board of Directors of each COMPANY immediately prior to the Effective
Time of the Merger, provided that J. Michael Kirksey shall be elected as a
director of each Surviving Corporation effective as of the Effective Time
of the Merger; the Board of Directors of each Surviving Corporation shall
hold office subject to the provisions of the laws of the appropriate State
of Incorporation and of the Certificate of Incorporation and By-laws of
the respective Surviving Corporation; and
(iv) the officers of each COMPANY immediately prior to the Effective
Time of the Merger shall continue as the officers of the respective
Surviving Corporation in the same capacity or capacities, and effective
upon the Effective Time of the Merger J. Michael Kirksey shall be
appointed as a vice president of each Surviving Corporation and Terry L.
Freeman shall be appointed as an Assistant Secretary of each Surviving
Corporation, each of such officers to serve, subject to the provisions of
the Certificate of Incorporation and Bylaws of the respective Surviving
Corporation, until his or her successor is duly elected and qualified.
1.4 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE COMPANY,
METALS AND NEWCO. The respective designations and numbers of outstanding shares
and voting rights of each class of outstanding capital stock of each COMPANY,
METALS and each NEWCO 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 each COMPANY is as set forth on Schedule 5.3 hereto;
(ii) immediately prior to the Closing Date and the Funding and
Consummation Date, the authorized capital stock of METALS will consist of
50,000,000 shares of METALS Stock, of which the number of issued and
outstanding shares will be set forth in the
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Registration Statement, and 5,000,000 shares of preferred stock, $.01 par
value, of which no shares will be issued and outstanding, and a number of
shares of Restricted Voting Common Stock, $.01 par value (the "Restricted
Common Stock"), to be determined by METALS in good faith, all of which
will be issued and outstanding except as otherwise set forth in the
Registration Statement; and
(iii) as of the date of this Agreement, the authorized capital stock
of each NEWCO consists of 1,000 shares of NEWCO Stock, of which one
hundred (100) shares are issued and outstanding.
1.5 EFFECT OF MERGER. At the Effective Time of the Merger, the effect of
the Merger shall be as provided in the applicable provisions of the General
Corporation Law of the State of Delaware (the "Delaware GCL") and the law of the
States of Incorporation. Except as herein specifically set forth, the identity,
existence, purposes, powers, objects, franchises, privileges, rights and
immunities of each COMPANY shall continue unaffected and unimpaired by the
Merger and the corporate franchises, existence and rights of each NEWCO shall be
merged with and into the respective COMPANY, and the respective COMPANY, as the
Surviving Corporation, shall be fully vested therewith. At the Effective Time of
the Merger, the separate existence of each NEWCO shall cease and, in accordance
with the terms of this Agreement, the respective 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
respective COMPANY and respective NEWCO shall be transferred to, and vested in,
the respective 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 respective
Surviving Corporation as they were of the respective COMPANY and respective
NEWCO; and the title to any real estate, or interest therein, whether by deed or
otherwise, under the
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laws of the sppropriate State of Incorporation vested in each COMPANY and each
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
respective COMPANY and respective 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.
2. CONVERSION OF STOCK
2.1 MANNER OF CONVERSION. The manner of converting the shares of (i)
outstanding capital stock of the COMPANY (including the outstanding equity
interests in CPC) ("COMPANY Stock") and (ii) NEWCO Stock, issued and outstanding
immediately prior to the Effective Time of the Merger, respectively, into shares
of (x) METALS Stock and cash and (y) common stock of the Surviving Corporation,
respectively, shall be as follows:
As of the Effective Time of the Merger:
(i) all of the shares of COMPANY Stock issued and outstanding
immediately prior to the Effective Time of the Merger, by virtue of the
Merger and without any action on the part of the holder thereof,
automatically shall be deemed to represent (1) the right to receive the
number of shares of METALS Stock set forth on Annex I hereto with respect
to such holder and (2) the right to receive the amount of cash set forth
on Annex I hereto with respect to such holder;
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(ii) all shares of COMPANY Stock 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 of the Merger, shall, by virtue of the Merger
and without any action on the part of METALS, automatically be converted
into one fully paid and non-assessable share of common stock of the
Surviving Corporation which shall constitute all of the issued and
outstanding shares of common stock of the Surviving Corporation
immediately after the Effective Time of the Merger. All METALS Stock
received by the STOCKHOLDERS pursuant to this Agreement shall,
except for restrictions on resale or transfer described in Sections 15 and 16
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 GCL. All METALS Stock received by the
STOCKHOLDERS shall be issued and delivered to the STOCKHOLDERS free and clear of
any liens, claims or encumbrances of any kind or nature. All voting rights of
such METALS Stock received by the STOCKHOLDERS shall be fully exercisable by the
STOCKHOLDERS and the STOCKHOLDERS shall not be deprived nor restricted in
exercising those rights. At the Effective Time of the Merger, METALS shall have
no class of capital stock issued and outstanding other than the METALS Stock and
the Restricted Voting Common Stock.
3. DELIVERY OF MERGER CONSIDERATION
3.1 On the Funding and Consummation Date the STOCKHOLDERS, 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 and the amount of cash described on Annex I hereto, said
cash to be payable by certified check.
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3.2 The STOCKHOLDERS shall deliver to METALS at the Closing the
certificates representing COMPANY Stock, duly endorsed in blank by the
STOCKHOLDERS, or accompanied by blank stock powers, and with all necessary
transfer tax and other revenue stamps, acquired at the STOCKHOLDERS' expense,
affixed and canceled. The STOCKHOLDERS agree 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.
4. CLOSING
At or prior to the Pricing, the parties shall take all actions necessary
to prepare to (i) effect the Merger (including the execution of the Articles of
Merger which shall be placed in escrow under the control of METALS for filing
with the appropriate authorities on the Funding and Consummation Date) and (ii)
effect the conversion and delivery of shares referred to in Section 3 hereof;
provided, that such actions shall not include the actual completion of the
Merger or the conversion and delivery of the shares and certified check(s)
referred to in Section 3 hereof, each of which actions shall only be taken upon
the Funding and Consummation Date as herein provided. The escrow agreement
relating to the Articles of Merger shall provide that in the event that there is
no Funding and Consummation Date and this Agreement automatically terminates as
provided in this Section 4 the Articles of Merger shall not be filed and shall
be returned to the STOCKHOLDERS. The taking of the actions described in clauses
(i) and (ii) above (the "Closing") shall take place on the closing date (the
"Closing Date") at the offices of Bracewell & Patterson, L.L.P., South Tower
Pennzoil Place, 711 Louisiana, Suite 2900, Houston, Texas 77002. On the Funding
and Consummation Date (x) the Articles of Merger shall be filed with the
appropriate state authorities so that they shall be, as early as practicable on
the Funding and Consummation Date, effective and the Merger shall thereby be
effected, (y) all transactions contemplated by this Agreement, including the
conversion and delivery of shares, the delivery of a certified check or
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checks in an amount equal to the cash portion of the consideration which the
STOCKHOLDERS shall be entitled to receive pursuant to the Merger referred to in
Section 3 hereof and (z) the closing with respect to the IPO shall occur and be
completed. The date on which the actions described in the preceding clauses (x),
(y) and (z) occurs shall be referred to as the "Funding and Consummation Date."
Except as otherwise provided in Section 12 hereof, during the period from the
Closing Date to the Funding and Consummation Date, this Agreement may only be
terminated by the parties if the underwriting agreement in respect of the IPO is
terminated pursuant to the terms of such agreement. This Agreement shall also in
any event automatically terminate if the Funding and Consummation Date has not
occurred within 10 business days of the Closing Date. Time is of the essence.
5. REPRESENTATIONS AND WARRANTIES OF COMPANY AND STOCKHOLDERS
(A) REPRESENTATIONS AND WARRANTIES OF COMPANY AND STOCKHOLDERS.
Each of the COMPANY and the STOCKHOLDERS jointly and severally represent
and warrant that all of the following representations and warranties in this
Section 5(A) are true at the date of this Agreement and, subject to Section 7.8
hereof, shall be true at the time of Closing and the Funding and Consummation
Date, and that such representations and warranties shall survive the Funding and
Consummation Date for a period of twelve months (the last day of such period
being the "Expiration Date"), except that the warranties and representations set
forth in Section 5.22 hereof shall survive until such time as the limitations
period has run for all tax periods ended on or prior to the Funding and
Consummation Date, which shall be deemed to be the Expiration Date for Section
5.22. For purposes of this Section 5, the term COMPANY shall mean and refer to
the COMPANY and all of its subsidiaries.
5.1 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 the requisite
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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 (i) as set forth on
Schedule 5.1 or (ii) 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 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 5.1. The stock records of the COMPANY, as heretofore made
available to METALS, 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 complete in all
material 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, power and
authority to enter into this Agreement and the Merger. The most recent
resolutions adopted by the Board of Directors of the COMPANY and the most recent
resolutions adopted by the STOCKHOLDERS, all of which are dated no earlier than
ten business days prior to the date hereof, approve this Agreement and the
transactions contemplated hereby in all respects, and copies of all such
resolutions, certified by the Secretary or an Assistant Secretary of the COMPANY
as being in full force and effect on the date hereof, are attached hereto as
Schedule 5.2.
5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the
COMPANY is as set forth on Schedule 5.3. All of the issued and outstanding
shares of the capital stock of the COMPANY are owned by the STOCKHOLDERS in the
amounts set forth in Annex II. Each STOCKHOLDER, severally, represents and
warrants that except as set forth on Schedule 5.3, the
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shares of capital stock of the COMPANY owned by such STOCKHOLDER 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, are owned of record and
beneficially by the STOCKHOLDERS and further, such shares were offered, issued,
sold and delivered by the COMPANY in compliance with all applicable state and
Federal laws concerning the issuance of securities. Further, none of such shares
were issued in violation of any preemptive rights of any past or present
stockholder.
5.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except as set
forth on Schedule 5.4, the COMPANY has not acquired any COMPANY Stock since
January 1, 1995. Except as set forth on Schedule 5.4, (i) no option, warrant,
call, conversion right or commitment of any kind exists which obligates the
COMPANY to issue any of its authorized but unissued capital stock; (ii) the
COMPANY has no obligation (contingent or otherwise) to purchase, redeem or
otherwise acquire any of its equity securities or any interests therein or to
pay any dividend or make any distribution in respect thereof; and (iii) neither
the voting stock structure of the COMPANY nor the relative ownership of shares
among any of its respective stockholders has been altered or changed in
contemplation of the Merger and/or the METALS Plan of Organization. Schedule 5.4
also includes a complete and accurate list of all stock option or stock purchase
plans, including a list of all outstanding options, warrants or other rights to
acquire shares of the COMPANY's stock and copies of such plans have been
delivered to METALS or are attached to Schedule 5.4.
5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of the
shares of COMPANY Stock was issued pursuant to awards, grants or bonuses in
contemplation of the Merger or the METALS Plan of Organization.
5.6 SUBSIDIARIES. Except as set forth on Schedule 5.6, the COMPANY has no
subsidiaries. Except as set forth in Schedule 5.6 and except for any
corporations or entities with respect to which the COMPANY owns less than 1% of
the issued and outstanding stock, the
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COMPANY does not presently 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 business entity nor
is the COMPANY, directly or indirectly, a participant in any joint venture,
partnership or other non-corporate entity.
5.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 5.7 is a listing of all
names of all predecessor companies of the COMPANY, including the names of any
entities acquired by the COMPANY (by stock purchase, merger or otherwise) or
owned by the COMPANY or from whom the COMPANY previously acquired material
assets, in any case, from the earliest date upon which any STOCKHOLDER acquired
his or her stock in any COMPANY. Except as disclosed on Schedule 5.7, the
COMPANY has not been, within such period of time, a subsidiary or division of
another corporation or a part of an acquisition which was later rescinded.
5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8, there
has not been any sale, spin-off or split-up of material assets of either the
COMPANY or any other person or entity that directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under common
control with, the COMPANY ("Affiliates") since January 1, 1995.
5.9 FINANCIAL STATEMENTS. Attached hereto as Schedule 5.9 are copies of
the following financial statements (the "COMPANY Financial Statements") of the
COMPANY: TAI's audited Balance Sheets as of June 30, 1996 and 1995, and
Statements of Income, Statements of Stockholders' Equity and Statements of Cash
Flows for each of the three years in the period ended June 30, 1996, the
Cornerstone Companies' audited Balance Sheets as of December 31, 1995 and 1996
and Statements of Income, Statements of Stockholders' Equity, and Statements of
Cash Flows for each of the three years in the period ended December 31, 1996
(December 31, 1996 being hereinafter referred to as the "Balance Sheet Date" for
both TAI and the Cornerstone Companies). Such Financial Statements have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods indicated (except as noted thereon or
on Schedule 5.9). Except as set forth on Schedule 5.9, such Balance Sheets
present fairly in all
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material respects the financial position of the COMPANY as of the dates
indicated thereon, and such Statements of Income, Stockholders Equity and Cash
Flows present fairly in all material respects the results of operations for the
periods indicated thereon.
5.10 LIABILITIES AND OBLIGATIONS. The COMPANY has delivered to METALS an
accurate list (which is set forth on Schedule 5.10) as of the Balance Sheet Date
of (i) all liabilities of the COMPANY of a nature that they are required in
accordance with GAAP to be reflected on a balance sheet and which are not
reflected on the balance sheet of the COMPANY at the Balance Sheet Date or
otherwise reflected in the COMPANY Financial Statements at the Balance Sheet
Date, and which are not disclosed on any of the other Schedules to this
Agreement and which would have a Material Adverse Effect on the COMPANY, and
(ii) all loan agreements, indemnity or guaranty agreements, bonds, mortgages,
pledges or other security agreements to which the COMPANY is a party or by which
its properties may be bound. Except as set forth on Schedule 5.10, to the best
knowledge of the COMPANY, since the Balance Sheet Date the COMPANY has not
incurred any material liabilities of any kind, character or description, whether
accrued, absolute, secured or unsecured, contingent or otherwise, other than
liabilities incurred in the ordinary course of business. The COMPANY has also
delivered to METALS on Schedule 5.10, in the case of those contingent
liabilities related to pending or threatened litigation, or other liabilities
which are not fixed, a good faith and reasonable estimate of the maximum amount
which the COMPANY reasonably expects will be payable and the amount, if any,
accrued or reserved for each such potential liability on the COMPANY's Financial
Statements. For each such contingent liability or liability for which the amount
is not fixed or is contested, the COMPANY has provided to METALS the following
information:
(i) a summary description of the liability together with the
following:
(a) copies of all relevant documentation relating thereto;
(b) amounts claimed and any other action or relief sought; and
(c) name of claimant and all other parties to the claim, suit
or proceeding;
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(ii) the name of each court or agency before which such claim, suit
or proceeding is pending; and
(iii) the date such claim, suit or proceeding was instituted; and
(iv) a good faith and reasonable estimate of the maximum amount, if
any, which is likely to become payable with respect to each such
liability. If no estimate is provided, the estimate shall for purposes of
this Agreement be deemed to be zero.
5.11 ACCOUNTS AND NOTES RECEIVABLE. The COMPANY has delivered to METALS an
accurate list (which is set forth on Schedule 5.11) of the accounts and notes
receivable of the COMPANY, as of the Balance Sheet Date, including any such
amounts which are not reflected in the balance sheet as of the Balance Sheet
Date, and including receivables from and advances to employees and the
STOCKHOLDERS. Except to the extent reflected on Schedule 5.11, such accounts,
notes and other receivables are collectible in the amounts shown on Schedule
5.11, net of reserves reflected in the balance sheet as of the Balance Sheet
Date.
5.12 PERMITS AND INTANGIBLES. The COMPANY or its employees, as
appropriate, hold all licenses, franchises, permits and other governmental
authorizations ("Licenses") the absence of any of which could have a Material
Adverse Effect on the Company's business, and the COMPANY has delivered to
METALS an accurate list and summary description (which is set forth on Schedule
5.12) of all such Licenses, including any 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
5.13). At or prior to the Closing, all such trademarks, trade names, patents,
patent applications, copyrights and other intellectual property will be assigned
or licensed to the COMPANY for no additional consideration. To the best
knowledge of the COMPANY, the Licenses and other rights listed on Schedules 5.12
and 5.13 are valid, and the COMPANY has not received any notice that any person
intends to cancel, terminate or not renew any such License or other right. The
COMPANY has
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conducted and is conducting its business in compliance with the requirements,
standards, criteria and conditions set forth in the Licenses and other rights
listed on Schedules 5.12 and 5.13 and is not in violation of any of the
foregoing except where such non-compliance or violation would not have a
Material Adverse Effect on the COMPANY. Except as specifically provided in
Schedule 5.12, 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 or other rights.
5.13 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 5.13, and
except where any failure to comply or action would not have a Material Adverse
Effect, (i) 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 and Hazardous Substances (as such terms are defined
in any applicable Environmental Law), as well as petroleum and petroleum
products (collectively "Hazardous Materials"); (ii) the COMPANY has obtained and
adhered to all necessary permits and other approvals necessary to treat,
transport, store, dispose of and otherwise handle Hazardous Materials, a list of
all of which permits and approvals is set forth on Schedule 5.13, 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 Materials have been treated, stored, disposed of or otherwise
handled; (iii) there have been no releases or threats of releases (as these
terms are defined in Environmental Laws) of any Hazardous Materials at, from, in
or on any property owned or operated by the COMPANY except as permitted by
Environmental Laws; (iv) the COMPANY knows of no on-site or off-site location to
which the COMPANY has transported or disposed of Hazardous Materials or arranged
for the transportation of Hazardous
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Materials, which site 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, METALS or NEWCO for any clean-up cost,
remedial work, damage to natural resources, property damage or personal injury,
including, but not limited to, any claim under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended; and (v) to the
best knowledge of the COMPANY, the COMPANY has no contingent liability in
connection with any release of any Hazardous Materials into the environment;
provided, however, that the representation set forth in this clause (v) shall
not be deemed to limit in any way the representations and warranties set forth
in clauses (i) - (iv) of this Section 5.13.
5.14 PERSONAL PROPERTY. The COMPANY has delivered to METALS an accurate
list (which is set forth on Schedule 5.14) of (x) all personal property material
to the operations of the COMPANY included (or that will be included) in
"depreciable plant, property and equipment" on the balance sheet of the COMPANY,
(y) all other personal property owned by the COMPANY with an individual value in
excess of $50,000 (i) as of the Balance Sheet Date and (ii) acquired since the
Balance Sheet Date and (z) all material leases and agreements in respect of
personal property, including, in the case of each of (x), (y) and (z), (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. Except as set forth on Schedule
5.14, (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 5.14, (ii) all of the personal property listed on Schedule
5.14 is in good working order and condition, ordinary wear and tear excepted and
(iii) all leases and agreements included on Schedule 5.14 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.
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. The
COMPANY has delivered to METALS an accurate list (which is set forth on Schedule
5.15) of (i) all significant
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customers, it being understood and agreed that a "significant customer," for
purposes of this Section 5.15, means a customer (or person or entity)
representing 5% or more of the COMPANY's annual revenues for its most recently
completed fiscal year. Except to the extent set forth on Schedule 5.15, 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.
The COMPANY has listed on Schedule 5.15 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),
other than agreements listed on Schedule 5.10, 5.14 or 5.16, (a) in existence as
of the Balance Sheet Date and (b) entered into since the Balance Sheet Date, and
in each case has delivered true, complete and correct copies of such agreements
to METALS. The COMPANY has also indicated on Schedule 5.15 a summary description
of all plans or projects involving the opening of new operations, expansion of
existing operations, the acquisition of any personal property, business or
assets requiring, in any event, the payment of more than $50,000 by the COMPANY
during any 12- month period.
5.16 REAL PROPERTY. Schedule 5.16 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. Except as set forth
on Schedule 5.16, any such real property owned by the COMPANY will be sold or
distributed by the COMPANY and leased back by the COMPANY on terms no less
favorable to the COMPANY than those available from an unaffiliated party and
otherwise reasonably acceptable to METALS at or prior to the Closing Date. The
COMPANY has good and insurable title to any real property owned by it that is
not shown on Schedule 5.16 as property intended to be sold or distributed prior
to the Closing Date, subject to no mortgage, pledge, lien, conditional sales
agreement, encumbrance or charge, except for:
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(i) liens reflected on Schedules 5.10 or 5.16 as securing specified
liabilities (with respect to which no material default exists);
(ii) liens for current taxes not yet payable and assessments not in
default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other exceptions to
title which do not adversely affect the current use of the property.
True, complete and correct copies of all leases and agreements in respect
of such real property leased by the COMPANY are attached to Schedule 5.16, 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 5.16. Except as set forth on Schedule 5.16, all of such
leases included on Schedule 5.16 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.
5.17 INSURANCE. The COMPANY has delivered to METALS (i) an accurate list
as of the Balance Sheet Date of all insurance policies carried by the COMPANY,
(ii) an accurate list of all insurance loss runs or workers compensation claims
received for the past three (3) policy years and (iii) true, complete and
correct copies of all insurance policies currently in effect. 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. All of such insurance policies are currently in full force and
effect and shall, to the best knowledge of the COMPANY, remain in full force and
effect through the Funding and Consummation Date. Since January 1, 1994, no
insurance carried by the COMPANY has been canceled by the insurer and the
COMPANY has not been denied coverage.
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS. The
COMPANY has delivered to METALS an accurate list (which is set forth on Schedule
5.18) showing all officers, directors and key employees of the COMPANY, listing
all employment
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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. The COMPANY has provided to METALS true, complete
and correct copies of any employment agreements for persons listed on Schedule
5.18. Since the Balance Sheet Date, there have been no material 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 5.18, (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 nor has the COMPANY experienced any labor
interruptions over the past three years. The COMPANY believes its relationship
with employees to be good.
5.19 EMPLOYEE PLANS. The STOCKHOLDERS have delivered to METALS an accurate
schedule (Schedule 5.19) showing all employee benefit plans of COMPANY
(including COMPANY's Subsidiaries), including all employment agreements and
other agreements or arrangements 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 5.19,
COMPANY (including the COMPANY's Subsidiaries) does not sponsor, maintain or
contribute to any plan program, fund or arrangement that constitutes an
"employee pension benefit plan," nor has COMPANY or any Subsidiary 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,
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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. Neither COMPANY nor any
Subsidiary has sponsored, maintained or contributed to any employee pension
benefit plan other than the plans set forth on Schedule 5.19, nor is COMPANY or
any Subsidiary 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 COMPANY's or any Subsidiary's employees.
Neither the COMPANY nor any Subsidiary is now, or will as a result of its
past activities become, liable to the Pension Benefit Guaranty Corporation or to
any multiemployer employee pension benefit plan under the provisions of Title IV
of ERISA for any amounts which would have a Material Adverse Effect on the
COMPANY.
All employee benefit plans listed on Schedule 5.19 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 or any Subsidiary with
respect to any plan listed on Schedule 5.19 have either been fulfilled in their
entirety or are fully reflected on the balance sheet of the COMPANY as of the
Balance Sheet Date.
5.20 COMPLIANCE WITH ERISA. All such plans listed on Schedule 5.19 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 such determination letters are
included as part of Schedule 5.19 hereof. Except as disclosed on Schedule 5.20,
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
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or tax returns) have been timely filed or distributed, and copies thereof are
included as part of Schedule 5.19 hereof. Neither STOCKHOLDERS, any such plan
listed in Schedule 5.19, nor COMPANY (including the COMPANY's Subsidiaries) has
engaged in any transaction prohibited under the provisions of Section 4975 of
the Code or Section 406 of ERISA. No such Plan listed in Schedule 5.19 has
incurred an accumulated funding deficiency, as defined in Section 412(a) of the
Code and Section 302(1) of ERISA; and COMPANY (including the COMPANY's
Subsidiaries) has not incurred any liability for excise tax or penalty due to
the Internal Revenue Service nor any liability to the Pension Benefit Guaranty
Corporation. The STOCKHOLDERS further represent that except as set forth on
Schedule 5.19 hereto:
(i) 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;
(ii) no such plan listed in Schedule 5.19 subject to the provisions
of Title IV of ERISA has been terminated;
(iii) 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 5.19;
(iv) COMPANY (including the COMPANY's Subsidiaries) has not incurred
liability under Section 4062 of ERISA; and
(v) To their best knowledge, circumstances exist pursuant to which
the COMPANY could have any direct or indirect liability whatsoever
(including, but not limited to, any liability to any multiemployer 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.
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5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedule 5.21 or 5.13, 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 which would have a Material Adverse Effect; and except to
the extent set forth on Schedule 5.10 or 5.13, there are no material claims,
actions, suits or proceedings, pending or, to the knowledge of the COMPANY,
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 any of them
and no notice of any claim, action, suit or proceeding, whether pending or
threatened, has been received by the COMPANY. 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, orders, approvals, variances, rules and regulations,
including all such orders and other governmental approvals set forth on
Schedules 5.12 and 5.13, except where any such noncompliance, individually or in
the aggregate, would not have a Material Adverse Effect.
5.22 TAXES. COMPANY (including the COMPANY's 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; and except as
set forth on Schedule 5.22, there are no examinations in progress or claims
pending against any of them for federal, state and other taxes (including
penalties and interest) for any period or periods prior to and including the
Balance Sheet Date and no notice of any claim for taxes, whether pending or
threatened, has been received. All tax, including interest and penalties
(whether or not shown on any tax return) owed by the COMPANY or any of the
COMPANY's Subsidiaries has been paid. The amounts shown as accruals for taxes on
the COMPANY Financial Statements are sufficient for the payment of all taxes of
the kinds indicated (including penalties and interest) for all fiscal periods
ended on or before that date. Copies of (i) any tax examinations, (ii)
extensions of statutory limitations and (iii) the federal and local
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income tax returns and franchise tax returns of COMPANY (including the COMPANY
Subsidiaries) for their last three (3) fiscal years, or such shorter period of
time as any of them shall have existed, are attached hereto as Schedule 5.22 or
have otherwise been delivered to METALS. The COMPANY has a taxable year ended
December 31. 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.
5.23 NO VIOLATIONS; CONSENTS, ETC. The COMPANY is not in violation of any
Charter Document. Neither the COMPANY nor, to the best knowledge of the COMPANY,
any other party thereto, is in default under any lease, instrument, agreement,
license, or permit set forth on Schedule 5.12, 5.13, 5.14, 5.15 or 5.16, or any
other material agreement to which it is a party or by which its properties are
bound (the "Material Documents") in any manner that could result in a Material
Adverse Effect; and, except as set forth in Schedule 5.23, (a) the rights and
benefits of the COMPANY under the Material Documents will not be materially
adversely affected by the transactions contemplated hereby and (b) 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
material violation or breach or constitute a default under, any of the terms or
provisions of the Material Documents or the Charter Documents. Except as set
forth on Schedule 5.23, 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. Except as set forth on Schedule 5.23,
none of the Material Documents prohibits the use or publication by the COMPANY,
METALS or NEWCO 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,
METALS, NEWCO or any Other Founding Company.
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5.24 GOVERNMENT CONTRACTS. Except as set forth on Schedule 5.24, the
COMPANY is not now a party to any governmental contracts subject to price
redetermination or renegotiation.
5.25 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
on Schedule 5.25 or as otherwise contemplated hereby, 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
except for distributions that would have been permitted after the date
hereof under Section 7.3(iii) hereof;
(v) any material 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, except for ordinary and customary bonuses and salary increases for
employees in accordance with past practice;
(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;
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(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 STOCKHOLDERS 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 other distribution of property or assets by the COMPANY
other than in the ordinary course of business and other than distributions
of real estate and other assets as permitted by this Agreement (including
the Schedules hereto).
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The COMPANY has delivered to
METALS an accurate schedule (which is set forth on Schedule 5.26) as of the date
of the 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; and
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(iv) the name of each person authorized to draw thereon or have
access thereto. Schedule 5.26 also sets forth the name of each person,
corporation, firm or other entity holding a general or special power of attorney
from the COMPANY and a description of the terms of such power.
5.27 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by the COMPANY and the performance of the transactions contemplated herein have
been duly and validly authorized by the Board of Directors of the COMPANY and
this Agreement has been duly and validly authorized by all necessary corporate
action and is a legal, valid and binding obligation of the COMPANY.
5.28 RELATIONS WITH GOVERNMENTS. Except for political contributions made
in a lawful manner which, in the aggregate, do not exceed $10,000 per year, the
COMPANY has not over the past five (5) years made, offered or agreed to offer
anything of value to any governmental official, political party or candidate for
government office nor has it 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. If political contributions made by the
COMPANY have exceeded $10,000 per year for each year in which any STOCKHOLDER
has been a stockholder of the COMPANY, each contribution in the amount of $5,000
or more shall be described on Schedule 5.28.
5.29 DISCLOSURE. (a) This Agreement, including the Annexes and Schedules
hereto, and the completed Director and Officer Questionnaires and the completed
S-1 Questionnaire furnished to METALS by the COMPANY and the STOCKHOLDERS in
connection herewith, do not contain an untrue statement of a material fact or
omit to state a material fact necessary to make the statements herein and
therein, in light of the circumstances under which they were made, not
misleading; provided, however, that the foregoing does not apply to statements
contained in or omitted from any of such documents made or omitted in reliance
upon information furnished in writing by METALS. If, prior to the 25th day after
the date of the final prospectus of METALS utilized in connection with the IPO,
the COMPANY or the STOCKHOLDERS become aware of any
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fact or circumstance which would affect the accuracy of a representation or
warranty of COMPANY or STOCKHOLDERS in this Agreement in any material respect,
the COMPANY and the STOCKHOLDERS shall immediately give notice of such fact or
circumstance to METALS. However, subject to the provisions of Section 7.8, such
notification shall not relieve either the COMPANY or the STOCKHOLDERS of their
respective obligations under this Agreement, and, subject to the provisions of
Section 7.8, at the sole option of METALS, the truth and accuracy of any and all
warranties and representations of the COMPANY, or on behalf of the COMPANY and
of STOCKHOLDERS at the date of this Agreement and on the Closing Date and on the
Funding and Consummation Date, shall be a precondition to the consummation of
this transaction.
(b) The COMPANY and the STOCKHOLDERS acknowledge and agree (i)
that there exists no firm commitment, binding agreement, or promise or other
assurance of any kind, whether express or implied, oral or written, that a
Registration Statement will become effective or that the IPO pursuant thereto
will occur at a particular price or within a particular range of prices or occur
at all; (ii) that neither METALS or any of its officers, directors, agents or
representatives nor any Underwriter shall have any liability to the COMPANY, the
STOCKHOLDERS or any other person affiliated or associated with the COMPANY for
any failure of the Registration Statement to become effective, the IPO to occur
at a particular price or within a particular range of prices or to occur at all;
and (iii) that the decision of STOCKHOLDERS to enter into this Agreement, or to
vote in favor of or consent to the proposed Merger, has been or will be made
independent of, and without reliance upon, any statements, opinions or other
communications, or due diligence investigations which have been or will be made
or performed by any prospective Underwriter, relative to METALS or the
prospective IPO. METALS agrees, however, to use all reasonable efforts to
consummate the METALS Plan of Organization and IPO as contemplated hereby.
5.30 PROHIBITED ACTIVITIES. Except as set forth on Schedule 5.30, 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.
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(B) REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS
Each STOCKHOLDER severally represents and warrants that the
representations and warranties set forth below are true as of the date of this
Agreement and, subject to Section 7.8 hereof, shall be true at the time of
Closing and on the Funding and Consummation Date, and that the representations
and warranties set forth in Sections 5.31 and 5.32 shall survive until the first
anniversary of the Funding and Consummation Date, which shall be the Expiration
Date for purposes of Sections 5.31 and 5.32.
5.31 AUTHORITY; OWNERSHIP. Such STOCKHOLDER has the full legal right,
power and authority to enter into this Agreement. Such STOCKHOLDER owns
beneficially and of record all of the shares of the COMPANY stock identified on
Annex II as being owned by such STOCKHOLDER, and, except as set forth on
Schedule 5.31, such COMPANY Stock is owned free and clear of all liens,
encumbrances and claims of every kind.
5.32 PREEMPTIVE RIGHTS. Such STOCKHOLDER does not have, or hereby waives,
any preemptive or other right to acquire shares of COMPANY Stock or METALS Stock
that such STOCKHOLDER has or may have had. Nothing herein, however, shall limit
or restrict the rights of any STOCKHOLDER to acquire METALS Stock pursuant to
(i) this Agreement or (ii) any option granted by METALS.
5.33 NO INTENTION TO DISPOSE OF METALS STOCK. No STOCKHOLDER is under any
binding commitment or contract to sell, exchange or otherwise dispose of shares
of METALS Stock received as described in Section 3.1.
6. REPRESENTATIONS OF METALS AND NEWCO
METALS and NEWCO jointly and severally represent and warrant that
all of the following representations and warranties in this Section 6 are true
at the date of this Agreement and, subject to Section 7.8 hereof, shall be true
at the time of Closing and the Funding and Consummation Date, and that such
representations and warranties shall survive the Funding and Consummation
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Date for a period of twelve months (the last day of such period being the
"Expiration Date"), except that (i) the warranties and representations set forth
in Section 6.14 hereof shall survive until such time as the limitations period
has run for all tax periods ended on or prior to the Funding and Consummation
Date, which shall be deemed to be the Expiration Date for Section 6.14 and (ii)
solely for purposes of determining whether a claim for indemnification under
Section 11.2(iv) hereof has been made on a timely basis, and solely to the
extent that in connection with the IPO, any of the STOCKHOLDERS actually incurs
liability under the 1933 Act, the 1934 Act, or any other Federal or state
securities laws, the representations and warranties set forth herein shall
survive until the expiration of any applicable limitations period, which shall
be deemed to be the Expiration Date for such purposes.
6.1 DUE ORGANIZATION. METALS and NEWCO are each corporations duly
organized, validly existing and in good standing under the laws of the State of
Delaware, 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 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. True,
complete and correct copies of the Certificate of Incorporation and By-laws,
each as proposed to be amended, of METALS and NEWCO (the "METALS Charter
Documents") are all attached hereto as Annex IV.
6.2 AUTHORIZATION. (i) The respective representatives 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 consummate the
Merger. All corporate acts and other proceedings required to have been taken by
METALS and NEWCO to authorize the execution, delivery and performance of this
Agreement and the consummation of the Merger have been duly and properly taken.
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6.3 CAPITAL STOCK OF METALS AND NEWCO. The authorized capital stock of
METALS and NEWCO is as set forth in Sections 1.4(ii) and (iii), respectively.
All of the issued and outstanding shares of the capital stock of NEWCO are owned
by METALS and all of the issued and outstanding shares of the capital stock of
METALS are owned by the persons set forth on Annex III hereof, in each case,
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 METALS and NEWCO have been duly
authorized and validly issued, are fully paid and nonassessable, are owned of
record and beneficially by METALS and the persons set forth on Annex III,
respectively, and further, such shares were offered, issued, sold and delivered
by METALS and NEWCO in compliance with all applicable state and Federal laws
concerning the issuance of securities. Further, none of such shares were issued
in violation of the preemptive rights of any past or present stockholder of
METALS or NEWCO.
6.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except for the
Other Agreements and except as set forth on Schedule 6.4, (i) no option,
warrant, call, conversion right or commitment of any kind exists which obligates
METALS or NEWCO to issue any of their respective authorized but unissued capital
stock; and (ii) neither METALS nor NEWCO has any obligation (contingent or
otherwise) to purchase, redeem or otherwise acquire any of its equity securities
or any interests therein or to pay any dividend or make any distribution in
respect thereof. Schedule 6.4 also includes complete and accurate copies of all
stock option or stock purchase plans, including a list, accurate as of the date
hereof, of all outstanding options, warrants or other rights to acquire shares
of the stock of METALS.
6.5 SUBSIDIARIES. NEWCO has no subsidiaries. METALS has no subsidiaries
except for NEWCO and each of the companies identified as "NEWCO" in each of the
Other Agreements. Except as set forth in the preceding sentence, neither METALS
nor NEWCO presently owns, of record or beneficially, or controls, directly or
indirectly, any capital stock, securities convertible into capital stock or any
other equity interest in any corporation, association or business entity, and
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neither METALS nor NEWCO, directly or indirectly, is a participant in any joint
venture, partnership or other non-corporate entity.
6.6 FINANCIAL STATEMENTS. Included in the Draft Registration Statement are
copies of the following financial statements (the "METALS Financial Statements")
of METALS, which reflect the results of its operations from inception in July
1996: METALS's audited Balance Sheet as of December 31, 1996. Such METALS
Financial Statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
indicated (except as noted thereon). Such Balance Sheet presents fairly the
financial position of METALS as of such date.
6.7 LIABILITIES AND OBLIGATIONS. Except as set forth on Schedule 6.7,
METALS and NEWCO have no material liabilities, contingent or otherwise, except
as set forth in or contemplated by this Agreement and the Other Agreements and
except for fees incurred in connection with the transactions contemplated hereby
and thereby.
6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedule 6.8, neither METALS nor NEWCO is 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 either of them which would have a Material Adverse Effect; and
except to the extent set forth in Schedule 6.8, there are no material claims,
actions, suits or proceedings, pending or, to the knowledge of METALS or NEWCO,
threatened against or affecting, METALS or NEWCO, 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
either of them and no notice of any claim, action, suit or proceeding, whether
pending or threatened, has been received. METALS and NEWCO have conducted and
are conducting their respective businesses in substantial compliance with the
requirements, standards, criteria and conditions set forth in applicable
Federal, state and local statutes, ordinances, permits, licenses,
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orders, approvals, variances, rules and regulations and are not in violation of
any of the foregoing which would have a Material Adverse Effect.
6.9 NO VIOLATIONS. Neither METALS nor NEWCO is in violation of any METALS
Charter Document. None of METALS, NEWCO, or, to the knowledge of METALS and
NEWCO, any other party thereto, is in default under any lease, instrument,
agreement, license, or permit to which METALS or NEWCO is a party, or by which
METALS or NEWCO, or any of their respective properties, are bound (collectively,
the "METALS Documents"); and (a) the rights and benefits of METALS and NEWCO
under the METALS Documents will not be adversely affected by the transactions
contemplated hereby and (b) the execution and delivery of this Agreement by
METALS and NEWCO and the performance of their obligations hereunder do not, and
the consummation of the transactions contemplated hereby and compliance with the
terms hereof will not, conflict with, or result in any violation or default
(with or without notice or lapse of time, or both), under or give rise to a
right of termination, cancellation, or acceleration of any obligation or to loss
of a material benefit under, or result in the creation of any lien upon any of
the assets of METALS or any NEWCO under, any provision of (i) the Certificate of
Incorporation or Bylaws of METALS or the comparable governing instruments of any
NEWCO, (ii) any note, bond, mortgage, indenture or deed of trust or any license,
lease, contract, commitment, agreement or arrangement to which METALS and any
NEWCO is a party or by which any of their respective properties or assets are
bound or (iii) any judgment, order, decree or law, ordinance, rule or
regulation, applicable to METALS or any NEWCO or their respective properties or
assets. 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 material violation or breach or constitute a default under, any of
the terms or provisions of the METALS Documents or the METALS Charter Documents.
Except as set forth on Schedule 6.9, none of the METALS 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
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the transactions contemplated hereby will not give rise to any right to
termination, cancellation or acceleration or loss of any right or benefit.
6.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by METALS and NEWCO and the performance of the transactions contemplated herein
have been duly and validly authorized by the respective 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.
6.11 METALS STOCK. At the time of issuance thereof and delivery to the
STOCKHOLDERS, the METALS Stock to be delivered to the STOCKHOLDERS pursuant to
this Agreement will constitute valid and legally issued shares of METALS, fully
paid and nonassessable, and with the exception of restrictions upon resale set
forth in Sections 15 and 16 hereof, will be identical in all substantive
respects (which do not include the form of certificate upon which it is printed
or the presence or absence of a CUSIP number on any such certificate) to the
METALS Stock issued and outstanding as of the date hereof by reason of the
provisions of the Delaware GCL. The METALS Stock issued and delivered to the
STOCKHOLDERS shall at the time of such issuance and delivery be free and clear
of any liens, claims or encumbrances of any kind or character. The shares of
METALS Stock to be issued to the STOCKHOLDERS pursuant to this Agreement will
not be registered under the 1933 Act, except as provided in Section 17 hereof.
6.12 NO SIDE AGREEMENTS. Neither METALS nor NEWCO has entered or will
enter into any agreement with any of the Founding Companies or any of the
stockholders of the Founding Companies or METALS other than the Other Agreements
and the agreements contemplated by each of the Other Agreements, including the
employment agreements, leases and Indemnification Agreements referred to herein
or entered into in connection with the transactions contemplated hereby and
thereby.
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. METALS was formed in
July 1996 and has conducted limited operations since that time. Neither METALS
nor NEWCO has
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conducted any material business since the date of its inception, except in
connection with this Agreement, the Other Agreements and the IPO. Neither METALS
nor NEWCO owns or has at any time owned any real property or any material
personal property or is a party to any other agreement, except as listed on
Schedule 6.13 and except that METALS is a party to the Other Agreements and the
agreements contemplated thereby and to such agreements as will be filed as
Exhibits to the Registration Statement.
6.14 TAXES.METALS and NEWCO have 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; and except as set forth on Schedule 6.14, there
are no examinations in progress or claims against METALS for federal, state and
other taxes (including penalties and interest) for any period or periods prior
to and including the Balance Sheet Date and no notice of any claim for taxes,
whether pending or threatened, has been received. All taxes which METALS or any
NEWCO has been required to collect or withhold have been duly and timely
collected and withheld and have been set aside in accounts for such purposes, or
have been duly and timely paid to the proper governmental authority. All tax,
including interest and penalties (whether or not shown on any tax return) owed
by METALS, any member of an affiliated or consolidated group which includes or
included METALS, or with respect to any payment made or deemed made by METALS
herein has been paid. The amounts shown as accruals for taxes on METALS
Financial Statements are sufficient for the payment of all taxes of the kinds
indicated (including penalties and interest) for all fiscal periods ended on or
before that date. Copies of any (i) tax examinations, (ii) extensions of
statutory limitations, (iii) federal and local income tax returns and franchise
tax returns of METALS for the year ended December 31, 1996, are attached hereto
as Schedule 6.14. Except as set forth in Schedule 6.14, METALS and NEWCO have
not entered into any tax sharing agreement or similar arrangement. METALS is not
an investment company as defined in Section 351(e)(1) of the Code.
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6.15 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
in the Draft Registration Statement delivered to the STOCKHOLDERS, and except as
contemplated by this Agreement and the Other Agreements, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of METALS or
NEWCO;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
METALS or NEWCO;
(iii) any change in the authorized capital of METALS or NEWCO or
their outstanding securities or any change in their 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 METALS or
NEWCO;
(v) any work interruptions, labor grievances or claims filed, or any
event or condition of any character, materially adversely affecting the
business of METALS or NEWCO;
(vi) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of METALS or NEWCO to any person;
(vii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to METALS or NEWCO;
(viii) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property
or rights of METALS or NEWCO or requiring consent of any party to the
transfer and assignment of any such assets, property or rights;
(ix) any waiver of any material rights or claims of METALS or NEWCO;
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(x) any amendment or termination of any material contract,
agreement, license, permit or other right to which METALS or NEWCO is a
party;
(xi) any transaction by METALS or NEWCO outside the ordinary course
of its business;
(xii) any other distribution of property or assets by METALS or
NEWCO other than in the ordinary course of business.
6.16 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by METALS and NEWCO and the performance of the transactions contemplated herein
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.
6.17 DISCLOSURE. The Draft Registration Statement delivered to the COMPANY
and the STOCKHOLDERS, together with this Agreement and the information furnished
to the COMPANY and the STOCKHOLDERS in connection herewith, does not contain an
untrue statement of a material fact or omit to state a material fact necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading; provided, however, that the foregoing does not apply
to statements contained in or omitted from any of such documents made or omitted
in reliance upon information furnished by the COMPANY or the STOCKHOLDERS.
6.18 PRIVATE OFFERING. (a) Neither METALS, any of its affiliates nor
anyone on its or their behalf, has issued, sold, or offered any securities of
METALS to any person under circumstances that would cause the issuance and sale
of the METALS Stock to the STOCKHOLDERS pursuant to this Agreement, to be
subject to the registration requirements of the 1933 Act.
(b) The offering of shares of METALS Stock pursuant to the METALS Plan of
Organization has been made in compliance with applicable federal and state
securities laws.
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7. COVENANTS PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION; DUE DILIGENCE. (a) Between the date of this
Agreement and the Funding and Consummation Date, the COMPANY will afford to the
officers and authorized representatives of METALS and the Other Founding
Companies 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 or
the Other Founding Companies may from time to time reasonably request. The
COMPANY will cooperate with METALS and the Other Founding Companies, 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, NEWCO, the STOCKHOLDERS and the
COMPANY will treat all information obtained in connection with the negotiation
and performance of this Agreement or the due diligence investigations conducted
with respect to the Other Founding Companies as confidential in accordance with
the provisions of Section 14 hereof. In addition, METALS will cause each of the
Other Founding Companies to enter into a provision similar to this Section 7.1
requiring each such Other Founding Company, its stockholders, directors,
officers, representatives, employees and agents to keep confidential any
information obtained by such Other Founding Company.
(b) Between the date of this Agreement and the Funding and Consummation
Date, METALS will afford to the officers and authorized representatives of the
COMPANY access to all of METALS's and NEWCO's sites, properties, books and
records and will furnish the COMPANY with such additional financial and
operating data and other information as to the business and properties of METALS
and NEWCO as the COMPANY may from time to time reasonably request. METALS and
NEWCO will cooperate with the COMPANY, 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. The
COMPANY will cause all
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information obtained in connection with the negotiation and performance of this
Agreement to be treated as confidential in accordance with the provisions of
Section 14 hereof.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Funding and Consummation Date, the COMPANY will, except as set
forth on Schedule 7.2:
(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) use all reasonable efforts to 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) use all reasonable efforts to 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;
(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; and
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(viii) maintain or reduce present salaries and commission levels for
all officers, directors, employees and agents except for ordinary and
customary bonus and salary increases for employees in accordance with past
practices.
7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3, between
the date hereof and the Funding and Consummation Date, the COMPANY will not,
without prior written consent of METALS, which consent will not be unreasonably
withheld:
(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 other than in
connection with the exercise of options or warrants listed in Schedule
5.4;
(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 for distributions in the amount of estimated taxes payable by the
STOCKHOLDERS on S corporation earnings (if any) of the COMPANY for the
period from the Balance Sheet Date to the Closing Date and specified on
Schedule 7.3 hereto, and any other distributions of Accumulated
Adjustments Accounts amounts specified on Schedule 7.3 hereto, it being
understood and agreed that any such distributions in excess of such
estimated taxes shall result in a corresponding dollar for dollar decrease
in the amount of cash otherwise payable to the STOCKHOLDERS as part of the
Merger consideration hereunder;
(iv) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditures, except if it is in
the normal course of business (consistent with past practice) or involves
an amount not in excess of $100,000;
(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
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equipment with an aggregate cost not in excess of $50,000 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 course of business (the liens set forth in clause (2)
being referred to herein as "Statutory Liens"), or (3) liens set forth on
Schedule 5.10 and/or 5.15 hereto;
(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business and other
than distributions of real estate and other assets as permitted in this
Agreement (including the Schedules hereto);
(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;
(ix) waive any material rights or claims of the COMPANY, provided
that the COMPANY may negotiate and adjust bills and accounts in the course
of good faith disputes with customers in a manner consistent with past
practice, provided, further, that such adjustments shall not be deemed to
be included in Schedule 5.11 unless specifically listed thereon;
(x) amend or terminate any material agreement, permit, license or
other right of the COMPANY; or
(xi) enter into any other transaction outside the ordinary course of
its business or prohibited hereunder.
7.4 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
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on the date of this Agreement and ending with the earlier to occur of the
Funding and Consummation 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 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 of the COMPANY.
7.5 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 on Schedule 7.5 with proof that any required notice has been
sent.
7.6 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 listed on Schedule
9.12 hereto and (ii) any existing agreement between the COMPANY and any
STOCKHOLDER, on or prior to the Funding and Consummation Date provided that
nothing herein shall prohibit or prevent the COMPANY from paying (either prior
to or on the Closing Date) notes or other obligations from the COMPANY to the
STOCKHOLDERS in accordance with the terms thereof, which terms have been
disclosed to METALS. Such termination agreements are listed on Schedule 7.6 and
copies thereof shall be attached thereto.
7.7 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
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COMPANY to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by such person hereunder. METALS and NEWCO 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 or NEWCO contained herein to be untrue or
inaccurate in any material respect at or prior to the Closing and (ii) any
material failure of METALS or NEWCO 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 7.7 shall not be deemed to (i)
modify the representations or warranties hereunder of the party delivering such
notice, which modification may only be made pursuant to Section 7.8, (ii) modify
the conditions set forth in Sections 8 and 9, or (iii) limit or otherwise affect
the remedies available hereunder to the party receiving such notice.
7.8 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 24 hours prior to the
anticipated effectiveness of the Registration Statement to supplement or amend
promptly the Schedules 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, provided however,
that supplements and amendments to Schedules 5.10, 5.11, 5.14 and 5.15 shall
only have to be delivered at the Closing Date, unless such Schedule is to be
amended to reflect an event occurring other than in the ordinary course of
business. Notwithstanding the foregoing sentence, no amendment or supplement to
a Schedule prepared by the COMPANY that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect may be made unless METALS
and a majority of the Founding Companies other than the COMPANY consent to such
amendment or supplement; and provided further, that no amendment or supplement
to a Schedule prepared by METALS or NEWCO that constitutes or reflects an event
or occurrence that would have a Material Adverse Effect may be made unless a
majority of the Founding Companies consent to such amendment or supplement. For
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all purposes of this Agreement, including without limitation for purposes of
determining whether the conditions set forth in Sections 8.1 and 9.1 have been
fulfilled, the Schedules hereto shall be deemed to be the Schedules as amended
or supplemented pursuant to this Section 7.8. In the event that one of the Other
Founding Companies seeks to amend or supplement a Schedule pursuant to Section
7.8 of one of the Other Agreements, and such amendment or supplement constitutes
or reflects an event or occurrence that would have a Material Adverse Effect on
such Other Founding Company, METALS shall give the COMPANY notice promptly after
it has knowledge thereof. If METALS and a majority of the Founding Companies
consent to such amendment or supplement, which consent shall have been deemed
given by METALS or any Founding Company if no response is received within 24
hours following receipt of notice of such amendment or supplement (or sooner if
required by the circumstances under which such consent is requested), but the
COMPANY does not give its consent, the COMPANY may terminate this Agreement
pursuant to Section 12.1(iv) hereof. In the event that the COMPANY seeks to
amend or supplement a Schedule pursuant to this Section 7.8, and METALS and a
majority of the Other Founding Companies do not consent to such amendment or
supplement, this Agreement shall be deemed terminated by mutual consent as set
forth in Section 12.1(i) hereof. In the event that METALS or NEWCO seeks to
amend or supplement a Schedule pursuant to this Section 7.8 and a majority of
the Founding Companies do not consent to such amendment or supplement, this
Agreement shall be deemed terminated by mutual consent as set forth in Section
12.1(i) hereof. No party to this Agreement shall be liable to any other party if
this Agreement shall be terminated pursuant to the provisions of this Section
7.8. No amendment of or supplement to a Schedule shall be made later than 24
hours prior to the anticipated effectiveness of the Registration Statement.
7.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The COMPANY and
STOCKHOLDERS shall furnish or cause to be furnished to METALS and the
Underwriters all of the information concerning the COMPANY and the STOCKHOLDERS
required for inclusion in, and will cooperate with METALS and the Underwriters
in the preparation of, the Registration
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Statement and the prospectus included therein (including audited and unaudited
financial statements, prepared in accordance with generally accepted accounting
principles, in form suitable for inclusion in the Registration Statement). The
COMPANY and the STOCKHOLDERS agree promptly to advise METALS if at any time
during the period in which a prospectus relating to the offering is required to
be delivered under the Securities Act, any information contained in the
prospectus concerning the COMPANY or the STOCKHOLDERS becomes incorrect or
incomplete in any material respect, and to provide the information needed to
correct such inaccuracy. Insofar as the information relates solely to the
COMPANY or the STOCKHOLDERS, the COMPANY represents and warrants as to such
information with respect to itself, and each Stockholder represents and
warrants, as to such information with respect to the COMPANY and himself or
herself, that the Registration Statement will not include an untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
7.10 FINAL FINANCIAL STATEMENTS. The COMPANY shall provide prior to the
Funding and Consummation Date, and METALS shall have had sufficient time to
review the unaudited consolidated balance sheets of the COMPANY as of the end of
all fiscal quarters following the Balance Sheet Date, and the unaudited
consolidated statement of income, cash flows and retained earnings of the
COMPANY for all fiscal quarters ended after the Balance Sheet Date, disclosing
no material adverse change in the financial condition of the COMPANY or the
results of its operations from the financial statements as of the Balance Sheet
Date. Such financial statements shall have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods indicated (except as noted therein). Except as noted in
such financial statements, all of such financial statements will present fairly
the results of operations of the COMPANY for the periods indicated therein.
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7.11 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.
7.12 AUTHORIZED CAPITAL. Prior to the Funding and Consummation Date,
METALS shall maintain its authorized capital stock as set forth in the
Registration Statement filed with the SEC except for such changes in authorized
capital stock as are made to respond to comments made by the SEC or requirements
of any exchange or automated trading system for which application is made to
register the METALS Stock and any changes necessary or advisable in order to
permit the delivery of the opinion contemplated by Section 8.12 hereof.
7.13 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. 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 compliance by the STOCKHOLDERS and the COMPANY
shall be deemed a condition precedent in addition to the conditions precedent
set forth in Section 9 of this Agreement, and such compliance by METALS and
NEWCO shall be deemed a condition precedent in addition to the conditions
precedent set forth in Section 8 of 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. The
obligation of each party to consummate the transactions contemplated by this
Agreement is subject to the expiration or termination of the waiting period
under the Hart-Scott Act, if applicable.
7.14 ENVIRONMENTAL INDEMNITY. At or prior to the Closing, the parties
identified in the form of Indemnification Agreement attached hereto as ANNEX
VIII shall enter into an
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Indemnification Agreement in the form attached hereto as ANNEX VIII, with such
changes thereto as may be approved by METALS, in its sole discretion.
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. The obligations of
the STOCKHOLDERS and the COMPANY with respect to actions to be taken on the
Funding and Consummation Date are subject to the satisfaction or waiver on or
prior to the Funding and Consummation Date of the conditions set forth in
Sections 8.1, 8.5, 8.8, 8.9 and 8.12. As of the Closing Date or, with respect to
the conditions set forth in Sections 8.1, 8.5, 8.8, 8.9 and 8.12, as of the
Funding and Consummation Date, if any such conditions have 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 Funding and Consummation 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 of METALS and NEWCO contained in Section 6 hereof.
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
representations and warranties of METALS and NEWCO contained in Section 6 shall
be true and correct in all material respects as of the Closing Date and the
Funding and Consummation 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 and NEWCO on or before the
Closing Date and the Funding and Consummation Date shall have been duly complied
with and performed in all material respects; and certificates to the foregoing
effect dated the Closing
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Date and the Funding and Consummation Date, respectively, 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.
The STOCKHOLDERS and the COMPANY shall be satisfied that the Registration
Statement and the prospectus forming a part thereof, including any amendments
thereof or supplements thereto, shall not contain any untrue statement of a
material fact, or omit to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, provided
that the condition contained in this sentence shall be deemed satisfied if the
COMPANY or STOCKHOLDERS shall have failed to inform METALS in writing prior to
the effectiveness of the Registration Statement of the existence of an untrue
statement of a material fact or the omission of such a statement of a material
fact.
8.3 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO 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 management of the COMPANY deems it inadvisable to proceed with the
transactions hereunder.
8.4 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
V.
8.5 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC and the underwriters named therein shall have
agreed to acquire on a firm commitment basis, subject to the conditions set
forth in the underwriting agreement, on terms such that the aggregate value of
the cash and the number of shares of METALS Stock to be received by the
STOCKHOLDERS is not less than the Minimum Value set forth on Annex I.
8.6 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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herein shall have been obtained and made and no action or proceeding shall have
been instituted or threatened to restrain or prohibit the Merger and no
governmental agency or body shall have taken any other action or made any
request of COMPANY as a result of which COMPANY deems it inadvisable to proceed
with the transactions hereunder.
8.7 GOOD STANDING CERTIFICATES. METALS and NEWCO each shall have delivered
to the COMPANY a certificate, dated as of a date no later than ten days prior to
the Closing Date, duly issued by the Delaware Secretary of State and in each
state in which METALS or NEWCO is authorized to do business, showing that each
of METALS and NEWCO is in good standing and authorized to do business and that
all state franchise and/or income tax returns and taxes for METALS and NEWCO,
respectively, for all periods prior to the Closing have been filed and paid.
8.8 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall have
occurred with respect to METALS or NEWCO which would constitute a Material
Adverse Effect.
8.9 CLOSING OF IPO. The closing of the sale of the METALS Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
8.10 SECRETARY'S CERTIFICATE. The COMPANY shall have received a
certificate or certificates, dated the Closing Date and signed by the secretary
of METALS and of NEWCO, certifying the truth and correctness of attached copies
of the METALS's and NEWCO's respective Certificates of Incorporation (including
amendments thereto), By-Laws (including amendments thereto), and resolutions of
the boards of directors and, if required, the stockholders of METALS and NEWCO
approving METALS's and NEWCO's entering into this Agreement and the consummation
of the transactions contemplated hereby.
8.11 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule 9.12
shall have been afforded the opportunity to enter into an employment agreement
substantially in the form of Annex VII hereto.
8.12 TAX MATTERS. The STOCKHOLDERS shall have received an opinion of
Arthur Andersen LLP that the METALS Plan of Organization will qualify as a
tax-free transfer of property
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under Section 351 of the Code and that the STOCKHOLDERS will not recognize gain
to the extent the STOCKHOLDERS exchange stock of the COMPANY for METALS stock
(but not cash or other property) pursuant to the METALS Plan of Organization.
9. 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. The obligations of METALS and
NEWCO with respect to actions to be taken on the Funding and Consummation Date
are subject to the satisfaction or waiver on or prior to the Funding and
Consummation Date of the conditions set forth in Sections 9.1, 9.4 and 9.13. As
of the Closing Date or, with respect to the conditions set forth in Sections
9.1, 9.4 and 9.13, as of the Funding and Consummation Date, if any such
conditions have not been satisfied, METALS and NEWCO shall have the right to
terminate this Agreement, or waive any such condition, but no such waiver shall
be deemed to affect the survival of the representations and warranties contained
in Section 5 hereof.
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 and the Funding and Consummation 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
or the Funding and Consummation 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 the Funding and
Consummation Date, respectively, and signed by them to such effect.
9.2 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO
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and no governmental agency or body shall have taken any other action or made any
request of METALS as a result of which the management of METALS deems it
inadvisable to proceed with the transactions hereunder.
9.3 SECRETARY'S CERTIFICATE. METALS shall have received a certificate,
dated the Closing Date and signed by the secretary of the COMPANY, certifying
the truth and correctness of attached copies of the COMPANY's Certificate of
Incorporation (including amendments thereto), By-Laws (including amendments
thereto), and resolutions of the board of directors and the STOCKHOLDERS
approving the COMPANY's entering into this Agreement and the consummation of the
transactions contemplated hereby.
9.4 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 covered by insurance, which
change, loss or damage materially affects or impairs the ability of the COMPANY
to conduct its business.
9.5 STOCKHOLDERS' RELEASE. The STOCKHOLDERS shall have delivered to METALS
an instrument dated the Closing Date which shall be effective only upon the
occurrence of the Funding and Consummation 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 (x) items
specifically identified on Schedules 5.10 and 5.15 as being claims of or
obligations to the STOCKHOLDERS, (y) continuing obligations to STOCKHOLDERS
relating to their employment by the COMPANY and (z) obligations arising under
this Agreement or the transactions contemplated hereby. In the event that the
Funding and Consummation Date does not occur, then the release instrument
referenced herein shall be void and of no further force or effect.
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9.6 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.
9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth on
Schedule 9.7, all existing agreements between the COMPANY and the STOCKHOLDERS
(and entities controlled by the STOCKHOLDERS) shall have been canceled effective
prior to or as of the Funding and Consummation Date.
9.8 OPINION OF COUNSEL. METALS shall have received an opinion from Counsel
to the COMPANY and the STOCKHOLDERS, dated the Closing Date, substantially in
the form annexed hereto as Annex VI.
9.9 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 5.23 shall have been obtained;
and no action or proceeding shall have been instituted or threatened to restrain
or prohibit the Merger 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.
9.10 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
COMPANY's state of incorporation and, unless waived by METALS, 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.
9.11 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC.
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9.12 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule 9.12
shall enter into an employment agreement substantially in the form of Annex VII
hereto.
9.13 CLOSING OF IPO. The closing of the sale of the METALS Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
9.14 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.
10. COVENANTS OF METALS AND THE STOCKHOLDERS AFTER CLOSING
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS. METALS
shall use its best efforts to have the STOCKHOLDERS released from any and all
guarantees on any indebtedness that they personally guaranteed and from any and
all pledges of assets that they pledged to secure such indebtedness for the
benefit of the COMPANY, with all such guarantees on indebtedness being assumed
by METALS. In the event that METALS cannot obtain such releases from the lenders
of any such guaranteed indebtedness on or prior to 120 days subsequent to the
Funding and Consummation Date, METALS shall promptly pay off or otherwise
refinance or retire such indebtedness. From and after the Funding and
Consummation Date and until such time as all of such indebtedness is paid off,
refinanced or retired, METALS shall maintain unencumbered funds in amounts
sufficient to provide for such pay off, refinancing or retirement, provided that
METALS may use such funds for other purposes, in its sole discretion, with the
prior written consent of each STOCKHOLDER who has not as of that time been
released from his or her guarantee as described above and whose indebtedness as
described above has not as of that time been paid off, refinanced or retired.
10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as contemplated
by this Agreement or the Registration Statement, after the Funding and
Consummation Date, METALS
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shall not and shall not permit any of its subsidiaries to undertake any act that
would jeopardize the tax-free status of the organization, including without
limitation:
(a) the retirement or reacquisition, directly or indirectly, of all
or part of the METALS Stock issued in connection with the transactions
contemplated hereby; or
(b) the entering into of financial arrangements for the benefit of
the STOCKHOLDERS.
10.3 PREPARATION AND FILING OF TAX RETURNS.
(i) The COMPANY, if possible, or otherwise the STOCKHOLDERS shall
file or cause to be filed all federal income Tax Returns of any Acquired
Party for all taxable periods that end on or before the Funding and
Consummation Date, and shall permit METALS to review all such Tax Returns
prior to such filings. Unless the COMPANY is a C corporation, the
STOCKHOLDERS shall pay or cause to be paid all Tax liabilities (in excess
of all amounts already paid with respect thereto or properly accrued or
reserved with respect thereto on the COMPANY Financial Statements) shown
by such Returns to be due.
(ii) METALS shall file or cause to be filed all separate Returns of,
or that include, any Acquired Party for all taxable periods ending after
the Funding and Consummation Date.
(iii) Each party hereto shall, and shall cause its subsidiaries and
affiliates to, provide to each of the other parties hereto such
cooperation and information as any of them reasonably may request in
filing any 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. Such cooperation and
information shall include providing copies of all relevant portions of
relevant Returns, together with relevant accompanying schedules and
relevant work papers, relevant documents relating to rulings or other
determinations by Taxing Authorities and relevant records concerning the
ownership and Tax basis of property, which such party may possess. Each
party shall make its employees reasonably available on a mutually
convenient basis at its cost to provide
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explanation of any documents or information so provided. Subject to the
preceding sentence, each party required to file Returns pursuant to this
Agreement shall bear all costs of filing such Returns.
(iv) Each of the COMPANY, NEWCO, METALS and each STOCKHOLDER shall
comply with the tax reporting requirements of Section 1.351-3 of the
Treasury Regulations promulgated under the Code, and treat the transaction
as a tax-free contribution under Section 351(a) of the Code subject to
gain, if any, recognized on the receipt of cash or other property under
Section 351(b) of the Code subject to gain, if any, recognized on the
receipt of cash or other property under Section 351(b) of the Code.
10.4 DIRECTORS. The persons named in the Draft Registration Statement
shall be appointed as directors and elected as officers of METALS, as and to the
extent set forth in the Draft Registration Statement, promptly following the
Funding and Consummation Date. This provision shall not imply that the
STOCKHOLDERS have any power or duty to elect officers of METALS.
10.5 PRESERVATION OF EMPLOYEE BENEFIT PLANS. Following the Funding and
Consummation Date, METALS shall use all reasonable efforts to permit the COMPANY
to maintain all health insurance, life insurance, 401(k) plan and other employee
benefit plans in effect at the COMPANY, unless any such change is (a) approved
by a vote of at least two-thirds of the members of the Board of Directors of
METALS, or (b) required by applicable laws or regulations, including the
antidiscriminatory provisions of ERISA and the related regulations. In the event
that any such changes (other than changes so approved by the Board of Directors
of METALS) are required, subject to applicable law, METALS shall permit the
COMPANY to implement alternative benefits that provide the affected employees of
the COMPANY with an undiminished aggregate level of benefits. On the Funding and
Consummation Date, the employees of the COMPANY will be the employees of the
Surviving Corporation (provided that this provision is for purposes of
clarifying that the Merger, in and of itself, will not have any impact on the
employment status of any employee and provided, further that this provision
shall not in any way limit the management rights of the
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Surviving Corporation or METALS to assess workforce needs and make appropriate
adjustments as necessary or desirable within their discretion subject to
applicable laws and collective bargaining agreements).
11. INDEMNIFICATION
The STOCKHOLDERS, METALS and NEWCO each make the following covenants that
are applicable to them, respectively:
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. The STOCKHOLDERS
covenant and agree that they, jointly and severally, will indemnify, defend,
protect and hold harmless METALS, NEWCO, the COMPANY and the Surviving
Corporation at all times, from and after the date of this Agreement until the
Expiration Date (provided that for purposes of Section 11.1(iii) below, the
Expiration Date shall be the date on which the applicable statute of limitations
expires), 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) incurred by METALS, NEWCO, the COMPANY or the Surviving
Corporation as a result of or arising from (i) any breach of the representations
and warranties of the STOCKHOLDERS or the COMPANY set forth herein or on the
schedules or certificates delivered in connection herewith, (ii) any breach of
any agreement on the part of the STOCKHOLDERS or the COMPANY under this
Agreement, or (iii) any liability under the 1933 Act, the 1934 Act or other
Federal or state law or regulation, at common law or otherwise, arising out of
or based upon any untrue statement or alleged untrue statement of a material
fact relating to the COMPANY or the STOCKHOLDERS, and provided to METALS or its
counsel by the COMPANY or the STOCKHOLDERS (but in the case of the STOCKHOLDERS,
only if such statement was provided in writing) contained in the Registration
Statement or any prospectus forming a part thereof, or any amendment thereof or
supplement thereto, or arising out of or based upon any omission or alleged
omission to state therein a material fact relating to the COMPANY
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or the STOCKHOLDERS required to be stated therein or necessary to make the
statements therein not misleading, provided, however, that such indemnity shall
not inure to the benefit of METALS, NEWCO, the COMPANY or the Surviving
Corporation to the extent that such untrue statement (or alleged untrue
statement) was made in, or omission (or alleged omission) occurred in, any
preliminary prospectus and the STOCKHOLDERS provided, in writing, corrected
information to METALS counsel and to METALS for inclusion in the final
prospectus, and such information was not so included or properly delivered, and
provided further, that no STOCKHOLDER shall be liable for any indemnification
obligation pursuant to this Section 11.1 to the extent attributable to a breach
of any representation, warranty or agreement made herein individually by any
other STOCKHOLDER.
METALS and NEWCO acknowledge and agree that other than the representations
and warranties of COMPANY or STOCKHOLDERS specifically contained in this
Agreement, there are no representations or warranties of COMPANY or
STOCKHOLDERS, either express or implied, with respect to the transactions
contemplated by this Agreement, the COMPANY or its assets, liabilities and
business.
METALS and any NEWCO further acknowledge and agree that, should the
Closing occur, their sole and exclusive remedy with respect to any and all
claims relating to this Agreement and the transactions contemplated in this
Agreement, shall be pursuant to the indemnification provisions set forth in this
Section 11. METALS and NEWCO hereby waive, from and after the Closing, to the
fullest extent permitted under applicable law, any and all rights, claims and
causes of action they or any indemnified person may have against the COMPANY or
any STOCKHOLDER relating to this Agreement or the transactions arising under or
based upon any federal, state, local or foreign statute, law, rule, regulation
or otherwise.
11.2 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 Agreement until the Expiration Date, from and against
all claims, damages, actions, suits,
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proceedings, demands, assessments, adjustments, costs and expenses (including
specifically, but without limitation, reasonable attorneys' fees and expenses of
investigation) incurred by the STOCKHOLDERS as a result of or arising from (i)
any breach by METALS or NEWCO of their representations and warranties set forth
herein or on the schedules or certificates attached hereto, (ii) any breach of
any agreement on the part of METALS or NEWCO under this Agreement, (iii) any
liabilities which the STOCKHOLDERS may incur due to METALS's or NEWCO's failure
to be responsible for the liabilities and obligations of the COMPANY as provided
in Section 1 hereof (except to the extent that METALS or NEWCO has claims
against the STOCKHOLDERS by reason of such liabilities); or (iv) any liability
under the 1933 Act, the 1934 Act or other Federal or state law or regulation, at
common law or otherwise, arising out of or based upon any untrue statement or
alleged untrue statement of a material fact relating to METALS, NEWCO or any of
the Other Founding Companies contained in any preliminary prospectus, the
Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto, or arising out of or based upon any
omission or alleged omission to state therein a material fact relating to METALS
or NEWCO or any of the Other Founding Companies required to be stated therein or
necessary to make the statements therein not misleading.
11.3 THIRD PERSON CLAIMS. Promptly after any party hereto (hereinafter 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, the Indemnified Party shall, as a
condition precedent to a claim with respect thereto being made against any party
obligated to provide indemnification pursuant to Section 11.1 or 11.2 hereof
(hereinafter the "Indemnifying Party"), give the Indemnifying Party written
notice of such claim or the commencement of such action or proceeding. Such
notice shall state the nature and the basis of such claim and a reasonable
estimate of the amount thereof. The Indemnifying Party shall have the right to
defend and settle, at its own expense and by its own counsel, any such matter so
long as the Indemnifying Party pursues the same in good faith and diligently,
provided that the Indemnifying
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Party shall not settle any criminal proceeding without the written consent of
the Indemnified Party. If the Indemnifying Party undertakes to defend or settle,
it shall promptly notify the Indemnified Party of its intention to do so, and
the Indemnified Party shall cooperate with the Indemnifying Party and its
counsel in the defense thereof and in any settlement thereof. Such cooperation
shall include, but shall not be limited to, furnishing the Indemnifying Party
with any books, records or information reasonably requested by the Indemnifying
Party that are in the Indemnified Party's possession or control. All Indemnified
Parties shall use the same counsel, which shall be the counsel selected by
Indemnifying Party, provided that if counsel to the Indemnifying Party shall
have a conflict of interest that prevents counsel for the Indemnifying Party
from representing Indemnified Party, Indemnified Party shall have the right to
participate in such matter through counsel of its own choosing and Indemnifying
Party will reimburse the Indemnified Party for the reasonable expenses of its
counsel. After the Indemnifying Party has notified the Indemnified Party of its
intention to undertake to defend or settle any such asserted liability, and for
so long as the Indemnifying Party diligently pursues such defense, the
Indemnifying Party shall not be liable for any additional legal expenses
incurred by the Indemnified Party in connection with any defense or settlement
of such asserted liability, except (i) as set forth in the preceding sentence
and (ii) to the extent such participation is requested by the Indemnifying
Party, in which event the Indemnified Party shall be reimbursed by the
Indemnifying Party for reasonable additional legal expenses and out-of-pocket
expenses. If the Indemnifying Party desires to accept a final and complete
settlement of any such Third Person claim and the Indemnified Party refuses to
consent to such settlement, then the Indemnifying Party's liability under this
Section with respect to such Third Person claim shall be limited to the amount
so offered in settlement by said Third Person. Upon agreement as to such
settlement between said Third Person and the Indemnifying Party, the
Indemnifying Party shall, in exchange for a complete release from the
Indemnified Party, promptly pay to the Indemnified Party the amount agreed to in
such settlement and the Indemnified Party shall, from that moment on, bear full
responsibility for any additional costs of defense which it subsequently incurs
with respect to
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such claim and all additional costs of settlement or judgment. If the
Indemnifying Party does not undertake to defend such matter to which the
Indemnified Party is entitled to indemnification hereunder, or fails diligently
to pursue such defense, the Indemnified Party may undertake such defense through
counsel of its choice, at the cost and expense of the Indemnifying Party, and
the Indemnified Party may settle such matter, and the Indemnifying Party shall
reimburse the Indemnified Party for the amount paid in such settlement and any
other liabilities or expenses incurred by the Indemnified Party in connection
therewith, provided, however, that under no circumstances shall the Indemnified
Party settle any Third Person claim without the written consent of the
Indemnifying Party, which consent shall not be unreasonably withheld or delayed.
All settlements hereunder shall effect a complete release of the Indemnified
Party, unless the Indemnified Party otherwise agrees in writing. The parties
hereto will make appropriate adjustments for insurance proceeds in determining
the amount of any indemnification obligation under this Section.
11.4 EXCLUSIVE REMEDY. The indemnification provided for in this Section 11
shall (except as prohibited by ERISA) be the exclusive remedy in any action
seeking damages or any other form of monetary relief brought by any party to
this Agreement against another party, provided that, nothing herein shall be
construed to limit the right of a party, in a proper case, to seek injunctive
relief for a breach of this Agreement. Any indemnity payment under this Section
11 shall be treated as an adjustment to the exchange consideration for tax
purposes unless a final determination (which shall include the execution of a
Form 870-AD or successor form) with respect to the indemnified party or any of
its affiliate causes any such payment not to be treated as an adjustment to the
exchange consideration for U.S. Federal Income Tax purposes.
11.5 LIMITATIONS ON INDEMNIFICATION. METALS, NEWCO, the Surviving
Corporation and the other persons or entities indemnified pursuant to Section
11.1 or 11.2 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
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STOCKHOLDERS shall exceed the greater of (a) 1.0% of the sum of (i) the cash
paid to STOCKHOLDERS plus (ii) the value of the METALS Stock delivered to
STOCKHOLDERS (calculated as provided in this Section 11.5) or (b) $50,000 (the
"Indemnification Threshold"). STOCKHOLDERS shall not assert any claim for
indemnification hereunder against METALS or NEWCO until such time as, and solely
to the extent that, the aggregate of all claims which STOCKHOLDERS may have
against METALS or NEWCO shall exceed $50,000.
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 related to a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement, no STOCKHOLDER shall be
liable under this Section 11 for an amount which exceeds the amount of proceeds
received by such STOCKHOLDER in connection with the Merger. For purposes of
calculating the value of the METALS Stock received by a STOCKHOLDER, METALS
Stock shall be valued at its initial public offering price as set forth in the
Registration Statement. It is hereby understood and agreed that a STOCKHOLDER
may satisfy an indemnification obligation through payment of a combination of
stock and cash in proportion equal to the proportion of stock and cash received
by such STOCKHOLDER in connection with the Merger, valued as described
immediately above.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION.This Agreement may be terminated at any time prior to the
Funding and Consummation Date solely:
(i) by mutual consent of the boards of directors of METALS and the
COMPANY;
(ii) by the STOCKHOLDERS or the COMPANY (acting through its board of
directors), on the one hand, or by METALS (acting through its board of
directors), on the other hand, if the transactions contemplated by this
Agreement to take place at the Closing shall not have been consummated by
December 31, 1997, 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
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obligations under this Agreement to the extent required to be performed by it
prior to or on the Funding and Consummation Date;
(iii) by the STOCKHOLDERS or COMPANY, on the one hand, or by METALS, on
the other hand, if a material breach or default shall be made by the other party
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 on or before the Funding and Consummation Date or by the STOCKHOLDERS
or the COMPANY, if the conditions set forth in Section 8 hereof have not been
satisfied or waived as of the Closing Date or the Funding and Consummation Date,
as applicable, or by METALS, if the conditions set forth in Section 9 hereof
have not been satisfied or waived as of the Closing Date or the Funding and
Consummation Date, as applicable;
(iv) pursuant to Section 7.8 hereof; or
(v) pursuant to Section 4 hereof.
12.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in Section
7.8 hereof, 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.
13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES. The STOCKHOLDERS will not, for a period of
five (5) years following the Funding and Consummation 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 metals
processing, metals fabricating and/or specialty metals business,
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including brokering, manufacturing and distribution services, in direct
competition with METALS or any of the subsidiaries thereof, within 200 miles of
where the COMPANY or any of its subsidiaries conducted business prior to the
effectiveness of the Merger (the "Territory");
(ii) call upon any person who is, at that time, within the Territory, an
employee of METALS (including the subsidiaries thereof) in a sales
representative or managerial capacity for the purpose or with the intent of
enticing such employee away from or out of the employ of METALS (including the
subsidiaries thereof), provided that each STOCKHOLDER shall be permitted to call
upon and hire any member of his or her immediate family;
(iii) call upon any person or entity which is, at that time, or which has
been, within one (1) year prior to the Funding and Consummation Date, a customer
of METALS (including the subsidiaries thereof), of the COMPANY or of any of the
Other Founding Companies within the Territory for the purpose of soliciting or
selling products or services in direct competition with METALS within the
Territory;
(iv) call upon any prospective acquisition candidate, on any STOCKHOLDER's
own behalf or on behalf of any competitor in the metals processing, metals
fabricating and/or specialty metals business, including brokering, manufacturing
and distribution services, which candidate, to the actual knowledge of such
STOCKHOLDER after due inquiry, was called upon by METALS (including the
subsidiaries thereof) or for which, to the actual knowledge of such STOCKHOLDER
after due inquiry, METALS (or any subsidiary thereof) made an acquisition
analysis, for the purpose of acquiring such entity; or
(v) disclose customers, whether in existence or proposed, of the COMPANY
to any person, firm, partnership, corporation or business for any reason or
purpose whatsoever except to the extent that the COMPANY has in the past
disclosed such information to the public for valid business reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit any STOCKHOLDER from acquiring as an investment not more than one
percent (1%) of the capital
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stock of a competing business whose stock is traded on a national securities
exchange or over-the-counter.
13.2 DAMAGES. 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 and restraining orders.
13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this Section 13 impose a reasonable restraint on the
STOCKHOLDERS in light of the activities and business of METALS (including the
subsidiaries thereof) on the date of the execution of this Agreement and the
current plans of METALS.
13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13 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.
13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13 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 (including the subsidiaries 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 13, during which the agreements
and covenants of each STOCKHOLDER made in this Section 13 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 13. The covenants
contained in Section 13 shall not be affected by any breach of any
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other provision hereof by any party hereto and shall have no effect if the
transactions contemplated by this Agreement are not consummated.
13.6 MATERIALITY. The COMPANY and the STOCKHOLDERS hereby agree that this
covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. 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, the Other Founding Companies,
and/or METALS, such as operational policies, and pricing and cost policies that
are valuable, special and unique assets of the COMPANY's, the Other Founding
Companies' and/or METALS's respective businesses. 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 METALS or the Surviving Corporation and
(c) to counsel and other advisers, provided that such advisers (other than
counsel) agree to the confidentiality provisions of this Section 14.1, 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 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, or (iii) the disclosing party
reasonably believes that such disclosure is required in connection with the
defense of a lawsuit against the disclosing party. 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 an injunction restraining such STOCKHOLDERS from
disclosing, in whole or in part, such confidential information. Nothing herein
shall be construed as
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prohibiting METALS from pursuing any other available remedy for such breach or
threatened breach, including the recovery of damages. In the event the
transactions contemplated by this Agreement are not consummated, STOCKHOLDERS
shall have none of the above-mentioned restrictions on their ability to
disseminate confidential information with respect to the COMPANY.
14.2 METALS AND NEWCO. METALS and NEWCO recognize and acknowledge that
they had in the past and currently have access to certain confidential
information of the COMPANY, such as operational policies, and pricing and cost
policies that are valuable, special and unique assets of the COMPANY's business.
METALS and NEWCO agree that, prior to the Closing, or if the Transactions
contemplated by this Agreement are not consummated, 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 the COMPANY, (b) to counsel and other advisers, provided that
such advisers (other than counsel) agree to the confidentiality provisions of
this Section 14.1, (c) to the Other Founding Companies and their representatives
pursuant to Section 7.1(a), unless (i) such information becomes known to the
public generally through no fault of METALS or NEWCO, (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),
METALS and NEWCO shall, if possible, give prior written notice thereof to the
COMPANY and the STOCKHOLDERS and provide the COMPANY and the STOCKHOLDERS with
the opportunity to contest such disclosure, or (iii) the disclosing party
reasonably believes that such disclosure is required in connection with the
defense of a lawsuit against the disclosing party, and (d) to the public to the
extent necessary or advisable in connection with the filing of the Registration
Statement and the IPO and the securities laws applicable thereto and to the
operation of METALS as a publicly held entity after the IPO. In the event of a
breach or threatened breach by METALS or NEWCO of the provisions of this
Section, the COMPANY and the STOCKHOLDERS shall be entitled to an injunction
restraining METALS and NEWCO from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as
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prohibiting the COMPANY and the STOCKHOLDERS from pursuing any other available
remedy for such breach or threatened breach, including the recovery of damages.
14.3 DAMAGES. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Section 14.1 and 14.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach by any of them of the foregoing covenants, the covenant may be
enforced against the other parties by injunctions and restraining orders.
14.4 SURVIVAL. The obligations of the parties under this Article 14 shall
survive the termination of this Agreement for a period of five years from the
Funding and Consummation Date.
15. TRANSFER RESTRICTIONS
15.1 TRANSFER RESTRICTIONS. Unless otherwise agreed by METALS, except for
transfers to immediate family members who agree to be bound by the restrictions
set forth in this Section 15.1 (or trusts for the benefit of the STOCKHOLDERS or
family members, the trustees of which so agree), for a period of one year from
the Closing, except pursuant to Section 17 hereof, none of the STOCKHOLDERS
shall sell, assign, exchange, transfer, encumber, pledge, distribute, appoint,
or otherwise dispose of any shares of METALS Stock as described in Section 3.1
received by the STOCKHOLDERS in the Merger. The certificates evidencing the
METALS Stock delivered to the STOCKHOLDERS pursuant to Section 3 of this
Agreement will bear a legend substantially in the form set forth below and
containing such other information as METALS may deem necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED
OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE,
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ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT
OR OTHER DISPOSITION PRIOR TO [FIRST ANNIVERSARY OF CLOSING DATE]. UPON THE
WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE
THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER AGENT)
AFTER THE DATE SPECIFIED ABOVE.
16. FEDERAL SECURITIES ACT REPRESENTATIONS
16.1 COMPLIANCE WITH LAW. The STOCKHOLDERS acknowledge that the shares of
METALS Stock to be delivered to the STOCKHOLDERS pursuant to this Agreement have
not been and will not be registered under the 1933 Act (except as provided in
Section 17 hereof) and therefore may not be resold without compliance with the
1933 Act. The METALS Stock to be acquired by such STOCKHOLDERS pursuant to this
Agreement is being acquired solely for their own respective accounts, for
investment purposes only, and with no present intention of distributing, selling
or otherwise disposing of it in connection with a distribution. The STOCKHOLDERS
covenant, warrant and represent that none of the shares of METALS Stock issued
to such STOCKHOLDERS will be offered, sold, assigned, pledged, hypothecated,
transferred or otherwise disposed of except after full compliance with all of
the applicable provisions of the 1933 Act and the rules and regulations of the
SEC. All the METALS Stock shall bear the following legend in addition to the
legend required under Section 15 of this Agreement:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF THE HOLDER
HEREOF COMPLIES WITH THE ACT AND APPLICABLE SECURITIES LAW.
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16.2 ECONOMIC RISK; SOPHISTICATION. The STOCKHOLDERS are able to bear the
economic risk of an investment in the METALS Stock to be acquired pursuant to
this Agreement and can afford to sustain a total loss of such investment and
have such knowledge and experience in financial and business matters that they
are capable of evaluating the merits and risks of the proposed investment in the
METALS Stock. The STOCKHOLDERS party hereto have 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 current and proposed officers
and directors of METALS, the plans for the operations of the business of METALS,
the business, operations and financial condition of the Founding Companies other
than the COMPANY, and any plans for additional acquisitions and the like. The
STOCKHOLDERS have asked any and all questions in the nature described in the
preceding sentence and all questions have been answered to their satisfaction.
17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. 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 shelf
registration of shares to be used as consideration for acquisitions of
additional businesses by METALS and (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 all of the 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) which
any such STOCKHOLDER requests, provided that METALS shall have the right to
reduce the number of shares included in such registration to
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the extent that inclusion of such shares could, in the written opinion of tax
counsel to METALS or its independent auditors, jeopardize the status of the
transactions contemplated hereby and by the Registration Statement as a tax-free
organization under Section 351 of the Code. In addition, if METALS is advised in
writing in good faith by any managing underwriter of an underwritten offering of
the securities being offered pursuant to any registration statement under this
Section 17.1 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, provided,
that, for each such offering made by METALS after the IPO, such reduction shall
be made first by reducing the number of shares to be sold by persons other than
METALS, the STOCKHOLDERS and the stockholders of the Other Founding Companies
(collectively, the STOCKHOLDERS and the stockholders of the other Founding
Companies being referred to herein as the "Founding Stockholders"), and
thereafter, if a further reduction is required, by reducing the number of shares
to be sold by the Founding Stockholders.
17.2 DEMAND REGISTRATION RIGHTS. At any time after the date one year after
the Closing and prior to the date three years after the Closing, the holders of
a majority of the shares of METALS Stock issued to the Founding Stockholders
pursuant to this Agreement and the Other Agreements 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 the shares of METALS Stock issued to the
STOCKHOLDERS pursuant to this Agreement and the Other Agreements (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 Founding Stockholders (a
"Demand Registration"). Within ten (10) days of the
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receipt of such request, METALS shall give written notice of such request to all
other Founding Stockholders and shall, as soon as practicable but in no event
later than 45 days after notice from any STOCKHOLDER, file and use its best
efforts to cause to become effective a registration statement covering all such
shares. METALS shall be obligated to effect only one Demand Registration for all
Founding Stockholders and will keep such Demand Registration current and
effective for not less than 120 days (or such shorter period as is required to
sell all of the shares registered thereby).
Notwithstanding the foregoing paragraph, following any such a demand, a
majority of METALS's 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 Founding 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, no registration of the Founding Stockholders'
METALS Stock shall be initiated under this Section 17.2 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
Founding Stockholders the right to participate in such public offering pursuant
to, and subject to, Section 17.1 hereof.
17.3 REGISTRATION PROCEDURES. Whenever METALS is required to register
shares of METALS Stock pursuant to Sections 17.1 and 17.2, 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;
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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 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 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 will not contain an untrue
statement of material fact or omit to state any fact necessary to make the
statements therein not misleading.
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All expenses incurred in connection with the registration under this
Article 17 (including all registration, filing, qualification, legal, printer
and accounting fees, but excluding underwriting commissions and discounts),
shall be borne by METALS.
17.4 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
17.5 shall be limited to an amount
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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 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.
17.5 UNDERWRITING AGREEMENT. In connection with each registration pursuant
to Sections 17.1 and 17.2 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.
17.6 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:
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(i) make and keep public information regarding METALS available as
those terms are understood and defined in Rule 144 under the 1933 Act for
a period of four years beginning 90 days following the effective date of
the Registration Statement;
(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 at any
time after it has become subject to such reporting requirements; 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 (at any time from and after 90 days following the
effective date of the Registration Statement, and of the 1933 Act and the
1934 Act (any time after it has become subject to such reporting
requirements), 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.
18. GENERAL
18.1 COOPERATION. The COMPANY, STOCKHOLDERS, METALS and NEWCO shall
each deliver or cause to be delivered to the other on the Funding and
Consummation 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 Funding and Consummation 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 Funding and Consummation Date.
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18.2 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.
18.3 ENTIRE AGREEMENT. This Agreement (including the schedules, exhibits
and annexes attached hereto) and the documents delivered pursuant hereto
(including the letter regarding patents, etc.) constitute the entire agreement
and understanding among the STOCKHOLDERS, the COMPANY, NEWCO 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, NEWCO and METALS, acting through their respective
officers or trustees, duly authorized by their respective Boards of Directors.
Any disclosure made on any Schedule delivered pursuant hereto shall be deemed to
have been disclosed for purposes of any other Schedule required hereby, provided
that the COMPANY shall make a good faith effort to cross reference disclosure,
as necessary or advisable, between related Schedules.
18.4 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.
18.5 BROKERS AND AGENTS. Except as disclosed on Schedule 18.5, 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.
18.6 EXPENSES. Whether or not the transactions herein contemplated shall
be consummated, METALS will pay the fees, expenses and disbursements of METALS
and its agents,
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representatives, accountants and counsel incurred in connection with the subject
matter of this Agreement and any amendments thereto, including all costs and
expenses incurred in the performance and compliance with all conditions to be
performed by METALS under this Agreement, including the fees and expenses of
Arthur Andersen, LLP, Bracewell & Patterson, L.L.P., and any other person or
entity retained by METALS or by Notre Capital Ventures II, L.L.C., and the costs
of preparing the Registration Statement. 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
Merger, other than Transfer Taxes, if any, imposed by the State of Delaware.
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 Section 2 hereof. The STOCKHOLDERS acknowledge
that the risks of the transactions contemplated hereby include tax risks, with
respect to which the STOCKHOLDERS are relying solely on the opinion contemplated
by Section 8.12 hereof.
18.7 NOTICES. All notices of communication 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.
(a) If to METALS, or NEWCO, addressed to them at: Metals USA, Inc.
4801 Woodway, Suite 300E
Houston, Texas 77056
Attn: J. Michael Kirksey
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with copies to:
Thomas W. Adkins
Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana Street, Suite 2900
Houston, Texas 77002-2781
(b) If to the STOCKHOLDERS, addressed to them at their addresses set
forth on Annex II, with copies to:
Christopher S. Collins
Andrews & Kurth, L.L.P.
4200 Texas Commerce Tower
Houston, Texas 77002
(c) If to the COMPANY, addressed to it at:
Texas Aluminum Industries, Inc.
2900 Patio Drive
Houston, TX 77017
Attn: Mike Christopher, President
Tele: (713) 941-8961
Fax: (713) 943-9040
with copies to:
Metals USA, Inc.
4801 Woodway, Suite 300E
Houston, TX 77056
Attn: J. Michael Kirksey
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Delaware.
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18.9 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 Expiration Date.
18.10 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.
18.11 TIME. Time is of the essence with respect to this Agreement.
18.12 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.
18.13 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.
18.14 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
18.15 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived only with the
written consent of METALS, NEWCO, the COMPANY and STOCKHOLDERS who hold or who
will hold at least
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<PAGE>
50% of the METALS Stock issued or to be issued upon consummation of the Merger.
Any amendment or waiver effected in accordance with this Section 18.15 shall be
binding upon each of the parties hereto, any other person receiving METALS Stock
in connection with the Merger and each future holder of such METALS Stock.
18.16 NON-SIGNATORIES. James C. Elkins, John D. Elkins, Kathy Peuch,
Richard Shanks, Theodore V. Thomas, James Ogan and Dorothy Spivey are holders
of, in the aggregate, less than 5% of the outstanding Class B Common Stock, and
are not signatories hereto. However, such persons shall be deemed "STOCKHOLDERS"
as that term is used herein for purposes of Section 2.1, Articles 3, 4, 6, 8 and
17 hereof, and shall be third party beneficiaries of those sections, provided
that such persons shall deliver to METALS a letter satisfactory to METALS
regarding their ownership of such stock and related matters.
18.17 SPECIAL PROVISIONS REGARDING CPC. METALS may, in its sole
discretion, substitute a limited liability company, partnership, limited
partnership or other entity (the "Substitute Entity") for Texas Aluminum V
Acquisition Corp. ("Acquisition Corp. V") hereunder, in which case the
Substitute Entity shall assume all obligations of Acquisition Corp. V hereunder
and Acquisition Corp. V shall be relieved of all obligations hereunder. Any such
substitution shall not change in any manner the consideration payable to the
STOCKHOLDERS pursuant to this Agreement, the sole purpose of this provision
being to provide METALS with the ability to structure the acquisition of all of
the outstanding equity interests in CPC in the manner most desirable to METALS.
All references herein to the board of directors or stockholders of CPC shall be
deemed to be references to the members or other equity interest holders of CPC,
all references herein to the capital stock of CPC shall be deemed to be
references to the membership interests or other equity interests in CPC, all
references herein to CPC as a corporation shall be deemed to be references to
CPC as a limited liability company, all references herein to the Certificate of
Incorporation of CPC shall refer to the Limited Liability Charter and Operating
Agreement of CPC, and other similar references relating to CPC shall be
similarly changed.
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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/ ART FRENCH
Name: Art French
Title: Chief Executive Officer
TEXAS ALUMINUM I ACQUISITION CORP.
By:/S/ J. MICHAEL KIRKSEY
Name: J. Michael Kirksey
Title: President
TEXAS ALUMINUM II ACQUISITION CORP.
By:/S/ J. MICHAEL KIRKSEY
Name: J. Michael Kirksey
Title: President
TEXAS ALUMINUM III ACQUISITION CORP.
By:/S/ J. MICHAEL KIRKSEY
Name: J. Michael Kirksey
Title: President
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<PAGE>
TEXAS ALUMINUM IV ACQUISITION CORP.
By:/S/ J. MICHAEL KIRKSEY
Name: J. Michael Kirksey
Title: President
TEXAS ALUMINUM V ACQUISITION CORP.
By:/S/ J. MICHAEL KIRKSEY
Name: J. Michael Kirksey
Title: President
TEXAS ALUMINUM INDUSTRIES, INC.
By:/S/ MARK L. ELKINS
Name: MARK L. ELKINS
Title: PRESIDENT
CORNERSTONE METALS CORPORATION
By:/S/ MICHAEL CHRISTOPHER
Name: MICHAEL CHRISTOPHER
Title: DIRECTOR
CORNERSTONE BUILDING PRODUCTS, INC.
By:/S/ MICHAEL CHRISTOPHER
Name: MICHAEL CHRISTOPHER
Title: PRESIDENT
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<PAGE>
CORNERSTONE ALUMINUM COMPANY, INC.
By:/S/ MICHAEL CHRISTOPHER
Name: MICHAEL CHRISTOPHER
Title: PRESIDENT
CORNERSTONE PATIO CONCEPTS, L.L.C.
By:/S/ MICHAEL CHRISTOPHER
Name: MICHAEL CHRISTOPHER
Title: PRESIDENT
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<PAGE>
STOCKHOLDERS:
CLASS A COMMON STOCK:
/S/ GENE ELKINS
Gene Elkins
/S/ LOUISE ELKINS
Louise Elkins
ELKINS FAMILY TAI LTD PARTNERSHIP
By: /S/ GENE ELKINS
Name: GENE ELKINS
Title:MANAGER
ELKINS INDUSTRIES, LTD.
By: /S/ MARK L. ELKINS
Name:MARK L. ELKINS
Title:MANAGER
/S/ MARK ELKINS
Mark Elkins
/S/ MARK ELKINS, TRUSTEE
Mark Elkins
'86 Trust
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<PAGE>
/S/ KELLY ELKINS
Kelly Elkins
/S/ MARK L. ELKINS, TRUSTEE
Rebekah L. Elkins
'94 Trust
/S/ MARK L. ELKINS, TRUSTEE
Luke S. Elkins
'94 Trust
/S/ MARK L. ELKINS, TRUSTEE
Jacob C. Elkins
'94 Trust
/S/ LAURA CHRISTOPHER
Laura Christopher
/S/ LAURA CHRISTOPHER, TRUSTEE
Laura Christopher
'86 Trust
/S/ MIKE CHRISTOPHER
Mike Christopher
/S/ LAURA CHRISTOPHER, TRUSTEE
Taylor Christopher
'94 Trust
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<PAGE>
/S/ LAURA CHRISTOPHER, TRUSTEE
Evan Christopher
'94 Trust
/S/ LAURA CHRISTOPHER, TRUSTEE
Megan Christopher
'94 Trust
CLASS B COMMON STOCK:
/S/ GENE ELKINS
Gene Elkins
/S/ LOUISE ELKINS
Louise Elkins
ELKINS FAMILY TAI LTD PARTNERSHIP
By: /S/ GENE ELKINS
Name:GENE C. ELKINS
Title:MANAGER
ELKINS INDUSTRIES, LTD.
By: /S/ MARK L. ELKINS
Name:MARK L. ELKINS
Title:MANAGER
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<PAGE>
PREFERRED STOCK
ELKINS FAMILY PARTNERSHIP
By: /S/ GENE ELKINS
Name:GENE C. ELKINS
Title:MANAGER
EmC INDUSTRIES
By: /S/ MARK L. ELKINS
Name:MARK L. ELKINS
Title:PRESIDENT
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<PAGE>
APPENDIX I
MERGERS
Texas Aluminum I Acquisition Corp. shall merge with and into Texas Aluminum
Industries, Inc.
Texas Aluminum II Acquisition Corp. shall merge with and into Cornerstone Metals
Corporation.
Texas Aluminum III Acquisition Corp. shall merge with and into Cornerstone
Building Products, Inc.
Texas Aluminum IV Acquisition Corp. shall merge with and into Cornerstone
Aluminum Company, Inc.
Texas Aluminum V Acquisition Corp. shall merge with and into Cornerstone Patio
Concepts, L.L.C.*
- ---------------------
* The merger of Texas Aluminum V Acquisition Corp. with and into Cornerstone
Patio Concepts, L.L.C. is subject to the provisions of Section 18.17 of
the Agreement.
<PAGE>
SCHEDULE 6.4
None except as described in the Registration Statement.
<PAGE>
SCHEDULE 6.7
None except as described in the Registration Statement.
<PAGE>
SCHEDULE 6.8
None.
<PAGE>
SCHEDULE 6.9
None.
<PAGE>
SCHEDULE 6.13
None.
<PAGE>
SCHEDULE 6.14
None.
<PAGE>
SCHEDULE 9.12
TAI/CORNERSTONE GROUP
KEY EMPLOYEES
Bothwell, Charles
Brang, Steve
Brown, Ron
Caswell, Greg
Farrington, Tim
Grigg, Danny
Hart, Jim
Hebert, Larry
Hedrick, Dan
Hinkle, Dan
Killian, Todd
Montgomer, Monte
Peusch, Kathy
Poag, Joe
Raney, Claud
Stickney, Mike
Thomas, Ted
WILLIAMS STEEL & SUPPLY CO., INC.
Peterson, Les
Petz, Joe
Weber, Dave
UNI-STEEL
Pray, James
AFFILIATED METALS
Zimmerman, Robert
<PAGE>
STEEL SERVICE SYSTEMS, INC.
Frawley, Charles
Longo, Vince
Van Handel, Mark
Doveala, Craig
McCluskey, Robert
Russell, Ferrell
SOUTHERN ALLOY
Trainor, Joe
Lewis, Jim
Chelini, Ben
QUEENSBORO
Bissette, Anita
Bolton, James
Applegate, Charles
Kiger, Milton
Wiltrout, LaVern
INTERSTATE STEEL
Everett, Don
Riley, Dave
Sarle, William
Curry, Thomas
Kindness, George
Collins, James
Urban, James
Magasko, Jack
Smith, Charles
Terrels, Paul
Toole, Steve
<PAGE>
ANNEX I
TO THE AGREEMENT
AND PLAN OF REORGANIZATION
DATED AS OF APRIL 30, 1997
BY AND AMONG
METALS USA, INC.
AND THE OTHER PARTIES NAMED THEREIN
CONSIDERATION TO BE PAID TO THE STOCKHOLDERS
Aggregate consideration to be paid to the STOCKHOLDERS:
$42,254,555.80 in cash and the value of outstanding Common Stock of Metals
(assuming an offering price of $13.00 per share), consisting of 2,383,874 shares
of Metals Stock and $11,264,193.80 in cash, it being agreed that the actual
amount of all cash payments described in this Annex I will depend on the actual
initial offering price of the Common Stock of Metals in the IPO, and may be more
or less than $13.00 per share; provided, however that such price shall not be
less than $8.00 per share.
Consideration to be paid to each STOCKHOLDER:
---------------------------------------------
Shares of Common Merger
Stockholder Stock of Metals Cash
- ----------- ------------- -------------
EmC Industries LLC ............................. -- 195,772.05
Elkins Family Partnership ...................... -- 109,421.92
Gene & Louise Elkins ........................... 14,474 80,624.94
James C. Elkins ................................ 61,819 344,402.72
John D. Elkins ................................. 55,254 307,830.47
Elkins Family TAI Ltd. Partnership ............. 340,504 1,897,080.96
Elkins Industries, Ltd. ........................ 517,338 1,681,337.60
James Ogan ..................................... 5,624 31,322.57
Dorothy Spivey ................................. 2,330 12,969.86
Kathy Peusch ................................... 1,639 9,119.31
Richard Shanks ................................. 1,610 8,957.92
Ted Thomas ..................................... 40 214.17
Mark Elkins .................................... 598,837 2,709,648.57
Kelly Elkins ................................... -- 272,986.74
Mark Elkins, 1986 Trust ........................ 37,152 0.54
Rebekah L. Elkins, 1994 Trust .................. 18,544 103,311.27
Luke S.Elkins, 1994 Trust ...................... 18,544 103,311.27
Jacob C. Elkins, 1994 Trust .................... 18,544 103,311.27
Laura Christopher .............................. -- 373,277.87
Michael Christopher ............................ 598,837 2,609,357.44
Laura Christopher, 1986 Trust .................. 37,152 0.54
Taylor Christopher, 1994 Trust ................. 18,544 103,311.27
Evan Christopher, 1994 Trust ................... 18,544 103,311.27
Megan Christopher, 1995 Trust .................. 18,544 103,311.27
------------- -------------
2,383,874 11,264,193.80
============= =============
MINIMUM VALUE: $27,233,573 (based on a price of $8.00 per share
===========
Total non-tax related MA distributions: 2,000,000.00
============
EXHIBIT 10.9
AGREEMENT AND PLAN OF ORGANIZATION
dated as of the 30th day of April, 1997
by and among
METALS USA, INC.
UNI-STEEL ACQUISITION CORP.
(a subsidiary of Metals USA, Inc.)
UNI-STEEL, INC.
and
the STOCKHOLDERS named herein
<PAGE>
TABLE OF CONTENTS
Page
1. THE MERGER.............................................................6
1.1 Delivery and Filing of Articles of Merger........................6
1.2 Effective Time of the Merger.....................................6
1.3 Certificate of Incorporation, By-laws and
Board of Directors of Surviving Corporation......................6
1.4 Certain Information With Respect to the Capital Stock
of the COMPANY, METALS and NEWCO.................................7
1.5 Effect of Merger.................................................7
2. CONVERSION OF STOCK....................................................9
2.1 Manner of Conversion.............................................9
3. DELIVERY OF MERGER CONSIDERATION......................................10
4. CLOSING...............................................................10
5. REPRESENTATIONS AND WARRANTIES OF COMPANY
AND STOCKHOLDERS......................................................12
(A) Representations and Warranties of
COMPANY and STOCKHOLDERS..................................12
5.1 Due Organization................................................12
5.2 Authorization...................................................13
5.3 Capital Stock of the COMPANY....................................13
5.4 Transactions in Capital Stock, Organization Accounting..........13
5.5 No Bonus Shares.................................................14
5.6 Subsidiaries....................................................14
5.7 Predecessor Status; etc.........................................14
5.8 Spin-off by the COMPANY.........................................15
5.9 Financial Statements............................................15
5.10 Liabilities and Obligations.....................................15
5.11 Accounts and Notes Receivable...................................16
5.12 Permits and Intangibles.........................................16
5.13 Environmental Matters...........................................17
5.14 Personal Property...............................................18
5.15 Significant Customers; Material Contracts and Commitments.......19
5.16 Real Property...................................................20
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5.17 Insurance.......................................................20
5.18 Compensation; Employment Agreements; Organized Labor Matters....21
5.19 Employee Plans..................................................22
5.20 Compliance with ERISA...........................................23
5.21 Conformity with Law; Litigation.................................24
5.22 Taxes...........................................................25
5.23 No Violations; Consents, Etc....................................25
5.24 Government Contracts............................................26
5.25 Absence of Changes..............................................26
5.26 Deposit Accounts; Powers of Attorney............................28
5.27 Validity of Obligations.........................................28
5.28 Relations with Governments......................................28
5.29 Disclosure......................................................29
5.30 Prohibited Activities...........................................30
(B) Representations and Warranties of STOCKHOLDERS......30
5.31 Authority; Ownership............................................30
5.32 Preemptive Rights...............................................30
5.33 No Intention to Dispose of METALS Stock.........................31
6. REPRESENTATIONS OF METALS and NEWCO...................................31
6.1 Due Organization................................................31
6.2 Authorization...................................................32
6.3 Capital Stock of METALS and NEWCO...............................32
6.4 Transactions in Capital Stock, Organization Accounting..........32
6.5 Subsidiaries....................................................33
6.6 Financial Statements............................................33
6.7 Liabilities and Obligations.....................................33
6.8 Conformity with Law; Litigation.................................33
6.9 No Violations...................................................34
6.10 Validity of Obligations.........................................35
6.11 METALS Stock....................................................35
6.12 No Side Agreements..............................................36
6.13 Business; Real Property; Material Agreements....................36
6.14 Taxes...........................................................36
6.15 Absence of Changes..............................................37
6.16 Validity of Obligations.........................................38
6.17 Disclosure......................................................38
6.18 Private Offering................................................39
7. COVENANTS PRIOR TO CLOSING............................................39
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7.1 Access and Cooperation; Due Diligence...........................39
7.2 Conduct of Business Pending Closing.............................40
7.3 Prohibited Activities...........................................41
7.4 No Shop.........................................................43
7.5 Notice to Bargaining Agents.....................................43
7.6 Agreements......................................................43
7.7 Notification of Certain Matters.................................44
7.8 Amendment of Schedules..........................................44
7.9 Cooperation in Preparation of Registration Statement............46
7.10 Final Financial Statements......................................46
7.11 Further Assurances..............................................47
7.12 Authorized Capital..............................................47
7.13 Compliance with the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 (the "Hart-Scott Act").......47
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF
STOCKHOLDERS AND COMPANY..............................................48
8.1 Representations and Warranties; Performance of Obligations......48
8.2 Satisfaction....................................................49
8.3 No Litigation...................................................49
8.4 Opinion of Counsel..............................................49
8.5 Registration Statement..........................................49
8.6 Consents and Approvals..........................................49
8.7 Good Standing Certificates......................................50
8.8 No Material Adverse Change......................................50
8.9 Closing of IPO..................................................50
8.10 Secretary's Certificate.........................................50
8.11 Employment Agreements...........................................50
8.12 Tax Matters.....................................................50
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF METALS AND NEWCO...............51
9.1 Representations and Warranties; Performance of Obligations......51
9.2 No Litigation...................................................51
9.3 Secretary's Certificate.........................................52
9.4 No Material Adverse Effect......................................52
9.5 STOCKHOLDERS' Release...........................................52
9.6 Satisfaction....................................................53
9.7 Termination of Related Party Agreements.........................53
9.8 Opinion of Counsel..............................................53
9.9 Consents and Approvals..........................................53
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9.10 Good Standing Certificates......................................53
9.11 Registration Statement..........................................53
9.12 Employment Agreements...........................................54
9.13 Closing of IPO..................................................54
9.14 FIRPTA Certificate..............................................54
10. COVENANTS OF METALS AND THE STOCKHOLDERS AFTER CLOSING................54
10.1 Release From Guarantees; Repayment of Certain Obligations.......54
10.2 Preservation of Tax and Accounting Treatment....................54
10.3 Preparation and Filing of Tax Returns...........................55
10.4 Directors.......................................................56
10.5 Preservation of Employee Benefit Plans..........................56
11. INDEMNIFICATION.......................................................57
11.1 General Indemnification by the STOCKHOLDERS.....................57
11.2 Indemnification by METALS.......................................58
11.3 Third Person Claims.............................................59
11.4 Exclusive Remedy................................................61
11.5 Limitations on Indemnification..................................61
12. TERMINATION OF AGREEMENT..............................................62
12.1 Termination.....................................................62
12.2 Liabilities in Event of Termination.............................63
13. NONCOMPETITION........................................................63
13.1 Prohibited Activities...........................................63
13.2 Damages.........................................................65
13.3 Reasonable Restraint............................................65
13.4 Severability; Reformation.......................................65
13.5 Independent Covenant............................................65
13.6 Materiality.....................................................66
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION..............................66
14.1 STOCKHOLDERS....................................................66
14.2 METALS AND NEWCO................................................67
14.3 Damages.........................................................68
14.4 Survival........................................................68
15. TRANSFER RESTRICTIONS.................................................68
15.1 Transfer Restrictions...........................................68
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16. FEDERAL SECURITIES ACT REPRESENTATIONS................................69
16.1 Compliance with Law.............................................69
16.2 Economic Risk; Sophistication...................................70
17. REGISTRATION RIGHTS...................................................70
17.1 Piggyback Registration Rights...................................70
17.2 Demand Registration Rights......................................71
17.3 Registration Procedures.........................................72
17.4 Indemnification.................................................74
17.5 Underwriting Agreement..........................................75
17.6 Rule 144 Reporting..............................................75
18. GENERAL...............................................................76
18.1 Cooperation.....................................................76
18.2 Successors and Assigns..........................................77
18.3 Entire Agreement................................................77
18.4 Counterparts....................................................77
18.5 Brokers and Agents..............................................77
18.6 Expenses........................................................77
18.7 Notices.........................................................78
18.8 Governing Law...................................................80
18.9 Survival of Representations and Warranties......................80
18.10 Exercise of Rights and Remedies.................................80
18.11 Time............................................................81
18.12 Reformation and Severability....................................81
18.13 Remedies Cumulative.............................................81
18.14 Captions........................................................81
18.15 Amendments and Waivers..........................................81
18.16 Special Limitations.............................................81
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<PAGE>
ANNEXES
Annex I - Consideration to Be Paid to Stockholders
Annex II - Stockholders and Stock Ownership of the Company
Annex III - Stockholders and Stock Ownership of Metals
Annex IV - Certificate of Incorporation and By-Laws of Metals and Newco
Annex V - Form of Opinion of Counsel to Metals
Annex VI - Form of Opinion of Counsel to Company and Stockholders
Annex VII - Form of Key Employee Employment Agreement
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<PAGE>
SCHEDULES
5.1 Due Organization
5.2 Authorization
5.3 Capital Stock of the COMPANY
5.4 Transactions in Capital Stock, Organization Accounting
5.5 No Bonus Shares
5.6 Subsidiaries
5.7 Predecessor Status; etc
5.8 Spin-off by the COMPANY
5.9 Financial Statements
5.10 Liabilities and Obligations
5.11 Accounts and Notes Receivable
5.12 Permits and Intangibles
5.13 Environmental Matters
5.14 Personal Property
5.15 Significant Customers; Material Contracts and Commitments
5.16 Real Property
5.17 Insurance
5.18 Compensation; Employment Agreements; Organized Labor Matters
5.19 Employee Plans
5.20 Compliance with ERISA
5.21 Conformity with Law; Litigation
5.22 Taxes
5.23 No Violations, Consents, etc.
5.24 Government Contracts
5.25 Absence of Changes
5.26 Deposit Accounts; Powers of Attorney
5.28 Relations with Governments
5.30 Prohibited Activities
5.31 Authority; Ownership
6.4 Transactions in Capital Stock, Organization Accounting
6.7 Liabilities and Obligations
6.8 Conformity with Law; Litigation
6.9 No Violations
6.13 Business; Real Property; Material Agreements
6.14 Taxes
7.2 Conduct of Business Pending Closing
7.3 Prohibited Activities
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<PAGE>
7.5 Notice to Bargaining Agents
9.12 Employment Agreements
-viii-
<PAGE>
AGREEMENT AND PLAN OF ORGANIZATION
THIS AGREEMENT AND PLAN OF ORGANIZATION (the "Agreement") is made as of
the 30th day of April, 1997, by and among METALS USA, Inc., a Delaware
corporation ("METALS"), UNI-STEEL ACQUISITION CORP., a Delaware corporation
("NEWCO"), UNI-STEEL, INC., an Oklahoma corporation (the "COMPANY"), and the
STOCKHOLDERS identified on the signature pages hereto (the "STOCKHOLDERS"). The
STOCKHOLDERS are all the stockholders of the COMPANY.
WHEREAS, NEWCO is a corporation duly organized and existing under
the laws of the State of Delaware, having been incorporated on April 23,
1997, solely for the purpose of completing the transactions set forth
herein, and is a wholly-owned subsidiary of METALS, a corporation
organized and existing under the laws of the State of Delaware;
WHEREAS, the respective Boards of Directors of NEWCO and the COMPANY
(which together are hereinafter collectively referred to as "Constituent
Corporations") deem it advisable and in the best interests of the
Constituent Corporations and their respective stockholders that NEWCO
merge with and into the COMPANY pursuant to this Agreement and the
applicable provisions of the laws of the States of Delaware and the State
of Incorporation;
WHEREAS, METALS is entering into other separate agreements
substantially similar to this Agreement (the "Other Agreements"), each of
which is entitled "Agreement and Plan of Organization," with each of the
Other Founding Companies (as defined herein) and their respective
stockholders in order to acquire additional metals processing, metals
fabricating and specialty metals companies;
WHEREAS, this Agreement and the Other Agreements constitute the
"METALS Plan of Organization;"
WHEREAS, the STOCKHOLDERS and the Boards of Directors and the
stockholders of METALS, each of the Other Founding Companies and each of
the
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<PAGE>
subsidiaries of METALS that are parties to the Other Agreements have
approved and adopted the METALS Plan of Organization as an integrated plan
pursuant to which the STOCKHOLDERS and the stockholders of each of the
other Founding Companies will transfer the capital stock of each of the
Founding Companies to METALS and the stockholders of each of the other
Founding Companies will acquire the stock of METALS (but not cash or other
property) as a tax-free transfer of property under Section 351 of the
Internal Revenue Code of 1986, as amended;
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the Board of Directors of the
COMPANY has approved this Agreement as part of the METALS Plan of
Organization in order to transfer the capital stock of the COMPANY to
METALS;
WHEREAS, unless the context otherwise requires, capitalized terms
used in this Agreement or in any schedule attached hereto and not
otherwise defined shall have the following meanings for all purposes of
this Agreement: "1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Acquired Party" means the COMPANY, any subsidiary and any member of a
Relevant Group.
"Acquisition Companies" shall mean NEWCO and each of the other Delaware
companies wholly-owned by METALS prior to the Funding and Consummation Date.
"Affiliates" has the meaning set forth in Section 5.8.
"Articles of Merger" shall mean those Articles or Certificates of Merger
with respect to the Merger in such forms as may be required by the laws of the
State of Delaware and the State of Incorporation.
"Balance Sheet Date" shall mean December 31, 1996.
"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
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<PAGE>
"COMPANY" has the meaning set forth in the first paragraph of this
Agreement.
"COMPANY Stock" has the meaning set forth in Section 2.1.
"Constituent Corporations" has the meaning set forth in the second recital
of this Agreement.
"Draft Registration Statement" means the draft dated April 25, 1997 of the
Registration Statement, and any corrections thereto and supplemental information
delivered by METALS to the COMPANY for delivery to the STOCKHOLDERS prior to the
time this Agreement is delivered to METALS.
"Effective Time of the Merger" shall mean the time as of which the Merger
becomes effective, which shall, in any case, occur on the Funding and
Consummation Date.
"Environmental Laws" has the meaning set forth in Section 5.13.
"Expiration Date" has the meaning set forth in Section 5(A).
"Founding Companies" means:
Affiliated Metals Company, a Missouri corporation;
Interstate Steel Supply Company, a Pennsylvania corporation,
Interstate Steel Supply Company of Pittsburgh, a Pennsylvania
corporation, Interstate Steel Supply Company of Maryland, a
Maryland corporation, and Interstate Steel Processing Company,
a Pennsylvania corporation;
Queensboro Steel Corporation, a North Carolina corporation;
Southern Alloy of America, Inc., a North Carolina corporation;
Steel Service Systems, Inc., a Wisconsin corporation;
Texas Aluminum Industries, Inc., a Texas corporation, Cornerstone
Metals Corporation, a Nevada corporation, Cornerstone Building
Products, Inc., a Nevada corporation, Cornerstone Aluminum
Company, Inc., a Nevada corporation, and Cornerstone Patio
Concepts, L.L.C., a Nevada limited liability company;
Uni-Steel Incorporated, an Oklahoma corporation; and
Williams Steel & Supply Co., Inc., a Wisconsin corporation.
"Funding and Consummation Date" has the meaning set forth in
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<PAGE>
Section 4.
"IPO" means the initial public offering of METALS Stock pursuant to the
Registration Statement as referenced in Section 9.13.
"Material Adverse Effect" has the meaning set forth in Section 5.1.
"Material Documents" has the meaning set forth in Section 5.23.
"Merger" means the merger of NEWCO with and into the COMPANY pursuant to
this Agreement and the applicable provisions of the laws of the State of
Delaware and the laws of the State of Incorporation.
"METALS" has the meaning set forth in the first paragraph of this
Agreement.
"METALS Charter Documents" has the meaning set forth in Section 6.1.
"METALS Stock" means the common stock, par value $.01 per share, of
METALS.
"NEWCO" has the meaning set forth in the first paragraph of this
Agreement.
"NEWCO STOCK" means the common stock, par value $.01 per share, of NEWCO.
"Other Founding Companies" means all of the Founding Companies other than
the Company.
"Plans" has the meaning set forth in Section 5.19.
"Pricing" means the date of determination by METALS and the Underwriters
of the public offering price of the shares of METALS Stock in the IPO; the
parties hereto contemplate that the Pricing shall take place on the Closing
Date.
"Qualified Plans" has the meaning set forth in Section 5.20.
"Registration Statement" means that certain registration statement on Form
S-1 to be filed with the SEC covering the shares of METALS Stock to be issued in
the IPO and all amendments thereto.
"Relevant Group" means the COMPANY and any affiliated, combined,
consolidated, unitary or similar group of which the COMPANY is or was a member.
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
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"Schedule" means each Schedule attached hereto, which shall reference the
relevant sections of this Agreement, on which parties hereto disclose
information as part of their respective representations, warranties and
covenants.
"SEC" means the United States Securities and Exchange Commission.
"State of Incorporation" means the State of Oklahoma.
"STOCKHOLDERS" has the meaning set forth in the first paragraph of this
Agreement.
"Surviving Corporation" shall mean the COMPANY as the surviving party in
the Merger.
"Tax" or "Taxes" means all federal, state, local or foreign net or gross
income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, withholding, employment, excise, property, deed, stamp, alternative
or add on minimum, or other taxes, assessments, duties, fees, levies or other
governmental charges, whether disputed or not, together with any interest,
penalties, additions to tax or additional amounts with respect thereto.
"Underwriters" means the prospective underwriters identified in the
Registration Statement.
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:
1. THE MERGER
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER. The Constituent
Corporations will cause the Articles of Merger to be signed, verified and placed
in escrow under the control of METALS to be held for filing with the Secretary
of State of the State of Delaware and the Secretary of State of the State of
Incorporation on the Funding and Consummation Date.
1.2 EFFECTIVE TIME OF THE MERGER. At the Effective Time of the Merger,
NEWCO shall be merged with and into the COMPANY in accordance with the Articles
of Merger, the separate existence of NEWCO shall cease, the COMPANY shall be the
surviving party in the Merger and the COMPANY is sometimes hereinafter referred
to as the Surviving Corporation. The Merger will be effected in a single
transaction.
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1.3 CERTIFICATE OF INCORPORATION, BY-LAWS AND BOARD OF DIRECTORS OF
SURVIVING CORPORATION. At the Effective Time of the Merger:
(i) the Certificate of Incorporation of the COMPANY then in effect
shall be the Certificate of Incorporation of the Surviving Corporation
until changed as provided by law;
(ii) the By-laws of NEWCO then in effect shall become the By-laws of
the Surviving Corporation; and subsequent to the Effective Time of the
Merger, such By-laws shall be the By-laws of the Surviving Corporation
until they shall thereafter be duly amended (and such By-laws shall be
amended, if necessary, to comply with applicable state law);
(iii) the Board of Directors of the Surviving Corporation shall
consist of the persons who are on the Board of Directors of the COMPANY
immediately prior to the Effective Time of the Merger, provided that J.
Michael Kirksey shall be elected as a director of the Surviving
Corporation effective as of the Effective Time of the Merger; the Board of
Directors of the Surviving Corporation shall hold office subject to the
provisions of the laws of the State of Incorporation 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 of the Merger shall continue as the officers of the Surviving
Corporation in the same capacity or capacities, and effective upon the
Effective Time of the Merger J. Michael Kirksey shall be appointed as a
vice president of the Surviving Corporation and Terry L. Freeman 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 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE COMPANY,
METALS AND NEWCO. The respective designations and numbers of outstanding shares
and voting rights of each class of outstanding capital stock of the COMPANY,
METALS and NEWCO as of the date of this Agreement are as follows:
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(i) as of the date of this Agreement, the authorized and outstanding
capital stock of the COMPANY is as set forth on Schedule 5.3 hereto;
(ii) immediately prior to the Closing Date and the Funding and
Consummation Date, the authorized capital stock of METALS will consist of
50,000,000 shares of METALS Stock, of which the number of issued and
outstanding shares will be set forth in the Registration Statement, and
5,000,000 shares of preferred stock, $.01 par value, of which no shares
will be issued and outstanding, and a number of shares of Restricted
Voting Common Stock, $.01 par value (the "Restricted Common Stock"), to be
determined by METALS in good faith, all of which will be issued and
outstanding except as otherwise set forth in the Registration Statement;
and
(iii) as of the date of this Agreement, the authorized capital stock
of NEWCO consists of 1,000 shares of NEWCO Stock, of which one hundred
(100) shares are issued and outstanding.
1.5 EFFECT OF MERGER. At the Effective Time of the Merger, the effect of
the Merger shall be as provided in the applicable provisions of the General
Corporation Law of the State of Delaware (the "Delaware GCL") and the law of the
State of Incorporation. Except as herein specifically set forth, the identity,
existence, purposes, powers, objects, franchises, privileges, rights and
immunities of the COMPANY shall continue unaffected and unimpaired by the Merger
and the corporate franchises, existence and rights of NEWCO shall be merged with
and into the COMPANY, and the COMPANY, as the Surviving Corporation, shall be
fully vested therewith. At the Effective Time of the Merger, the separate
existence of NEWCO 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 transferred
to, and vested in, the Surviving Corporation without further act or deed; and
all property, rights and privileges, powers and
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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 interest therein, whether by deed or
otherwise, under the laws of the State of Incorporation 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.
2. CONVERSION OF STOCK
2.1 MANNER OF CONVERSION. The manner of converting the shares of (i)
outstanding capital stock of the COMPANY ("COMPANY Stock") and (ii) NEWCO Stock,
issued and outstanding immediately prior to the Effective Time of the Merger,
respectively, into shares of (x) METALS Stock and cash and (y) common stock of
the Surviving Corporation, respectively, shall be as follows:
As of the Effective Time of the Merger:
(i) all of the shares of COMPANY Stock issued and outstanding
immediately prior to the Effective Time of the Merger, by virtue of the
Merger and without any action on the part of the holder thereof,
automatically shall be deemed to represent (1) the right to receive the
number of shares of METALS Stock set forth on Annex I hereto with respect
to such holder and (2) the right to receive the amount of cash set forth
on Annex I hereto with respect to such holder;
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(ii) all shares of COMPANY Stock 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 of the Merger, shall, by virtue of the Merger
and without any action on the part of METALS, automatically be converted
into one fully paid and non-assessable share of common stock of the
Surviving Corporation which shall constitute all of the issued and
outstanding shares of common stock of the Surviving Corporation
immediately after the Effective Time of the Merger.
All METALS Stock received by the STOCKHOLDERS pursuant to this Agreement
shall, except for restrictions on resale or transfer described in Sections 15
and 16 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 GCL. All METALS Stock received
by the STOCKHOLDERS shall be issued and delivered to the STOCKHOLDERS free and
clear of any liens, claims or encumbrances of any kind or nature. All voting
rights of such METALS Stock received by the STOCKHOLDERS shall be fully
exercisable by the STOCKHOLDERS and the STOCKHOLDERS shall not be deprived nor
restricted in exercising those rights. At the Effective Time of the Merger,
METALS shall have no class of capital stock issued and outstanding other than
the METALS Stock and the Restricted Voting Common Stock.
3. DELIVERY OF MERGER CONSIDERATION
3.1 On the Funding and Consummation Date the STOCKHOLDERS, 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 and the amount of cash described on Annex I hereto, said
cash to be payable by certified check.
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3.2 The STOCKHOLDERS shall deliver to METALS at the Closing the
certificates representing COMPANY Stock, duly endorsed in blank by the
STOCKHOLDERS, or accompanied by blank stock powers, and with all necessary
transfer tax and other revenue stamps, acquired at the STOCKHOLDERS' expense,
affixed and canceled. The STOCKHOLDERS agree 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.
4. CLOSING
At or prior to the Pricing, the parties shall take all actions necessary
to prepare to (i) effect the Merger (including the execution of the Articles of
Merger which shall be placed in escrow under the control of METALS for filing
with the appropriate authorities on the Funding and Consummation Date) and (ii)
effect the conversion and delivery of shares referred to in Section 3 hereof;
provided, that such actions shall not include the actual completion of the
Merger or the conversion and delivery of the shares and certified check(s)
referred to in Section 3 hereof, each of which actions shall only be taken upon
the Funding and Consummation Date as herein provided. The escrow agreement
relating to the Articles of Merger shall provide that in the event that there is
no Funding and Consummation Date and this Agreement automatically terminates as
provided in this Section 4 the Articles of Merger shall not be filed and shall
be returned to the STOCKHOLDERS. The taking of the actions described in clauses
(i) and (ii) above (the "Closing") shall take place on the closing date (the
"Closing Date") at the offices of Bracewell & Patterson, L.L.P., South Tower
Pennzoil Place, 711 Louisiana, Suite 2900, Houston, Texas 77002. On the Funding
and Consummation Date (x) the Articles of Merger shall be filed with the
appropriate state authorities so that they shall be, as early as practicable on
the Funding and Consummation Date, effective and the Merger shall thereby be
effected, (y) all transactions contemplated by this Agreement, including the
conversion and delivery of shares, the delivery of a certified check or checks
in an amount equal to the cash portion of the consideration which the
STOCKHOLDERS
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shall be entitled to receive pursuant to the Merger referred to in Section 3
hereof and (z) the closing with respect to the IPO shall occur and be completed.
The date on which the actions described in the preceding clauses (x), (y) and
(z) occurs shall be referred to as the "Funding and Consummation Date." Except
as otherwise provided in Section 12 hereof, during the period from the Closing
Date to the Funding and Consummation Date, this Agreement may only be terminated
by the parties if the underwriting agreement in respect of the IPO is terminated
pursuant to the terms of such agreement. This Agreement shall also in any event
automatically terminate if the Funding and Consummation Date has not occurred
within 10 business days of the Closing Date. Time is of the essence.
5. REPRESENTATIONS AND WARRANTIES OF COMPANY
AND STOCKHOLDERS
(A) REPRESENTATIONS AND WARRANTIES OF COMPANY AND STOCKHOLDERS.
Each of the COMPANY and the STOCKHOLDERS jointly and severally represent
and warrant that all of the following representations and warranties in this
Section 5(A) are true at the date of this Agreement and, subject to Section 7.8
hereof, shall be true at the time of Closing and the Funding and Consummation
Date, and that such representations and warranties shall survive the Funding and
Consummation Date for a period of twelve months (the last day of such period
being the "Expiration Date"), except that the warranties and representations set
forth in Section 5.22 hereof shall survive until such time as the limitations
period has run for all tax periods ended on or prior to the Funding and
Consummation Date, which shall be deemed to be the Expiration Date for Section
5.22. For purposes of this Section 5, the term COMPANY shall mean and refer to
the COMPANY and all of its subsidiaries.
5.1 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 the 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 (i) as set forth on
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Schedule 5.1 or (ii) 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 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 5.1. The stock records of the COMPANY, as heretofore made
available to METALS, 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 complete in all
material 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, power and
authority to enter into this Agreement and the Merger. The most recent
resolutions adopted by the Board of Directors of the COMPANY and the most recent
resolutions adopted by the STOCKHOLDERS, all of which are dated no earlier than
ten business days prior to the date hereof, approve this Agreement and the
transactions contemplated hereby in all respects, and copies of all such
resolutions, certified by the Secretary or an Assistant Secretary of the COMPANY
as being in full force and effect on the date hereof, are attached hereto as
Schedule 5.2.
5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the
COMPANY is as set forth on Schedule 5.3. All of the issued and outstanding
shares of the capital stock of the COMPANY are owned by the STOCKHOLDERS in the
amounts set forth in Annex II. Each STOCKHOLDER, severally, represents and
warrants that except as set forth on Schedule 5.3, the shares of capital stock
of the COMPANY owned by such STOCKHOLDER 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, are owned of record and
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beneficially by the STOCKHOLDERS and further, such shares were offered, issued,
sold and delivered by the COMPANY in compliance with all applicable state and
Federal laws concerning the issuance of securities. Further, none of such shares
were issued in violation of any preemptive rights of any past or present
stockholder.
5.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except as set
forth on Schedule 5.4, the COMPANY has not acquired any COMPANY Stock since
January 1, 1995. Except as set forth on Schedule 5.4, (i) no option, warrant,
call, conversion right or commitment of any kind exists which obligates the
COMPANY to issue any of its authorized but unissued capital stock; (ii) the
COMPANY has no obligation (contingent or otherwise) to purchase, redeem or
otherwise acquire any of its equity securities or any interests therein or to
pay any dividend or make any distribution in respect thereof; and (iii) neither
the voting stock structure of the COMPANY nor the relative ownership of shares
among any of its respective stockholders has been altered or changed in
contemplation of the Merger and/or the METALS Plan of Organization. Schedule 5.4
also includes a complete and accurate list of all stock option or stock purchase
plans, including a list of all outstanding options, warrants or other rights to
acquire shares of the COMPANY's stock and copies of such plans have been
delivered to METALS or are attached to Schedule 5.4.
5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of the
shares of COMPANY Stock was issued pursuant to awards, grants or bonuses in
contemplation of the Merger or the METALS Plan of Organization.
5.6 SUBSIDIARIES. Except as set forth on Schedule 5.6, the COMPANY has no
subsidiaries. Except as set forth in Schedule 5.6 and except for any
corporations or entities with respect to which the COMPANY owns less than 1% of
the issued and outstanding stock, the COMPANY does not presently 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 business entity nor is the COMPANY, directly or
indirectly, a participant in any joint venture, partnership or other
non-corporate entity.
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5.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 5.7 is a listing of all
names of all predecessor companies of the COMPANY, including the names of any
entities acquired by the COMPANY (by stock purchase, merger or otherwise) or
owned by the COMPANY or from whom the COMPANY previously acquired material
assets, in any case, from the earliest date upon which any STOCKHOLDER acquired
his or her stock in any COMPANY. Except as disclosed on Schedule 5.7, the
COMPANY has not been, within such period of time, a subsidiary or division of
another corporation or a part of an acquisition which was later rescinded.
5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8, there
has not been any sale, spin-off or split-up of material assets of either the
COMPANY or any other person or entity that directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under common
control with, the COMPANY ("Affiliates") since January 1, 1995.
5.9 FINANCIAL STATEMENTS. Attached hereto as Schedule 5.9 are copies of
the following financial statements (the "COMPANY Financial Statements") of the
COMPANY: the COMPANY's audited Balance Sheets as of September 30, 1996, 1995 and
1994, and Statements of Income, Stockholders' Equity and Cash Flows for each of
the three years in the periods then ended. Such Financial Statements have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods indicated (except as noted thereon or
on Schedule 5.9). Except as set forth on Schedule 5.9, such Balance Sheets
present fairly in all material respects the financial position of the COMPANY as
of the dates indicated thereon, and such Statements of Income, Stockholders
Equity and Cash Flows present fairly in all material respects the results of
operations for the periods indicated thereon.
5.10 LIABILITIES AND OBLIGATIONS. The COMPANY has delivered to METALS an
accurate list (which is set forth on Schedule 5.10) as of the Balance Sheet Date
of (i) all liabilities of the COMPANY of a nature that they are required in
accordance with GAAP to be reflected on a balance sheet and which are not
reflected on the balance sheet of the COMPANY at the Balance Sheet Date or
otherwise reflected in the COMPANY Financial Statements at the Balance Sheet
Date, and which are not disclosed on any of the other Schedules to this
Agreement and which would have
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a Material Adverse Effect on the COMPANY, and (ii) all loan agreements,
indemnity or guaranty agreements, bonds, mortgages, pledges or other security
agreements to which the COMPANY is a party or by which its properties may be
bound. Except as set forth on Schedule 5.10, to the best knowledge of the
COMPANY, since the Balance Sheet Date the COMPANY has not incurred any material
liabilities of any kind, character or description, whether accrued, absolute,
secured or unsecured, contingent or otherwise, other than liabilities incurred
in the ordinary course of business. The COMPANY has also delivered to METALS on
Schedule 5.10, in the case of those contingent liabilities related to pending or
threatened litigation, or other liabilities which are not fixed, a good faith
and reasonable estimate of the maximum amount which the COMPANY reasonably
expects will be payable and the amount, if any, accrued or reserved for each
such potential liability on the COMPANY's Financial Statements. For each such
contingent liability or liability for which the amount is not fixed or is
contested, the COMPANY has provided to METALS the following information:
(i) a summary description of the liability together with the
following:
(a) copies of all relevant documentation relating thereto;
(b) amounts claimed and any other action or relief sought; and
(c) name of claimant and all other parties to the claim, suit
or proceeding;
(ii) the name of each court or agency before which such claim, suit
or proceeding is pending; and
(iii) the date such claim, suit or proceeding was instituted; and
(iv) a good faith and reasonable estimate of the maximum amount, if
any, which is likely to become payable with respect to each such
liability. If no estimate is provided, the estimate shall for purposes of
this Agreement be deemed to be zero.
5.11 ACCOUNTS AND NOTES RECEIVABLE. The COMPANY has delivered to METALS an
accurate list (which is set forth on Schedule 5.11) of the accounts and notes
receivable of the COMPANY, as of the Balance Sheet Date, including any such
amounts which are not reflected in the balance sheet as of the Balance Sheet
Date, and including receivables from and advances to
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employees and the STOCKHOLDERS. Except to the extent reflected on Schedule 5.11,
such accounts, notes and other receivables are collectible in the amounts shown
on Schedule 5.11, net of reserves reflected in the balance sheet as of the
Balance Sheet Date.
5.12 PERMITS AND INTANGIBLES. The COMPANY or its employees, as
appropriate, hold all licenses, franchises, permits and other governmental
authorizations ("Licenses") the absence of any of which could have a Material
Adverse Effect on the Company's business, and the COMPANY has delivered to
METALS an accurate list and summary description (which is set forth on Schedule
5.12) of all such Licenses, including any 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
5.13). At or prior to the Closing, all such trademarks, trade names, patents,
patent applications, copyrights and other intellectual property will be assigned
or licensed to the COMPANY for no additional consideration. To the best
knowledge of the COMPANY, the Licenses and other rights listed on Schedules 5.12
and 5.13 are valid, and the COMPANY has not received any notice that any person
intends to cancel, terminate or not renew any such License or other right. The
COMPANY has conducted and is conducting its business in compliance with the
requirements, standards, criteria and conditions set forth in the Licenses and
other rights listed on Schedules 5.12 and 5.13 and is not in violation of any of
the foregoing except where such non-compliance or violation would not have a
Material Adverse Effect on the COMPANY. Except as specifically provided in
Schedule 5.12, 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 or other rights.
5.13 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 5.13, and
except where any failure to comply or action would not have a Material Adverse
Effect, (i) 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
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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 and Hazardous Substances (as such
terms are defined in any applicable Environmental Law), as well as petroleum and
petroleum products (collectively "Hazardous Materials"); (ii) the COMPANY has
obtained and adhered to all necessary permits and other approvals necessary to
treat, transport, store, dispose of and otherwise handle Hazardous Materials, a
list of all of which permits and approvals is set forth on Schedule 5.13, 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 Materials have been treated, stored, disposed of or otherwise
handled; (iii) there have been no releases or threats of releases (as these
terms are defined in Environmental Laws) of any Hazardous Materials at, from, in
or on any property owned or operated by the COMPANY except as permitted by
Environmental Laws; (iv) the COMPANY knows of no on-site or off-site location to
which the COMPANY has transported or disposed of Hazardous Materials or arranged
for the transportation of Hazardous Materials, which site 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, METALS or
NEWCO for any clean-up cost, remedial work, damage to natural resources,
property damage or personal injury, including, but not limited to, any claim
under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended; and (v) to the best knowledge of the COMPANY, the COMPANY
has no contingent liability in connection with any release of any Hazardous
Materials into the environment; provided, however, that the representation set
forth in this clause (v) shall not be deemed to limit in any way the
representations and warranties set forth in clauses (i) - (iv) of this Section
5.13.
5.14 PERSONAL PROPERTY. The COMPANY has delivered to METALS an accurate
list (which is set forth on Schedule 5.14) of (x) all personal property material
to the operations of the COMPANY included (or that will be included) in
"depreciable plant, property and equipment" on
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the balance sheet of the COMPANY, (y) all other personal property owned by the
COMPANY with an individual value in excess of $50,000 (i) as of the Balance
Sheet Date and (ii) acquired since the Balance Sheet Date and (z) all material
leases and agreements in respect of personal property, including, in the case of
each of (x), (y) and (z), (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. Except as set forth on Schedule 5.14, (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 5.14, (ii) all of
the personal property listed on Schedule 5.14 is in good working order and
condition, ordinary wear and tear excepted and (iii) all leases and agreements
included on Schedule 5.14 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.
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. The
COMPANY has delivered to METALS an accurate list (which is set forth on Schedule
5.15) of (i) all significant customers, it being understood and agreed that a
"significant customer," for purposes of this Section 5.15, means a customer (or
person or entity) representing 5% or more of the COMPANY's annual revenues for
its most recently completed fiscal year. Except to the extent set forth on
Schedule 5.15, 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.
The COMPANY has listed on Schedule 5.15 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),
other than agreements listed on Schedule 5.10, 5.14 or 5.16, (a) in existence as
of the Balance Sheet Date and (b) entered into since the Balance Sheet Date, and
in each case has delivered true, complete and correct copies of such agreements
to METALS. The COMPANY has also indicated on Schedule
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5.15 a summary description of all plans or projects involving the opening of new
operations, expansion of existing operations, the acquisition of any personal
property, business or assets requiring, in any event, the payment of more than
$50,000 by the COMPANY during any 12-month period.
5.16 REAL PROPERTY. Schedule 5.16 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. Except as set forth
on Schedule 5.16, any such real property owned by the COMPANY will be sold or
distributed by the COMPANY and leased back by the COMPANY on terms no less
favorable to the COMPANY than those available from an unaffiliated party and
otherwise reasonably acceptable to METALS at or prior to the Closing Date. The
COMPANY has good and insurable title to any real property owned by it that is
not shown on Schedule 5.16 as property intended to be sold or distributed prior
to the Closing Date, subject to no mortgage, pledge, lien, conditional sales
agreement, encumbrance or charge, except for:
(i) liens reflected on Schedules 5.10 or 5.16 as securing specified
liabilities (with respect to which no material default exists);
(ii) liens for current taxes not yet payable and assessments not in
default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other exceptions to
title which do not adversely affect the current use of the property.
True, complete and correct copies of all leases and agreements in respect
of such real property leased by the COMPANY are attached to Schedule 5.16, 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 5.16. Except as set forth on Schedule 5.16, all of such
leases included on Schedule 5.16 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.
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5.17 INSURANCE. The COMPANY has delivered to METALS (i) an accurate list
as of the Balance Sheet Date of all insurance policies carried by the COMPANY,
(ii) an accurate list of all insurance loss runs or workers compensation claims
received for the past three (3) policy years and (iii) true, complete and
correct copies of all insurance policies currently in effect. 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. All of such insurance policies are currently in full force and
effect and shall, to the best knowledge of the COMPANY, remain in full force and
effect through the Funding and Consummation Date. Since January 1, 1994, no
insurance carried by the COMPANY has been canceled by the insurer and the
COMPANY has not been denied coverage.
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS. The
COMPANY has delivered to METALS an accurate list (which is set forth on Schedule
5.18) 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. The COMPANY has provided to METALS
true, complete and correct copies of any employment agreements for persons
listed on Schedule 5.18. Since the Balance Sheet Date, there have been no
material 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 5.18, (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
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employees nor has the COMPANY experienced any labor interruptions over the past
three years. The COMPANY believes its relationship with employees to be good.
5.19 EMPLOYEE PLANS. The STOCKHOLDERS have delivered to METALS an accurate
schedule (Schedule 5.19) showing all employee benefit plans of COMPANY
(including COMPANY's Subsidiaries), including all employment agreements and
other agreements or arrangements 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 5.19,
COMPANY (including the COMPANY's Subsidiaries) does not sponsor, maintain or
contribute to any plan program, fund or arrangement that constitutes an
"employee pension benefit plan," nor has COMPANY or any Subsidiary 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. Neither COMPANY
nor any Subsidiary has sponsored, maintained or contributed to any employee
pension benefit plan other than the plans set forth on Schedule 5.19, nor is
COMPANY or any Subsidiary 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 COMPANY's or any Subsidiary's employees.
Neither the COMPANY nor any Subsidiary is now, or will as a result of its
past activities become, liable to the Pension Benefit Guaranty Corporation or to
any multiemployer employee pension benefit plan under the provisions of Title IV
of ERISA for any amounts which would have a Material Adverse Effect on the
COMPANY.
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All employee benefit plans listed on Schedule 5.19 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 or any Subsidiary with
respect to any plan listed on Schedule 5.19 have either been fulfilled in their
entirety or are fully reflected on the balance sheet of the COMPANY as of the
Balance Sheet Date.
5.20 COMPLIANCE WITH ERISA. All such plans listed on Schedule 5.19 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 such determination letters are
included as part of Schedule 5.19 hereof. Except as disclosed on Schedule 5.20,
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 5.19 hereof.
Neither STOCKHOLDERS, any such plan listed in Schedule 5.19, nor COMPANY
(including the COMPANY's Subsidiaries) has engaged in any transaction prohibited
under the provisions of Section 4975 of the Code or Section 406 of ERISA. No
such Plan listed in Schedule 5.19 has incurred an accumulated funding
deficiency, as defined in Section 412(a) of the Code and Section 302(1) of
ERISA; and COMPANY (including the COMPANY's Subsidiaries) has not incurred any
liability for excise tax or penalty due to the Internal Revenue Service nor any
liability to the Pension Benefit Guaranty Corporation. The STOCKHOLDERS further
represent that except as set forth on Schedule 5.19 hereto:
(i) 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;
(ii) no such plan listed in Schedule 5.19 subject to the provisions
of Title IV of ERISA has been terminated;
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(iii) 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 5.19;
(iv) COMPANY (including the COMPANY's Subsidiaries) has not incurred
liability under Section 4062 of ERISA; and
(v) To their best knowledge, circumstances exist pursuant to which
the COMPANY could have any direct or indirect liability whatsoever
(including, but not limited to, any liability to any multiemployer 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.
5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedule 5.21 or 5.13, 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 which would have a Material Adverse Effect; and except to
the extent set forth on Schedule 5.10 or 5.13, there are no material claims,
actions, suits or proceedings, pending or, to the knowledge of the COMPANY,
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 any of them
and no notice of any claim, action, suit or proceeding, whether pending or
threatened, has been received by the COMPANY. 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, orders, approvals, variances, rules and regulations,
including all such orders and other governmental approvals set forth on
Schedules 5.12 and 5.13, except where any such noncompliance, individually or in
the aggregate, would not have a Material Adverse Effect.
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5.22 TAXES. COMPANY (including the COMPANY's 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; and except as
set forth on Schedule 5.22, there are no examinations in progress or claims
pending against any of them for federal, state and other taxes (including
penalties and interest) for any period or periods prior to and including the
Balance Sheet Date and no notice of any claim for taxes, whether pending or
threatened, has been received. All tax, including interest and penalties
(whether or not shown on any tax return) owed by the COMPANY or any of the
COMPANY's Subsidiaries has been paid. The amounts shown as accruals for taxes on
the COMPANY Financial Statements are sufficient for the payment of all taxes of
the kinds indicated (including penalties and interest) for all fiscal periods
ended on or before that date. Copies of (i) any tax examinations, (ii)
extensions of statutory limitations and (iii) the federal and local income tax
returns and franchise tax returns of COMPANY (including the COMPANY
Subsidiaries) for their last three (3) fiscal years, or such shorter period of
time as any of them shall have existed, are attached hereto as Schedule 5.22 or
have otherwise been delivered to METALS. The COMPANY has a taxable year ended
December 31. 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.
5.23 NO VIOLATIONS; CONSENTS, ETC. The COMPANY is not in violation of any
Charter Document. Neither the COMPANY nor, to the best knowledge of the COMPANY,
any other party thereto, is in default under any lease, instrument, agreement,
license, or permit set forth on Schedule 5.12, 5.13, 5.14, 5.15 or 5.16, or any
other material agreement to which it is a party or by which its properties are
bound (the "Material Documents") in any manner that could result in a Material
Adverse Effect; and, except as set forth in Schedule 5.23, (a) the rights and
benefits of the COMPANY under the Material Documents will not be materially
adversely affected by the transactions contemplated hereby and (b) 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
material violation or breach or constitute a default under, any of the terms or
provisions
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of the Material Documents or the Charter Documents. Except as set forth on
Schedule 5.23, 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. Except as set forth on Schedule 5.23, none of the
Material Documents prohibits the use or publication by the COMPANY, METALS or
NEWCO 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, METALS,
NEWCO or any Other Founding Company.
5.24 GOVERNMENT CONTRACTS. Except as set forth on Schedule 5.24, the
COMPANY is not now a party to any governmental contracts subject to price
redetermination or renegotiation.
5.25 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
on Schedule 5.25 or as otherwise contemplated hereby, 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
except for distributions that would have been permitted after the date
hereof under Section 7.3(iii) hereof;
(v) any material increase in the compensation, bonus, sales
commissions or fee arrangement payable or to become payable by the COMPANY
to any of its officers,
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directors, STOCKHOLDERS, employees, consultants or agents, except for
ordinary and customary bonuses and salary increases for employees in
accordance with past practice;
(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 STOCKHOLDERS 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 other distribution of property or assets by the COMPANY
other than in the ordinary course of business and other than distributions
of real estate and other assets as permitted by this Agreement (including
the Schedules hereto).
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5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The COMPANY has delivered to
METALS an accurate schedule (which is set forth on Schedule 5.26) as of the date
of the 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; and
(iv) the name of each person authorized to draw thereon or have
access thereto. Schedule 5.26 also sets forth the name of each person,
corporation, firm or other entity holding a general or special power of attorney
from the COMPANY and a description of the terms of such power.
5.27 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by the COMPANY and the performance of the transactions contemplated herein have
been duly and validly authorized by the Board of Directors of the COMPANY and
this Agreement has been duly and validly authorized by all necessary corporate
action and is a legal, valid and binding obligation of the COMPANY.
5.28 RELATIONS WITH GOVERNMENTS. Except for political contributions made
in a lawful manner which, in the aggregate, do not exceed $10,000 per year, the
COMPANY has not over the past five (5) years made, offered or agreed to offer
anything of value to any governmental official, political party or candidate for
government office nor has it 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. If political contributions made by the
COMPANY have exceeded $10,000 per year for each year in which any STOCKHOLDER
has been a stockholder of the COMPANY, each contribution in the amount of $5,000
or more shall be described on Schedule 5.28.
5.29 DISCLOSURE. (a) This Agreement, including the Annexes and Schedules
hereto, and the completed Director and Officer Questionnaires and the completed
S-1 Questionnaire furnished to METALS by the COMPANY and the STOCKHOLDERS in
connection herewith, do not contain
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an untrue statement of a material fact or omit to state a material fact
necessary to make the statements herein and therein, in light of the
circumstances under which they were made, not misleading; provided, however,
that the foregoing does not apply to statements contained in or omitted from any
of such documents made or omitted in reliance upon information furnished in
writing by METALS. If, prior to the 25th day after the date of the final
prospectus of METALS utilized in connection with the IPO, the COMPANY or the
STOCKHOLDERS become aware of any fact or circumstance which would affect the
accuracy of a representation or warranty of COMPANY or STOCKHOLDERS in this
Agreement in any material respect, the COMPANY and the STOCKHOLDERS shall
immediately give notice of such fact or circumstance to METALS. However, subject
to the provisions of Section 7.8, such notification shall not relieve either the
COMPANY or the STOCKHOLDERS of their respective obligations under this
Agreement, and, subject to the provisions of Section 7.8, at the sole option of
METALS, the truth and accuracy of any and all warranties and representations of
the COMPANY, or on behalf of the COMPANY and of STOCKHOLDERS at the date of this
Agreement and on the Closing Date and on the Funding and Consummation Date,
shall be a precondition to the consummation of this transaction.
(b) The COMPANY and the STOCKHOLDERS acknowledge and agree (i)
that there exists no firm commitment, binding agreement, or promise or other
assurance of any kind, whether express or implied, oral or written, that a
Registration Statement will become effective or that the IPO pursuant thereto
will occur at a particular price or within a particular range of prices or occur
at all; (ii) that neither METALS or any of its officers, directors, agents or
representatives nor any Underwriter shall have any liability to the COMPANY, the
STOCKHOLDERS or any other person affiliated or associated with the COMPANY for
any failure of the Registration Statement to become effective, the IPO to occur
at a particular price or within a particular range of prices or to occur at all;
and (iii) that the decision of STOCKHOLDERS to enter into this Agreement, or to
vote in favor of or consent to the proposed Merger, has been or will be made
independent of, and without reliance upon, any statements, opinions or other
communications, or due diligence investigations which have been or will be made
or performed by any prospective Underwriter, relative to METALS
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or the prospective IPO. METALS agrees, however, to use all reasonable efforts to
consummate the METALS Plan of Organization and IPO as contemplated hereby.
5.30 PROHIBITED ACTIVITIES. Except as set forth on Schedule 5.30, 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.
(B) REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS
Each STOCKHOLDER severally represents and warrants that the
representations and warranties set forth below are true as of the date of this
Agreement and, subject to Section 7.8 hereof, shall be true at the time of
Closing and on the Funding and Consummation Date, and that the representations
and warranties set forth in Sections 5.31 and 5.32 shall survive until the first
anniversary of the Funding and Consummation Date, which shall be the Expiration
Date for purposes of Sections 5.31 and 5.32.
5.31 AUTHORITY; OWNERSHIP. Such STOCKHOLDER has the full legal right,
power and authority to enter into this Agreement. Such STOCKHOLDER owns
beneficially and of record all of the shares of the COMPANY stock identified on
Annex II as being owned by such STOCKHOLDER, and, except as set forth on
Schedule 5.31, such COMPANY Stock is owned free and clear of all liens,
encumbrances and claims of every kind.
5.32 PREEMPTIVE RIGHTS. Such STOCKHOLDER does not have, or hereby waives,
any preemptive or other right to acquire shares of COMPANY Stock or METALS Stock
that such STOCKHOLDER has or may have had. Nothing herein, however, shall limit
or restrict the rights of any STOCKHOLDER to acquire METALS Stock pursuant to
(i) this Agreement or (ii) any option granted by METALS.
5.33 NO INTENTION TO DISPOSE OF METALS STOCK. No STOCKHOLDER is under any
binding commitment or contract to sell, exchange or otherwise dispose of shares
of METALS Stock received as described in Section 3.1.
6. REPRESENTATIONS OF METALS AND NEWCO
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METALS and NEWCO jointly and severally represent and warrant that
all of the following representations and warranties in this Section 6 are true
at the date of this Agreement and, subject to Section 7.8 hereof, shall be true
at the time of Closing and the Funding and Consummation Date, and that such
representations and warranties shall survive the Funding and Consummation Date
for a period of twelve months (the last day of such period being the "Expiration
Date"), except that (i) the warranties and representations set forth in Section
6.14 hereof shall survive until such time as the limitations period has run for
all tax periods ended on or prior to the Funding and Consummation Date, which
shall be deemed to be the Expiration Date for Section 6.14 and (ii) solely for
purposes of determining whether a claim for indemnification under Section
11.2(iv) hereof has been made on a timely basis, and solely to the extent that
in connection with the IPO, any of the STOCKHOLDERS actually incurs liability
under the 1933 Act, the 1934 Act, or any other Federal or state securities laws,
the representations and warranties set forth herein shall survive until the
expiration of any applicable limitations period, which shall be deemed to be the
Expiration Date for such purposes.
6.1 DUE ORGANIZATION. METALS and NEWCO are each corporations duly
organized, validly existing and in good standing under the laws of the State of
Delaware, 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 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. True,
complete and correct copies of the Certificate of Incorporation and By-laws,
each as proposed to be amended, of METALS and NEWCO (the "METALS Charter
Documents") are all attached hereto as Annex IV.
6.2 AUTHORIZATION. (i) The respective representatives 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 consummate the
Merger. All corporate acts and other proceedings required to have been taken by
METALS and NEWCO to authorize the execution,
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delivery and performance of this Agreement and the consummation of the Merger
have been duly and properly taken.
6.3 CAPITAL STOCK OF METALS AND NEWCO. The authorized capital stock of
METALS and NEWCO is as set forth in Sections 1.4(ii) and (iii), respectively.
All of the issued and outstanding shares of the capital stock of NEWCO are owned
by METALS and all of the issued and outstanding shares of the capital stock of
METALS are owned by the persons set forth on Annex III hereof, in each case,
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 METALS and NEWCO have been duly
authorized and validly issued, are fully paid and nonassessable, are owned of
record and beneficially by METALS and the persons set forth on Annex III,
respectively, and further, such shares were offered, issued, sold and delivered
by METALS and NEWCO in compliance with all applicable state and Federal laws
concerning the issuance of securities. Further, none of such shares were issued
in violation of the preemptive rights of any past or present stockholder of
METALS or NEWCO.
6.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except for the
Other Agreements and except as set forth on Schedule 6.4, (i) no option,
warrant, call, conversion right or commitment of any kind exists which obligates
METALS or NEWCO to issue any of their respective authorized but unissued capital
stock; and (ii) neither METALS nor NEWCO has any obligation (contingent or
otherwise) to purchase, redeem or otherwise acquire any of its equity securities
or any interests therein or to pay any dividend or make any distribution in
respect thereof. Schedule 6.4 also includes complete and accurate copies of all
stock option or stock purchase plans, including a list, accurate as of the date
hereof, of all outstanding options, warrants or other rights to acquire shares
of the stock of METALS.
6.5 SUBSIDIARIES. NEWCO has no subsidiaries. METALS has no subsidiaries
except for NEWCO and each of the companies identified as "NEWCO" in each of the
Other Agreements. Except as set forth in the preceding sentence, neither METALS
nor NEWCO presently owns, of record or beneficially, or controls, directly or
indirectly, any capital stock, securities convertible into
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capital stock or any other equity interest in any corporation, association or
business entity, and neither METALS nor NEWCO, directly or indirectly, is a
participant in any joint venture, partnership or other non-corporate entity.
6.6 FINANCIAL STATEMENTS. Included in the Draft Registration Statement are
copies of the following financial statements (the "METALS Financial Statements")
of METALS, which reflect the results of its operations from inception in July
1996: METALS's audited Balance Sheet as of December 31, 1996. Such METALS
Financial Statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
indicated (except as noted thereon). Such Balance Sheet presents fairly the
financial position of METALS as of such date.
6.7 LIABILITIES AND OBLIGATIONS. Except as set forth on Schedule 6.7,
METALS and NEWCO have no material liabilities, contingent or otherwise, except
as set forth in or contemplated by this Agreement and the Other Agreements and
except for fees incurred in connection with the transactions contemplated hereby
and thereby.
6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedule 6.8, neither METALS nor NEWCO is 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 either of them which would have a Material Adverse Effect; and
except to the extent set forth in Schedule 6.8, there are no material claims,
actions, suits or proceedings, pending or, to the knowledge of METALS or NEWCO,
threatened against or affecting, METALS or NEWCO, 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
either of them and no notice of any claim, action, suit or proceeding, whether
pending or threatened, has been received. METALS and NEWCO have conducted and
are conducting their respective businesses in substantial compliance with the
requirements, standards, criteria and conditions set forth in applicable
Federal, state and local statutes, ordinances, permits, licenses,
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orders, approvals, variances, rules and regulations and are not in violation of
any of the foregoing which would have a Material Adverse Effect.
6.9 NO VIOLATIONS. Neither METALS nor NEWCO is in violation of any METALS
Charter Document. None of METALS, NEWCO, or, to the knowledge of METALS and
NEWCO, any other party thereto, is in default under any lease, instrument,
agreement, license, or permit to which METALS or NEWCO is a party, or by which
METALS or NEWCO, or any of their respective properties, are bound (collectively,
the "METALS Documents"); and (a) the rights and benefits of METALS and NEWCO
under the METALS Documents will not be adversely affected by the transactions
contemplated hereby and (b) the execution and delivery of this Agreement by
METALS and NEWCO and the performance of their obligations hereunder do not, and
the consummation of the transactions contemplated hereby and compliance with the
terms hereof will not, conflict with, or result in any violation or default
(with or without notice or lapse of time, or both), under or give rise to a
right of termination, cancellation, or acceleration of any obligation or to loss
of a material benefit under, or result in the creation of any lien upon any of
the assets of METALS or any NEWCO under, any provision of (i) the Certificate of
Incorporation or Bylaws of METALS or the comparable governing instruments of any
NEWCO, (ii) any note, bond, mortgage, indenture or deed of trust or any license,
lease, contract, commitment, agreement or arrangement to which METALS and any
NEWCO is a party or by which any of their respective properties or assets are
bound or (iii) any judgment, order, decree or law, ordinance, rule or
regulation, applicable to METALS or any NEWCO or their respective properties or
assets. 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 material violation or breach or constitute a default under, any of
the terms or provisions of the METALS Documents or the METALS Charter Documents.
Except as set forth on Schedule 6.9, none of the METALS 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
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contemplated hereby will not give rise to any right to termination, cancellation
or acceleration or loss of any right or benefit.
6.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by METALS and NEWCO and the performance of the transactions contemplated herein
have been duly and validly authorized by the respective 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.
6.11 METALS STOCK. At the time of issuance thereof and delivery to the
STOCKHOLDERS, the METALS Stock to be delivered to the STOCKHOLDERS pursuant to
this Agreement will constitute valid and legally issued shares of METALS, fully
paid and nonassessable, and with the exception of restrictions upon resale set
forth in Sections 15 and 16 hereof, will be identical in all substantive
respects (which do not include the form of certificate upon which it is printed
or the presence or absence of a CUSIP number on any such certificate) to the
METALS Stock issued and outstanding as of the date hereof by reason of the
provisions of the Delaware GCL. The METALS Stock issued and delivered to the
STOCKHOLDERS shall at the time of such issuance and delivery be free and clear
of any liens, claims or encumbrances of any kind or character. The shares of
METALS Stock to be issued to the STOCKHOLDERS pursuant to this Agreement will
not be registered under the 1933 Act, except as provided in Section 17 hereof.
6.12 NO SIDE AGREEMENTS. Neither METALS nor NEWCO has entered or will
enter into any agreement with any of the Founding Companies or any of the
stockholders of the Founding Companies or METALS other than the Other Agreements
and the agreements contemplated by each of the Other Agreements, including the
employment agreements, leases and Indemnification Agreements referred to herein
or entered into in connection with the transactions contemplated hereby and
thereby.
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. METALS was formed in
July 1996 and has conducted limited operations since that time. Neither METALS
nor NEWCO has conducted any material business since the date of its inception,
except in connection with this
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Agreement, the Other Agreements and the IPO. Neither METALS nor NEWCO owns or
has at any time owned any real property or any material personal property or is
a party to any other agreement, except as listed on Schedule 6.13 and except
that METALS is a party to the Other Agreements and the agreements contemplated
thereby and to such agreements as will be filed as Exhibits to the Registration
Statement.
6.14 TAXES. METALS and NEWCO have 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; and except as set forth on Schedule 6.14,
there are no examinations in progress or claims against METALS for federal,
state and other taxes (including penalties and interest) for any period or
periods prior to and including the Balance Sheet Date and no notice of any claim
for taxes, whether pending or threatened, has been received. All taxes which
METALS or any NEWCO has been required to collect or withhold have been duly and
timely collected and withheld and have been set aside in accounts for such
purposes, or have been duly and timely paid to the proper governmental
authority. All tax, including interest and penalties (whether or not shown on
any tax return) owed by METALS, any member of an affiliated or consolidated
group which includes or included METALS, or with respect to any payment made or
deemed made by METALS herein has been paid. The amounts shown as accruals for
taxes on METALS Financial Statements are sufficient for the payment of all taxes
of the kinds indicated (including penalties and interest) for all fiscal periods
ended on or before that date. Copies of any (i) tax examinations, (ii)
extensions of statutory limitations, (iii) federal and local income tax returns
and franchise tax returns of METALS for the year ended December 31, 1996, are
attached hereto as Schedule 6.14. Except as set forth in Schedule 6.14, METALS
and NEWCO have not entered into any tax sharing agreement or similar
arrangement. METALS is not an investment company as defined in Section 351(e)(1)
of the Code.
6.15 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
in the Draft Registration Statement delivered to the STOCKHOLDERS, and except as
contemplated by this Agreement and the Other Agreements, there has not been:
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(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of METALS or
NEWCO;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
METALS or NEWCO;
(iii) any change in the authorized capital of METALS or NEWCO or
their outstanding securities or any change in their 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 METALS or
NEWCO;
(v) any work interruptions, labor grievances or claims filed, or any
event or condition of any character, materially adversely affecting the
business of METALS or NEWCO;
(vi) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of METALS or NEWCO to any person;
(vii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to METALS or NEWCO;
(viii) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property
or rights of METALS or NEWCO or requiring consent of any party to the
transfer and assignment of any such assets, property or rights;
(ix) any waiver of any material rights or claims of METALS or NEWCO;
(x) any amendment or termination of any material contract,
agreement, license, permit or other right to which METALS or NEWCO is a
party;
(xi) any transaction by METALS or NEWCO outside the ordinary course
of its business;
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(xii) any other distribution of property or assets by METALS or
NEWCO other than in the ordinary course of business.
6.16 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by METALS and NEWCO and the performance of the transactions contemplated herein
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.
6.17 DISCLOSURE. The Draft Registration Statement delivered to the COMPANY
and the STOCKHOLDERS, together with this Agreement and the information furnished
to the COMPANY and the STOCKHOLDERS in connection herewith, does not contain an
untrue statement of a material fact or omit to state a material fact necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading; provided, however, that the foregoing does not apply
to statements contained in or omitted from any of such documents made or omitted
in reliance upon information furnished by the COMPANY or the STOCKHOLDERS.
6.18 PRIVATE OFFERING. (a) Neither METALS, any of its affiliates nor
anyone on its or their behalf, has issued, sold, or offered any securities of
METALS to any person under circumstances that would cause the issuance and sale
of the METALS Stock to the STOCKHOLDERS pursuant to this Agreement, to be
subject to the registration requirements of the 1933 Act.
(b) The offering of shares of METALS Stock pursuant to the METALS Plan of
Organization has been made in compliance with applicable federal and state
securities laws.
7. COVENANTS PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION; DUE DILIGENCE. (a) Between the date of this
Agreement and the Funding and Consummation Date, the COMPANY will afford to the
officers and authorized representatives of METALS and the Other Founding
Companies access to all of the COMPANY's sites, properties, books and records
and will furnish METALS with such additional financial and
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operating data and other information as to the business and properties of the
COMPANY as METALS or the Other Founding Companies may from time to time
reasonably request. The COMPANY will cooperate with METALS and the Other
Founding Companies, 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, NEWCO, the
STOCKHOLDERS and the COMPANY will treat all information obtained in connection
with the negotiation and performance of this Agreement or the due diligence
investigations conducted with respect to the Other Founding Companies as
confidential in accordance with the provisions of Section 14 hereof. In
addition, METALS will cause each of the Other Founding Companies to enter into a
provision similar to this Section 7.1 requiring each such Other Founding
Company, its stockholders, directors, officers, representatives, employees and
agents to keep confidential any information obtained by such Other Founding
Company.
(b) Between the date of this Agreement and the Funding and Consummation
Date, METALS will afford to the officers and authorized representatives of the
COMPANY access to all of METALS's and NEWCO's sites, properties, books and
records and will furnish the COMPANY with such additional financial and
operating data and other information as to the business and properties of METALS
and NEWCO as the COMPANY may from time to time reasonably request. METALS and
NEWCO will cooperate with the COMPANY, 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. The
COMPANY will cause all information obtained in connection with the negotiation
and performance of this Agreement to be treated as confidential in accordance
with the provisions of Section 14 hereof.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Funding and Consummation Date, the COMPANY will, except as set
forth on Schedule 7.2:
(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;
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(ii) use all reasonable efforts to 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) use all reasonable efforts to 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;
(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; and
(viii) maintain or reduce present salaries and commission levels for
all officers, directors, employees and agents except for ordinary and
customary bonus and salary increases for employees in accordance with past
practices.
7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3, between
the date hereof and the Funding and Consummation Date, the COMPANY will not,
without prior written consent of METALS, which consent 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 other than in
connection with the exercise of options or warrants listed in Schedule
5.4;
(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 for distributions in the amount of estimated taxes payable by the
STOCKHOLDERS on S corporation earnings (if any) of the COMPANY for the
period from the Balance Sheet Date to the Closing Date and specified on
Schedule 7.3 hereto, and any other distributions of Accumulated
Adjustments Accounts amounts specified on Schedule 7.3 hereto, it being
understood and agreed that any such distributions in excess of such
estimated taxes shall result in a corresponding dollar for dollar decrease
in the amount of cash otherwise payable to the STOCKHOLDERS as part of the
Merger consideration hereunder;
(iv) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditures, except if it is in
the normal course of business (consistent with past practice) or involves
an amount not in excess of $100,000;
(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 $50,000 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 course of business
(the liens set forth in clause (2) being referred to herein as "Statutory
Liens"), or (3) liens set forth on Schedule 5.10 and/or 5.15 hereto;
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(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business and other
than distributions of real estate and other assets as permitted in this
Agreement (including the Schedules hereto);
(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;
(ix) waive any material rights or claims of the COMPANY, provided
that the COMPANY may negotiate and adjust bills and accounts in the course
of good faith disputes with customers in a manner consistent with past
practice, provided, further, that such adjustments shall not be deemed to
be included in Schedule 5.11 unless specifically listed thereon;
(x) amend or terminate any material agreement, permit, license or
other right of the COMPANY; or
(xi) enter into any other transaction outside the ordinary course of
its business or prohibited hereunder.
7.4 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 Funding and Consummation 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 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 of the COMPANY.
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7.5 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 on Schedule 7.5 with proof that any required notice has been
sent.
7.6 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 listed on Schedule
9.12 hereto and (ii) any existing agreement between the COMPANY and any
STOCKHOLDER, on or prior to the Funding and Consummation Date provided that
nothing herein shall prohibit or prevent the COMPANY from paying (either prior
to or on the Closing Date) notes or other obligations from the COMPANY to the
STOCKHOLDERS in accordance with the terms thereof, which terms have been
disclosed to METALS. Such termination agreements are listed on Schedule 7.6 and
copies thereof shall be attached thereto.
7.7 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. METALS and NEWCO 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 or NEWCO contained herein to be untrue or inaccurate in any material
respect at or prior to the Closing and (ii) any material failure of METALS or
NEWCO 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 7.7 shall not be deemed to (i) modify the representations or
warranties hereunder of the party delivering such notice, which modification may
only be made pursuant to Section 7.8, (ii)
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modify the conditions set forth in Sections 8 and 9, or (iii) limit or otherwise
affect the remedies available hereunder to the party receiving such notice.
7.8 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 24 hours prior to the
anticipated effectiveness of the Registration Statement to supplement or amend
promptly the Schedules 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, provided however,
that supplements and amendments to Schedules 5.10, 5.11, 5.14 and 5.15 shall
only have to be delivered at the Closing Date, unless such Schedule is to be
amended to reflect an event occurring other than in the ordinary course of
business. Notwithstanding the foregoing sentence, no amendment or supplement to
a Schedule prepared by the COMPANY that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect may be made unless METALS
and a majority of the Founding Companies other than the COMPANY consent to such
amendment or supplement; and provided further, that no amendment or supplement
to a Schedule prepared by METALS or NEWCO that constitutes or reflects an event
or occurrence that would have a Material Adverse Effect may be made unless a
majority of the Founding Companies consent to such amendment or supplement. For
all purposes of this Agreement, including without limitation for purposes of
determining whether the conditions set forth in Sections 8.1 and 9.1 have been
fulfilled, the Schedules hereto shall be deemed to be the Schedules as amended
or supplemented pursuant to this Section 7.8. In the event that one of the Other
Founding Companies seeks to amend or supplement a Schedule pursuant to Section
7.8 of one of the Other Agreements, and such amendment or supplement constitutes
or reflects an event or occurrence that would have a Material Adverse Effect on
such Other Founding Company, METALS shall give the COMPANY notice promptly after
it has knowledge thereof. If METALS and a majority of the Founding Companies
consent to such amendment or supplement, which consent shall have been deemed
given by METALS or any Founding Company if no response is received within 24
hours following receipt of notice of such amendment or supplement (or sooner
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if required by the circumstances under which such consent is requested), but the
COMPANY does not give its consent, the COMPANY may terminate this Agreement
pursuant to Section 12.1(iv) hereof. In the event that the COMPANY seeks to
amend or supplement a Schedule pursuant to this Section 7.8, and METALS and a
majority of the Other Founding Companies do not consent to such amendment or
supplement, this Agreement shall be deemed terminated by mutual consent as set
forth in Section 12.1(i) hereof. In the event that METALS or NEWCO seeks to
amend or supplement a Schedule pursuant to this Section 7.8 and a majority of
the Founding Companies do not consent to such amendment or supplement, this
Agreement shall be deemed terminated by mutual consent as set forth in Section
12.1(i) hereof. No party to this Agreement shall be liable to any other party if
this Agreement shall be terminated pursuant to the provisions of this Section
7.8. No amendment of or supplement to a Schedule shall be made later than 24
hours prior to the anticipated effectiveness of the Registration Statement.
7.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The COMPANY and
STOCKHOLDERS shall furnish or cause to be furnished to METALS and the
Underwriters all of the information concerning the COMPANY and the STOCKHOLDERS
required for inclusion in, and will cooperate with METALS and the Underwriters
in the preparation of, the Registration Statement and the prospectus included
therein (including audited and unaudited financial statements, prepared in
accordance with generally accepted accounting principles, in form suitable for
inclusion in the Registration Statement). The COMPANY and the STOCKHOLDERS agree
promptly to advise METALS if at any time during the period in which a prospectus
relating to the offering is required to be delivered under the Securities Act,
any information contained in the prospectus concerning the COMPANY or the
STOCKHOLDERS becomes incorrect or incomplete in any material respect, and to
provide the information needed to correct such inaccuracy. Insofar as the
information relates solely to the COMPANY or the STOCKHOLDERS, the COMPANY
represents and warrants as to such information with respect to itself, and each
Stockholder represents and warrants, as to such information with respect to the
COMPANY and himself or herself, that the Registration Statement will not include
an untrue statement of a material fact or omit to state a
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material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
7.10 FINAL FINANCIAL STATEMENTS. The COMPANY shall provide prior to the
Funding and Consummation Date, and METALS shall have had sufficient time to
review the unaudited consolidated balance sheets of the COMPANY as of the end of
all fiscal quarters following the Balance Sheet Date, and the unaudited
consolidated statement of income, cash flows and retained earnings of the
COMPANY for all fiscal quarters ended after the Balance Sheet Date, disclosing
no material adverse change in the financial condition of the COMPANY or the
results of its operations from the financial statements as of the Balance Sheet
Date. Such financial statements shall have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods indicated (except as noted therein). Except as noted in
such financial statements, all of such financial statements will present fairly
the results of operations of the COMPANY for the periods indicated therein.
7.11 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.
7.12 AUTHORIZED CAPITAL. Prior to the Funding and Consummation Date,
METALS shall maintain its authorized capital stock as set forth in the
Registration Statement filed with the SEC except for such changes in authorized
capital stock as are made to respond to comments made by the SEC or requirements
of any exchange or automated trading system for which application is made to
register the METALS Stock and any changes necessary or advisable in order to
permit the delivery of the opinion contemplated by Section 8.12 hereof.
7.13 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. 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
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Hart-Scott Act, (ii) such compliance by the STOCKHOLDERS and the COMPANY shall
be deemed a condition precedent in addition to the conditions precedent set
forth in Section 9 of this Agreement, and such compliance by METALS and NEWCO
shall be deemed a condition precedent in addition to the conditions precedent
set forth in Section 8 of 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. The
obligation of each party to consummate the transactions contemplated by this
Agreement is subject to the expiration or termination of the waiting period
under the Hart-Scott Act, if applicable.
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. The obligations of
the STOCKHOLDERS and the COMPANY with respect to actions to be taken on the
Funding and Consummation Date are subject to the satisfaction or waiver on or
prior to the Funding and Consummation Date of the conditions set forth in
Sections 8.1, 8.5, 8.8, 8.9 and 8.12. As of the Closing Date or, with respect to
the conditions set forth in Sections 8.1, 8.5, 8.8, 8.9 and 8.12, as of the
Funding and Consummation Date, if any such conditions have 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 Funding and Consummation 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 of METALS and NEWCO contained in Section 6 hereof.
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
representations and warranties of METALS and NEWCO contained in Section 6 shall
be true and
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correct in all material respects as of the Closing Date and the Funding and
Consummation 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 and NEWCO on or before the Closing Date
and the Funding and Consummation Date shall have been duly complied with and
performed in all material respects; and certificates to the foregoing effect
dated the Closing Date and the Funding and Consummation Date, respectively, 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.
The STOCKHOLDERS and the COMPANY shall be satisfied that the Registration
Statement and the prospectus forming a part thereof, including any amendments
thereof or supplements thereto, shall not contain any untrue statement of a
material fact, or omit to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, provided
that the condition contained in this sentence shall be deemed satisfied if the
COMPANY or STOCKHOLDERS shall have failed to inform METALS in writing prior to
the effectiveness of the Registration Statement of the existence of an untrue
statement of a material fact or the omission of such a statement of a material
fact.
8.3 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO 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 management of the COMPANY deems it inadvisable to proceed with the
transactions hereunder.
8.4 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
V.
8.5 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC and the underwriters named therein shall have
agreed to acquire on a firm commitment basis, subject to the conditions set
forth in the underwriting agreement, on terms such
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that the aggregate value of the cash and the number of shares of METALS Stock to
be received by the STOCKHOLDERS is not less than the Minimum Value set forth on
Annex I.
8.6 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 and no action
or proceeding shall have been instituted or threatened to restrain or prohibit
the Merger and no governmental agency or body shall have taken any other action
or made any request of COMPANY as a result of which COMPANY deems it inadvisable
to proceed with the transactions hereunder.
8.7 GOOD STANDING CERTIFICATES. METALS and NEWCO each shall have delivered
to the COMPANY a certificate, dated as of a date no later than ten days prior to
the Closing Date, duly issued by the Delaware Secretary of State and in each
state in which METALS or NEWCO is authorized to do business, showing that each
of METALS and NEWCO is in good standing and authorized to do business and that
all state franchise and/or income tax returns and taxes for METALS and NEWCO,
respectively, for all periods prior to the Closing have been filed and paid.
8.8 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall have
occurred with respect to METALS or NEWCO which would constitute a Material
Adverse Effect.
8.9 CLOSING OF IPO. The closing of the sale of the METALS Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
8.10 SECRETARY'S CERTIFICATE. The COMPANY shall have received a
certificate or certificates, dated the Closing Date and signed by the secretary
of METALS and of NEWCO, certifying the truth and correctness of attached copies
of the METALS's and NEWCO's respective Certificates of Incorporation (including
amendments thereto), By-Laws (including amendments thereto), and resolutions of
the boards of directors and, if required, the stockholders of METALS and NEWCO
approving METALS's and NEWCO's entering into this Agreement and the consummation
of the transactions contemplated hereby.
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8.11 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule 9.12
shall have been afforded the opportunity to enter into an employment agreement
substantially in the form of Annex VII hereto.
8.12 TAX MATTERS. The STOCKHOLDERS shall have received an opinion of
Arthur Andersen LLP that the METALS Plan of Organization will qualify as a
tax-free transfer of property under Section 351 of the Code and that the
STOCKHOLDERS will not recognize gain to the extent the STOCKHOLDERS exchange
stock of the COMPANY for METALS stock (but not cash or other property) pursuant
to the METALS Plan of Organization.
9. 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. The obligations of METALS and
NEWCO with respect to actions to be taken on the Funding and Consummation Date
are subject to the satisfaction or waiver on or prior to the Funding and
Consummation Date of the conditions set forth in Sections 9.1, 9.4 and 9.13. As
of the Closing Date or, with respect to the conditions set forth in Sections
9.1, 9.4 and 9.13, as of the Funding and Consummation Date, if any such
conditions have not been satisfied, METALS and NEWCO shall have the right to
terminate this Agreement, or waive any such condition, but no such waiver shall
be deemed to affect the survival of the representations and warranties contained
in Section 5 hereof.
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 and the Funding and Consummation 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
or the Funding and Consummation Date, as the case may be, shall have been duly
performed or complied with in all material respects; and the STOCKHOLDERS shall
have delivered
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to METALS certificates dated the Closing Date and the Funding and Consummation
Date, respectively, and signed by them to such effect.
9.2 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of METALS as a result of which the
management of METALS deems it inadvisable to proceed with the transactions
hereunder.
9.3 SECRETARY'S CERTIFICATE. METALS shall have received a certificate,
dated the Closing Date and signed by the secretary of the COMPANY, certifying
the truth and correctness of attached copies of the COMPANY's Certificate of
Incorporation (including amendments thereto), By-Laws (including amendments
thereto), and resolutions of the board of directors and the STOCKHOLDERS
approving the COMPANY's entering into this Agreement and the consummation of the
transactions contemplated hereby.
9.4 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 covered by insurance, which
change, loss or damage materially affects or impairs the ability of the COMPANY
to conduct its business.
9.5 STOCKHOLDERS' RELEASE. The STOCKHOLDERS shall have delivered to METALS
an instrument dated the Closing Date which shall be effective only upon the
occurrence of the Funding and Consummation 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 (x) items
specifically identified on Schedules 5.10 and 5.15 as being claims of or
obligations to the STOCKHOLDERS, (y) continuing obligations to STOCKHOLDERS
relating to their employment by the COMPANY and (z) obligations arising under
this Agreement or the transactions contemplated hereby. In the event that the
Funding and
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Consummation Date does not occur, then the release instrument referenced herein
shall be void and of no further force or effect.
9.6 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.
9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth on
Schedule 9.7, all existing agreements between the COMPANY and the STOCKHOLDERS
(and entities controlled by the STOCKHOLDERS) shall have been canceled effective
prior to or as of the Funding and Consummation Date.
9.8 OPINION OF COUNSEL. METALS shall have received an opinion from Counsel
to the COMPANY and the STOCKHOLDERS, dated the Closing Date, substantially in
the form annexed hereto as Annex VI.
9.9 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 5.23 shall have been obtained;
and no action or proceeding shall have been instituted or threatened to restrain
or prohibit the Merger 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.
9.10 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
COMPANY's state of incorporation and, unless waived by METALS, 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.
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9.11 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC.
9.12 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule 9.12
shall enter into an employment agreement substantially in the form of Annex VII
hereto.
9.13 CLOSING OF IPO. The closing of the sale of the METALS Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
9.14 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.
10. COVENANTS OF METALS AND THE STOCKHOLDERS AFTER CLOSING
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS. METALS
shall use its best efforts to have the STOCKHOLDERS released from any and all
guarantees on any indebtedness that they personally guaranteed and from any and
all pledges of assets that they pledged to secure such indebtedness for the
benefit of the COMPANY, with all such guarantees on indebtedness being assumed
by METALS. In the event that METALS cannot obtain such releases from the lenders
of any such guaranteed indebtedness on or prior to 120 days subsequent to the
Funding and Consummation Date, METALS shall promptly pay off or otherwise
refinance or retire such indebtedness. From and after the Funding and
Consummation Date and until such time as all of such indebtedness is paid off,
refinanced or retired, METALS shall maintain unencumbered funds in amounts
sufficient to provide for such pay off, refinancing or retirement, provided that
METALS may use such funds for other purposes, in its sole discretion, with the
prior written consent of each STOCKHOLDER who has not as of that time been
released from his or her guarantee as described above and whose indebtedness as
described above has not as of that time been paid off, refinanced or retired.
10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as contemplated
by this Agreement or the Registration Statement, after the Funding and
Consummation Date, METALS shall
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not and shall not permit any of its subsidiaries to undertake any act that would
jeopardize the tax-free status of the organization, including without
limitation:
(a) the retirement or reacquisition, directly or indirectly, of all
or part of the METALS Stock issued in connection with the transactions
contemplated hereby; or
(b) the entering into of financial arrangements for the benefit of
the STOCKHOLDERS.
10.3 PREPARATION AND FILING OF TAX RETURNS.
(i) The COMPANY, if possible, or otherwise the STOCKHOLDERS shall
file or cause to be filed all federal income Tax Returns of any Acquired
Party for all taxable periods that end on or before the Funding and
Consummation Date, and shall permit METALS to review all such Tax Returns
prior to such filings. Unless the COMPANY is a C corporation, the
STOCKHOLDERS shall pay or cause to be paid all Tax liabilities (in excess
of all amounts already paid with respect thereto or properly accrued or
reserved with respect thereto on the COMPANY Financial Statements) shown
by such Returns to be due.
(ii) METALS shall file or cause to be filed all separate Returns of,
or that include, any Acquired Party for all taxable periods ending after
the Funding and Consummation Date.
(iii) Each party hereto shall, and shall cause its subsidiaries and
affiliates to, provide to each of the other parties hereto such
cooperation and information as any of them reasonably may request in
filing any 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. Such cooperation and
information shall include providing copies of all relevant portions of
relevant Returns, together with relevant accompanying schedules and
relevant work papers, relevant documents relating to rulings or other
determinations by Taxing Authorities and relevant records concerning the
ownership and Tax basis of property, which such party may possess. Each
party shall make its employees reasonably available on a mutually
convenient basis at its cost to provide explanation of any documents or
information so provided. Subject to the preceding sentence,
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each party required to file Returns pursuant to this Agreement shall bear
all costs of filing such Returns.
(iv) Each of the COMPANY, NEWCO, METALS and each STOCKHOLDER shall
comply with the tax reporting requirements of Section 1.351-3 of the
Treasury Regulations promulgated under the Code, and treat the transaction
as a tax-free contribution under Section 351(a) of the Code subject to
gain, if any, recognized on the receipt of cash or other property under
Section 351(b) of the Code subject to gain, if any, recognized on the
receipt of cash or other property under Section 351(b) of the Code.
10.4 DIRECTORS. The persons named in the Draft Registration Statement
shall be appointed as directors and elected as officers of METALS, as and to the
extent set forth in the Draft Registration Statement, promptly following the
Funding and Consummation Date. This provision shall not imply that the
STOCKHOLDERS have any power or duty to elect officers of METALS.
10.5 PRESERVATION OF EMPLOYEE BENEFIT PLANS. Following the Funding and
Consummation Date, METALS shall use all reasonable efforts to permit the COMPANY
to maintain all health insurance, life insurance, 401(k) plan and other employee
benefit plans in effect at the COMPANY, unless any such change is (a) approved
by a vote of at least two-thirds of the members of the Board of Directors of
METALS, or (b) required by applicable laws or regulations, including the
antidiscriminatory provisions of ERISA and the related regulations. In the event
that any such changes (other than changes so approved by the Board of Directors
of METALS) are required, subject to applicable law, METALS shall permit the
COMPANY to implement alternative benefits that provide the affected employees of
the COMPANY with an undiminished aggregate level of benefits. On the Funding and
Consummation Date, the employees of the COMPANY will be the employees of the
Surviving Corporation (provided that this provision is for purposes of
clarifying that the Merger, in and of itself, will not have any impact on the
employment status of any employee and provided, further that this provision
shall not in any way limit the management rights of the Surviving Corporation or
METALS to assess workforce needs and make appropriate adjustments
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as necessary or desirable within their discretion subject to applicable laws and
collective bargaining agreements).
11. INDEMNIFICATION
The STOCKHOLDERS, METALS and NEWCO each make the following covenants that
are applicable to them, respectively:
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. The STOCKHOLDERS
covenant and agree that they, jointly and severally, will indemnify, defend,
protect and hold harmless METALS, NEWCO, the COMPANY and the Surviving
Corporation at all times, from and after the date of this Agreement until the
Expiration Date (provided that for purposes of Section 11.1(iii) below, the
Expiration Date shall be the date on which the applicable statute of limitations
expires), 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) incurred by METALS, NEWCO, the COMPANY or the Surviving
Corporation as a result of or arising from (i) any breach of the representations
and warranties of the STOCKHOLDERS or the COMPANY set forth herein or on the
schedules or certificates delivered in connection herewith, (ii) any breach of
any agreement on the part of the STOCKHOLDERS or the COMPANY under this
Agreement, or (iii) any liability under the 1933 Act, the 1934 Act or other
Federal or state law or regulation, at common law or otherwise, arising out of
or based upon any untrue statement or alleged untrue statement of a material
fact relating to the COMPANY or the STOCKHOLDERS, and provided to METALS or its
counsel by the COMPANY or the STOCKHOLDERS (but in the case of the STOCKHOLDERS,
only if such statement was provided in writing) contained in the Registration
Statement or any prospectus forming a part thereof, or any amendment thereof or
supplement thereto, or arising out of or based upon any omission or alleged
omission to state therein a material fact relating to the COMPANY or the
STOCKHOLDERS required to be stated therein or necessary to make the statements
therein not misleading, provided, however, that such indemnity shall not inure
to the benefit of METALS,
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NEWCO, the COMPANY or the Surviving Corporation to the extent that such untrue
statement (or alleged untrue statement) was made in, or omission (or alleged
omission) occurred in, any preliminary prospectus and the STOCKHOLDERS provided,
in writing, corrected information to METALS counsel and to METALS for inclusion
in the final prospectus, and such information was not so included or properly
delivered, and provided further, that no STOCKHOLDER shall be liable for any
indemnification obligation pursuant to this Section 11.1 to the extent
attributable to a breach of any representation, warranty or agreement made
herein individually by any other STOCKHOLDER.
METALS and NEWCO acknowledge and agree that other than the representations
and warranties of COMPANY or STOCKHOLDERS specifically contained in this
Agreement, there are no representations or warranties of COMPANY or
STOCKHOLDERS, either express or implied, with respect to the transactions
contemplated by this Agreement, the COMPANY or its assets, liabilities and
business.
METALS and any NEWCO further acknowledge and agree that, should the
Closing occur, their sole and exclusive remedy with respect to any and all
claims relating to this Agreement and the transactions contemplated in this
Agreement, shall be pursuant to the indemnification provisions set forth in this
Section 11. METALS and NEWCO hereby waive, from and after the Closing, to the
fullest extent permitted under applicable law, any and all rights, claims and
causes of action they or any indemnified person may have against the COMPANY or
any STOCKHOLDER relating to this Agreement or the transactions arising under or
based upon any federal, state, local or foreign statute, law, rule, regulation
or otherwise.
11.2 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 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) incurred by the
STOCKHOLDERS as a result of or arising from (i) any breach by METALS or NEWCO of
their
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representations and warranties set forth herein or on the schedules or
certificates attached hereto, (ii) any breach of any agreement on the part of
METALS or NEWCO under this Agreement, (iii) any liabilities which the
STOCKHOLDERS may incur due to METALS's or NEWCO's failure to be responsible for
the liabilities and obligations of the COMPANY as provided in Section 1 hereof
(except to the extent that METALS or NEWCO has claims against the STOCKHOLDERS
by reason of such liabilities); or (iv) any liability under the 1933 Act, the
1934 Act or other Federal or state law or regulation, at common law or
otherwise, arising out of or based upon any untrue statement or alleged untrue
statement of a material fact relating to METALS, NEWCO or any of the Other
Founding Companies contained in any preliminary prospectus, the Registration
Statement or any prospectus forming a part thereof, or any amendment thereof or
supplement thereto, or arising out of or based upon any omission or alleged
omission to state therein a material fact relating to METALS or NEWCO or any of
the Other Founding Companies required to be stated therein or necessary to make
the statements therein not misleading.
11.3 THIRD PERSON CLAIMS. Promptly after any party hereto (hereinafter 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, the Indemnified Party shall, as a
condition precedent to a claim with respect thereto being made against any party
obligated to provide indemnification pursuant to Section 11.1 or 11.2 hereof
(hereinafter the "Indemnifying Party"), give the Indemnifying Party written
notice of such claim or the commencement of such action or proceeding. Such
notice shall state the nature and the basis of such claim and a reasonable
estimate of the amount thereof. The Indemnifying Party shall have the right to
defend and settle, at its own expense and by its own counsel, any such matter so
long as the Indemnifying Party pursues the same in good faith and diligently,
provided that the Indemnifying Party shall not settle any criminal proceeding
without the written consent of the Indemnified Party. If the Indemnifying Party
undertakes to defend or settle, it shall promptly notify the Indemnified Party
of its intention to do so, and the Indemnified Party shall cooperate with the
Indemnifying Party and its counsel in the defense thereof and in any settlement
thereof. Such cooperation shall include,
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but shall not be limited to, furnishing the Indemnifying Party with any books,
records or information reasonably requested by the Indemnifying Party that are
in the Indemnified Party's possession or control. All Indemnified Parties shall
use the same counsel, which shall be the counsel selected by Indemnifying Party,
provided that if counsel to the Indemnifying Party shall have a conflict of
interest that prevents counsel for the Indemnifying Party from representing
Indemnified Party, Indemnified Party shall have the right to participate in such
matter through counsel of its own choosing and Indemnifying Party will reimburse
the Indemnified Party for the reasonable expenses of its counsel. After the
Indemnifying Party has notified the Indemnified Party of its intention to
undertake to defend or settle any such asserted liability, and for so long as
the Indemnifying Party diligently pursues such defense, the Indemnifying Party
shall not be liable for any additional legal expenses incurred by the
Indemnified Party in connection with any defense or settlement of such asserted
liability, except (i) as set forth in the preceding sentence and (ii) to the
extent such participation is requested by the Indemnifying Party, in which event
the Indemnified Party shall be reimbursed by the Indemnifying Party for
reasonable additional legal expenses and out-of-pocket expenses. If the
Indemnifying Party desires to accept a final and complete settlement of any such
Third Person claim and the Indemnified Party refuses to consent to such
settlement, then the Indemnifying Party's liability under this Section with
respect to such Third Person claim shall be limited to the amount so offered in
settlement by said Third Person. Upon agreement as to such settlement between
said Third Person and the Indemnifying Party, the Indemnifying Party shall, in
exchange for a complete release from the Indemnified Party, promptly pay to the
Indemnified Party the amount agreed to in such settlement and the Indemnified
Party shall, from that moment on, bear full responsibility for any additional
costs of defense which it subsequently incurs with respect to such claim and all
additional costs of settlement or judgment. If the Indemnifying Party does not
undertake to defend such matter to which the Indemnified Party is entitled to
indemnification hereunder, or fails diligently to pursue such defense, the
Indemnified Party may undertake such defense through counsel of its choice, at
the cost and expense of the Indemnifying Party, and the Indemnified Party may
settle such matter, and the Indemnifying Party shall reimburse the
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Indemnified Party for the amount paid in such settlement and any other
liabilities or expenses incurred by the Indemnified Party in connection
therewith, provided, however, that under no circumstances shall the Indemnified
Party settle any Third Person claim without the written consent of the
Indemnifying Party, which consent shall not be unreasonably withheld or delayed.
All settlements hereunder shall effect a complete release of the Indemnified
Party, unless the Indemnified Party otherwise agrees in writing. The parties
hereto will make appropriate adjustments for insurance proceeds in determining
the amount of any indemnification obligation under this Section.
11.4 EXCLUSIVE REMEDY. The indemnification provided for in this Section 11
shall (except as prohibited by ERISA) be the exclusive remedy in any action
seeking damages or any other form of monetary relief brought by any party to
this Agreement against another party, provided that, nothing herein shall be
construed to limit the right of a party, in a proper case, to seek injunctive
relief for a breach of this Agreement. Any indemnity payment under this Section
11 shall be treated as an adjustment to the exchange consideration for tax
purposes unless a final determination (which shall include the execution of a
Form 870-AD or successor form) with respect to the indemnified party or any of
its affiliate causes any such payment not to be treated as an adjustment to the
exchange consideration for U.S. Federal Income Tax purposes.
11.5 LIMITATIONS ON INDEMNIFICATION. METALS, NEWCO, the Surviving
Corporation and the other persons or entities indemnified pursuant to Section
11.1 or 11.2 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 the greater of (a) 1.0% of the sum of (i) the cash
paid to STOCKHOLDERS plus (ii) the value of the METALS Stock delivered to
STOCKHOLDERS (calculated as provided in this Section 11.5) or (b) $50,000 (the
"Indemnification Threshold"). STOCKHOLDERS shall not assert any claim for
indemnification hereunder against METALS or NEWCO until such time as, and solely
to the extent that, the aggregate of all claims which STOCKHOLDERS may have
against METALS or NEWCO shall exceed $50,000.
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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 related to a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement, no STOCKHOLDER shall be
liable under this Section 11 for an amount which exceeds the amount of proceeds
received by such STOCKHOLDER in connection with the Merger. For purposes of
calculating the value of the METALS Stock received by a STOCKHOLDER, METALS
Stock shall be valued at its initial public offering price as set forth in the
Registration Statement. It is hereby understood and agreed that a STOCKHOLDER
may satisfy an indemnification obligation through payment of a combination of
stock and cash in proportion equal to the proportion of stock and cash received
by such STOCKHOLDER in connection with the Merger, valued as described
immediately above.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION.This Agreement may be terminated at any time prior to the
Funding and Consummation Date solely:
(i) by mutual consent of the boards of directors of METALS and the
COMPANY;
(ii) by the STOCKHOLDERS or the COMPANY (acting through its board of
directors), on the one hand, or by METALS (acting through its board of
directors), on the other hand, if the transactions contemplated by this
Agreement to take place at the Closing shall not have been consummated by
December 31, 1997, 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 Funding and Consummation Date;
(iii) by the STOCKHOLDERS or COMPANY, on the one hand, or by METALS, on
the other hand, if a material breach or default shall be made by the other party
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 on or before the Funding and Consummation Date or by the STOCKHOLDERS
or the COMPANY, if the conditions set forth in Section 8 hereof have
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not been satisfied or waived as of the Closing Date or the Funding and
Consummation Date, as applicable, or by METALS, if the conditions set forth in
Section 9 hereof have not been satisfied or waived as of the Closing Date or the
Funding and Consummation Date, as applicable;
(iv) pursuant to Section 7.8 hereof; or
(v) pursuant to Section 4 hereof.
12.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in Section
7.8 hereof, 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.
13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES. The STOCKHOLDERS will not, for a period of
five (5) years following the Funding and Consummation 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 metals
processing, metals fabricating and/or specialty metals business, including
brokering, manufacturing and distribution services, in direct competition with
METALS or any of the subsidiaries thereof, within 200 miles of where the COMPANY
or any of its subsidiaries conducted business prior to the effectiveness of the
Merger (the "Territory");
(ii) call upon any person who is, at that time, within the Territory, an
employee of METALS (including the subsidiaries thereof) in a sales
representative or managerial capacity for the purpose or with the intent of
enticing such employee away from or out of the employ of METALS (including the
subsidiaries thereof), provided that each STOCKHOLDER shall be permitted to call
upon and hire any member of his or her immediate family;
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(iii) call upon any person or entity which is, at that time, or which has
been, within one (1) year prior to the Funding and Consummation Date, a customer
of METALS (including the subsidiaries thereof), of the COMPANY or of any of the
Other Founding Companies within the Territory for the purpose of soliciting or
selling products or services in direct competition with METALS within the
Territory;
(iv) call upon any prospective acquisition candidate, on any STOCKHOLDER's
own behalf or on behalf of any competitor in the metals processing, metals
fabricating and/or specialty metals business, including brokering, manufacturing
and distribution services, which candidate, to the actual knowledge of such
STOCKHOLDER after due inquiry, was called upon by METALS (including the
subsidiaries thereof) or for which, to the actual knowledge of such STOCKHOLDER
after due inquiry, METALS (or any subsidiary thereof) made an acquisition
analysis, for the purpose of acquiring such entity; or
(v) disclose customers, whether in existence or proposed, of the COMPANY
to any person, firm, partnership, corporation or business for any reason or
purpose whatsoever except to the extent that the COMPANY has in the past
disclosed such information to the public for valid business reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit any STOCKHOLDER 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.
13.2 DAMAGES. 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 and restraining orders.
13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this Section 13 impose a reasonable restraint on the
STOCKHOLDERS in light of the activities
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and business of METALS (including the subsidiaries thereof) on the date of the
execution of this Agreement and the current plans of METALS.
13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13 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.
13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13 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 (including the subsidiaries 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 13, during which the agreements
and covenants of each STOCKHOLDER made in this Section 13 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 13. The covenants
contained in Section 13 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.
13.6 MATERIALITY. The COMPANY and the STOCKHOLDERS hereby agree that this
covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. 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, the Other Founding Companies,
and/or METALS, such as operational policies, and pricing and cost policies that
are valuable, special and unique assets of the
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COMPANY's, the Other Founding Companies' and/or METALS's respective businesses.
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 METALS or the Surviving
Corporation and (c) to counsel and other advisers, provided that such advisers
(other than counsel) agree to the confidentiality provisions of this Section
14.1, 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 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, or (iii) the disclosing party
reasonably believes that such disclosure is required in connection with the
defense of a lawsuit against the disclosing party. 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 an injunction 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.
In the event the transactions contemplated by this Agreement are not
consummated, STOCKHOLDERS shall have none of the above-mentioned restrictions on
their ability to disseminate confidential information with respect to the
COMPANY.
14.2 METALS AND NEWCO. METALS and NEWCO recognize and acknowledge that
they had in the past and currently have access to certain confidential
information of the COMPANY, such as operational policies, and pricing and cost
policies that are valuable, special and unique assets of the COMPANY's business.
METALS and NEWCO agree that, prior to the Closing, or if the Transactions
contemplated by this Agreement are not consummated, 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 the COMPANY, (b) to counsel and
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other advisers, provided that such advisers (other than counsel) agree to the
confidentiality provisions of this Section 14.1, (c) to the Other Founding
Companies and their representatives pursuant to Section 7.1(a), unless (i) such
information becomes known to the public generally through no fault of METALS or
NEWCO, (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), METALS and NEWCO shall, if possible, give prior
written notice thereof to the COMPANY and the STOCKHOLDERS and provide the
COMPANY and the STOCKHOLDERS with the opportunity to contest such disclosure, or
(iii) the disclosing party reasonably believes that such disclosure is required
in connection with the defense of a lawsuit against the disclosing party, and
(d) to the public to the extent necessary or advisable in connection with the
filing of the Registration Statement and the IPO and the securities laws
applicable thereto and to the operation of METALS as a publicly held entity
after the IPO. In the event of a breach or threatened breach by METALS or NEWCO
of the provisions of this Section, the COMPANY and the STOCKHOLDERS shall be
entitled to an injunction restraining METALS and NEWCO from disclosing, in whole
or in part, such confidential information. Nothing herein shall be construed as
prohibiting the COMPANY and the STOCKHOLDERS from pursuing any other available
remedy for such breach or threatened breach, including the recovery of damages.
14.3 DAMAGES. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Section 14.1 and 14.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach by any of them of the foregoing covenants, the covenant may be
enforced against the other parties by injunctions and restraining orders.
14.4 SURVIVAL. The obligations of the parties under this Article 14 shall
survive the termination of this Agreement for a period of five years from the
Funding and Consummation Date.
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15. TRANSFER RESTRICTIONS
15.1 TRANSFER RESTRICTIONS. Unless otherwise agreed by METALS, except for
transfers to immediate family members who agree to be bound by the restrictions
set forth in this Section 15.1 (or trusts for the benefit of the STOCKHOLDERS or
family members, the trustees of which so agree), for a period of one year from
the Closing, except pursuant to Section 17 hereof, none of the STOCKHOLDERS
shall sell, assign, exchange, transfer, encumber, pledge, distribute, appoint,
or otherwise dispose of any shares of METALS Stock as described in Section 3.1
received by the STOCKHOLDERS in the Merger. The certificates evidencing the
METALS Stock delivered to the STOCKHOLDERS pursuant to Section 3 of this
Agreement will bear a legend substantially in the form set forth below and
containing such other information as METALS may deem necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED
OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE,
ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT
OR OTHER DISPOSITION PRIOR TO [FIRST ANNIVERSARY OF CLOSING DATE]. UPON THE
WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE
THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER AGENT)
AFTER THE DATE SPECIFIED ABOVE.
16. FEDERAL SECURITIES ACT REPRESENTATIONS
16.1 COMPLIANCE WITH LAW. The STOCKHOLDERS acknowledge that the shares of
METALS Stock to be delivered to the STOCKHOLDERS pursuant to this Agreement have
not been and will not be registered under the 1933 Act (except as provided in
Section 17 hereof) and therefore
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may not be resold without compliance with the 1933 Act. The METALS Stock to be
acquired by such STOCKHOLDERS pursuant to this Agreement is being acquired
solely for their own respective accounts, for investment purposes only, and with
no present intention of distributing, selling or otherwise disposing of it in
connection with a distribution. The STOCKHOLDERS covenant, warrant and represent
that none of the shares of METALS Stock issued to such STOCKHOLDERS will be
offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all of the applicable provisions
of the 1933 Act and the rules and regulations of the SEC. All the METALS Stock
shall bear the following legend in addition to the legend required under Section
15 of this Agreement:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF THE HOLDER
HEREOF COMPLIES WITH THE ACT AND APPLICABLE SECURITIES LAW.
16.2 ECONOMIC RISK; SOPHISTICATION. The STOCKHOLDERS are able to bear the
economic risk of an investment in the METALS Stock to be acquired pursuant to
this Agreement and can afford to sustain a total loss of such investment and
have such knowledge and experience in financial and business matters that they
are capable of evaluating the merits and risks of the proposed investment in the
METALS Stock. The STOCKHOLDERS party hereto have 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 current and proposed officers
and directors of METALS, the plans for the operations of the business of METALS,
the business, operations and financial condition of the Founding Companies other
than the COMPANY, and any plans for additional acquisitions and the like. The
STOCKHOLDERS have asked any and all questions in the nature described in the
preceding sentence and all questions have been answered to their satisfaction.
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17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. 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 shelf
registration of shares to be used as consideration for acquisitions of
additional businesses by METALS and (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 all of the 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) which
any such STOCKHOLDER requests, provided that METALS shall have the right to
reduce the number of shares included in such registration to the extent that
inclusion of such shares could, in the written opinion of tax counsel to METALS
or its independent auditors, jeopardize the status of the transactions
contemplated hereby and by the Registration Statement as a tax-free organization
under Section 351 of the Code. In addition, if METALS is advised in writing in
good faith by any managing underwriter of an underwritten offering of the
securities being offered pursuant to any registration statement under this
Section 17.1 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, provided,
that, for each such offering made by METALS after the IPO, such reduction shall
be made first by reducing the number of shares to be sold by persons other than
METALS, the STOCKHOLDERS and the stockholders of the Other Founding Companies
(collectively, the STOCKHOLDERS and the stockholders of the other Founding
Companies being referred to herein as the "Founding
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Stockholders"), and thereafter, if a further reduction is required, by reducing
the number of shares to be sold by the Founding Stockholders.
17.2 DEMAND REGISTRATION RIGHTS. At any time after the date one year after
the Closing and prior to the date three years after the Closing, the holders of
a majority of the shares of METALS Stock issued to the Founding Stockholders
pursuant to this Agreement and the Other Agreements 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 the shares of METALS Stock issued to the
STOCKHOLDERS pursuant to this Agreement and the Other Agreements (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 Founding Stockholders (a
"Demand Registration"). Within ten (10) days of the receipt of such request,
METALS shall give written notice of such request to all other Founding
Stockholders and shall, as soon as practicable but in no event later than 45
days after notice from any STOCKHOLDER, file and use its best efforts to cause
to become effective a registration statement covering all such shares. METALS
shall be obligated to effect only one Demand Registration for all Founding
Stockholders and will keep such Demand Registration current and effective for
not less than 120 days (or such shorter period as is required to sell all of the
shares registered thereby).
Notwithstanding the foregoing paragraph, following any such a demand, a
majority of METALS's 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 Founding 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, no registration of the
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Founding Stockholders' METALS Stock shall be initiated under this Section 17.2
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 Founding Stockholders the right to participate in such public
offering pursuant to, and subject to, Section 17.1 hereof.
17.3 REGISTRATION PROCEDURES. Whenever METALS is required to register
shares of METALS Stock pursuant to Sections 17.1 and 17.2, 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 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;
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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 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 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
Article 17 (including all registration, filing, qualification, legal, printer
and accounting fees, but excluding underwriting commissions and discounts),
shall be borne by METALS.
17.4 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.
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(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
17.5 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 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.
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17.5 UNDERWRITING AGREEMENT. In connection with each registration pursuant
to Sections 17.1 and 17.2 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.
17.6 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 understood and defined in Rule 144 under the 1933 Act for
a period of four years beginning 90 days following the effective date of
the Registration Statement;
(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 at any
time after it has become subject to such reporting requirements; 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 (at any time from and after 90 days following the
effective date of the Registration Statement, and of the 1933 Act and the
1934 Act (any time after it has become subject to such reporting
requirements), 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.
18. GENERAL
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18.1 COOPERATION. The COMPANY, STOCKHOLDERS, METALS and NEWCO shall
each deliver or cause to be delivered to the other on the Funding and
Consummation 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 Funding and Consummation 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 Funding and Consummation Date.
18.2 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.
18.3 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, NEWCO 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, NEWCO and
METALS, acting through their respective officers or trustees, duly authorized by
their respective Boards of Directors. Any disclosure made on any Schedule
delivered pursuant hereto shall be deemed to have been disclosed for purposes of
any other Schedule required hereby, provided that the COMPANY shall make a good
faith effort to cross reference disclosure, as necessary or advisable, between
related Schedules.
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18.4 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.
18.5 BROKERS AND AGENTS. Except as disclosed on Schedule 18.5, 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.
18.6 EXPENSES. Whether or not the transactions herein contemplated shall
be consummated, METALS will pay the fees, expenses and disbursements of METALS
and its agents, representatives, accountants and counsel incurred in connection
with the subject matter of this Agreement and any amendments thereto, including
all costs and expenses incurred in the performance and compliance with all
conditions to be performed by METALS under this Agreement, including the fees
and expenses of Arthur Andersen, LLP, Bracewell & Patterson, L.L.P., and any
other person or entity retained by METALS or by Notre Capital Ventures II,
L.L.C., and the costs of preparing the Registration Statement. 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 Merger, other than Transfer Taxes, if any, imposed by the
State of Delaware. 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 Section 2 hereof. The
STOCKHOLDERS acknowledge that the risks of the transactions contemplated hereby
include tax risks, with respect to which the STOCKHOLDERS are relying solely on
the opinion contemplated by Section 8.12 hereof.
18.7 NOTICES. All notices of communication 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
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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.
(a) If to METALS, or NEWCO, addressed to them at:
Metals USA, Inc.
4801 Woodway, Suite 300E
Houston, Texas 77056
Attn: J. Michael Kirksey
with copies to:
Thomas W. Adkins
Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana Street, Suite 2900
Houston, Texas 77002-2781
(b) If to the STOCKHOLDERS, addressed to them at their addresses set
forth on Annex II, with copies to:
Christopher S. Collins
Andrews & Kurth, L.L.P.
4200 Texas Commerce Tower
Houston, Texas 77002
and to:
Steven D. Singer
Fifteenth Floor
Continental Tower
302 North Independence
P. O. Box 1026
Enid, Oklahoma 73702
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(c) If to the COMPANY, addressed to it at:
Uni-Steel, Inc.
101 E. Illinois Street
P. O. Box 3528
Enid, OK 73702-3528
Attn: Richard Singer, President
Tele: (800) 766-6677
Fax: (405) 233-9844
with copies to:
Metals USA, Inc.
4801 Woodway, Suite 300E
Houston, TX 77056
Attn: J. Michael Kirksey
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Delaware.
18.9 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 Expiration Date.
18.10 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.
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18.11 TIME. Time is of the essence with respect to this Agreement.
18.12 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.
18.13 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.
18.14 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
18.15 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived only with the
written consent of METALS, NEWCO, the COMPANY and STOCKHOLDERS who hold or who
will hold at least 50% of the METALS Stock issued or to be issued upon
consummation of the Merger. Any amendment or waiver effected in accordance with
this Section 18.15 shall be binding upon each of the parties hereto, any other
person receiving METALS Stock in connection with the Merger and each future
holder of such METALS Stock.
18.16 SPECIAL LIMITATIONS. The STOCKHOLDERS include Yaffe Iron & Metal
Co., Inc. Employee Stock Plan (the "ESOP"), David Martens, Kevin Richter, Hazel
Hickle, Robert Ramsey, James Pray and Roger Ferril (collectively, the "SPECIAL
STOCKHOLDERS"). Notwithstanding anything else herein to the contrary, except for
the representation made herein by or on behalf of the ESOP, none of the SPECIAL
STOCKHOLDERS makes any of the representations and warranties set forth in
Article 5 hereof or elsewhere in this Agreement made by the other STOCKHOLDERS,
except for the representations contained in Article 5 hereof regarding ownership
of COMPANY STOCK by the SPECIAL STOCKHOLDERS, free and clear of all liens,
claims and encumbrances.
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In addition, none of the provisions of Articles 13 or 14 hereof shall apply to
the SPECIAL STOCKHOLDERS. Further, the provisions of Article 13 hereof shall not
apply to the retail steel sales business or scrap business conducted by Yaffe
Iron & Metal Co., Inc. ("YIMCO") or other entities controlled by Robert N. Yaffe
now or in the future (it being understood and agreed that this exclusion does
not apply to any non-retail steel sales business). The ESOP and the trustee or
trustees thereof hereby represent and warrant to METALS that the ESOP is a
non-contributory employee benefit plan, the trustee or trustees of which make
all investment decisions for the ESOP. METALS acknowledges that certain
encumbrances in favor of YIMCO exist against certain of the shares of stock of
the COMPANY held by Robert N. Yaffe and the ESOP. At the Closing, the COMPANY,
YIMCO, the ESOP and Robert N. Yaffe shall cause all encumbrances affecting the
shares of COMPANY Stock held by the ESOP and Robert N. Yaffe to be
unconditionally released, and METALS shall consent, pursuant to Section 15.1
hereof, to the pledge of the shares of METALS Stock to be held by the ESOP and
Robert N. Yaffe to YIMCO on terms substantially similar to those pursuant to
which the shares of COMPANY Stock are currently pledged to YIMCO.
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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: Art French
Title: Chief Executive Officer
UNI-STEEL ACQUISITION CORP.
By:
Name: J. Michael Kirksey
Title: President
UNI-STEEL, INC.
By:
Name:
Title:
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STOCKHOLDERS:
YAFFE IRON & METAL CO. ESOP
By:
Name:
Title:
Robert N. Yaffee
Richard A. Singer
David Martens
Kevin Richter
Hazel Hickle
Robert Ramsey
James Pray
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<PAGE>
Roger Ferril
The Revocable Inter Vivos Trust of
Suellen Singer dated September 23, 1989
By:
Name:
Title:
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ANNEX I
TO THE AGREEMENT
AND PLAN OF REORGANIZATION
DATED AS OF APRIL 30, 1997
BY AND AMONG
METALS USA, INC.
AND THE OTHER PARTIES NAMED THEREIN
CONSIDERATION TO BE PAID TO THE STOCKHOLDERS
Aggregate consideration to be paid to the STOCKHOLDERS:
$22,069,403 in cash and the value of outstanding Common Stock of Metals
(assuming an offering price of $13.00 per share), consisting of 1,112,988 shares
of Metals Stock and $7,600,559 in cash, it being agreed that the actual amount
of all cash payments described in this Annex I will depend on the actual initial
offering price of the Common Stock of Metals in the IP0, and may be more or less
than $13.00 per share; provided, however that such price shall not be less than
$8.00 per share.
Consideration to be Daid to each STOCKHOLDER:
---------------------------------------------
Shares of Common Cash
Stockholder Stock of Metals ($)
- ----------- ------------ ------------
Robert N. Yaffe .................................. 464,583 3,172,652.13
Yaffe Iron & Metal Co. ESOP ...................... 178,523 1,219,129.50
Richard A. Singer ................................ 330,528 2,257,191.75
Suellen Singer Trust, dated September 23, 1989 ... 107,178 731,918.47
Hazel Hickel ..................................... 10,492 71,633.48
Dave Martens ..................................... 6,995 47,749.62
Roger Ferril ..................................... 4,896 33,432.25
Bob Ramsey ....................................... 4,896 33,432.25
James Pray ....................................... 3,498 23,868.31
Kevin Richter .................................... 1,399 9,550.94
------------ ------------
1,112,988 7,600,559.00
============ ============
MINIMUM VALUE: $ 12,719,808 (based on a price of $8.00 per share)
============
EXHIBIT 10.10
AGREEMENT AND PLAN OF ORGANIZATION
dated as of the 30th day of April, 1997
by and among
METALS USA, INC.
WILLIAMS STEEL ACQUISITION CORP.
(a subsidiary of Metals USA, Inc.)
WILLIAMS STEEL & SUPPLY CO., INC.
and
the STOCKHOLDERS named herein
<PAGE>
TABLE OF CONTENTS
Page
1. THE MERGER.............................................................6
1.1 Delivery and Filing of Articles of Merger........................6
1.2 Effective Time of the Merger.....................................6
1.3 Certificate of Incorporation, By-laws and
Board of Directors of Surviving Corporation......................6
1.4 Certain Information With Respect to the
Capital Stock of the COMPANY, METALS and NEWCO...................7
1.5 Effect of Merger.................................................7
2. CONVERSION OF STOCK....................................................9
2.1 Manner of Conversion.............................................9
3. DELIVERY OF MERGER CONSIDERATION......................................10
4. CLOSING...............................................................10
5. REPRESENTATIONS AND WARRANTIES OF COMPANY
AND STOCKHOLDERS......................................................12
(A) Representations and Warranties of COMPANY and
STOCKHOLDERS..............................................12
5.1 Due Organization................................................12
5.2 Authorization...................................................13
5.3 Capital Stock of the COMPANY....................................13
5.4 Transactions in Capital Stock, Organization Accounting..........13
5.5 No Bonus Shares.................................................14
5.6 Subsidiaries....................................................14
5.7 Predecessor Status; etc.........................................14
5.8 Spin-off by the COMPANY.........................................15
5.9 Financial Statements............................................15
5.10 Liabilities and Obligations.....................................15
5.11 Accounts and Notes Receivable...................................16
5.12 Permits and Intangibles.........................................17
5.13 Environmental Matters...........................................17
5.14 Personal Property...............................................18
5.15 Significant Customers; Material Contracts and Commitments.......19
5.16 Real Property...................................................20
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5.17 Insurance.......................................................21
5.18 Compensation; Employment Agreements; Organized Labor Matters....21
5.19 Employee Plans..................................................22
5.20 Compliance with ERISA...........................................23
5.21 Conformity with Law; Litigation.................................24
5.22 Taxes...........................................................25
5.23 No Violations; Consents, Etc....................................25
5.24 Government Contracts............................................26
5.25 Absence of Changes..............................................26
5.26 Deposit Accounts; Powers of Attorney............................28
5.27 Validity of Obligations.........................................28
5.28 Relations with Governments......................................29
5.29 Disclosure......................................................29
5.30 Prohibited Activities...........................................30
(B) Representations and Warranties of STOCKHOLDERS......30
5.31 Authority; Ownership............................................30
5.32 Preemptive Rights...............................................31
5.33 No Intention to Dispose of METALS Stock.........................31
6. REPRESENTATIONS OF METALS and NEWCO...................................31
6.1 Due Organization................................................32
6.2 Authorization...................................................32
6.3 Capital Stock of METALS and NEWCO...............................32
6.4 Transactions in Capital Stock, Organization Accounting..........33
6.5 Subsidiaries....................................................33
6.6 Financial Statements............................................33
6.7 Liabilities and Obligations.....................................34
6.8 Conformity with Law; Litigation.................................34
6.9 No Violations...................................................34
6.10 Validity of Obligations.........................................35
6.11 METALS Stock....................................................35
6.12 No Side Agreements..............................................36
6.13 Business; Real Property; Material Agreements....................36
6.14 Taxes...........................................................36
6.15 Absence of Changes..............................................37
6.16 Validity of Obligations.........................................38
6.17 Disclosure......................................................39
6.18 Private Offering................................................39
7. COVENANTS PRIOR TO CLOSING............................................39
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7.1 Access and Cooperation; Due Diligence...........................39
7.2 Conduct of Business Pending Closing.............................40
7.3 Prohibited Activities...........................................41
7.4 No Shop.........................................................43
7.5 Notice to Bargaining Agents.....................................43
7.6 Agreements......................................................44
7.7 Notification of Certain Matters.................................44
7.8 Amendment of Schedules..........................................45
7.9 Cooperation in Preparation of Registration Statement............46
7.10 Final Financial Statements......................................47
7.11 Further Assurances..............................................47
7.12 Authorized Capital..............................................47
7.13 Compliance with the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 (the "Hart-Scott Act").......47
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF
STOCKHOLDERS AND COMPANY..............................................48
8.1 Representations and Warranties; Performance of Obligations......49
8.2 Satisfaction....................................................49
8.3 No Litigation...................................................49
8.4 Opinion of Counsel..............................................49
8.5 Registration Statement..........................................50
8.6 Consents and Approvals..........................................50
8.7 Good Standing Certificates......................................50
8.8 No Material Adverse Change......................................50
8.9 Closing of IPO..................................................50
8.10 Secretary's Certificate.........................................50
8.11 Employment Agreements...........................................51
8.12 Tax Matters.....................................................51
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF METALS AND NEWCO...............51
9.1 Representations and Warranties; Performance of Obligations......51
9.2 No Litigation...................................................52
9.3 Secretary's Certificate.........................................52
9.4 No Material Adverse Effect......................................52
9.5 STOCKHOLDERS' Release...........................................52
9.6 Satisfaction....................................................53
9.7 Termination of Related Party Agreements.........................53
9.8 Opinion of Counsel..............................................53
9.9 Consents and Approvals..........................................53
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9.10 Good Standing Certificates......................................53
9.11 Registration Statement..........................................54
9.12 Employment Agreements...........................................54
9.13 Closing of IPO..................................................54
9.14 FIRPTA Certificate..............................................54
10. COVENANTS OF METALS AND THE STOCKHOLDERS AFTER CLOSING................54
10.1 Release From Guarantees; Repayment of Certain Obligations.......54
10.2 Preservation of Tax and Accounting Treatment....................55
10.3 Preparation and Filing of Tax Returns...........................55
10.4 Directors.......................................................56
10.5 Preservation of Employee Benefit Plans..........................56
11. INDEMNIFICATION.......................................................57
11.1 General Indemnification by the STOCKHOLDERS.....................57
11.2 Indemnification by METALS.......................................59
11.3 Third Person Claims.............................................59
11.4 Exclusive Remedy................................................61
11.5 Limitations on Indemnification..................................62
12. TERMINATION OF AGREEMENT..............................................62
12.1 Termination.....................................................62
12.2 Liabilities in Event of Termination.............................63
13. NONCOMPETITION........................................................64
13.1 Prohibited Activities...........................................64
13.2 Damages.........................................................65
13.3 Reasonable Restraint............................................65
13.4 Severability; Reformation.......................................65
13.5 Independent Covenant............................................66
13.6 Materiality.....................................................66
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION..............................66
14.1 STOCKHOLDERS....................................................66
14.2 METALS AND NEWCO................................................67
14.3 Damages.........................................................68
14.4 Survival........................................................68
15. TRANSFER RESTRICTIONS.................................................68
15.1 Transfer Restrictions...........................................68
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16. FEDERAL SECURITIES ACT REPRESENTATIONS................................69
16.1 Compliance with Law.............................................69
16.2 Economic Risk; Sophistication...................................70
17. REGISTRATION RIGHTS...................................................70
17.1 Piggyback Registration Rights...................................70
17.2 Demand Registration Rights......................................71
17.3 Registration Procedures.........................................73
17.4 Indemnification.................................................74
17.5 Underwriting Agreement..........................................75
17.6 Rule 144 Reporting..............................................76
18. GENERAL...............................................................76
18.1 Cooperation.....................................................76
18.2 Successors and Assigns..........................................77
18.3 Entire Agreement................................................77
18.4 Counterparts....................................................77
18.5 Brokers and Agents..............................................78
18.6 Expenses........................................................78
18.7 Notices.........................................................78
18.8 Governing Law...................................................80
18.9 Survival of Representations and Warranties......................80
18.10 Exercise of Rights and Remedies.................................80
18.11 Time............................................................81
18.12 Reformation and Severability....................................81
18.13 Remedies Cumulative.............................................81
18.14 Captions........................................................81
18.15 Amendments and Waivers..........................................81
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ANNEXES
Annex I - Consideration to Be Paid to Stockholders
Annex II - Stockholders and Stock Ownership of the Company
Annex III - Stockholders and Stock Ownership of Metals
Annex IV - Certificate of Incorporation and By-Laws of Metals and Newco
Annex V - Form of Opinion of Counsel to Metals
Annex VI - Form of Opinion of Counsel to Company and Stockholders
Annex VII - Form of Key Employee Employment Agreement
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SCHEDULES
5.1 Due Organization
5.2 Authorization
5.3 Capital Stock of the COMPANY
5.4 Transactions in Capital Stock, Organization Accounting
5.5 No Bonus Shares
5.6 Subsidiaries
5.7 Predecessor Status; etc
5.8 Spin-off by the COMPANY
5.9 Financial Statements
5.10 Liabilities and Obligations
5.11 Accounts and Notes Receivable
5.12 Permits and Intangibles
5.13 Environmental Matters
5.14 Personal Property
5.15 Significant Customers; Material Contracts and Commitments
5.16 Real Property
5.17 Insurance
5.18 Compensation; Employment Agreements; Organized Labor Matters
5.19 Employee Plans
5.20 Compliance with ERISA
5.21 Conformity with Law; Litigation
5.22 Taxes
5.23 No Violations, Consents, etc.
5.24 Government Contracts
5.25 Absence of Changes
5.26 Deposit Accounts; Powers of Attorney
5.28 Relations with Governments
5.30 Prohibited Activities
5.31 Authority; Ownership
6.4 Transactions in Capital Stock, Organization Accounting
6.7 Liabilities and Obligations
6.8 Conformity with Law; Litigation
6.9 No Violations
6.13 Business; Real Property; Material Agreements
6.14 Taxes
7.2 Conduct of Business Pending Closing
7.3 Prohibited Activities
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7.5 Notice to Bargaining Agents
9.12 Employment Agreements
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<PAGE>
AGREEMENT AND PLAN OF ORGANIZATION
THIS AGREEMENT AND PLAN OF ORGANIZATION (the "Agreement") is made as of
the 30th day of April, 1997, by and among METALS USA, Inc., a Delaware
corporation ("METALS"), WILLIAMS STEEL ACQUISITION CORP., a Delaware corporation
("NEWCO"), WILLIAMS STEEL & SUPPLY CO., INC., a Wisconsin corporation (the
"COMPANY"), and (i) LESTER G. PETERSON, (ii) JOSEPH F. PETKEWICZ, and (iii)
DAVID A. WEBER (the "STOCKHOLDERS"). The STOCKHOLDERS are all the stockholders
of the COMPANY.
WHEREAS, NEWCO is a corporation duly organized and existing under
the laws of the State of Delaware, having been incorporated on April 23,
1997, solely for the purpose of completing the transactions set forth
herein, and is a wholly-owned subsidiary of METALS, a corporation
organized and existing under the laws of the State of Delaware;
WHEREAS, the respective Boards of Directors of NEWCO and the COMPANY
(which together are hereinafter collectively referred to as "Constituent
Corporations") deem it advisable and in the best interests of the
Constituent Corporations and their respective stockholders that NEWCO
merge with and into the COMPANY pursuant to this Agreement and the
applicable provisions of the laws of the States of Delaware and the State
of Incorporation;
WHEREAS, METALS is entering into other separate agreements
substantially similar to this Agreement (the "Other Agreements"), each of
which is entitled "Agreement and Plan of Organization," with each of the
Other Founding Companies (as defined herein) and their respective
stockholders in order to acquire additional metals processing, metals
fabricating and specialty metals companies;
WHEREAS, this Agreement and the Other Agreements constitute the
"METALS Plan of Organization;"
WHEREAS, the STOCKHOLDERS and the Boards of Directors and the
stockholders of METALS, each of the Other Founding Companies and each of
the
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subsidiaries of METALS that are parties to the Other Agreements have
approved and adopted the METALS Plan of Organization as an integrated plan
pursuant to which the STOCKHOLDERS and the stockholders of each of the
other Founding Companies will transfer the capital stock of each of the
Founding Companies to METALS and the stockholders of each of the other
Founding Companies will acquire the stock of METALS (but not cash or other
property) as a tax-free transfer of property under Section 351 of the
Internal Revenue Code of 1986, as amended;
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the Board of Directors of the
COMPANY has approved this Agreement as part of the METALS Plan of
Organization in order to transfer the capital stock of the COMPANY to
METALS;
WHEREAS, unless the context otherwise requires, capitalized terms
used in this Agreement or in any schedule attached hereto and not
otherwise defined shall have the following meanings for all purposes of
this Agreement:
"1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Acquired Party" means the COMPANY, any subsidiary and any member of a
Relevant Group.
"Acquisition Companies" shall mean NEWCO and each of the other Delaware
companies wholly-owned by METALS prior to the Funding and Consummation Date.
"Affiliates" has the meaning set forth in Section 5.8.
"Articles of Merger" shall mean those Articles or Certificates of Merger
with respect to the Merger in such forms as may be required by the laws of the
State of Delaware and the State of Incorporation.
"Balance Sheet Date" shall mean December 31, 1996.
"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
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"COMPANY" has the meaning set forth in the first paragraph of this
Agreement.
"COMPANY Stock" has the meaning set forth in Section 2.1.
"Constituent Corporations" has the meaning set forth in the second recital
of this Agreement.
"Draft Registration Statement" means the draft dated April 25, 1997 of the
Registration Statement, and any corrections thereto and supplemental information
delivered by METALS to the COMPANY for delivery to the STOCKHOLDERS prior to the
time this Agreement is delivered to METALS.
"Effective Time of the Merger" shall mean the time as of which the Merger
becomes effective, which shall, in any case, occur on the Funding and
Consummation Date.
"Environmental Laws" has the meaning set forth in Section 5.13.
"Expiration Date" has the meaning set forth in Section 5(A).
"Founding Companies" means:
Affiliated Metals Company, a Missouri corporation;
Interstate Steel Supply Company, a Pennsylvania corporation,
Interstate Steel Supply Company of Pittsburgh, a Pennsylvania
corporation, Interstate Steel Supply Company of Maryland, a
Maryland corporation, and Interstate Steel Processing Company,
a Pennsylvania corporation;
Queensboro Steel Corporation, a North Carolina corporation;
Southern Alloy of America, Inc., a North Carolina corporation;
Steel Service Systems, Inc., a Wisconsin corporation;
Texas Aluminum Industries, Inc., a Texas corporation, Cornerstone
Metals Corporation, a Nevada corporation, Cornerstone Building
Products, Inc., a Nevada corporation, Cornerstone Aluminum
Company, Inc., a Nevada corporation, and Cornerstone Patio
Concepts, L.L.C., a Nevada limited liability company;
Uni-Steel Incorporated, an Oklahoma corporation; and
Williams Steel & Supply Co., Inc., a Wisconsin corporation.
"Funding and Consummation Date" has the meaning set forth in
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Section 4.
"IPO" means the initial public offering of METALS Stock pursuant to the
Registration Statement as referenced in Section 9.13.
"Material Adverse Effect" has the meaning set forth in Section 5.1.
"Material Documents" has the meaning set forth in Section 5.23.
"Merger" means the merger of NEWCO with and into the COMPANY pursuant to
this Agreement and the applicable provisions of the laws of the State of
Delaware and the laws of the State of Incorporation.
"METALS" has the meaning set forth in the first paragraph of this
Agreement.
"METALS Charter Documents" has the meaning set forth in Section 6.1.
"METALS Stock" means the common stock, par value $.01 per share, of
METALS.
"NEWCO" has the meaning set forth in the first paragraph of this
Agreement.
"NEWCO STOCK" means the common stock, par value $.01 per share, of NEWCO.
"Other Founding Companies" means all of the Founding Companies other than
the Company.
"Plans" has the meaning set forth in Section 5.19.
"Pricing" means the date of determination by METALS and the Underwriters
of the public offering price of the shares of METALS Stock in the IPO; the
parties hereto contemplate that the Pricing shall take place on the Closing
Date.
"Qualified Plans" has the meaning set forth in Section 5.20.
"Registration Statement" means that certain registration statement on Form
S-1 to be filed with the SEC covering the shares of METALS Stock to be issued in
the IPO and all amendments thereto.
"Relevant Group" means the COMPANY and any affiliated, combined,
consolidated, unitary or similar group of which the COMPANY is or was a member.
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
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"Schedule" means each Schedule attached hereto, which shall reference the
relevant sections of this Agreement, on which parties hereto disclose
information as part of their respective representations, warranties and
covenants.
"SEC" means the United States Securities and Exchange Commission.
"State of Incorporation" means the State of Wisconsin.
"STOCKHOLDERS" has the meaning set forth in the first paragraph of this
Agreement.
"Surviving Corporation" shall mean the COMPANY as the surviving party in
the Merger.
"Tax" or "Taxes" means all federal, state, local or foreign net or gross
income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, withholding, employment, excise, property, deed, stamp, alternative
or add on minimum, or other taxes, assessments, duties, fees, levies or other
governmental charges, whether disputed or not, together with any interest,
penalties, additions to tax or additional amounts with respect thereto.
"Underwriters" means the prospective underwriters identified in the
Registration Statement.
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:
1. THE MERGER
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER. The Constituent
Corporations will cause the Articles of Merger to be signed, verified and placed
in escrow under the control of METALS to be held for filing with the Secretary
of State of the State of Delaware and the Secretary of State of the State of
Incorporation on the Funding and Consummation Date.
1.2 EFFECTIVE TIME OF THE MERGER. At the Effective Time of the Merger,
NEWCO shall be merged with and into the COMPANY in accordance with the Articles
of Merger, the separate existence of NEWCO shall cease, the COMPANY shall be the
surviving party in the Merger and the COMPANY is sometimes hereinafter referred
to as the Surviving Corporation. The Merger will be effected in a single
transaction.
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1.3 CERTIFICATE OF INCORPORATION, BY-LAWS AND BOARD OF DIRECTORS OF
SURVIVING CORPORATION. At the Effective Time of the Merger:
(i) the Certificate of Incorporation of the COMPANY then in effect
shall be the Certificate of Incorporation of the Surviving Corporation
until changed as provided by law;
(ii) the By-laws of NEWCO then in effect shall become the By-laws of
the Surviving Corporation; and subsequent to the Effective Time of the
Merger, such By-laws shall be the By-laws of the Surviving Corporation
until they shall thereafter be duly amended (and such By-laws shall be
amended, if necessary, to comply with applicable state law);
(iii) the Board of Directors of the Surviving Corporation shall
consist of the persons who are on the Board of Directors of the COMPANY
immediately prior to the Effective Time of the Merger, provided that J.
Michael Kirksey shall be elected as a director of the Surviving
Corporation effective as of the Effective Time of the Merger; the Board of
Directors of the Surviving Corporation shall hold office subject to the
provisions of the laws of the State of Incorporation 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 of the Merger shall continue as the officers of the Surviving
Corporation in the same capacity or capacities, and effective upon the
Effective Time of the Merger J. Michael Kirksey shall be appointed as a
vice president of the Surviving Corporation and Terry L. Freeman 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 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE COMPANY,
METALS AND NEWCO. The respective designations and numbers of outstanding shares
and voting rights of each class of outstanding capital stock of the COMPANY,
METALS and NEWCO as of the date of this Agreement are as follows:
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(i) as of the date of this Agreement, the authorized and outstanding
capital stock of the COMPANY is as set forth on Schedule 5.3 hereto;
(ii) immediately prior to the Closing Date and the Funding and
Consummation Date, the authorized capital stock of METALS will consist of
50,000,000 shares of METALS Stock, of which the number of issued and
outstanding shares will be set forth in the Registration Statement, and
5,000,000 shares of preferred stock, $.01 par value, of which no shares
will be issued and outstanding, and a number of shares of Restricted
Voting Common Stock, $.01 par value (the "Restricted Common Stock"), to be
determined by METALS in good faith, all of which will be issued and
outstanding except as otherwise set forth in the Registration Statement;
and
(iii) as of the date of this Agreement, the authorized capital stock
of NEWCO consists of 1,000 shares of NEWCO Stock, of which one hundred
(100) shares are issued and outstanding.
1.5 EFFECT OF MERGER. At the Effective Time of the Merger, the effect of
the Merger shall be as provided in the applicable provisions of the General
Corporation Law of the State of Delaware (the "Delaware GCL") and the law of the
State of Incorporation. Except as herein specifically set forth, the identity,
existence, purposes, powers, objects, franchises, privileges, rights and
immunities of the COMPANY shall continue unaffected and unimpaired by the Merger
and the corporate franchises, existence and rights of NEWCO shall be merged with
and into the COMPANY, and the COMPANY, as the Surviving Corporation, shall be
fully vested therewith. At the Effective Time of the Merger, the separate
existence of NEWCO 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 transferred
to, and vested in, the Surviving Corporation without further act or deed; and
all property, rights and privileges, powers and
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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 interest therein, whether by deed or
otherwise, under the laws of the State of Incorporation 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.
2. CONVERSION OF STOCK
2.1 MANNER OF CONVERSION. The manner of converting the shares of (i)
outstanding capital stock of the COMPANY ("COMPANY Stock") and (ii) NEWCO Stock,
issued and outstanding immediately prior to the Effective Time of the Merger,
respectively, into shares of (x) METALS Stock and cash and (y) common stock of
the Surviving Corporation, respectively, shall be as follows:
As of the Effective Time of the Merger:
(i) all of the shares of COMPANY Stock issued and outstanding
immediately prior to the Effective Time of the Merger, by virtue of the
Merger and without any action on the part of the holder thereof,
automatically shall be deemed to represent (1) the right to receive the
number of shares of METALS Stock set forth on Annex I hereto with respect
to such holder and (2) the right to receive the amount of cash set forth
on Annex I hereto with respect to such holder;
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(ii) all shares of COMPANY Stock 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 of the Merger, shall, by virtue of the Merger
and without any action on the part of METALS, automatically be converted
into one fully paid and non-assessable share of common stock of the
Surviving Corporation which shall constitute all of the issued and
outstanding shares of common stock of the Surviving Corporation
immediately after the Effective Time of the Merger.
All METALS Stock received by the STOCKHOLDERS pursuant to this Agreement
shall, except for restrictions on resale or transfer described in Sections 15
and 16 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 GCL. All METALS Stock received
by the STOCKHOLDERS shall be issued and delivered to the STOCKHOLDERS free and
clear of any liens, claims or encumbrances of any kind or nature. All voting
rights of such METALS Stock received by the STOCKHOLDERS shall be fully
exercisable by the STOCKHOLDERS and the STOCKHOLDERS shall not be deprived nor
restricted in exercising those rights. At the Effective Time of the Merger,
METALS shall have no class of capital stock issued and outstanding other than
the METALS Stock and the Restricted Voting Common Stock.
3. DELIVERY OF MERGER CONSIDERATION
3.1 On the Funding and Consummation Date the STOCKHOLDERS, 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 and the amount of cash described on Annex I hereto, said
cash to be payable by certified check.
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3.2 The STOCKHOLDERS shall deliver to METALS at the Closing the
certificates representing COMPANY Stock, duly endorsed in blank by the
STOCKHOLDERS, or accompanied by blank stock powers, and with all necessary
transfer tax and other revenue stamps, acquired at the STOCKHOLDERS' expense,
affixed and canceled. The STOCKHOLDERS agree 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.
4. CLOSING
At or prior to the Pricing, the parties shall take all actions necessary
to prepare to (i) effect the Merger (including the execution of the Articles of
Merger which shall be placed in escrow under the control of METALS for filing
with the appropriate authorities on the Funding and Consummation Date) and (ii)
effect the conversion and delivery of shares referred to in Section 3 hereof;
provided, that such actions shall not include the actual completion of the
Merger or the conversion and delivery of the shares and certified check(s)
referred to in Section 3 hereof, each of which actions shall only be taken upon
the Funding and Consummation Date as herein provided. The escrow agreement
relating to the Articles of Merger shall provide that in the event that there is
no Funding and Consummation Date and this Agreement automatically terminates as
provided in this Section 4 the Articles of Merger shall not be filed and shall
be returned to the STOCKHOLDERS. The taking of the actions described in clauses
(i) and (ii) above (the "Closing") shall take place on the closing date (the
"Closing Date") at the offices of Bracewell & Patterson, L.L.P., South Tower
Pennzoil Place, 711 Louisiana, Suite 2900, Houston, Texas 77002. On the Funding
and Consummation Date (x) the Articles of Merger shall be filed with the
appropriate state authorities so that they shall be, as early as practicable on
the Funding and Consummation Date, effective and the Merger shall thereby be
effected, (y) all transactions contemplated by this Agreement, including the
conversion and delivery of shares, the delivery of a certified check or checks
in an amount equal to the cash portion of the consideration which the
STOCKHOLDERS
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shall be entitled to receive pursuant to the Merger referred to in Section 3
hereof and (z) the closing with respect to the IPO shall occur and be completed.
The date on which the actions described in the preceding clauses (x), (y) and
(z) occurs shall be referred to as the "Funding and Consummation Date." Except
as otherwise provided in Section 12 hereof, during the period from the Closing
Date to the Funding and Consummation Date, this Agreement may only be terminated
by the parties if the underwriting agreement in respect of the IPO is terminated
pursuant to the terms of such agreement. This Agreement shall also in any event
automatically terminate if the Funding and Consummation Date has not occurred
within 10 business days of the Closing Date. Time is of the essence.
5. REPRESENTATIONS AND WARRANTIES OF COMPANY AND STOCKHOLDERS
(A) REPRESENTATIONS AND WARRANTIES OF COMPANY AND STOCKHOLDERS.
Each of the COMPANY and the STOCKHOLDERS jointly and severally represent
and warrant that all of the following representations and warranties in this
Section 5(A) are true at the date of this Agreement and, subject to Section 7.8
hereof, shall be true at the time of Closing and the Funding and Consummation
Date, and that such representations and warranties shall survive the Funding and
Consummation Date for a period of twelve months (the last day of such period
being the "Expiration Date"), except that the warranties and representations set
forth in Section 5.22 hereof shall survive until such time as the limitations
period has run for all tax periods ended on or prior to the Funding and
Consummation Date, which shall be deemed to be the Expiration Date for Section
5.22. For purposes of this Section 5, the term COMPANY shall mean and refer to
the COMPANY and all of its subsidiaries.
5.1 DUE ORGANIZATION. The COMPANY is a corporation duly organized and
validly existing under the laws of the State of Incorporation, and has the
requisite power and authority to carry on its business as it is now being
conducted, and is not delinquent in the payment of any franchise tax or similar
tax. 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
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makes such qualification necessary, except (i) as set forth on Schedule 5.1 or
(ii) 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 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
5.1. The stock records of the COMPANY, as heretofore made available to METALS,
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 complete in all material 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, power and
authority to enter into this Agreement and the Merger. The most recent
resolutions adopted by the Board of Directors of the COMPANY and the most recent
resolutions adopted by the STOCKHOLDERS, all of which are dated no earlier than
ten business days prior to the date hereof, approve this Agreement and the
transactions contemplated hereby in all respects, and copies of all such
resolutions, certified by the Secretary or an Assistant Secretary of the COMPANY
as being in full force and effect on the date hereof, are attached hereto as
Schedule 5.2.
5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the
COMPANY is as set forth on Schedule 5.3. All of the issued and outstanding
shares of the capital stock of the COMPANY are owned by the STOCKHOLDERS in the
amounts set forth in Annex II. Each STOCKHOLDER, severally, represents and
warrants that except as set forth on Schedule 5.3, the shares of capital stock
of the COMPANY owned by such STOCKHOLDER 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
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been duly authorized and validly issued, are fully paid and nonassessable, are
owned of record and beneficially by the STOCKHOLDERS and further, such shares
were offered, issued, sold and delivered by the COMPANY in compliance with all
applicable state and Federal laws concerning the issuance of securities.
Further, none of such shares were issued in violation of any preemptive rights
of any past or present stockholder.
5.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except as set
forth on Schedule 5.4, the COMPANY has not acquired any COMPANY Stock since
January 1, 1995. Except as set forth on Schedule 5.4, (i) no option, warrant,
call, conversion right or commitment of any kind exists which obligates the
COMPANY to issue any of its authorized but unissued capital stock; (ii) the
COMPANY has no obligation (contingent or otherwise) to purchase, redeem or
otherwise acquire any of its equity securities or any interests therein or to
pay any dividend or make any distribution in respect thereof; and (iii) neither
the voting stock structure of the COMPANY nor the relative ownership of shares
among any of its respective stockholders has been altered or changed in
contemplation of the Merger and/or the METALS Plan of Organization. Schedule 5.4
also includes a complete and accurate list of all stock option or stock purchase
plans, including a list of all outstanding options, warrants or other rights to
acquire shares of the COMPANY's stock and copies of such plans have been
delivered to METALS or are attached to Schedule 5.4.
5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of the
shares of COMPANY Stock was issued pursuant to awards, grants or bonuses in
contemplation of the Merger or the METALS Plan of Organization.
5.6 SUBSIDIARIES. Except as set forth on Schedule 5.6, the COMPANY has no
subsidiaries. Except as set forth in Schedule 5.6 and except for any
corporations or entities with respect to which the COMPANY owns less than 1% of
the issued and outstanding stock, the COMPANY does not presently 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 business entity nor is the COMPANY, directly or
indirectly, a participant in any joint venture, partnership or other
non-corporate entity.
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5.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 5.7 is a listing of all
names of all predecessor companies of the COMPANY, including the names of any
entities acquired by the COMPANY (by stock purchase, merger or otherwise) or
owned by the COMPANY or from whom the COMPANY previously acquired material
assets, in any case, from the earliest date upon which any STOCKHOLDER acquired
his or her stock in any COMPANY. Except as disclosed on Schedule 5.7, the
COMPANY has not been, within such period of time, a subsidiary or division of
another corporation or a part of an acquisition which was later rescinded.
5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8, there
has not been any sale, spin-off or split-up of material assets of either the
COMPANY or any other person or entity that directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under common
control with, the COMPANY ("Affiliates") since January 1, 1995.
5.9 FINANCIAL STATEMENTS. Attached hereto as Schedule 5.9 are copies of
the following financial statements (the "COMPANY Financial Statements") of the
COMPANY: the COMPANY's audited Balance Sheet as of December 31, 1996, and
Statements of Changes in Stockholders' Equity, Income and Cash Flows for the
period from January 15, 1996 to December 31, 1996 (December 31, 1996 being
hereinafter referred to as the "Balance Sheet Date"). Such Financial Statements
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated (except as noted
thereon or on Schedule 5.9). Except as set forth on Schedule 5.9, such Balance
Sheet presents fairly in all material respects the financial position of the
COMPANY as of the date indicated thereon, and such Statement of Stockholders
Equity, Income and Cash Flows present fairly in all material respects the
results of operations for the period indicated thereon.
5.10 LIABILITIES AND OBLIGATIONS. The COMPANY has delivered to METALS an
accurate list (which is set forth on Schedule 5.10) as of the Balance Sheet Date
of (i) all liabilities of the COMPANY of a nature that they are required in
accordance with GAAP to be reflected on a balance sheet and which are not
reflected on the balance sheet of the COMPANY at the Balance Sheet Date or
otherwise reflected in the COMPANY Financial Statements at the Balance Sheet
Date,
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and which are not disclosed on any of the other Schedules to this Agreement and
which would have a Material Adverse Effect on the COMPANY, and (ii) all loan
agreements, indemnity or guaranty agreements, bonds, mortgages, pledges or other
security agreements to which the COMPANY is a party or by which its properties
may be bound. Except as set forth on Schedule 5.10, to the best knowledge of the
COMPANY, since the Balance Sheet Date the COMPANY has not incurred any material
liabilities of any kind, character or description, whether accrued, absolute,
secured or unsecured, contingent or otherwise, other than liabilities incurred
in the ordinary course of business. The COMPANY has also delivered to METALS on
Schedule 5.10, in the case of those contingent liabilities related to pending or
threatened litigation, or other liabilities which are not fixed, a good faith
and reasonable estimate of the maximum amount which the COMPANY reasonably
expects will be payable and the amount, if any, accrued or reserved for each
such potential liability on the COMPANY's Financial Statements. For each such
contingent liability or liability for which the amount is not fixed or is
contested, the COMPANY has provided to METALS the following information:
(i) a summary description of the liability together with the
following:
(a) copies of all relevant documentation relating thereto;
(b) amounts claimed and any other action or relief sought; and
(c) name of claimant and all other parties to the claim, suit
or proceeding;
(ii) the name of each court or agency before which such claim, suit
or proceeding is pending; and
(iii) the date such claim, suit or proceeding was instituted; and
(iv) a good faith and reasonable estimate of the maximum amount, if
any, which is likely to become payable with respect to each such
liability. If no estimate is provided, the estimate shall for purposes of
this Agreement be deemed to be zero.
5.11 ACCOUNTS AND NOTES RECEIVABLE. The COMPANY has delivered to METALS an
accurate list (which is set forth on Schedule 5.11) of the accounts and notes
receivable of the COMPANY, as of the Balance Sheet Date, including any such
amounts which are not reflected in
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the balance sheet as of the Balance Sheet Date, and including receivables from
and advances to employees and the STOCKHOLDERS. Except to the extent reflected
on Schedule 5.11, such accounts, notes and other receivables are collectible in
the amounts shown on Schedule 5.11, net of reserves reflected in the balance
sheet as of the Balance Sheet Date.
5.12 PERMITS AND INTANGIBLES. The COMPANY or its employees, as
appropriate, hold all licenses, franchises, permits and other governmental
authorizations ("Licenses") the absence of any of which could have a Material
Adverse Effect on the Company's business, and the COMPANY has delivered to
METALS an accurate list and summary description (which is set forth on Schedule
5.12) of all such Licenses, including any 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
5.13). At or prior to the Closing, all such trademarks, trade names, patents,
patent applications, copyrights and other intellectual property will be assigned
or licensed to the COMPANY for no additional consideration. To the best
knowledge of the COMPANY, the Licenses and other rights listed on Schedules 5.12
and 5.13 are valid, and the COMPANY has not received any notice that any person
intends to cancel, terminate or not renew any such License or other right. The
COMPANY has conducted and is conducting its business in compliance with the
requirements, standards, criteria and conditions set forth in the Licenses and
other rights listed on Schedules 5.12 and 5.13 and is not in violation of any of
the foregoing except where such non-compliance or violation would not have a
Material Adverse Effect on the COMPANY. Except as specifically provided in
Schedule 5.12, 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 or other rights.
5.13 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 5.13, and
except where any failure to comply or action would not have a Material Adverse
Effect, (i) the COMPANY has complied with and is in compliance with all Federal,
state, local and foreign statutes (civil and
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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 and
Hazardous Substances (as such terms are defined in any applicable Environmental
Law), as well as petroleum and petroleum products (collectively "Hazardous
Materials"); (ii) the COMPANY has obtained and adhered to all necessary permits
and other approvals necessary to treat, transport, store, dispose of and
otherwise handle Hazardous Materials, a list of all of which permits and
approvals is set forth on Schedule 5.13, 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 Materials have
been treated, stored, disposed of or otherwise handled; (iii) there have been no
releases or threats of releases (as these terms are defined in Environmental
Laws) of any Hazardous Materials at, from, in or on any property owned or
operated by the COMPANY except as permitted by Environmental Laws; (iv) the
COMPANY knows of no on-site or off-site location to which the COMPANY has
transported or disposed of Hazardous Materials or arranged for the
transportation of Hazardous Materials, which site 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, METALS or NEWCO for
any clean-up cost, remedial work, damage to natural resources, property damage
or personal injury, including, but not limited to, any claim under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended; and (v) to the best knowledge of the COMPANY, the COMPANY has no
contingent liability in connection with any release of any Hazardous Materials
into the environment; provided, however, that the representation set forth in
this clause (v) shall not be deemed to limit in any way the representations and
warranties set forth in clauses (i) - (iv) of this Section 5.13.
5.14 PERSONAL PROPERTY. The COMPANY has delivered to METALS an accurate
list (which is set forth on Schedule 5.14) of (x) all personal property material
to the operations of the
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COMPANY included (or that will be included) in "depreciable plant, property and
equipment" on the balance sheet of the COMPANY, (y) all other personal property
owned by the COMPANY with an individual value in excess of $50,000 (i) as of the
Balance Sheet Date and (ii) acquired since the Balance Sheet Date and (z) all
material leases and agreements in respect of personal property, including, in
the case of each of (x), (y) and (z), (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. Except as set forth on Schedule 5.14, (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 5.14, (ii) all of
the personal property listed on Schedule 5.14 is in good working order and
condition, ordinary wear and tear excepted and (iii) all leases and agreements
included on Schedule 5.14 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.
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. The
COMPANY has delivered to METALS an accurate list (which is set forth on Schedule
5.15) of (i) all significant customers, it being understood and agreed that a
"significant customer," for purposes of this Section 5.15, means a customer (or
person or entity) representing 5% or more of the COMPANY's annual revenues for
its most recently completed fiscal year. Except to the extent set forth on
Schedule 5.15, 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.
The COMPANY has listed on Schedule 5.15 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),
other than agreements listed on Schedule 5.10, 5.14 or 5.16, (a) in existence as
of the Balance Sheet Date and (b) entered into since the Balance Sheet Date, and
in each case has delivered true, complete
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and correct copies of such agreements to METALS. The COMPANY has also indicated
on Schedule 5.15 a summary description of all plans or projects involving the
opening of new operations, expansion of existing operations, the acquisition of
any personal property, business or assets requiring, in any event, the payment
of more than $50,000 by the COMPANY during any 12-month period.
5.16 REAL PROPERTY. Schedule 5.16 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. Except as set forth
on Schedule 5.16, any such real property owned by the COMPANY will be sold or
distributed by the COMPANY and leased back by the COMPANY on terms no less
favorable to the COMPANY than those available from an unaffiliated party and
otherwise reasonably acceptable to METALS at or prior to the Closing Date. The
COMPANY has good and insurable title to any real property owned by it that is
not shown on Schedule 5.16 as property intended to be sold or distributed prior
to the Closing Date, subject to no mortgage, pledge, lien, conditional sales
agreement, encumbrance or charge, except for:
(i) liens reflected on Schedules 5.10 or 5.16 as securing specified
liabilities (with respect to which no material default exists);
(ii) liens for current taxes not yet payable and assessments not in
default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other exceptions to
title which do not adversely affect the current use of the property.
True, complete and correct copies of all leases and agreements in respect
of such real property leased by the COMPANY are attached to Schedule 5.16, 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 5.16. Except as set forth on Schedule 5.16, all of such
leases included on Schedule 5.16 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.
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5.17 INSURANCE. The COMPANY has delivered to METALS (i) an accurate list
as of the Balance Sheet Date of all insurance policies carried by the COMPANY,
(ii) an accurate list of all insurance loss runs or workers compensation claims
received for the past three (3) policy years and (iii) true, complete and
correct copies of all insurance policies currently in effect. 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. All of such insurance policies are currently in full force and
effect and shall, to the best knowledge of the COMPANY, remain in full force and
effect through the Funding and Consummation Date. Since January 1, 1994, no
insurance carried by the COMPANY has been canceled by the insurer and the
COMPANY has not been denied coverage.
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS. The
COMPANY has delivered to METALS an accurate list (which is set forth on Schedule
5.18) 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. The COMPANY has provided to METALS
true, complete and correct copies of any employment agreements for persons
listed on Schedule 5.18. Since the Balance Sheet Date, there have been no
material 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 5.18, (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
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employees nor has the COMPANY experienced any labor interruptions over the past
three years. The COMPANY believes its relationship with employees to be good.
5.19 EMPLOYEE PLANS. The STOCKHOLDERS have delivered to METALS an accurate
schedule (Schedule 5.19) showing all employee benefit plans of COMPANY
(including COMPANY's Subsidiaries), including all employment agreements and
other agreements or arrangements 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 5.19,
COMPANY (including the COMPANY's Subsidiaries) does not sponsor, maintain or
contribute to any plan program, fund or arrangement that constitutes an
"employee pension benefit plan," nor has COMPANY or any Subsidiary 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. Neither COMPANY
nor any Subsidiary has sponsored, maintained or contributed to any employee
pension benefit plan other than the plans set forth on Schedule 5.19, nor is
COMPANY or any Subsidiary 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 COMPANY's or any Subsidiary's employees.
Neither the COMPANY nor any Subsidiary is now, or will as a result of its
past activities become, liable to the Pension Benefit Guaranty Corporation or to
any multiemployer employee pension benefit plan under the provisions of Title IV
of ERISA for any amounts which would have a Material Adverse Effect on the
COMPANY.
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All employee benefit plans listed on Schedule 5.19 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 or any Subsidiary with
respect to any plan listed on Schedule 5.19 have either been fulfilled in their
entirety or are fully reflected on the balance sheet of the COMPANY as of the
Balance Sheet Date.
5.20 COMPLIANCE WITH ERISA. All such plans listed on Schedule 5.19 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 such determination letters are
included as part of Schedule 5.19 hereof. Except as disclosed on Schedule 5.20,
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 5.19 hereof.
Neither STOCKHOLDERS, any such plan listed in Schedule 5.19, nor COMPANY
(including the COMPANY's Subsidiaries) has engaged in any transaction prohibited
under the provisions of Section 4975 of the Code or Section 406 of ERISA. No
such Plan listed in Schedule 5.19 has incurred an accumulated funding
deficiency, as defined in Section 412(a) of the Code and Section 302(1) of
ERISA; and COMPANY (including the COMPANY's Subsidiaries) has not incurred any
liability for excise tax or penalty due to the Internal Revenue Service nor any
liability to the Pension Benefit Guaranty Corporation. The STOCKHOLDERS further
represent that except as set forth on Schedule 5.19 hereto:
(i) 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;
(ii) no such plan listed in Schedule 5.19 subject to the provisions
of Title IV of ERISA has been terminated;
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(iii) 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 5.19;
(iv) COMPANY (including the COMPANY's Subsidiaries) has not incurred
liability under Section 4062 of ERISA; and
(v) To their best knowledge, circumstances exist pursuant to which
the COMPANY could have any direct or indirect liability whatsoever
(including, but not limited to, any liability to any multiemployer 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.
5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedule 5.21 or 5.13, 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 which would have a Material Adverse Effect; and except to
the extent set forth on Schedule 5.10 or 5.13, there are no material claims,
actions, suits or proceedings, pending or, to the knowledge of the COMPANY,
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 any of them
and no notice of any claim, action, suit or proceeding, whether pending or
threatened, has been received by the COMPANY. 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, orders, approvals, variances, rules and regulations,
including all such orders and other governmental approvals set forth on
Schedules 5.12 and 5.13, except where any such noncompliance, individually or in
the aggregate, would not have a Material Adverse Effect.
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5.22 TAXES. COMPANY (including the COMPANY's 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; and except as
set forth on Schedule 5.22, there are no examinations in progress or claims
pending against any of them for federal, state and other taxes (including
penalties and interest) for any period or periods prior to and including the
Balance Sheet Date and no notice of any claim for taxes, whether pending or
threatened, has been received. All tax, including interest and penalties
(whether or not shown on any tax return) owed by the COMPANY or any of the
COMPANY's Subsidiaries has been paid. The amounts shown as accruals for taxes on
the COMPANY Financial Statements are sufficient for the payment of all taxes of
the kinds indicated (including penalties and interest) for all fiscal periods
ended on or before that date. Copies of (i) any tax examinations, (ii)
extensions of statutory limitations and (iii) the federal and local income tax
returns and franchise tax returns of COMPANY (including the COMPANY
Subsidiaries) for their last three (3) fiscal years, or such shorter period of
time as any of them shall have existed, are attached hereto as Schedule 5.22 or
have otherwise been delivered to METALS. The COMPANY has a taxable year ended
December 31. 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.
5.23 NO VIOLATIONS; CONSENTS, ETC. The COMPANY is not in violation of any
Charter Document. Neither the COMPANY nor, to the best knowledge of the COMPANY,
any other party thereto, is in default under any lease, instrument, agreement,
license, or permit set forth on Schedule 5.12, 5.13, 5.14, 5.15 or 5.16, or any
other material agreement to which it is a party or by which its properties are
bound (the "Material Documents") in any manner that could result in a Material
Adverse Effect; and, except as set forth in Schedule 5.23, (a) the rights and
benefits of the COMPANY under the Material Documents will not be materially
adversely affected by the transactions contemplated hereby and (b) 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
material violation or breach or constitute a default under, any of the terms or
provisions
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of the Material Documents or the Charter Documents. Except as set forth on
Schedule 5.23, 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. Except as set forth on Schedule 5.23, none of the
Material Documents prohibits the use or publication by the COMPANY, METALS or
NEWCO 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, METALS,
NEWCO or any Other Founding Company.
5.24 GOVERNMENT CONTRACTS. Except as set forth on Schedule 5.24, the
COMPANY is not now a party to any governmental contracts subject to price
redetermination or renegotiation.
5.25 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
on Schedule 5.25 or as otherwise contemplated hereby, 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
except for distributions that would have been permitted after the date
hereof under Section 7.3(iii) hereof;
(v) any material increase in the compensation, bonus, sales
commissions or fee arrangement payable or to become payable by the COMPANY
to any of its officers,
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directors, STOCKHOLDERS, employees, consultants or agents, except for
ordinary and customary bonuses and salary increases for employees in
accordance with past practice;
(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 STOCKHOLDERS 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 other distribution of property or assets by the COMPANY
other than in the ordinary course of business and other than distributions
of real estate and other assets as permitted by this Agreement (including
the Schedules hereto).
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5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The COMPANY has delivered to
METALS an accurate schedule (which is set forth on Schedule 5.26) as of the date
of the 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; and
(iv) the name of each person authorized to draw thereon or have
access thereto. Schedule 5.26 also sets forth the name of each person,
corporation, firm or other entity holding a general or special power of
attorney from the COMPANY and a description of the terms of such power.
5.27 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by the COMPANY and the performance of the transactions contemplated herein have
been duly and validly authorized by the Board of Directors of the COMPANY and
this Agreement has been duly and validly authorized by all necessary corporate
action and is a legal, valid and binding obligation of the COMPANY.
5.28 RELATIONS WITH GOVERNMENTS. Except for political contributions made
in a lawful manner which, in the aggregate, do not exceed $10,000 per year, the
COMPANY has not over the past five (5) years made, offered or agreed to offer
anything of value to any governmental official, political party or candidate for
government office nor has it 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. If political contributions made by the
COMPANY have exceeded $10,000 per year for each year in which any STOCKHOLDER
has been a stockholder of the COMPANY, each contribution in the amount of $5,000
or more shall be described on Schedule 5.28.
5.29 DISCLOSURE. (a) This Agreement, including the Annexes and Schedules
hereto, and the completed Director and Officer Questionnaires and the completed
S-1 Questionnaire furnished to METALS by the COMPANY and the STOCKHOLDERS in
connection herewith, do not contain
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an untrue statement of a material fact or omit to state a material fact
necessary to make the statements herein and therein, in light of the
circumstances under which they were made, not misleading; provided, however,
that the foregoing does not apply to statements contained in or omitted from any
of such documents made or omitted in reliance upon information furnished in
writing by METALS. If, prior to the 25th day after the date of the final
prospectus of METALS utilized in connection with the IPO, the COMPANY or the
STOCKHOLDERS become aware of any fact or circumstance which would affect the
accuracy of a representation or warranty of COMPANY or STOCKHOLDERS in this
Agreement in any material respect, the COMPANY and the STOCKHOLDERS shall
immediately give notice of such fact or circumstance to METALS. However, subject
to the provisions of Section 7.8, such notification shall not relieve either the
COMPANY or the STOCKHOLDERS of their respective obligations under this
Agreement, and, subject to the provisions of Section 7.8, at the sole option of
METALS, the truth and accuracy of any and all warranties and representations of
the COMPANY, or on behalf of the COMPANY and of STOCKHOLDERS at the date of this
Agreement and on the Closing Date and on the Funding and Consummation Date,
shall be a precondition to the consummation of this transaction.
(b) The COMPANY and the STOCKHOLDERS acknowledge and agree (i)
that there exists no firm commitment, binding agreement, or promise or other
assurance of any kind, whether express or implied, oral or written, that a
Registration Statement will become effective or that the IPO pursuant thereto
will occur at a particular price or within a particular range of prices or occur
at all; (ii) that neither METALS or any of its officers, directors, agents or
representatives nor any Underwriter shall have any liability to the COMPANY, the
STOCKHOLDERS or any other person affiliated or associated with the COMPANY for
any failure of the Registration Statement to become effective, the IPO to occur
at a particular price or within a particular range of prices or to occur at all;
and (iii) that the decision of STOCKHOLDERS to enter into this Agreement, or to
vote in favor of or consent to the proposed Merger, has been or will be made
independent of, and without reliance upon, any statements, opinions or other
communications, or due diligence investigations which have been or will be made
or performed by any prospective Underwriter, relative to METALS
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or the prospective IPO. METALS agrees, however, to use all reasonable efforts to
consummate the METALS Plan of Organization and IPO as contemplated hereby.
5.30 PROHIBITED ACTIVITIES. Except as set forth on Schedule 5.30, 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.
(B) REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS
Each STOCKHOLDER severally represents and warrants that the
representations and warranties set forth below are true as of the date of this
Agreement and, subject to Section 7.8 hereof, shall be true at the time of
Closing and on the Funding and Consummation Date, and that the representations
and warranties set forth in Sections 5.31 and 5.32 shall survive until the first
anniversary of the Funding and Consummation Date, which shall be the Expiration
Date for purposes of Sections 5.31 and 5.32.
5.31 AUTHORITY; OWNERSHIP. Such STOCKHOLDER has the full legal right,
power and authority to enter into this Agreement. Such STOCKHOLDER owns
beneficially and of record all of the shares of the COMPANY stock identified on
Annex II as being owned by such STOCKHOLDER, and, except as set forth on
Schedule 5.31, such COMPANY Stock is owned free and clear of all liens,
encumbrances and claims of every kind.
5.32 PREEMPTIVE RIGHTS. Such STOCKHOLDER does not have, or hereby waives,
any preemptive or other right to acquire shares of COMPANY Stock or METALS Stock
that such STOCKHOLDER has or may have had. Nothing herein, however, shall limit
or restrict the rights of any STOCKHOLDER to acquire METALS Stock pursuant to
(i) this Agreement or (ii) any option granted by METALS.
5.33 NO INTENTION TO DISPOSE OF METALS STOCK. No STOCKHOLDER is under any
binding commitment or contract to sell, exchange or otherwise dispose of shares
of METALS Stock received as described in Section 3.1.
6. REPRESENTATIONS OF METALS AND NEWCO
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METALS and NEWCO jointly and severally represent and warrant that
all of the following representations and warranties in this Section 6 are true
at the date of this Agreement and, subject to Section 7.8 hereof, shall be true
at the time of Closing and the Funding and Consummation Date, and that such
representations and warranties shall survive the Funding and Consummation Date
for a period of twelve months (the last day of such period being the "Expiration
Date"), except that (i) the warranties and representations set forth in Section
6.14 hereof shall survive until such time as the limitations period has run for
all tax periods ended on or prior to the Funding and Consummation Date, which
shall be deemed to be the Expiration Date for Section 6.14 and (ii) solely for
purposes of determining whether a claim for indemnification under Section
11.2(iv) hereof has been made on a timely basis, and solely to the extent that
in connection with the IPO, any of the STOCKHOLDERS actually incurs liability
under the 1933 Act, the 1934 Act, or any other Federal or state securities laws,
the representations and warranties set forth herein shall survive until the
expiration of any applicable limitations period, which shall be deemed to be the
Expiration Date for such purposes.
6.1 DUE ORGANIZATION. METALS and NEWCO are each corporations duly
organized, validly existing and in good standing under the laws of the State of
Delaware, 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 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. True,
complete and correct copies of the Certificate of Incorporation and By-laws,
each as proposed to be amended, of METALS and NEWCO (the "METALS Charter
Documents") are all attached hereto as Annex IV.
6.2 AUTHORIZATION. (i) The respective representatives 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 consummate the
Merger. All corporate acts and other proceedings required to have been taken by
METALS and NEWCO to authorize the execution,
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delivery and performance of this Agreement and the consummation of the Merger
have been duly and properly taken.
6.3 CAPITAL STOCK OF METALS AND NEWCO. The authorized capital stock of
METALS and NEWCO is as set forth in Sections 1.4(ii) and (iii), respectively.
All of the issued and outstanding shares of the capital stock of NEWCO are owned
by METALS and all of the issued and outstanding shares of the capital stock of
METALS are owned by the persons set forth on Annex III hereof, in each case,
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 METALS and NEWCO have been duly
authorized and validly issued, are fully paid and nonassessable, are owned of
record and beneficially by METALS and the persons set forth on Annex III,
respectively, and further, such shares were offered, issued, sold and delivered
by METALS and NEWCO in compliance with all applicable state and Federal laws
concerning the issuance of securities. Further, none of such shares were issued
in violation of the preemptive rights of any past or present stockholder of
METALS or NEWCO.
6.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except for the
Other Agreements and except as set forth on Schedule 6.4, (i) no option,
warrant, call, conversion right or commitment of any kind exists which obligates
METALS or NEWCO to issue any of their respective authorized but unissued capital
stock; and (ii) neither METALS nor NEWCO has any obligation (contingent or
otherwise) to purchase, redeem or otherwise acquire any of its equity securities
or any interests therein or to pay any dividend or make any distribution in
respect thereof. Schedule 6.4 also includes complete and accurate copies of all
stock option or stock purchase plans, including a list, accurate as of the date
hereof, of all outstanding options, warrants or other rights to acquire shares
of the stock of METALS.
6.5 SUBSIDIARIES. NEWCO has no subsidiaries. METALS has no subsidiaries
except for NEWCO and each of the companies identified as "NEWCO" in each of the
Other Agreements. Except as set forth in the preceding sentence, neither METALS
nor NEWCO presently owns, of record or beneficially, or controls, directly or
indirectly, any capital stock, securities convertible into
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capital stock or any other equity interest in any corporation, association or
business entity, and neither METALS nor NEWCO, directly or indirectly, is a
participant in any joint venture, partnership or other non-corporate entity.
6.6 FINANCIAL STATEMENTS. Included in the Draft Registration Statement are
copies of the following financial statements (the "METALS Financial Statements")
of METALS, which reflect the results of its operations from inception in July
1996: METALS's audited Balance Sheet as of December 31, 1996. Such METALS
Financial Statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
indicated (except as noted thereon). Such Balance Sheet presents fairly the
financial position of METALS as of such date.
6.7 LIABILITIES AND OBLIGATIONS. Except as set forth on Schedule 6.7,
METALS and NEWCO have no material liabilities, contingent or otherwise, except
as set forth in or contemplated by this Agreement and the Other Agreements and
except for fees incurred in connection with the transactions contemplated hereby
and thereby.
6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedule 6.8, neither METALS nor NEWCO is 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 either of them which would have a Material Adverse Effect; and
except to the extent set forth in Schedule 6.8, there are no material claims,
actions, suits or proceedings, pending or, to the knowledge of METALS or NEWCO,
threatened against or affecting, METALS or NEWCO, 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
either of them and no notice of any claim, action, suit or proceeding, whether
pending or threatened, has been received. METALS and NEWCO have conducted and
are conducting their respective businesses in substantial compliance with the
requirements, standards, criteria and conditions set forth in applicable
Federal, state and local statutes, ordinances, permits, licenses,
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orders, approvals, variances, rules and regulations and are not in violation of
any of the foregoing which would have a Material Adverse Effect.
6.9 NO VIOLATIONS. Neither METALS nor NEWCO is in violation of any METALS
Charter Document. None of METALS, NEWCO, or, to the knowledge of METALS and
NEWCO, any other party thereto, is in default under any lease, instrument,
agreement, license, or permit to which METALS or NEWCO is a party, or by which
METALS or NEWCO, or any of their respective properties, are bound (collectively,
the "METALS Documents"); and (a) the rights and benefits of METALS and NEWCO
under the METALS Documents will not be adversely affected by the transactions
contemplated hereby and (b) the execution and delivery of this Agreement by
METALS and NEWCO and the performance of their obligations hereunder do not, and
the consummation of the transactions contemplated hereby and compliance with the
terms hereof will not, conflict with, or result in any violation or default
(with or without notice or lapse of time, or both), under or give rise to a
right of termination, cancellation, or acceleration of any obligation or to loss
of a material benefit under, or result in the creation of any lien upon any of
the assets of METALS or any NEWCO under, any provision of (i) the Certificate of
Incorporation or Bylaws of METALS or the comparable governing instruments of any
NEWCO, (ii) any note, bond, mortgage, indenture or deed of trust or any license,
lease, contract, commitment, agreement or arrangement to which METALS and any
NEWCO is a party or by which any of their respective properties or assets are
bound or (iii) any judgment, order, decree or law, ordinance, rule or
regulation, applicable to METALS or any NEWCO or their respective properties or
assets. 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 material violation or breach or constitute a default under, any of
the terms or provisions of the METALS Documents or the METALS Charter Documents.
Except as set forth on Schedule 6.9, none of the METALS 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
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contemplated hereby will not give rise to any right to termination, cancellation
or acceleration or loss of any right or benefit.
6.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by METALS and NEWCO and the performance of the transactions contemplated herein
have been duly and validly authorized by the respective 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.
6.11 METALS STOCK. At the time of issuance thereof and delivery to the
STOCKHOLDERS, the METALS Stock to be delivered to the STOCKHOLDERS pursuant to
this Agreement will constitute valid and legally issued shares of METALS, fully
paid and nonassessable, and with the exception of restrictions upon resale set
forth in Sections 15 and 16 hereof, will be identical in all substantive
respects (which do not include the form of certificate upon which it is printed
or the presence or absence of a CUSIP number on any such certificate) to the
METALS Stock issued and outstanding as of the date hereof by reason of the
provisions of the Delaware GCL. The METALS Stock issued and delivered to the
STOCKHOLDERS shall at the time of such issuance and delivery be free and clear
of any liens, claims or encumbrances of any kind or character. The shares of
METALS Stock to be issued to the STOCKHOLDERS pursuant to this Agreement will
not be registered under the 1933 Act, except as provided in Section 17 hereof.
6.12 NO SIDE AGREEMENTS. Neither METALS nor NEWCO has entered or will
enter into any agreement with any of the Founding Companies or any of the
stockholders of the Founding Companies or METALS other than the Other Agreements
and the agreements contemplated by each of the Other Agreements, including the
employment agreements, leases and Indemnification Agreements referred to herein
or entered into in connection with the transactions contemplated hereby and
thereby.
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. METALS was formed in
July 1996 and has conducted limited operations since that time. Neither METALS
nor NEWCO has conducted any material business since the date of its inception,
except in connection with this
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Agreement, the Other Agreements and the IPO. Neither METALS nor NEWCO owns or
has at any time owned any real property or any material personal property or is
a party to any other agreement, except as listed on Schedule 6.13 and except
that METALS is a party to the Other Agreements and the agreements contemplated
thereby and to such agreements as will be filed as Exhibits to the Registration
Statement.
6.14 TAXES. METALS and NEWCO have 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; and except as set forth on Schedule 6.14,
there are no examinations in progress or claims against METALS for federal,
state and other taxes (including penalties and interest) for any period or
periods prior to and including the Balance Sheet Date and no notice of any claim
for taxes, whether pending or threatened, has been received. All taxes which
METALS or any NEWCO has been required to collect or withhold have been duly and
timely collected and withheld and have been set aside in accounts for such
purposes, or have been duly and timely paid to the proper governmental
authority. All tax, including interest and penalties (whether or not shown on
any tax return) owed by METALS, any member of an affiliated or consolidated
group which includes or included METALS, or with respect to any payment made or
deemed made by METALS herein has been paid. The amounts shown as accruals for
taxes on METALS Financial Statements are sufficient for the payment of all taxes
of the kinds indicated (including penalties and interest) for all fiscal periods
ended on or before that date. Copies of any (i) tax examinations, (ii)
extensions of statutory limitations, (iii) federal and local income tax returns
and franchise tax returns of METALS for the year ended December 31, 1996, are
attached hereto as Schedule 6.14. Except as set forth in Schedule 6.14, METALS
and NEWCO have not entered into any tax sharing agreement or similar
arrangement. METALS is not an investment company as defined in Section 351(e)(1)
of the Code.
6.15 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
in the Draft Registration Statement delivered to the STOCKHOLDERS, and except as
contemplated by this Agreement and the Other Agreements, there has not been:
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(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of METALS or
NEWCO;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
METALS or NEWCO;
(iii) any change in the authorized capital of METALS or NEWCO or
their outstanding securities or any change in their 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 METALS or
NEWCO;
(v) any work interruptions, labor grievances or claims filed, or any
event or condition of any character, materially adversely affecting the
business of METALS or NEWCO;
(vi) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of METALS or NEWCO to any person;
(vii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to METALS or NEWCO;
(viii) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property
or rights of METALS or NEWCO or requiring consent of any party to the
transfer and assignment of any such assets, property or rights;
(ix) any waiver of any material rights or claims of METALS or NEWCO;
(x) any amendment or termination of any material contract,
agreement, license, permit or other right to which METALS or NEWCO is a
party;
(xi) any transaction by METALS or NEWCO outside the ordinary course
of its business;
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(xii) any other distribution of property or assets by METALS or
NEWCO other than in the ordinary course of business.
6.16 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by METALS and NEWCO and the performance of the transactions contemplated herein
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.
6.17 DISCLOSURE. The Draft Registration Statement delivered to the COMPANY
and the STOCKHOLDERS, together with this Agreement and the information furnished
to the COMPANY and the STOCKHOLDERS in connection herewith, does not contain an
untrue statement of a material fact or omit to state a material fact necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading; provided, however, that the foregoing does not apply
to statements contained in or omitted from any of such documents made or omitted
in reliance upon information furnished by the COMPANY or the STOCKHOLDERS.
6.18 PRIVATE OFFERING. (a) Neither METALS, any of its affiliates nor
anyone on its or their behalf, has issued, sold, or offered any securities of
METALS to any person under circumstances that would cause the issuance and sale
of the METALS Stock to the STOCKHOLDERS pursuant to this Agreement, to be
subject to the registration requirements of the 1933 Act.
(b) The offering of shares of METALS Stock pursuant to the METALS Plan of
Organization has been made in compliance with applicable federal and state
securities laws.
7. COVENANTS PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION; DUE DILIGENCE. (a) Between the date of this
Agreement and the Funding and Consummation Date, the COMPANY will afford to the
officers and authorized representatives of METALS and the Other Founding
Companies access to all of the COMPANY's sites, properties, books and records
and will furnish METALS with such additional financial and
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operating data and other information as to the business and properties of the
COMPANY as METALS or the Other Founding Companies may from time to time
reasonably request. The COMPANY will cooperate with METALS and the Other
Founding Companies, 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, NEWCO, the
STOCKHOLDERS and the COMPANY will treat all information obtained in connection
with the negotiation and performance of this Agreement or the due diligence
investigations conducted with respect to the Other Founding Companies as
confidential in accordance with the provisions of Section 14 hereof. In
addition, METALS will cause each of the Other Founding Companies to enter into a
provision similar to this Section 7.1 requiring each such Other Founding
Company, its stockholders, directors, officers, representatives, employees and
agents to keep confidential any information obtained by such Other Founding
Company.
(b) Between the date of this Agreement and the Funding and Consummation
Date, METALS will afford to the officers and authorized representatives of the
COMPANY access to all of METALS's and NEWCO's sites, properties, books and
records and will furnish the COMPANY with such additional financial and
operating data and other information as to the business and properties of METALS
and NEWCO as the COMPANY may from time to time reasonably request. METALS and
NEWCO will cooperate with the COMPANY, 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. The
COMPANY will cause all information obtained in connection with the negotiation
and performance of this Agreement to be treated as confidential in accordance
with the provisions of Section 14 hereof.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Funding and Consummation Date, the COMPANY will, except as set
forth on Schedule 7.2:
(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;
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(ii) use all reasonable efforts to 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) use all reasonable efforts to 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;
(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; and
(viii) maintain or reduce present salaries and commission levels for
all officers, directors, employees and agents except for ordinary and
customary bonus and salary increases for employees in accordance with past
practices.
7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3, between
the date hereof and the Funding and Consummation Date, the COMPANY will not,
without prior written consent of METALS, which consent 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 other than in
connection with the exercise of options or warrants listed in Schedule
5.4;
(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 for distributions in the amount of estimated taxes payable by the
STOCKHOLDERS on S corporation earnings (if any) of the COMPANY for the
period from the Balance Sheet Date to the Closing Date and specified on
Schedule 7.3 hereto, and any other distributions of Accumulated
Adjustments Accounts amounts specified on Schedule 7.3 hereto, it being
understood and agreed that any such distributions in excess of such
estimated taxes shall result in a corresponding dollar for dollar decrease
in the amount of cash otherwise payable to the STOCKHOLDERS as part of the
Merger consideration hereunder;
(iv) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditures, except if it is in
the normal course of business (consistent with past practice) or involves
an amount not in excess of $100,000;
(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 $50,000 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 course of business
(the liens set forth in clause (2) being referred to herein as "Statutory
Liens"), or (3) liens set forth on Schedule 5.10 and/or 5.15 hereto;
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(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business and other
than distributions of real estate and other assets as permitted in this
Agreement (including the Schedules hereto);
(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;
(ix) waive any material rights or claims of the COMPANY, provided
that the COMPANY may negotiate and adjust bills and accounts in the course
of good faith disputes with customers in a manner consistent with past
practice, provided, further, that such adjustments shall not be deemed to
be included in Schedule 5.11 unless specifically listed thereon;
(x) amend or terminate any material agreement, permit, license or
other right of the COMPANY; or
(xi) enter into any other transaction outside the ordinary course of
its business or prohibited hereunder.
7.4 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 Funding and Consummation 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 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 of the COMPANY.
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7.5 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 on Schedule 7.5 with proof that any required notice has been
sent.
7.6 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 listed on Schedule
9.12 hereto and (ii) any existing agreement between the COMPANY and any
STOCKHOLDER, on or prior to the Funding and Consummation Date provided that
nothing herein shall prohibit or prevent the COMPANY from paying (either prior
to or on the Closing Date) notes or other obligations from the COMPANY to the
STOCKHOLDERS in accordance with the terms thereof, which terms have been
disclosed to METALS. Such termination agreements are listed on Schedule 7.6 and
copies thereof shall be attached thereto.
7.7 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. METALS and NEWCO 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 or NEWCO contained herein to be untrue or inaccurate in any material
respect at or prior to the Closing and (ii) any material failure of METALS or
NEWCO 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 7.7 shall not be deemed to (i) modify the representations or
warranties hereunder of the party delivering such notice, which modification may
only be made pursuant to Section 7.8, (ii)
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modify the conditions set forth in Sections 8 and 9, or (iii) limit or otherwise
affect the remedies available hereunder to the party receiving such notice.
7.8 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 24 hours prior to the
anticipated effectiveness of the Registration Statement to supplement or amend
promptly the Schedules 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, provided however,
that supplements and amendments to Schedules 5.10, 5.11, 5.14 and 5.15 shall
only have to be delivered at the Closing Date, unless such Schedule is to be
amended to reflect an event occurring other than in the ordinary course of
business. Notwithstanding the foregoing sentence, no amendment or supplement to
a Schedule prepared by the COMPANY that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect may be made unless METALS
and a majority of the Founding Companies other than the COMPANY consent to such
amendment or supplement; and provided further, that no amendment or supplement
to a Schedule prepared by METALS or NEWCO that constitutes or reflects an event
or occurrence that would have a Material Adverse Effect may be made unless a
majority of the Founding Companies consent to such amendment or supplement. For
all purposes of this Agreement, including without limitation for purposes of
determining whether the conditions set forth in Sections 8.1 and 9.1 have been
fulfilled, the Schedules hereto shall be deemed to be the Schedules as amended
or supplemented pursuant to this Section 7.8. In the event that one of the Other
Founding Companies seeks to amend or supplement a Schedule pursuant to Section
7.8 of one of the Other Agreements, and such amendment or supplement constitutes
or reflects an event or occurrence that would have a Material Adverse Effect on
such Other Founding Company, METALS shall give the COMPANY notice promptly after
it has knowledge thereof. If METALS and a majority of the Founding Companies
consent to such amendment or supplement, which consent shall have been deemed
given by METALS or any Founding Company if no response is received within 24
hours following receipt of notice of such amendment or supplement (or sooner
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if required by the circumstances under which such consent is requested), but the
COMPANY does not give its consent, the COMPANY may terminate this Agreement
pursuant to Section 12.1(iv) hereof. In the event that the COMPANY seeks to
amend or supplement a Schedule pursuant to this Section 7.8, and METALS and a
majority of the Other Founding Companies do not consent to such amendment or
supplement, this Agreement shall be deemed terminated by mutual consent as set
forth in Section 12.1(i) hereof. In the event that METALS or NEWCO seeks to
amend or supplement a Schedule pursuant to this Section 7.8 and a majority of
the Founding Companies do not consent to such amendment or supplement, this
Agreement shall be deemed terminated by mutual consent as set forth in Section
12.1(i) hereof. No party to this Agreement shall be liable to any other party if
this Agreement shall be terminated pursuant to the provisions of this Section
7.8. No amendment of or supplement to a Schedule shall be made later than 24
hours prior to the anticipated effectiveness of the Registration Statement.
7.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The COMPANY and
STOCKHOLDERS shall furnish or cause to be furnished to METALS and the
Underwriters all of the information concerning the COMPANY and the STOCKHOLDERS
required for inclusion in, and will cooperate with METALS and the Underwriters
in the preparation of, the Registration Statement and the prospectus included
therein (including audited and unaudited financial statements, prepared in
accordance with generally accepted accounting principles, in form suitable for
inclusion in the Registration Statement). The COMPANY and the STOCKHOLDERS agree
promptly to advise METALS if at any time during the period in which a prospectus
relating to the offering is required to be delivered under the Securities Act,
any information contained in the prospectus concerning the COMPANY or the
STOCKHOLDERS becomes incorrect or incomplete in any material respect, and to
provide the information needed to correct such inaccuracy. Insofar as the
information relates solely to the COMPANY or the STOCKHOLDERS, the COMPANY
represents and warrants as to such information with respect to itself, and each
Stockholder represents and warrants, as to such information with respect to the
COMPANY and himself or herself, that the Registration Statement will not include
an untrue statement of a material fact or omit to state a
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material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
7.10 FINAL FINANCIAL STATEMENTS. The COMPANY shall provide prior to the
Funding and Consummation Date, and METALS shall have had sufficient time to
review the unaudited consolidated balance sheets of the COMPANY as of the end of
all fiscal quarters following the Balance Sheet Date, and the unaudited
consolidated statement of income, cash flows and retained earnings of the
COMPANY for all fiscal quarters ended after the Balance Sheet Date, disclosing
no material adverse change in the financial condition of the COMPANY or the
results of its operations from the financial statements as of the Balance Sheet
Date. Such financial statements shall have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods indicated (except as noted therein). Except as noted in
such financial statements, all of such financial statements will present fairly
the results of operations of the COMPANY for the periods indicated therein.
7.11 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.
7.12 AUTHORIZED CAPITAL. Prior to the Funding and Consummation Date,
METALS shall maintain its authorized capital stock as set forth in the
Registration Statement filed with the SEC except for such changes in authorized
capital stock as are made to respond to comments made by the SEC or requirements
of any exchange or automated trading system for which application is made to
register the METALS Stock and any changes necessary or advisable in order to
permit the delivery of the opinion contemplated by Section 8.12 hereof.
7.13 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. 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
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Hart-Scott Act, (ii) such compliance by the STOCKHOLDERS and the COMPANY shall
be deemed a condition precedent in addition to the conditions precedent set
forth in Section 9 of this Agreement, and such compliance by METALS and NEWCO
shall be deemed a condition precedent in addition to the conditions precedent
set forth in Section 8 of 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. The
obligation of each party to consummate the transactions contemplated by this
Agreement is subject to the expiration or termination of the waiting period
under the Hart-Scott Act, if applicable.
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. The obligations of
the STOCKHOLDERS and the COMPANY with respect to actions to be taken on the
Funding and Consummation Date are subject to the satisfaction or waiver on or
prior to the Funding and Consummation Date of the conditions set forth in
Sections 8.1, 8.5, 8.8, 8.9 and 8.12. As of the Closing Date or, with respect to
the conditions set forth in Sections 8.1, 8.5, 8.8, 8.9 and 8.12, as of the
Funding and Consummation Date, if any such conditions have 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 Funding and Consummation 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 of METALS and NEWCO contained in Section 6 hereof.
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
representations and warranties of METALS and NEWCO contained in Section 6 shall
be true and
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correct in all material respects as of the Closing Date and the Funding and
Consummation 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 and NEWCO on or before the Closing Date
and the Funding and Consummation Date shall have been duly complied with and
performed in all material respects; and certificates to the foregoing effect
dated the Closing Date and the Funding and Consummation Date, respectively, 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.
The STOCKHOLDERS and the COMPANY shall be satisfied that the Registration
Statement and the prospectus forming a part thereof, including any amendments
thereof or supplements thereto, shall not contain any untrue statement of a
material fact, or omit to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, provided
that the condition contained in this sentence shall be deemed satisfied if the
COMPANY or STOCKHOLDERS shall have failed to inform METALS in writing prior to
the effectiveness of the Registration Statement of the existence of an untrue
statement of a material fact or the omission of such a statement of a material
fact.
8.3 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO 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 management of the COMPANY deems it inadvisable to proceed with the
transactions hereunder.
8.4 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
V.
8.5 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC and the underwriters named therein shall have
agreed to acquire on a firm commitment basis, subject to the conditions set
forth in the underwriting agreement, on terms such
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that the aggregate value of the cash and the number of shares of METALS Stock to
be received by the STOCKHOLDERS is not less than the Minimum Value set forth on
Annex I.
8.6 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 and no action
or proceeding shall have been instituted or threatened to restrain or prohibit
the Merger and no governmental agency or body shall have taken any other action
or made any request of COMPANY as a result of which COMPANY deems it inadvisable
to proceed with the transactions hereunder.
8.7 GOOD STANDING CERTIFICATES. METALS and NEWCO each shall have delivered
to the COMPANY a certificate, dated as of a date no later than ten days prior to
the Closing Date, duly issued by the Delaware Secretary of State and in each
state in which METALS or NEWCO is authorized to do business, showing that each
of METALS and NEWCO is in good standing and authorized to do business and that
all state franchise and/or income tax returns and taxes for METALS and NEWCO,
respectively, for all periods prior to the Closing have been filed and paid.
8.8 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall have
occurred with respect to METALS or NEWCO which would constitute a Material
Adverse Effect.
8.9 CLOSING OF IPO. The closing of the sale of the METALS Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
8.10 SECRETARY'S CERTIFICATE. The COMPANY shall have received a
certificate or certificates, dated the Closing Date and signed by the secretary
of METALS and of NEWCO, certifying the truth and correctness of attached copies
of the METALS's and NEWCO's respective Certificates of Incorporation (including
amendments thereto), By-Laws (including amendments thereto), and resolutions of
the boards of directors and, if required, the stockholders of METALS and NEWCO
approving METALS's and NEWCO's entering into this Agreement and the consummation
of the transactions contemplated hereby.
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8.11 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule 9.12
shall have been afforded the opportunity to enter into an employment agreement
substantially in the form of Annex VII hereto.
8.12 TAX MATTERS. The STOCKHOLDERS shall have received an opinion of
Arthur Andersen LLP that the METALS Plan of Organization will qualify as a
tax-free transfer of property under Section 351 of the Code and that the
STOCKHOLDERS will not recognize gain to the extent the STOCKHOLDERS exchange
stock of the COMPANY for METALS stock (but not cash or other property) pursuant
to the METALS Plan of Organization.
9. 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. The obligations of METALS and
NEWCO with respect to actions to be taken on the Funding and Consummation Date
are subject to the satisfaction or waiver on or prior to the Funding and
Consummation Date of the conditions set forth in Sections 9.1, 9.4 and 9.13. As
of the Closing Date or, with respect to the conditions set forth in Sections
9.1, 9.4 and 9.13, as of the Funding and Consummation Date, if any such
conditions have not been satisfied, METALS and NEWCO shall have the right to
terminate this Agreement, or waive any such condition, but no such waiver shall
be deemed to affect the survival of the representations and warranties contained
in Section 5 hereof.
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 and the Funding and Consummation 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
or the Funding and Consummation Date, as the case may be, shall have been duly
performed or complied with in all material respects; and the STOCKHOLDERS shall
have delivered
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to METALS certificates dated the Closing Date and the Funding and Consummation
Date, respectively, and signed by them to such effect.
9.2 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of METALS as a result of which the
management of METALS deems it inadvisable to proceed with the transactions
hereunder.
9.3 SECRETARY'S CERTIFICATE. METALS shall have received a certificate,
dated the Closing Date and signed by the secretary of the COMPANY, certifying
the truth and correctness of attached copies of the COMPANY's Certificate of
Incorporation (including amendments thereto), By-Laws (including amendments
thereto), and resolutions of the board of directors and the STOCKHOLDERS
approving the COMPANY's entering into this Agreement and the consummation of the
transactions contemplated hereby.
9.4 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 covered by insurance, which
change, loss or damage materially affects or impairs the ability of the COMPANY
to conduct its business.
9.5 STOCKHOLDERS' RELEASE. The STOCKHOLDERS shall have delivered to METALS
an instrument dated the Closing Date which shall be effective only upon the
occurrence of the Funding and Consummation 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 (x) items
specifically identified on Schedules 5.10 and 5.15 as being claims of or
obligations to the STOCKHOLDERS, (y) continuing obligations to STOCKHOLDERS
relating to their employment by the COMPANY and (z) obligations arising under
this Agreement or the transactions contemplated hereby. In the event that the
Funding and
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Consummation Date does not occur, then the release instrument referenced herein
shall be void and of no further force or effect.
9.6 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.
9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth on
Schedule 9.7, all existing agreements between the COMPANY and the STOCKHOLDERS
(and entities controlled by the STOCKHOLDERS) shall have been canceled effective
prior to or as of the Funding and Consummation Date.
9.8 OPINION OF COUNSEL. METALS shall have received an opinion from Counsel
to the COMPANY and the STOCKHOLDERS, dated the Closing Date, substantially in
the form annexed hereto as Annex VI.
9.9 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 5.23 shall have been obtained;
and no action or proceeding shall have been instituted or threatened to restrain
or prohibit the Merger 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.
9.10 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
COMPANY's state of incorporation and, unless waived by METALS, 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.
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9.11 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC.
9.12 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule 9.12
shall enter into an employment agreement substantially in the form of Annex VII
hereto.
9.13 CLOSING OF IPO. The closing of the sale of the METALS Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
9.14 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.
10. COVENANTS OF METALS AND THE STOCKHOLDERS AFTER CLOSING
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS. METALS
shall use its best efforts to have the STOCKHOLDERS released from any and all
guarantees on any indebtedness that they personally guaranteed and from any and
all pledges of assets that they pledged to secure such indebtedness for the
benefit of the COMPANY, with all such guarantees on indebtedness being assumed
by METALS. In the event that METALS cannot obtain such releases from the lenders
of any such guaranteed indebtedness on or prior to 120 days subsequent to the
Funding and Consummation Date, METALS shall promptly pay off or otherwise
refinance or retire such indebtedness. From and after the Funding and
Consummation Date and until such time as all of such indebtedness is paid off,
refinanced or retired, METALS shall maintain unencumbered funds in amounts
sufficient to provide for such pay off, refinancing or retirement, provided that
METALS may use such funds for other purposes, in its sole discretion, with the
prior written consent of each STOCKHOLDER who has not as of that time been
released from his or her guarantee as described above and whose indebtedness as
described above has not as of that time been paid off, refinanced or retired.
10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as contemplated
by this Agreement or the Registration Statement, after the Funding and
Consummation Date, METALS shall
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not and shall not permit any of its subsidiaries to undertake any act that would
jeopardize the tax-free status of the organization, including without
limitation:
(a) the retirement or reacquisition, directly or indirectly, of all
or part of the METALS Stock issued in connection with the transactions
contemplated hereby; or
(b) the entering into of financial arrangements for the benefit of
the STOCKHOLDERS.
10.3 PREPARATION AND FILING OF TAX RETURNS.
(i) The COMPANY, if possible, or otherwise the STOCKHOLDERS shall
file or cause to be filed all federal income Tax Returns of any Acquired
Party for all taxable periods that end on or before the Funding and
Consummation Date, and shall permit METALS to review all such Tax Returns
prior to such filings. Unless the COMPANY is a C corporation, the
STOCKHOLDERS shall pay or cause to be paid all Tax liabilities (in excess
of all amounts already paid with respect thereto or properly accrued or
reserved with respect thereto on the COMPANY Financial Statements) shown
by such Returns to be due.
(ii) METALS shall file or cause to be filed all separate Returns of,
or that include, any Acquired Party for all taxable periods ending after
the Funding and Consummation Date.
(iii) Each party hereto shall, and shall cause its subsidiaries and
affiliates to, provide to each of the other parties hereto such
cooperation and information as any of them reasonably may request in
filing any 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. Such cooperation and
information shall include providing copies of all relevant portions of
relevant Returns, together with relevant accompanying schedules and
relevant work papers, relevant documents relating to rulings or other
determinations by Taxing Authorities and relevant records concerning the
ownership and Tax basis of property, which such party may possess. Each
party shall make its employees reasonably available on a mutually
convenient basis at its cost to provide explanation of any documents or
information so provided. Subject to the preceding sentence,
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each party required to file Returns pursuant to this Agreement shall bear
all costs of filing such Returns.
(iv) Each of the COMPANY, NEWCO, METALS and each STOCKHOLDER shall
comply with the tax reporting requirements of Section 1.351-3 of the
Treasury Regulations promulgated under the Code, and treat the transaction
as a tax-free contribution under Section 351(a) of the Code subject to
gain, if any, recognized on the receipt of cash or other property under
Section 351(b) of the Code subject to gain, if any, recognized on the
receipt of cash or other property under Section 351(b) of the Code.
10.4 DIRECTORS. The persons named in the Draft Registration Statement
shall be appointed as directors and elected as officers of METALS, as and to the
extent set forth in the Draft Registration Statement, promptly following the
Funding and Consummation Date. This provision shall not imply that the
STOCKHOLDERS have any power or duty to elect officers of METALS.
10.5 PRESERVATION OF EMPLOYEE BENEFIT PLANS. Following the Funding and
Consummation Date, METALS shall use all reasonable efforts to permit the COMPANY
to maintain all health insurance, life insurance, 401(k) plan and other employee
benefit plans in effect at the COMPANY, unless any such change is (a) approved
by a vote of at least two-thirds of the members of the Board of Directors of
METALS, or (b) required by applicable laws or regulations, including the
antidiscriminatory provisions of ERISA and the related regulations. In the event
that any such changes (other than changes so approved by the Board of Directors
of METALS) are required, subject to applicable law, METALS shall permit the
COMPANY to implement alternative benefits that provide the affected employees of
the COMPANY with an undiminished aggregate level of benefits. On the Funding and
Consummation Date, the employees of the COMPANY will be the employees of the
Surviving Corporation (provided that this provision is for purposes of
clarifying that the Merger, in and of itself, will not have any impact on the
employment status of any employee and provided, further that this provision
shall not in any way limit the management rights of the Surviving Corporation or
METALS to assess workforce needs and make appropriate adjustments
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as necessary or desirable within their discretion subject to applicable laws and
collective bargaining agreements).
11. INDEMNIFICATION
The STOCKHOLDERS, METALS and NEWCO each make the following covenants that
are applicable to them, respectively:
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. The STOCKHOLDERS
covenant and agree that they, jointly and severally, will indemnify, defend,
protect and hold harmless METALS, NEWCO, the COMPANY and the Surviving
Corporation at all times, from and after the date of this Agreement until the
Expiration Date (provided that for purposes of Section 11.1(iii) below, the
Expiration Date shall be the date on which the applicable statute of limitations
expires), 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) incurred by METALS, NEWCO, the COMPANY or the Surviving
Corporation as a result of or arising from (i) any breach of the representations
and warranties of the STOCKHOLDERS or the COMPANY set forth herein or on the
schedules or certificates delivered in connection herewith, (ii) any breach of
any agreement on the part of the STOCKHOLDERS or the COMPANY under this
Agreement, or (iii) any liability under the 1933 Act, the 1934 Act or other
Federal or state law or regulation, at common law or otherwise, arising out of
or based upon any untrue statement or alleged untrue statement of a material
fact relating to the COMPANY or the STOCKHOLDERS, and provided to METALS or its
counsel by the COMPANY or the STOCKHOLDERS (but in the case of the STOCKHOLDERS,
only if such statement was provided in writing) contained in the Registration
Statement or any prospectus forming a part thereof, or any amendment thereof or
supplement thereto, or arising out of or based upon any omission or alleged
omission to state therein a material fact relating to the COMPANY or the
STOCKHOLDERS required to be stated therein or necessary to make the statements
therein not misleading, provided, however, that such indemnity shall not inure
to the benefit of METALS,
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NEWCO, the COMPANY or the Surviving Corporation to the extent that such untrue
statement (or alleged untrue statement) was made in, or omission (or alleged
omission) occurred in, any preliminary prospectus and the STOCKHOLDERS provided,
in writing, corrected information to METALS counsel and to METALS for inclusion
in the final prospectus, and such information was not so included or properly
delivered, and provided further, that no STOCKHOLDER shall be liable for any
indemnification obligation pursuant to this Section 11.1 to the extent
attributable to a breach of any representation, warranty or agreement made
herein individually by any other STOCKHOLDER.
METALS and NEWCO acknowledge and agree that other than the representations
and warranties of COMPANY or STOCKHOLDERS specifically contained in this
Agreement, there are no representations or warranties of COMPANY or
STOCKHOLDERS, either express or implied, with respect to the transactions
contemplated by this Agreement, the COMPANY or its assets, liabilities and
business.
METALS and any NEWCO further acknowledge and agree that, should the
Closing occur, their sole and exclusive remedy with respect to any and all
claims relating to this Agreement and the transactions contemplated in this
Agreement, shall be pursuant to the indemnification provisions set forth in this
Section 11. METALS and NEWCO hereby waive, from and after the Closing, to the
fullest extent permitted under applicable law, any and all rights, claims and
causes of action they or any indemnified person may have against the COMPANY or
any STOCKHOLDER relating to this Agreement or the transactions arising under or
based upon any federal, state, local or foreign statute, law, rule, regulation
or otherwise.
11.2 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 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) incurred by the
STOCKHOLDERS as a result of or arising from (i) any breach by METALS or NEWCO of
their
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representations and warranties set forth herein or on the schedules or
certificates attached hereto, (ii) any breach of any agreement on the part of
METALS or NEWCO under this Agreement, (iii) any liabilities which the
STOCKHOLDERS may incur due to METALS's or NEWCO's failure to be responsible for
the liabilities and obligations of the COMPANY as provided in Section 1 hereof
(except to the extent that METALS or NEWCO has claims against the STOCKHOLDERS
by reason of such liabilities); or (iv) any liability under the 1933 Act, the
1934 Act or other Federal or state law or regulation, at common law or
otherwise, arising out of or based upon any untrue statement or alleged untrue
statement of a material fact relating to METALS, NEWCO or any of the Other
Founding Companies contained in any preliminary prospectus, the Registration
Statement or any prospectus forming a part thereof, or any amendment thereof or
supplement thereto, or arising out of or based upon any omission or alleged
omission to state therein a material fact relating to METALS or NEWCO or any of
the Other Founding Companies required to be stated therein or necessary to make
the statements therein not misleading.
11.3 THIRD PERSON CLAIMS. Promptly after any party hereto (hereinafter 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, the Indemnified Party shall, as a
condition precedent to a claim with respect thereto being made against any party
obligated to provide indemnification pursuant to Section 11.1 or 11.2 hereof
(hereinafter the "Indemnifying Party"), give the Indemnifying Party written
notice of such claim or the commencement of such action or proceeding. Such
notice shall state the nature and the basis of such claim and a reasonable
estimate of the amount thereof. The Indemnifying Party shall have the right to
defend and settle, at its own expense and by its own counsel, any such matter so
long as the Indemnifying Party pursues the same in good faith and diligently,
provided that the Indemnifying Party shall not settle any criminal proceeding
without the written consent of the Indemnified Party. If the Indemnifying Party
undertakes to defend or settle, it shall promptly notify the Indemnified Party
of its intention to do so, and the Indemnified Party shall cooperate with the
Indemnifying Party and its counsel in the defense thereof and in any settlement
thereof. Such cooperation shall include,
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but shall not be limited to, furnishing the Indemnifying Party with any books,
records or information reasonably requested by the Indemnifying Party that are
in the Indemnified Party's possession or control. All Indemnified Parties shall
use the same counsel, which shall be the counsel selected by Indemnifying Party,
provided that if counsel to the Indemnifying Party shall have a conflict of
interest that prevents counsel for the Indemnifying Party from representing
Indemnified Party, Indemnified Party shall have the right to participate in such
matter through counsel of its own choosing and Indemnifying Party will reimburse
the Indemnified Party for the reasonable expenses of its counsel. After the
Indemnifying Party has notified the Indemnified Party of its intention to
undertake to defend or settle any such asserted liability, and for so long as
the Indemnifying Party diligently pursues such defense, the Indemnifying Party
shall not be liable for any additional legal expenses incurred by the
Indemnified Party in connection with any defense or settlement of such asserted
liability, except (i) as set forth in the preceding sentence and (ii) to the
extent such participation is requested by the Indemnifying Party, in which event
the Indemnified Party shall be reimbursed by the Indemnifying Party for
reasonable additional legal expenses and out-of-pocket expenses. If the
Indemnifying Party desires to accept a final and complete settlement of any such
Third Person claim and the Indemnified Party refuses to consent to such
settlement, then the Indemnifying Party's liability under this Section with
respect to such Third Person claim shall be limited to the amount so offered in
settlement by said Third Person. Upon agreement as to such settlement between
said Third Person and the Indemnifying Party, the Indemnifying Party shall, in
exchange for a complete release from the Indemnified Party, promptly pay to the
Indemnified Party the amount agreed to in such settlement and the Indemnified
Party shall, from that moment on, bear full responsibility for any additional
costs of defense which it subsequently incurs with respect to such claim and all
additional costs of settlement or judgment. If the Indemnifying Party does not
undertake to defend such matter to which the Indemnified Party is entitled to
indemnification hereunder, or fails diligently to pursue such defense, the
Indemnified Party may undertake such defense through counsel of its choice, at
the cost and expense of the Indemnifying Party, and the Indemnified Party may
settle such matter, and the Indemnifying Party shall reimburse the
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Indemnified Party for the amount paid in such settlement and any other
liabilities or expenses incurred by the Indemnified Party in connection
therewith, provided, however, that under no circumstances shall the Indemnified
Party settle any Third Person claim without the written consent of the
Indemnifying Party, which consent shall not be unreasonably withheld or delayed.
All settlements hereunder shall effect a complete release of the Indemnified
Party, unless the Indemnified Party otherwise agrees in writing. The parties
hereto will make appropriate adjustments for insurance proceeds in determining
the amount of any indemnification obligation under this Section.
11.4 EXCLUSIVE REMEDY. The indemnification provided for in this Section 11
shall (except as prohibited by ERISA) be the exclusive remedy in any action
seeking damages or any other form of monetary relief brought by any party to
this Agreement against another party, provided that, nothing herein shall be
construed to limit the right of a party, in a proper case, to seek injunctive
relief for a breach of this Agreement. Any indemnity payment under this Section
11 shall be treated as an adjustment to the exchange consideration for tax
purposes unless a final determination (which shall include the execution of a
Form 870-AD or successor form) with respect to the indemnified party or any of
its affiliate causes any such payment not to be treated as an adjustment to the
exchange consideration for U.S. Federal Income Tax purposes.
11.5 LIMITATIONS ON INDEMNIFICATION. METALS, NEWCO, the Surviving
Corporation and the other persons or entities indemnified pursuant to Section
11.1 or 11.2 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 the greater of (a) 1.0% of the sum of (i) the cash
paid to STOCKHOLDERS plus (ii) the value of the METALS Stock delivered to
STOCKHOLDERS (calculated as provided in this Section 11.5) or (b) $50,000 (the
"Indemnification Threshold"). STOCKHOLDERS shall not assert any claim for
indemnification hereunder against METALS or NEWCO until such time as, and solely
to the extent that, the aggregate of all claims which STOCKHOLDERS may have
against METALS or NEWCO shall exceed $50,000.
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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 related to a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement, no STOCKHOLDER shall be
liable under this Section 11 for an amount which exceeds the amount of proceeds
received by such STOCKHOLDER in connection with the Merger. For purposes of
calculating the value of the METALS Stock received by a STOCKHOLDER, METALS
Stock shall be valued at its initial public offering price as set forth in the
Registration Statement. It is hereby understood and agreed that a STOCKHOLDER
may satisfy an indemnification obligation through payment of a combination of
stock and cash in proportion equal to the proportion of stock and cash received
by such STOCKHOLDER in connection with the Merger, valued as described
immediately above.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION.This Agreement may be terminated at any time prior to the
Funding and Consummation Date solely:
(i) by mutual consent of the boards of directors of METALS and the
COMPANY;
(ii) by the STOCKHOLDERS or the COMPANY (acting through its board of
directors), on the one hand, or by METALS (acting through its board of
directors), on the other hand, if the transactions contemplated by this
Agreement to take place at the Closing shall not have been consummated by
December 31, 1997, 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 Funding and Consummation Date;
(iii) by the STOCKHOLDERS or COMPANY, on the one hand, or by METALS, on
the other hand, if a material breach or default shall be made by the other party
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 on or before the Funding and Consummation Date or by the STOCKHOLDERS
or the COMPANY, if the conditions set forth in Section 8 hereof have
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not been satisfied or waived as of the Closing Date or the Funding and
Consummation Date, as applicable, or by METALS, if the conditions set forth in
Section 9 hereof have not been satisfied or waived as of the Closing Date or the
Funding and Consummation Date, as applicable;
(iv) pursuant to Section 7.8 hereof; or
(v) pursuant to Section 4 hereof.
12.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in Section
7.8 hereof, 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.
13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES. The STOCKHOLDERS will not, for a period of
five (5) years following the Funding and Consummation 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 metals
processing, metals fabricating and/or specialty metals business, including
brokering, manufacturing and distribution services, in direct competition with
METALS or any of the subsidiaries thereof, within 200 miles of where the COMPANY
or any of its subsidiaries conducted business prior to the effectiveness of the
Merger (the "Territory");
(ii) call upon any person who is, at that time, within the Territory, an
employee of METALS (including the subsidiaries thereof) in a sales
representative or managerial capacity for the purpose or with the intent of
enticing such employee away from or out of the employ of METALS (including the
subsidiaries thereof), provided that each STOCKHOLDER shall be permitted to call
upon and hire any member of his or her immediate family;
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(iii) call upon any person or entity which is, at that time, or which has
been, within one (1) year prior to the Funding and Consummation Date, a customer
of METALS (including the subsidiaries thereof), of the COMPANY or of any of the
Other Founding Companies within the Territory for the purpose of soliciting or
selling products or services in direct competition with METALS within the
Territory;
(iv) call upon any prospective acquisition candidate, on any STOCKHOLDER's
own behalf or on behalf of any competitor in the metals processing, metals
fabricating and/or specialty metals business, including brokering, manufacturing
and distribution services, which candidate, to the actual knowledge of such
STOCKHOLDER after due inquiry, was called upon by METALS (including the
subsidiaries thereof) or for which, to the actual knowledge of such STOCKHOLDER
after due inquiry, METALS (or any subsidiary thereof) made an acquisition
analysis, for the purpose of acquiring such entity; or
(v) disclose customers, whether in existence or proposed, of the COMPANY
to any person, firm, partnership, corporation or business for any reason or
purpose whatsoever except to the extent that the COMPANY has in the past
disclosed such information to the public for valid business reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit any STOCKHOLDER 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.
13.2 DAMAGES. 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 and restraining orders.
13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this Section 13 impose a reasonable restraint on the
STOCKHOLDERS in light of the activities
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and business of METALS (including the subsidiaries thereof) on the date of the
execution of this Agreement and the current plans of METALS.
13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13 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.
13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13 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 (including the subsidiaries 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 13, during which the agreements
and covenants of each STOCKHOLDER made in this Section 13 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 13. The covenants
contained in Section 13 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.
13.6 MATERIALITY. The COMPANY and the STOCKHOLDERS hereby agree that this
covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. 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, the Other Founding Companies,
and/or METALS, such as operational policies, and pricing and cost policies that
are valuable, special and unique assets of the
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COMPANY's, the Other Founding Companies' and/or METALS's respective businesses.
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 METALS or the Surviving
Corporation and (c) to counsel and other advisers, provided that such advisers
(other than counsel) agree to the confidentiality provisions of this Section
14.1, 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 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, or (iii) the disclosing party
reasonably believes that such disclosure is required in connection with the
defense of a lawsuit against the disclosing party. 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 an injunction 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.
In the event the transactions contemplated by this Agreement are not
consummated, STOCKHOLDERS shall have none of the above-mentioned restrictions on
their ability to disseminate confidential information with respect to the
COMPANY.
14.2 METALS AND NEWCO. METALS and NEWCO recognize and acknowledge that
they had in the past and currently have access to certain confidential
information of the COMPANY, such as operational policies, and pricing and cost
policies that are valuable, special and unique assets of the COMPANY's business.
METALS and NEWCO agree that, prior to the Closing, or if the Transactions
contemplated by this Agreement are not consummated, 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 the COMPANY, (b) to counsel and
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other advisers, provided that such advisers (other than counsel) agree to the
confidentiality provisions of this Section 14.1, (c) to the Other Founding
Companies and their representatives pursuant to Section 7.1(a), unless (i) such
information becomes known to the public generally through no fault of METALS or
NEWCO, (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), METALS and NEWCO shall, if possible, give prior
written notice thereof to the COMPANY and the STOCKHOLDERS and provide the
COMPANY and the STOCKHOLDERS with the opportunity to contest such disclosure, or
(iii) the disclosing party reasonably believes that such disclosure is required
in connection with the defense of a lawsuit against the disclosing party, and
(d) to the public to the extent necessary or advisable in connection with the
filing of the Registration Statement and the IPO and the securities laws
applicable thereto and to the operation of METALS as a publicly held entity
after the IPO. In the event of a breach or threatened breach by METALS or NEWCO
of the provisions of this Section, the COMPANY and the STOCKHOLDERS shall be
entitled to an injunction restraining METALS and NEWCO from disclosing, in whole
or in part, such confidential information. Nothing herein shall be construed as
prohibiting the COMPANY and the STOCKHOLDERS from pursuing any other available
remedy for such breach or threatened breach, including the recovery of damages.
14.3 DAMAGES. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Section 14.1 and 14.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach by any of them of the foregoing covenants, the covenant may be
enforced against the other parties by injunctions and restraining orders.
14.4 SURVIVAL. The obligations of the parties under this Article 14 shall
survive the termination of this Agreement for a period of five years from the
Funding and Consummation Date.
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15. TRANSFER RESTRICTIONS
15.1 TRANSFER RESTRICTIONS. Unless otherwise agreed by METALS, except for
transfers to immediate family members who agree to be bound by the restrictions
set forth in this Section 15.1 (or trusts for the benefit of the STOCKHOLDERS or
family members, the trustees of which so agree), for a period of one year from
the Closing, except pursuant to Section 17 hereof, none of the STOCKHOLDERS
shall sell, assign, exchange, transfer, encumber, pledge, distribute, appoint,
or otherwise dispose of any shares of METALS Stock as described in Section 3.1
received by the STOCKHOLDERS in the Merger. The certificates evidencing the
METALS Stock delivered to the STOCKHOLDERS pursuant to Section 3 of this
Agreement will bear a legend substantially in the form set forth below and
containing such other information as METALS may deem necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED
OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE,
ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT
OR OTHER DISPOSITION PRIOR TO [FIRST ANNIVERSARY OF CLOSING DATE]. UPON THE
WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE
THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER AGENT)
AFTER THE DATE SPECIFIED ABOVE.
16. FEDERAL SECURITIES ACT REPRESENTATIONS
16.1 COMPLIANCE WITH LAW. The STOCKHOLDERS acknowledge that the shares of
METALS Stock to be delivered to the STOCKHOLDERS pursuant to this Agreement have
not been and will not be registered under the 1933 Act (except as provided in
Section 17 hereof) and therefore
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may not be resold without compliance with the 1933 Act. The METALS Stock to be
acquired by such STOCKHOLDERS pursuant to this Agreement is being acquired
solely for their own respective accounts, for investment purposes only, and with
no present intention of distributing, selling or otherwise disposing of it in
connection with a distribution. The STOCKHOLDERS covenant, warrant and represent
that none of the shares of METALS Stock issued to such STOCKHOLDERS will be
offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all of the applicable provisions
of the 1933 Act and the rules and regulations of the SEC. All the METALS Stock
shall bear the following legend in addition to the legend required under Section
15 of this Agreement:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF THE HOLDER
HEREOF COMPLIES WITH THE ACT AND APPLICABLE SECURITIES LAW.
16.2 ECONOMIC RISK; SOPHISTICATION. The STOCKHOLDERS are able to bear the
economic risk of an investment in the METALS Stock to be acquired pursuant to
this Agreement and can afford to sustain a total loss of such investment and
have such knowledge and experience in financial and business matters that they
are capable of evaluating the merits and risks of the proposed investment in the
METALS Stock. The STOCKHOLDERS party hereto have 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 current and proposed officers
and directors of METALS, the plans for the operations of the business of METALS,
the business, operations and financial condition of the Founding Companies other
than the COMPANY, and any plans for additional acquisitions and the like. The
STOCKHOLDERS have asked any and all questions in the nature described in the
preceding sentence and all questions have been answered to their satisfaction.
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17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. 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 shelf
registration of shares to be used as consideration for acquisitions of
additional businesses by METALS and (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 all of the 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) which
any such STOCKHOLDER requests, provided that METALS shall have the right to
reduce the number of shares included in such registration to the extent that
inclusion of such shares could, in the written opinion of tax counsel to METALS
or its independent auditors, jeopardize the status of the transactions
contemplated hereby and by the Registration Statement as a tax-free organization
under Section 351 of the Code. In addition, if METALS is advised in writing in
good faith by any managing underwriter of an underwritten offering of the
securities being offered pursuant to any registration statement under this
Section 17.1 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, provided,
that, for each such offering made by METALS after the IPO, such reduction shall
be made first by reducing the number of shares to be sold by persons other than
METALS, the STOCKHOLDERS and the stockholders of the Other Founding Companies
(collectively, the STOCKHOLDERS and the stockholders of the other Founding
Companies being referred to herein as the "Founding
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Stockholders"), and thereafter, if a further reduction is required, by reducing
the number of shares to be sold by the Founding Stockholders.
17.2 DEMAND REGISTRATION RIGHTS. At any time after the date one year after
the Closing and prior to the date three years after the Closing, the holders of
a majority of the shares of METALS Stock issued to the Founding Stockholders
pursuant to this Agreement and the Other Agreements 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 the shares of METALS Stock issued to the
STOCKHOLDERS pursuant to this Agreement and the Other Agreements (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 Founding Stockholders (a
"Demand Registration"). Within ten (10) days of the receipt of such request,
METALS shall give written notice of such request to all other Founding
Stockholders and shall, as soon as practicable but in no event later than 45
days after notice from any STOCKHOLDER, file and use its best efforts to cause
to become effective a registration statement covering all such shares. METALS
shall be obligated to effect only one Demand Registration for all Founding
Stockholders and will keep such Demand Registration current and effective for
not less than 120 days (or such shorter period as is required to sell all of the
shares registered thereby).
Notwithstanding the foregoing paragraph, following any such a demand, a
majority of METALS's 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 Founding 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, no registration of the
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Founding Stockholders' METALS Stock shall be initiated under this Section 17.2
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 Founding Stockholders the right to participate in such public
offering pursuant to, and subject to, Section 17.1 hereof.
17.3 REGISTRATION PROCEDURES. Whenever METALS is required to register
shares of METALS Stock pursuant to Sections 17.1 and 17.2, 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 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;
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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 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 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
Article 17 (including all registration, filing, qualification, legal, printer
and accounting fees, but excluding underwriting commissions and discounts),
shall be borne by METALS.
17.4 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.
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(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
17.5 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 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.
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17.5 UNDERWRITING AGREEMENT. In connection with each registration pursuant
to Sections 17.1 and 17.2 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.
17.6 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 understood and defined in Rule 144 under the 1933 Act for
a period of four years beginning 90 days following the effective date of
the Registration Statement;
(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 at any
time after it has become subject to such reporting requirements; 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 (at any time from and after 90 days following the
effective date of the Registration Statement, and of the 1933 Act and the
1934 Act (any time after it has become subject to such reporting
requirements), 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.
18. GENERAL
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18.1 COOPERATION. The COMPANY, STOCKHOLDERS, METALS and NEWCO shall
each deliver or cause to be delivered to the other on the Funding and
Consummation 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 Funding and Consummation 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 Funding and Consummation Date.
18.2 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.
18.3 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, NEWCO 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, NEWCO and
METALS, acting through their respective officers or trustees, duly authorized by
their respective Boards of Directors. Any disclosure made on any Schedule
delivered pursuant hereto shall be deemed to have been disclosed for purposes of
any other Schedule required hereby, provided that the COMPANY shall make a good
faith effort to cross reference disclosure, as necessary or advisable, between
related Schedules.
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18.4 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.
18.5 BROKERS AND AGENTS. Except as disclosed on Schedule 18.5, 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.
18.6 EXPENSES. Whether or not the transactions herein contemplated shall
be consummated, METALS will pay the fees, expenses and disbursements of METALS
and its agents, representatives, accountants and counsel incurred in connection
with the subject matter of this Agreement and any amendments thereto, including
all costs and expenses incurred in the performance and compliance with all
conditions to be performed by METALS under this Agreement, including the fees
and expenses of Arthur Andersen, LLP, Bracewell & Patterson, L.L.P., and any
other person or entity retained by METALS or by Notre Capital Ventures II,
L.L.C., and the costs of preparing the Registration Statement. 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 Merger, other than Transfer Taxes, if any, imposed by the
State of Delaware. 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 Section 2 hereof. The
STOCKHOLDERS acknowledge that the risks of the transactions contemplated hereby
include tax risks, with respect to which the STOCKHOLDERS are relying solely on
the opinion contemplated by Section 8.12 hereof.
18.7 NOTICES. All notices of communication 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
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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.
(a) If to METALS, or NEWCO, addressed to them at: Metals USA, Inc.
4801 Woodway, Suite 300E
Houston, Texas 77056
Attn: J. Michael Kirksey
with copies to:
Thomas W. Adkins
Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana Street, Suite 2900
Houston, Texas 77002-2781
(b) If to the STOCKHOLDERS, addressed to them at their addresses set
forth on Annex II, with copies to:
Christopher S. Collins
Andrews & Kurth, L.L.P.
4200 Texas Commerce Tower
Houston, Texas 77002
and to:
Mr. Michael A. Kallas
Meissmer, Tierney, Fisher & Nichols SC
19th Floor
111 East Kilborn Avenue
Milwaukee, WI 53202-6622
Tele: (414) 273-1300
Fax: (414) 273-5840
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(c) If to the COMPANY, addressed to it at:
Williams Steel & Supply Company, Inc.
999 W. Armour Avenue
Milwaukee, WI 53221
Attn: Lester Peterson, President
Tele: (414) 481-7100
Fax: (414) 481-2530
with copies to:
Metals USA, Inc.
4801 Woodway, Suite 300E
Houston, TX 77056
Attn: J. Michael Kirksey
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Delaware.
18.9 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 Expiration Date.
18.10 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.
18.11 TIME. Time is of the essence with respect to this Agreement.
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18.12 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.
18.13 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.
18.14 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
18.15 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived only with the
written consent of METALS, NEWCO, the COMPANY and STOCKHOLDERS who hold or who
will hold at least 50% of the METALS Stock issued or to be issued upon
consummation of the Merger. Any amendment or waiver effected in accordance with
this Section 18.15 shall be binding upon each of the parties hereto, any other
person receiving METALS Stock in connection with the Merger and each future
holder of such METALS Stock.
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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: Art French
Title: Chief Executive Officer
WILLIAMS STEEL ACQUISITION CORP.
By: _________________________________
Name: J. Michael Kirksey
Title: President
WILLIAMS STEEL & SUPPLY CO., INC.
By: _________________________________
Name: ____________________________
Title: ___________________________
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STOCKHOLDERS:
_____________________________________
Lester G. Peterson
_____________________________________
Joseph F. Petkewicz
_____________________________________
David A. Weber
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ANNEX I
TO THE AGREEMENT
AND PLAN OF REORGANIZATION
DATED AS OF APRIL 30, 1997
BY AND AMONG
METALS USA, INC.
AND THE OTHER PARTIES NAMED THEREIN
CONSWERATION TO BE PAID TO THE STOCKHOLDERS
Aggregate consideration to be paid to the STOCKHOLDERS:
$12,163,483 in cash and the value of outstanding Common Stock of Metals
(assuming an offering price of $13.00 per share), consisting of 712,574 shares
of Metals Stock and $2,900,021 in cash, it being agreed that the actual amount
of all cash payments described in this Annex I will depend on the actual initial
offering price of the Common Stock of Metals in the IP0, and may be more or less
than $13.00 per share; provided, however that such price shall not be less than
$8.00 per share.
Consideration to be Daid to each STOCKHOLDER:
---------------------------------------------
Shares of Common Merger
Stockholder Stock of Metals Cash
- ----------- ------------ ------------
Lester G. Peterson ........................... 427,544 1,740,017.8O
Joseph F. Petkewicz .......................... 142,515 580,001.60
David A. Weber ............................... 142,515 580,001.60
------------ ------------
712,574 2,900,021.00
============ ============
MINIMUM VALUE: $ 8,143,680 (based on a price of $8.00 per share)
===========
Total non-tax related AAA distributions: 1,069,997.00
============
EXHIBIT 21
SUBSIDIARIES OF METALS USA, INC.
STATE OF PERCENTAGE
COMPANY NAME INCORPORATION OF OWNERSHIP
- ----------------------------------- ------------- ------------
Affiliated Metals Acquisition Corp. Delaware 100%
Interstate Steel I Acquisition Corp. Delaware 100%
Interstate Steel II Acquisition Corp. Delaware 100%
Interstate Steel III Acquisition Corp. Delaware 100%
Interstate Steel IV Acquisition Corp. Delaware 100%
Queensboro Steel I Acquisition Corp. Delaware 100%
Queensboro Steel II Acquisition Corp. Delaware 100%
Southern Alloy Acquisition Corp. Delaware 100%
Steel Service Systems Acquisition Corp. Delaware 100%
Texas Aluminum I Acquisition Corp. Delaware 100%
Texas Aluminum II Acquisition Corp. Delaware 100%
Texas Aluminum III Acquisition Corp. Delaware 100%
Texas Aluminum IV Acquisition Corp. Delaware 100%
Texas Aluminum V Acquisition Corp. Delaware 100%
Uni-Steel Acquisition Corp. Delaware 100%
Williams Steel Acquisition Corp. Delaware 100%
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
May 5, 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 6,785,000
shares of Metals USA, Inc.'s common stock.
Ernst & Young LLP
St. Louis, Missouri
May 2, 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
Philadelphia, PA
May 2, 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
May 2, 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
May 2, 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
May 5, 1997
EXHIBIT 23.8
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: April 29, 1997
By: /s/ ARNOLD W. BRADBURD
Name: Arnold W. Bradburd
EXHIBIT 23.9
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: April 30, 1997
By: /s/ MICHAEL E. CHRISTOPHER
Name: Michael E. Christopher
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: April 29, 1997
By: /s/ MARK ALPER
Name: Mark Alper
EXHIBIT 23.11
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: April 29, 1997
By: /s/ CRAIG R. DOVEALA
Name: Craig R. Doveala
EXHIBIT 23.12
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: April 29, 1997
By: /s/ WILLIAM BARTLEY EDGE
Name: William Bartley Edge
EXHIBIT 23.13
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: April 29, 1997
By: /s/ PATRICK A. NOTESTINE
Name: Patrick A. Notestine
EXHIBIT 23.14
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: April 29, 1997
By: /s/ LESTER G. PETERSON
Name: Lester G. Peterson
EXHIBIT 23.15
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: April 29, 1997
By: /s/ RICHARD SINGER
Name: Richard Singer
EXHIBIT 23.16
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: April 29, 1997
By: /s/ TOMMY E. KNIGHT
Name: Tommy E. Knight
EXHIBIT 23.17
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: April 30, 1997
By: /s/ RICHARD H. KRISTINIK
Name: Richard H. Kristinik
EXHIBIT 23.18
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: April 29, 1997
By: /s/ T. WILLIAM PORTER
Name: T. William Porter
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES AS THE ACCOUNTING ACQUIROR
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 156
<SECURITIES> 0
<RECEIVABLES> 4,979
<ALLOWANCES> (677)
<INVENTORY> 10,878
<CURRENT-ASSETS> 16,128
<PP&E> 9,050
<DEPRECIATION> (4,992)
<TOTAL-ASSETS> 22,049
<CURRENT-LIABILITIES> (7,854)
<BONDS> (7,423)
0
(369)
<COMMON> (1,501)
<OTHER-SE> (4,465)
<TOTAL-LIABILITY-AND-EQUITY> (22,049)
<SALES> (40,651)
<TOTAL-REVENUES> (40,651)
<CGS> 27,146
<TOTAL-COSTS> 37,639
<OTHER-EXPENSES> (8)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 682
<INCOME-PRETAX> (2,338)
<INCOME-TAX> 456
<INCOME-CONTINUING> (1,882)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,882)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
